-----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, SjkBY9RZQ6HtpV3BbMJ/McKfOBSSat1XePCrXLvIr6Gsx+6HnTGvXF1jU7k+8ZJH zRc7Dcr0+2iY5NdPYSPEGA== 0000950123-99-001276.txt : 19990218 0000950123-99-001276.hdr.sgml : 19990218 ACCESSION NUMBER: 0000950123-99-001276 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEENAH FOUNDRY CO CENTRAL INDEX KEY: 0001040599 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 391580331 STATE OF INCORPORATION: WI FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72455 FILM NUMBER: 99543531 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 9207257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NIEMIN PORTER & CO CENTRAL INDEX KEY: 0000873843 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 330071223 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72455-01 FILM NUMBER: 99543532 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEENAH TRANSPORT INC CENTRAL INDEX KEY: 0001040597 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 391378433 STATE OF INCORPORATION: WI FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72455-02 FILM NUMBER: 99543533 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARTLEY CONTROLS CORP CENTRAL INDEX KEY: 0001040598 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 391378433 STATE OF INCORPORATION: WI FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72455-03 FILM NUMBER: 99543534 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEETER FOUNDRY INC CENTRAL INDEX KEY: 0001077229 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 470355148 STATE OF INCORPORATION: NE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72455-04 FILM NUMBER: 99543535 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCER FORGE CORP CENTRAL INDEX KEY: 0001077230 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 251511711 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72455-05 FILM NUMBER: 99543536 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: A&M SPECIALTIES INC CENTRAL INDEX KEY: 0001077231 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 251741756 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72455-06 FILM NUMBER: 99543537 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED CAST PRODUCTS INC CENTRAL INDEX KEY: 0001077232 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 251607691 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72455-07 FILM NUMBER: 99543538 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELCHER CORP CENTRAL INDEX KEY: 0001077233 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 521643193 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72455-08 FILM NUMBER: 99543539 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEERLESS CORP CENTRAL INDEX KEY: 0001077234 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 521644462 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72455-09 FILM NUMBER: 99543540 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DALTON CORP CENTRAL INDEX KEY: 0001077235 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 350259770 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72455-10 FILM NUMBER: 99543541 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DALTON CORP WARSAW MANUFACTURING FACILITY CENTRAL INDEX KEY: 0001077236 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 352054775 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72455-11 FILM NUMBER: 99543542 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DALTON CORP ASHLAND MANUFACTURING FACILITY CENTRAL INDEX KEY: 0001077237 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 341873079 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72455-12 FILM NUMBER: 99543543 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DALTON CORP KENDALVILLE MANUFACTURING FACILITY CENTRAL INDEX KEY: 0001077238 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 352054777 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72455-13 FILM NUMBER: 99543544 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STRYKER MACHINING FACILITY CO CENTRAL INDEX KEY: 0001077239 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 340071223 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72455-14 FILM NUMBER: 99543545 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVENUE BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 S-4 1 NEENAH FOUNDRY COMPANY ET AL: FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 1999 REGISTRATION NO. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ NEENAH FOUNDRY COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) WISCONSIN 3321 39-1580331 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
2121 BROOKS AVENUE, BOX 729, NEENAH, WISCONSIN 54927 (414) 725-7000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ C/O GARY W. LACHEY VICE PRESIDENT -- FINANCE, TREASURER AND SECRETARY 2121 BROOKS AVENUE, BOX 729, NEENAH, WISCONSIN 54927 (414) 725-7000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPY TO: LANCE C. BALK KIRKLAND & ELLIS 153 EAST 53RD STREET NEW YORK, NEW YORK 10022-4675 TELEPHONE: (212) 446-4800 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE - --------------------------------------------------------------------------------------------------------------------------------- Neenah Foundry Company's 11 1/8% Senior Subordinated Notes due 2007, Series F.......... $90,045,000 $1,000 $90,045,000 $25,033.00 - --------------------------------------------------------------------------------------------------------------------------------- Guarantees(2).................................... N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(f)(2) based upon the book value of the securities as of February 16, 1999. (2) The Guarantee by each of Hartley Controls Corporation; Neenah Transport, Inc.; Deeter Foundry, Inc.; Mercer Forge Corporation; A & M Specialties, Inc.; Advanced Cast Products, Inc.; Belcher Corporation; Peerless Corporation; Dalton Corporation; Dalton Corporation, Facility; Dalton Corporation, Ashland Manufacturing Facility; Dalton Corporation, Kendallville Manufacturing Facility; Stryker Machining Facility Co. and Niemin Porter & Co. of the payment of principal and interest on the Notes is being registered hereby. Pursuant to Rule 457(g), no registration fee is required with respect to the Guarantees. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 HARTLEY CONTROLS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) WISCONSIN 3321 39-0842568 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) NEENAH TRANSPORT, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) WISCONSIN 3321 39-1378433 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) DEETER FOUNDRY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) NEBRASKA 3321 47-0355148 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) MERCER FORGE CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 3321 25-1511711 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) A & M SPECIALTIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) PENNSYLVANIA 3321 25-1741756 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) ADVANCED CAST PRODUCTS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 3321 25-1607691 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) BELCHER CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 3321 52-1643193 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) PEERLESS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) OHIO 3321 52-1644462 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
3 DALTON CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) INDIANA 3321 35-0259770 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) DALTON CORPORATION, WARSAW MANUFACTURING FACILITY (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) INDIANA 3321 35-2054775 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) DALTON CORPORATION, ASHLAND MANUFACTURING FACILITY (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) OHIO 3321 34-1873079 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) DALTON CORPORATION, KENDALLVILLE MANUFACTURING FACILITY (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) INDIANA 3321 35-2054777 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) STRYKER MACHINING FACILITY CO. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) OHIO 3321 34-1873080 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) NIEMIN PORTER & CO. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) CALIFORNIA 3321 33-0071223 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
4 PROSPECTUS FEBRUARY [ ], 1999 NEENAH FOUNDRY COMPANY OFFER FOR ALL OUTSTANDING 11 1/8% SERIES E SENIOR SUBORDINATED NOTES DUE 2007 IN EXCHANGE FOR 11 1/8% SERIES F SENIOR SUBORDINATED NOTES DUE 2007 THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON [ ], 1999 UNLESS EXTENDED. We will not receive any proceeds from the exchange of these notes. THE COMPANY: - - We manufacture a wide range of high quality ductile and gray iron castings for the heavy municipal market and selected segments of the industrial market. - - Neenah Foundry Company 2121 Brooks Avenue, Box 729 Neenah, Wisconsin 54957 (920) 725-7000 PROPOSED TRADING FORMAT: - - The PORTAL market or directly with qualified buyers. THE EXCHANGE OFFER: - - Offer for $87,000,000 in principal amount of outstanding 11 1/8% series E senior subordinated notes due 2007 in exchange for $87,000,000 in principal amount of 11 1/8% series F senior subordinated notes due 2007. - - The terms of the exchange notes are identical in all material respects to the terms of the outstanding old notes, except for certain transfer restrictions and registration rights pertaining to the old notes. - - This exchange offer will expire at 5 p.m. New York City time on [ ], 1999 unless extended. TERMS OF THE EXCHANGE NOTES: MATURITY: May 1, 2007 REDEMPTION: - - We may redeem the exchange notes at any time on or after May 1, 2002. - - Before May 1, 2000, we may, subject to certain requirements, redeem up to 40% of the exchange notes with the proceeds of certain types of public offerings of equity in our Company, our parent company, or the parent of our parent company. MANDATORY OFFER TO REPURCHASE: - - IF WE SELL ALL OR SUBSTANTIALLY ALL OF OUR ASSETS OR EXPERIENCE SPECIFIC KINDS OF CHANGES IN CONTROL, WE MAY BE REQUIRED TO OFFER TO REPURCHASE THE EXCHANGE NOTES. SECURITY: - - The exchange notes and the guarantees by our guarantor subsidiaries are unsecured. GUARANTEES: - - If we cannot make payments on the exchange notes when due, our guarantor subsidiaries must make them instead. RANKING: - - These exchange notes and the subsidiary guarantees rank: 1. behind to all of our and our guarantor subsidiaries' current and future senior indebtedness (other than trade payables); 2. equal with all of our and our guarantor subsidiaries' other current and future senior subordinated indebtedness; and 3. ahead of all of our and our guarantor subsidiaries' other current and future indebtedness that expressly provides that it is not senior to these exchange notes and the subsidiary guarantees. INTEREST: - - Fixed annual rate of 11 1/8%. - - Paid every six months on May 1 and November 1. THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 11. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the exchange notes or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 5 TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................. 1 Risk Factors........................ 11 Use of Proceeds..................... 18 Capitalization...................... 19 Selected Consolidated Financial and Other Data........................ 20 Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 23 Business............................ 30 Management.......................... 49 Ownership of Securities............. 53 Certain Relationships and Related Transactions...................... 53
PAGE ---- Description of Senior Bank Facilities........................ 54 Description of Notes................ 58 Exchange Offer...................... 92 Certain United States Federal Income Tax Considerations................ 98 Plan of Distribution................ 99 Legal Matters....................... 100 Experts............................. 100 Incorporation of Certain Documents by Reference...................... 101 Available Information............... 102 Index to the Financial Statements of Dalton Corporation................ F-1
6 PROSPECTUS SUMMARY On the cover page and in this summary, the words "Company," "we," "our," "ours," and "us" refer only to Neenah Foundry Company, Hartley Controls Corporation and Neenah Transport, Inc. and not to any of our other subsidiaries or to the initial purchaser. The following summary contains basic information about this exchange offer. It probably does not contain all the information that is important to you. For a more complete understanding of this exchange offer, we encourage you to read this entire document and the documents we have referred you to. In addition, our management has estimated the market share percentages provided in this prospectus. We believe these estimates to be reliable, but these numbers have not been verified by an independent source. THE COMPANY OVERVIEW Our Company, founded in 1872, is one of the largest manufacturers of a wide range of high quality ductile and gray iron castings for the heavy municipal market and selected segments of the industrial market. We believe our Company is the largest manufacturer of heavy municipal iron castings in the United States with approximately a 19% market share in fiscal 1998. Our broad range of heavy municipal iron castings includes manhole covers and frames, storm sewer frames and grates, heavy duty airport castings, specialized trench drain castings, specialty flood control castings and ornamental tree grates. We sell these municipal castings throughout the United States to state and local government entities, utility companies, precast concrete manhole structure producers and contractors for both new construction and infrastructure replacement. The municipal market generated approximately 41% of our net sales for the year ended September 30, 1998. We also believe we are a leading manufacturer of a wide range of complex industrial castings, including castings for medium- and heavy-duty truck drive line components, a broad range of castings for the farm equipment industry and specific components for compressors used in heating, ventilation and air conditioning systems. The industrial market generated approximately 56% of our net sales for the year ended September 30, 1998. In addition, we engineer, manufacture and sell customized sand control systems and related products, which are an essential part of the casting process, to other iron foundries. Sales of these sand control systems and related products represented approximately 3% of our net sales for the year ended September 30, 1998. We currently operate two modern foundries with an annual aggregate rated capacity of approximately 187,000 tons at a single site in Neenah, Wisconsin. From 1985 to 1997, we invested approximately $100.0 million in our production facilities, with approximately $73.0 million invested in a major plant modernization program from 1985 to 1990. This plant modernization program was a critical part of a long-term strategy to produce higher volume, value-added castings for our existing industrial customers. We also aimed to penetrate other selected segments of the industrial market, while preserving our position as the leader in the heavy municipal market. This modernization program entailed the closing of our oldest foundry, Plant 1, and the updating of our other two foundries, Plants 2 and 3, which enabled us both to produce higher volume, complex castings for selected industrial segments and to improve our cost position in the heavy municipal market. 1 7 Following the completion of the modernization program, we have steadily decreased our production of lower margin products such as axle covers and brake drums and increased the production of higher margin, more complex parts, such as transmission and axle housings. RECENT ACQUISITIONS On March 30, 1998, we acquired the capital stock of Deeter Foundry, Inc. ("Deeter") for $24.3 million (excluding fees and expenses of $0.3 million), consisting of $20.4 million of cash and a $3.9 million seller note. ACP Holding Company, the parent company of our parent company, NFC Castings, Inc., issued the $3.9 million seller note to Deeter's selling shareholders. The seller note does not bear interest and matures on March 30, 1999. Payment of the principal amount of the seller note is supported by a letter of credit issued under our senior debt instruments. We financed the cash portion of the purchase price and all fees and expenses from cash on hand. Since 1945, Deeter has been producing gray iron castings for the heavy municipal market. Deeter's municipal casting product line includes manhole frames and covers, storm sewer inlet frames, grates and curbs, trench grating and tree grates. Deeter also produces a wide variety of special application construction castings. These products are used in waste treatment plants, airports, telephone and electrical construction projects. On April 3, 1998, we acquired all the capital stock of Mercer Forge Corporation ("Mercer") for $47.0 million in cash (excluding fees and expenses of $0.5 million). In order to finance our acquisition of Mercer, we amended and restated our then existing credit agreement between our Company, our parent company and our lenders. Our amended and restated credit agreement provided us with up to $75.0 million of term loans divided into two tranches: 1) $20.0 million of tranche A term loans and 2) $55.0 million of tranche B term loans. The $75.0 million of term loans were in addition to our existing $50.0 line of revolving credit available. On April 3, 1998, we borrowed $55.0 million of the tranche B loans and used $48.6 million to finance the acquisition of Mercer, to pay fees and expenses incurred in connection with the acquisition and to pay financing costs. The available tranche A term loans were not borrowed on April 3, 1998. Founded in 1954, Mercer is a leading producer of complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer is also a leading producer of microalloy forgings. Mercer sells directly to original equipment manufacturers, as well as to industrial end users. On September 8, 1998, we acquired all the capital stock of Dalton Corporation ("Dalton") for $102.0 million in cash (excluding fees and expenses of $0.6 million). Dalton manufactures and sells gray iron castings for refrigeration systems, air conditioners, heavy equipment, engines, gear boxes, stationary transmissions, heavy duty truck transmissions and other automotive parts. On September 8, 1998, ACP Holding Company contributed the capital stock of Advanced Cast Products, Inc. ("ACP") to our Company. The fair market value of the contribution will be added to the amount of restricted payments we are permitted to make under the Indenture listed in the Section "Description of Notes" under the heading "Certain Covenants" and the subheading "Limitation on Restricted Payments." In connection with the contribution, we assumed $14.9 million of indebtedness of ACP and refinanced $14.6 million of the assumed indebtedness with borrowings under our senior bank facilities. ACP is a leading independent manufacturer of ductile and malleable iron castings that are produced through both traditional casting methods and through ACP's Evapcast lost foam casting process. ACP's production capabilities also include a range of finishing operations including austempering and machining. ACP sells its products primarily to companies in the heavy truck, construction equipment, railroad, mining, electrical fittings and automotive industries. 2 8 In connection with the acquisition of Dalton and the contribution of the capital stock of ACP, our Company, our parent company and our lenders amended and restated our then existing credit agreement to provide us additional tranche B term loans of up to $70.0 million and an acquisition loan facility of up to $50.0 million. In connection with the acquisition of Dalton and the contribution of the capital stock of ACP, we borrowed $29.0 million under the acquisition loan facility, $20.0 million of tranche A term loans and $70.0 million of tranche B term loans. Currently, each of our recently acquired subsidiaries is operating as a separate subsidiary with independent operations under the direction of the management that was in place prior to our control. Although we currently do not plan to integrate our operations with those of any of our recently acquired subsidiaries, we may do so in the future. See "Risk Factors -- Integration of the Recent Acquisitions." We accounted for each of the Deeter, Mercer and Dalton acquisitions by using the purchase method of accounting. We accounted for the acquisition of ACP at historical cost in a manner similar to that in pooling of interest accounting because our company and ACP were under common control. Accordingly, our prior period financial statements for the period during which we and ACP were under common ownership are restated to reflect the contribution of capital stock of ACP to our Company. On December 31, 1998, we acquired Niemin Porter & Co., which conducts its business under the name Cast Alloys, Inc. ("Cast Alloys"), and its subsidiary, International Golf, S.A. de C.V., a corporation organized under the laws of the United Mexican States ("International Golf") for $42 million in cash, subject to a post-closing adjustment. We financed the acquisition of Cast Alloys from a portion of the proceeds we received from issuance of the old notes. Cast Alloys' principal business is the manufacture of investment-cast titanium and stainless steel golf club heads. Cast Alloys operates out of three principal facilities in Chatsworth, California, Carlsbad, California and Northridge, California. Cast Alloys' wholly owned subsidiary, International Golf, operates as a cost center for Cast Alloys and is also principally involved in the manufacture of investment-cast titanium and stainless steel golf club heads. International Golf operates out of three facilities located in Tijuana, Baja California, Mexico. Cast Alloys is operated as our wholly owned subsidiary under the direction of our management. THROUGHOUT THIS PROSPECTUS, WE REFER TO THE ACQUISITIONS DESCRIBED ABOVE AS THE "RECENT ACQUISITIONS" AND TO THE SUBSIDIARIES AS THE "RECENTLY ACQUIRED SUBSIDIARIES." WE REFER TO THE FACILITIES AVAILABLE UNDER OUR EXISTING AMENDED AND RESTATED CREDIT AGREEMENT AS THE "SENIOR BANK FACILITIES." SEE "DESCRIPTION OF THE SENIOR BANK FACILITIES." 3 9 THE OLD NOTE OFFERING Old Notes.................. We sold the old notes to Chase Securities Inc. on November 24, 1998 pursuant to a purchase agreement. The initial purchaser subsequently resold the old notes to qualified institutional buyers pursuant to Rule 144A under the Securities and Exchange Act. Exchange and Registration Rights Agreement......... As required in the purchase agreement, we and the initial purchasers entered into a registration rights agreement on November 24, 1998 which granted them and any subsequent holders of the old notes certain exchange and registration rights. The exchange offer is intended to satisfy those exchange and registration rights. The exchange and registration rights we granted will terminate upon the consummation of our exchange offer. THE EXCHANGE OFFER Securities Offered......... Up to $87,000,000 of 11 1/8% Series F Senior Subordinated Notes due 2007. The terms of the exchange notes and old notes are identical in all material respects, except for certain transfer restrictions and registration rights relating to the old notes. The Exchange Offer......... We are offering to exchange the old notes for a like principal amount of exchange notes. Old notes may be exchanged only in integral principal multiples of $1,000. The issuance of the exchange notes is intended to satisfy obligations of the company and the guarantor subsidiaries contained in the registration rights agreement. Expiration Date; Withdrawal of Tender................ Our exchange offer will expire 5:00 p.m. New York City time, on [ , 1999], or such later date and time as we may extend. Your tender of old notes pursuant to our exchange offer may be withdrawn at any time prior to the expiration date. Any old notes not accepted by us for exchange for any reason will be returned to you without expense as promptly as we can after the expiration or termination of our exchange offer. Certain Conditions to the Exchange Offer........... Based on an interpretation by the staff of the Securities and Exchange Commission set forth in no-action letters issued to third parties, we believe that the exchange notes issued by us pursuant to the exchange offer in exchange for the old notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder which is our "affiliate" within the meaning of Rule 405 under the Securities and Exchange Act as amended) by you without compliance with the registration and prospectus delivery provisions of the Securities and Exchange Act, provided that such exchange notes are acquired in the ordinary course of your business and that you do not intend to participate and have no arrangement or understanding with any person to participate in the distribution of such exchange notes. Our obligation to accept for exchange, or to issue the exchange notes in exchange for, any old notes is subject to certain custom- 4 10 ary conditions relating to compliance with any applicable law, or any applicable interpretation by any staff of the Securities and Exchange Commission, or any order of any governmental agency or court of law. We currently expect that each of the conditions will be satisfied and that no waivers will be necessary. See "The Exchange Offer -- Certain Conditions to the Exchange Offer." Procedures for Tendering Old Notes................ Each holder of old notes wishing to accept the exchange offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with such old notes and any other required documentation, to the exchange agent at the address set forth in the section "The Exchange Offer" under the heading "Procedures for Tendering Old Notes." Use of Proceeds............ We will not receive any proceeds from the exchange of notes pursuant to our exchange offer. Exchange Agent............. United States Trust Company of New York is serving as the exchange agent in connection with our exchange offer. Federal Income Tax Consequences............. The exchange of old notes pursuant to the exchange offer should not be a taxable event to you for federal income tax purposes. See "Certain Federal Income Tax Considerations." 5 11 THE OFFERING The terms of the exchange notes are identical in all material respects to the terms of the old notes, except that the old notes differed with respect to certain transfer restrictions and certain registration rights. Issuer........................ Neenah Foundry Company Total Amount of Notes Offered....................... $87.0 million in principal amount of 11 1/8% Series F Senior Subordinated Notes due 2007. Maturity...................... May 1, 2007. Interest...................... Annual rate -- 11 1/8%. Payment frequency -- every six months on May 1 and November 1. First payment -- May 1, 1999. Optional Redemption........... On or after May 1, 2002, we may redeem some or all of the exchange notes (and any outstanding old notes) at any time at the redemption prices listed in the section "Description of Notes" under the heading "Optional Redemption." Before May 1, 2000, we may, subject to certain requirements, redeem up to 40% of the exchange notes and old notes with the proceeds of certain public offerings of equity in our Company, our parent company, or the parent of our parent company at the price listed in the section "Description of Notes" under the heading "Optional Redemption." If less than 60% of exchange notes and old notes will remain outstanding immediately after any such redemption, we cannot consummate such redemption. Change of Control............. Before May 1, 2002, we may, upon the occurrence of a change of control event, redeem the exchange notes (and any outstanding old notes) at a price listed in the section "Description of Notes" under the heading "Change of Control." We may be required to offer to repurchase the exchange notes (and such old notes) at a price listed in the section "Description of Notes" under the heading "Change of Control" if: - Prior to May 1, 2002, we do not exercise our option upon the occurrence of a change of control event to redeem the exchange notes (and any outstanding old notes), or - After May 1, 2002, a change of control event occurs. Subsidiary Guarantees......... The exchange notes will be (as are the old notes) fully guaranteed on an unsecured, senior subordinated basis by each guarantor subsidiary. Each guarantor subsidiary is our wholly owned subsidiary and a principal operating subsidiary. Certain of our future domestic subsidiaries that incur indebtedness and all future foreign subsidiaries that guarantee the senior bank facilities will also guarantee the exchange notes, as they guaranteed the old notes. 6 12 If we cannot make payments on the exchange notes (or any old notes) when they are due, the guarantor subsidiaries must make them instead. The guarantor subsidiaries are also guarantors of our senior bank facilities and are jointly and severally liable with us on a senior basis for such obligations. To secure the obligations under our senior bank facilities, we pledged the capital stock of our Company and the guarantor subsidiaries pledged all of their capital stock. We and the guarantor subsidiaries also granted security interests in, or liens on, substantially all other tangible and intangible assets of our Company and the guarantors subsidiaries. Ranking of the Exchange Notes......................... These exchange notes will be (as are the old notes) and the subsidiary guarantees are senior subordinated debts. They rank behind all of our and our guarantor subsidiaries' current and future senior indebtedness (other than trade payables). They rank equal with all of our and our guarantor subsidiaries' other senior subordinated indebtedness. They will rank ahead of all of our and our guarantor subsidiaries' other current and future subordinated indebtedness, except indebtedness that expressly provides that it is not senior to these exchange notes and the subsidiary guarantees. Assuming we had completed this exchange offer on December 31, 1998 and applied the proceeds as intended, the exchange notes and the subsidiary guarantees: - would have been subordinated to $145.1 million of senior debt (excluding $4.6 million of outstanding letters of credit); - would have ranked equally with $195.0 million principal amount of other senior subordinated debt; and - would not have ranked senior to any other debt. Basic Covenants of the Indenture................... We will issue the exchange notes under an indenture with United States Trust Company of New York, as trustee. The indenture will, among other things, place certain limitations on our ability, and the ability of some of our subsidiaries, to: - borrow money or make certain restricted payments, - change the nature of the business, - pay dividends on stock or repurchase stock and certain subordinated obligations, - enter into sale and lease back transactions, - make investments, 7 13 - enter into transactions with affiliates, - use assets as security in other transactions, - create liens, and - sell certain assets or merge with or into other companies. For more details, see the section "Description of Notes" under the heading, "Certain Covenants" and "Merger and Consolidation." Transfer Restrictions......... The exchange notes are new securities, and there is currently no established market for them. We do not intend to list the exchange notes on any securities exchange. The address for our Company and each of the guarantor subsidiaries is 2121 Brooks Avenue, Box 729, Neenah, Wisconsin 54927 and the telephone number is (920) 725-7000. RISK FACTORS Holders of old notes should carefully consider all of the information set forth in this prospectus. SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH YOUR INVESTMENT IN THE EXCHANGE NOTES. 8 14 SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA The following table sets forth summary consolidated financial and other data of (i) the Predecessor Company as of March 31, 1994, 1995, 1996 and 1997 and April 30, 1997 and for each of the years ended March 31, 1994, 1995, 1996 and 1997 and the one month period ended April 30, 1997, which have been derived from the Predecessor Company's consolidated financial statements which have been audited by Ernst & Young LLP, other than the consolidated balance sheets as of March 31, 1994 and April 30, 1997, which were audited by another independent auditor, (ii) the Company as of September 30, 1997 and 1998 and for the five months ended September 30, 1997 and for the year ended September 30, 1998, which have been derived from the Company's consolidated financial statements which have been audited by Ernst & Young LLP and (iii) the Company as of December 31, 1997 and 1998 and for the three months ended December 31, 1997 and 1998 which have been derived from the Company's unaudited interim condensed consolidated financial statements and include, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations and financial position for and as of the end of such period. Results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. The Company changed its fiscal year end to September 30 from March 31 effective September 30, 1997. The summary financial and other data should be read in conjunction with "Summary -- Recent Developments," "Capitalization," "Selected Consolidated Financial and Other Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus and the consolidated financial statements and related notes of the Company incorporated herein by reference. 9 15 SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
PREDECESSOR COMPANY ------------------------------------------------------------- FIVE MONTHS FISCAL YEAR ENDED MARCH 31, ONE MONTH ENDED ----------------------------------------- ENDED SEPTEMBER 30, 1994 1995 1996 1997 APRIL 30, 1997(4) 1997(5) -------- -------- -------- -------- ----------------- ------------- (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DATA: Net sales...................................... $131,982 $160,621 $166,951 $165,426 $ 17,276 $108,353 Gross profit................................... 25,451 39,640 45,320 48,690 5,925 30,909 Operating income............................... 11,837 22,967 28,337 31,143 4,173 18,357 Interest expense (income), net................. 1,043 397 (481) (1,162) (121) 9,991 Net income (loss).............................. 6,581 13,704 17,142 19,838 2,679 2,736 BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents...................... $ 118 $ 238 $ 10,126 $ 22,403 $ 29,043 $ 20,346 Working capital(1)............................. 14,596 15,174 18,094 21,438 21,124 23,175 Total assets................................... 74,327 73,813 82,957 93,869 103,402 358,406 Total debt..................................... 13,325 887 241 134 128 218,413 Total stockholders' equity..................... 37,929 43,198 54,790 68,857 74,883 47,407 OTHER DATA: EBITDA(2)...................................... $ 18,577 $ 29,809 $ 35,113 $ 38,024 $ 4,691 $ 26,056 Depreciation and amortization.................. 6,740 6,842 6,776 6,881 518 7,699 Capital expenditures........................... 4,583 3,665 7,275 4,546 190 3,081 Net cash provided by (used in): Operating activities......................... 18,301 23,581 22,273 23,479 3,917 25,160 Investing activities......................... (4,949) (3,412) (7,299) (3,104) (191) (14,702) Financing activities......................... (13,313) (20,049) (5,086) (8,098) 2,917 (1,656) Cash interest expense(3)....................... 1,049 624 84 39 1 10,016 YEAR THREE MONTHS THREE MONTHS ENDED ENDED ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1997 1998 ------------- ------------ ------------ (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DATA: Net sales...................................... $ 303,414 $ 57,988 $115,264 Gross profit................................... 80,963 14,645 21,119 Operating income............................... 50,006 8,965 10,097 Interest expense (income), net................. 27,203 5,840 9,907 Net income (loss).............................. 11,489 1,616 (359) BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents...................... $ 19,798 $ 21,994 $ 34,683 Working capital(1)............................. 62,573 26,782 75,001 Total assets................................... 584,309 348,511 638,608 Total debt..................................... 371,871 212,389 432,271 Total stockholders' equity..................... 67,922 55,770 67,563 OTHER DATA: EBITDA(2)...................................... $ 69,660 $ 12,766 $ 18,923 Depreciation and amortization.................. 19,654 3,801 8,826 Capital expenditures........................... 13,117 1,612 6,856 Net cash provided by (used in): Operating activities......................... 24,236 2,473 6,780 Investing activities......................... (182,168) (1,612) (49,340) Financing activities......................... 157,384 787 57,445 Cash interest expense(3)....................... 27,383 6,047 10,172
- --------------- (1) Working capital represents total current assets (excluding cash and cash equivalents) less total current liabilities (excluding the revolving credit facility and the current portion of long-term debt). (2) EBITDA represents operating income plus depreciation and amortization. The Company has included information concerning EBITDA because management believes that EBITDA is generally accepted as providing useful information regarding a company's ability to service and/or incur debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows or other income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. The Company understands that, while EBITDA is frequently used by securities analysts in the evaluation of companies, EBITDA, as used herein, is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation. EBITDA is not intended as an alternative to cash flow from operating activities as a measure of liquidity, an alternative to net income as an indicator of the Company's operating performance or an alternative to any other measure of performance in conformity with generally accepted accounting principles. (3) Cash interest expense is defined as interest expense less amortization of debt issuance cost plus amortization of premium on senior subordinated notes issued July 1, 1997 and November 24, 1998. (4) See "-- The Merger." (5) The Company changed its fiscal year end to September 30 from March 31 effective September 30, 1997. 10 16 RISK FACTORS This Prospectus includes "forward looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act including, in particular, the statements about the Company's plans, strategies, and prospects under the headings "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business". Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. Important factors that could cause actual results to differ materially from the forward looking statements we make in this Prospectus are set forth below and elsewhere in this Prospectus. All forward-looking statements attributable to the Company or persons acting on our behalf are expressly qualified in their entirety by the following cautionary statements. As used in this section, unless the context otherwise requires, the terms "Company," "we," "our," "ours," and "us" refer to Neenah Foundry Company and all of its subsidiaries including the Recently Acquired Subsidiaries. SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT THE FINANCIAL HEALTH OF OUR COMPANY AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THESE EXCHANGE NOTES. We have now and, after the offering, will continue to have a significant amount of indebtedness. The following chart presents our total indebtedness and our indebtedness senior to the exchange notes as of December 31, 1998 and our ratio of earnings to fixed charges for the year ended September 30, 1998 and the three months ended December 31, 1998:
AT DECEMBER 31, 1998 -------------------- Total indebtedness (excluding $4.6 million of outstanding letters of credit)........................................ $432.3 million Indebtedness senior to the exchange notes (excluding $4.6 million of outstanding letters of credit)................. $145.1 million
FOR THE YEAR ENDED FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1998 ------------------ -------------------------- Ratio of earnings to fixed charges................ 1.8x 1.0x
Our substantial indebtedness could have important consequences to you. For example, it could: - make it more difficult for us to satisfy our obligations with respect to these exchange notes; - increase our vulnerability to general adverse economic and industry conditions; - increase our vulnerability to increases in interest rates; - limit our ability to fund future working capital, capital expenditures, research and development costs, acquisitions and other general corporate requirements; - require a substantial portion of our cash flow from operations for debt payments, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts, acquisitions and other general corporate purposes; - limit our flexibility to plan for, or react to, changes in our business and the industry in which we operate; - place us at a competitive disadvantage compared to our competitors that have less debt; and - limit our ability to borrow additional funds. Any of the above listed factors could materially adversely affect us. See "Description of the Senior Bank Facilities" and "Description of Exchange Notes." 11 17 ABILITY TO SERVICE DEBT -- TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL. Our ability to make payments on and to refinance our indebtedness, including these exchange notes, and to fund planned capital expenditures and research and development efforts will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations, we believe our cash flow from operations, available cash and available borrowings under our senior bank facilities will be adequate to meet our future liquidity needs for at least the next few years. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our senior bank facilities in an amount sufficient to enable us to pay our indebtedness, including these exchange notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, including these exchange notes on or before maturity. We might not be able to refinance any of our indebtedness, including our senior bank facilities and these exchange notes, on commercially reasonable terms or at all. SUBORDINATION -- YOUR RIGHT TO RECEIVE PAYMENTS ON THESE EXCHANGE NOTES IS JUNIOR TO ALL OF OUR EXISTING AND FUTURE SENIOR INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS. FURTHER, THE GUARANTEES OF THESE EXCHANGE NOTES ARE JUNIOR TO ALL OUR GUARANTOR SUBSIDIARIES' EXISTING AND FUTURE SENIOR INDEBTEDNESS AND POSSIBLY TO ALL THEIR FUTURE BORROWINGS. These exchange notes and the subsidiary guarantees rank behind all of our and our guarantor subsidiaries' existing and future senior indebtedness and all of our and their future borrowings, except any future indebtedness that expressly provides that it ranks equal with, or subordinated in right of payment to, the exchange notes and the guarantees. As a result, upon any distribution to our creditors or the creditors of our guarantor subsidiaries in a bankruptcy or similar proceeding relating to us or our guarantor subsidiaries, the holders of senior indebtedness of our company and our guarantor subsidiaries will be entitled to be paid in full in cash before any payment may be made with respect to these exchange notes or the subsidiary guarantees. In the event of a bankruptcy, liquidation or reorganization or similar proceeding relating to our Company or our guarantor subsidiaries, holders of the exchange notes will participate with all other holders of subordinated indebtedness of our Company and our guarantor subsidiaries in the assets remaining after we and our guarantor subsidiaries have paid all of the senior debt. Because our senior debt must be paid first, you may receive less than holders of senior debt in any such proceeding. In any of these cases, we and our guarantor subsidiaries may not have sufficient funds to pay all of our creditors, therefore, holders of exchange notes may receive ratably less than the holders of senior debt. RESTRICTIONS IMPOSED BY THE SENIOR BANK FACILITIES AND THE INDENTURE -- WE ARE SUBJECT TO RESTRICTIONS CONTAINED IN OUR SENIOR BANK FACILITIES AND IN THE INDENTURE. FAILURE TO COMPLY WITH ANY OF THE RESTRICTIONS COULD RESULT IN ACCELERATION OF OUR DEBT. OUR SENIOR BANK FACILITIES AND THE INDENTURE RESTRICT OUR ABILITY TO: - incur additional indebtedness, - pay dividends and make distributions, - make certain investments, loans, or advances, - incur guarantee obligations, - prepay other indebtedness, - create liens, 12 18 - make acquisitions, - change the nature of our business, - make capital expenditures, - enter into transactions with affiliates, - enter into sale and leaseback transactions, - merge or consolidate our company or any guarantors, and - transfer and sell assets. In addition, we must maintain minimum debt service interest ratios and maximum leverage ratios and satisfy minimum net worth tests under our senior bank facilities. A failure to comply with the restrictions contained in the senior bank facilities could lead to an event of default which could result in an acceleration of such indebtedness. Such an acceleration would also constitute an event of default under the indenture relating to the exchange notes. See "Description of Senior Bank Facilities." INTEGRATION OF THE RECENT ACQUISITIONS -- THE INTEGRATION AND CONSOLIDATION OF THE RECENTLY ACQUIRED SUBSIDIARIES AND ANY FUTURE ACQUISITIONS MAY REQUIRE SUBSTANTIAL MANAGEMENT, FINANCIAL AND OTHER RESOURCES. THE DIVERSION OF THESE RESOURCES AND THE INCREASED SIZE OF OUR COMPANY MAY SUBJECT US TO OPERATIONAL RISKS. The recently acquired subsidiaries constitute our first significant acquisitions. While we believe that our financial, management and other resources are sufficient to accomplish any integration of the recently acquired subsidiaries, we cannot provide any assurance that our resources will be adequate in this regard or that any attempt to integrate the recently acquired subsidiaries will not adversely affect the operation of our Company. In addition, the increased size of our consolidated Company following our recent acquisitions may pose different and greater operational challenges than we have experienced in the past. We believe that the recently acquired subsidiaries will enhance our competitive position and the business prospects of our consolidated Company. However, we cannot provide any assurance that such benefits will be realized, that the combination of our Company and the recently acquired subsidiaries will be successful, or that management will be able to profitably operate our consolidated Company following any integration. We believe that there are additional opportunities for growth through the completion of future strategic acquisitions. We engage in evaluations of potential acquisitions and are in various stages of discussion regarding possible acquisitions. Currently, there are no definitive agreements or letters of intent with respect to any material acquisition. Any such future acquisitions may result in significant transaction expenses and risks associated with entering new markets in addition to the integration and consolidation risks described above. We may not have sufficient management, financial and other resources to integrate any such future acquisitions and we may be unable to profitably operate our consolidated Company. See "Summary -- Recent Acquisitions." DEPENDENCE ON KEY PERSONNEL -- THE RESULTS OF OUR OPERATIONS DEPEND UPON OUR ABILITY TO MAINTAIN CERTAIN KEY PERSONNEL AND TO RECRUIT AND RETAIN OTHER HIGHLY QUALIFIED EMPLOYEES. Our ability to maintain our competitive position in the future depends upon our success in maintaining certain key senior management, including our Chairman and Chief Executive Officer, James K. Hildebrand, and attracting and retaining other highly qualified managerial and manufacturing personnel. Loss of key personnel and/or our failure to identity and recruit highly qualified personnel could materially adversely affect our results of operations. See "Management." CONCENTRATION OF CUSTOMERS -- CERTAIN KEY CUSTOMERS ACCOUNT FOR A SIGNIFICANT AMOUNT OF OUR NET SALES. A REDUCTION OR TERMINATION OF PURCHASES BY ANY KEY CUSTOMER COULD ADVERSELY AFFECT OUR 13 19 RESULTS OF OPERATIONS. The customer base of our Company and some of the Recently Acquired Subsidiaries is concentrated. Specifically, - Sales to the largest customer, Dana Corporation, accounted for 10% of total net sales for the fiscal year ended September 30, 1998; - Sales to the top three customers accounted for approximately 27% of net sales for the fiscal year ended September 30, 1998; A significant reduction in purchases by any of these key customers or a loss of any of these key customers could materially adversely affect our business, financial condition and results of operations. See "Business -- The Company (other than the Recently Acquired Subsidiaries) -- Products, Customers and Markets," "-- Dalton Corporation," "-- Advanced Cast Products, Inc." and "-- Mercer Forge Company." FINANCING CHANGE OF CONTROL OFFER -- WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE REPURCHASE OPTION CONTAINED IN THE INDENTURE. Upon the occurrence of certain specific kinds of change of control events, you will have the right to require us to repurchase all or a portion of your exchange notes. The repurchase price will be 101% of the face value of the exchange note, plus any accrued and unpaid interest. However, it is possible that we will not have sufficient funds at the time of the change of control event to make the repurchases or that restrictions in our senior bank facilities will not allow us to make such repurchases. In addition, certain important corporate events, such as leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a "Change of Control" under the Indenture. See "Description of the Senior Bank Facilities" and "Description of Notes -- Change of Control." DEPENDENCE ON INDUSTRY/CYCLICALITY -- IF CERTAIN MARKETS IN WHICH OUR CUSTOMERS OPERATE EXPERIENCE DOWNTURNS, THEN DEMAND FOR, AND PRICES OF, OUR PRODUCTS COULD BE REDUCED. Our Company has historically experienced moderate cyclicality in the heavy municipal and farm equipment markets. Sales of municipal castings are influenced by, among other things, public spending. Our industrial sales are largely dependent on orders from original equipment manufacturers of medium-and heavy-duty trucks and truck components and their first-tier suppliers and orders for farm equipment. The truck market has historically been subject to fluctuations due to general economic conditions and, in particular, the industrial sector of the economy. There can be no assurance that the truck market will not continue to experience fluctuations. The farm equipment market has also experienced cyclicality. A downturn in these markets could reduce demand for, and prices of, our products. A significant downturn in either of these markets could materially adversely affect our Company's business, financial condition or results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." COMPETITION -- THE MARKETS WHICH WE TARGET ARE HIGHLY COMPETITIVE. WE MAY NOT BE ABLE TO MAINTAIN OR IMPROVE OUR COMPETITIVE POSITION IN THESE MARKETS. The markets for our Company's, Dalton's, ACP's and Deeter's products are highly competitive. Competition is based on: - price; - qualify of product; - range of capability; - level of service; and - reliability of delivery. Each of the Company, Dalton, ACP and Deeter face numerous competitors, including: - independent and captive domestic iron foundries; - foreign iron foundries, including certain foundries located in India; and 14 20 - several large domestic foundries and manufacturers whose casting products are made with materials other than ductile and gray iron, such as steel or aluminum. Industry consolidation over the past decade has resulted in significant reduction in the number of smaller foundries and a rise in the share of production by larger foundries. Some of these consolidated foundries have significantly greater financial resources than any of our Company, Dalton, ACP and Deeter. There can be no assurance that any of our Company, Dalton, ACP and Deeter will be able to maintain or improve its competitive positions in the markets in which it competes. See "Business -- The Company (other than the Recently Acquired Subsidiaries) -- Competition." Mercer competes primarily in a highly fragmented industry, which includes several dozen other press forgers and hammer forge shops. Competition in the foregoing industry is primarily price based, but engineering, quality and dependability are also important, particularly with respect to building and maintaining customer relationships. Some of Mercer's competitors have significantly greater resources than Mercer. There can be no assurance that Mercer will be able to maintain or improve its competitive position in the markets in which it competes. See "Business -- Mercer Forge Company -- Competition." CONTROLLING SHAREHOLDERS -- THE INTERESTS OF OUR CONTROLLING SHAREHOLDERS MAY BE IN CONFLICT WITH YOUR INTERESTS AS A HOLDER OF EXCHANGE NOTES. We are a wholly owned subsidiary of our parent company, NFC Castings, Inc. Likewise, our parent company is a wholly owned subsidiary of its parent company, ACP Holding Company. ACP Holding Company is wholly owned by ACP Products, L.L.C. which in turn is owned in part by Citicorp Venture Capital, Ltd. and certain other investors. Therefore, Citicorp Venture Capital, Ltd. and these certain other investors beneficially own approximately 90% of our common stock and, together with certain members of our senior management and certain members of the senior management of our recently acquired subsidiaries, collectively have the ability to elect the entire board of directors and generally to control our affairs and policies. Circumstances may occur in which the interests of Citicorp Venture Capital, Ltd. and these certain other investors, as shareholders of our Company, could be in conflict with the interests of the holders of the exchange notes. In addition, Citicorp Venture Capital, Ltd. and these certain other investors may have an interest in pursuing acquisitions, divestitures or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve disproportionate risks to the holders of the exchange notes. See "Ownership of Securities" and "Certain Relationships and Related Transactions." YEAR 2000 ISSUE. The "Year 2000 Issue" refers generally to the problems that some software may have in determining the correct century for the year. For example, software with date-sensitive 15 21 functions that is not Year 2000 compliant may not be able to distinguish whether "00" means 1900 or 2000, which may result in failures or the creation of erroneous results. Currently, many computer \systems and software products are coded to accept only two-digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, many companies' software and computer systems may need to be upgraded or replaced in order to comply with such "Year 2000" requirements. If we, or third parties with which we do business, fail to comply with Year 2000 requirements our Company could be materially adversely impacted. FRAUDULENT CONVEYANCE MATTERS -- FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID GUARANTEES, SUBORDINATE CLAIMS IN RESPECT OF THE NOTES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS. Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, the guarantees of our guarantor subsidiaries could be voided, or claims in respect of the exchange notes or the subsidiary guarantees could be subordinated to all of our other debts or all other debts of our guarantor subsidiaries if, among other things: - We incurred such indebtedness with the intent of hindering, delaying or defrauding then-existing or future creditors; - We received less than reasonably equivalent value or fair consideration for incurring such indebtedness and, at the time of the incurrence of such indebtedness, we: 1. were insolvent or rendered insolvent by reason of such incurrence; 2. were engaged in a business or transaction for which the assets remaining with our Company constituted unreasonably small capital; or 3. intend to incur, or believed that we would incur, debts beyond our ability to pay as they mature; or - Any guarantor subsidiary received less than reasonably equivalent value or fair consideration for the incurrence of such subsidiary guarantee and, at the time it incurred the indebtedness evidenced by its subsidiary guarantee, any guarantor subsidiary: 1. was insolvent or rendered insolvent by reason of such incurrence; or 2. was engaged in a business or transaction for which such guarantor's remaining assets constituted unreasonably small capital; or 3. intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature. In addition, any payment by us or that guarantor subsidiary pursuant to its subsidiary guarantee could be voided and required to be returned to us or the guarantor subsidiary, or to a fund for the benefit of our creditors or the creditors of the guarantor subsidiary. The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor subsidiary would be considered insolvent if: - the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets; or - if the present fair saleable value of its assets were less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or - it could not pay its debts as they become due. 16 22 On the basis of historical financial information, recent operating history and other factors, we believe that we and each guarantor subsidiary, after giving effect to its guarantee of these exchange notes, will not be insolvent, will not have unreasonably small capital for the business in which it is engaged and will not have incurred debts beyond its ability to pay such debts as they mature. There can be no assurance, however, as to what standard a court would apply in making such determinations or that a court would agree with our conclusions in this regard. ENVIRONMENTAL MATTERS -- RISK OF ENVIRONMENTAL LIABILITY IS INHERENT IN THE NATURE OF OUR BUSINESS AND WE MAY INCUR SIGNIFICANT COSTS TO COMPLY WITH MORE STRINGENT ENVIRONMENTAL POLICIES. Our facilities are subject to numerous federal, state and local laws and regulations relating to pollution and the protection of the environment and worker health and safety, including: - those relating to discharges to air, water and land; - the handling and disposal of solid and hazardous waste; - the operation of landfills; and - the cleanup of properties affected by hazardous substances. We do not anticipate any material adverse effect on our business, financial condition or results of operations as a result of our efforts to comply with, or our liabilities under, such requirements. Risk of environmental liability is inherent in the manufacturing of casting and forging products. Changes in environmental laws and regulations or the discovery of previously unknown contamination or other liabilities relating to our properties and operations could materially adversely affect our business, financial condition or results of operations. In particular, we might incur significant capital and other costs to comply with increasingly stringent air emission control laws and enforcement policies. See "Business -- The Company (other than the Recently Acquired Subsidiaries) -- Environmental Matters." NO PRIOR MARKET FOR EXCHANGE NOTES -- YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THESE EXCHANGE NOTES. Prior to this offering, there was no public market for these exchange notes. We have been informed by the underwriter that it intends to make a market in these exchange notes after this offering is completed. However, the underwriter may cease its market-making at any time. In addition, the liquidity of the trading market in these exchange notes, and the market price quoted for these exchange notes, may be adversely affected by changes in the overall market for high yield securities and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, you cannot be sure that an active trading market will develop for these exchange notes. DEBT CHARACTERIZATION AND INTEREST INCOME -- IF THE EXCHANGE NOTES ARE TREATED OTHER THAN AS INDEBTEDNESS, WE MAY LOSE OUR ENTITLEMENT TO CLAIM A DEDUCTION FOR INTEREST PAYMENTS WE MAKE ON THE EXCHANGE NOTES. A LOSS OF THIS DEDUCTION WOULD DECREASE OUR CASH FLOW AND CONSEQUENTLY OUR ABILITY TO MAKE PAYMENTS WITH RESPECT TO THE EXCHANGE NOTES. For U.S. federal income tax purposes, we and each noteholder will agree to treat each exchange note as indebtedness. If such treatment were not respected, the exchange notes would likely be treated as equity ownership interests in our Company. If the exchange notes are treated as equity ownership interests, we would not be entitled to claim a deduction for interest payable on the exchange notes. As a result, our after-tax cash flow and, consequently, our ability to make payments with respect to the exchange notes could be reduced. In addition, a Non-U.S. Holder (as defined in the section headed "Certain U.S. Federal Income Tax Considerations") may be subject to withholding on interest payments on the exchange notes. 17 23 USE OF PROCEEDS Our Company will not receive any proceeds from this exchange offer. 18 24 CAPITALIZATION The following table sets forth as of September 30, 1998 (i) the consolidated historical capitalization of the Company, and (ii) the unaudited consolidated pro forma capitalization of the Company after giving effect to the issuance of the Notes and the application of the proceeds therefrom were consummated on such date. This table should be read in conjunction with the "Selected Consolidated Financial and Other Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Prospectus and the consolidated financial statements and related notes of the Company incorporated herein by reference.
DECEMBER 31, 1998 ---------------------------- ACTUAL PRO FORMA -------- ---------------- (DOLLARS IN THOUSANDS) Cash and cash equivalents................................... $ 34,683 $ 34,683 ======== ======== Debt: Term Loan Facilities(1)................................... Tranche A Loans........................................ $ 19,250 $ 19,250 Tranche B Loans........................................ 124,628 124,628 Revolving Credit Facility(2).............................. -- -- Acquisition Loan Facility(3).............................. -- -- 11 1/8% Series B Senior Subordinated Notes due 2007....... 150,000 150,000 11 1/8% Series D Senior Subordinated Notes due 2007, including unamortized premium of $2,193................ 47,193 47,193 11 1/8% Series E Senior Subordinated Notes due 2007, including unamortized premium of $2,985 million........ 89,985 -- 11 1/8% Series F Senior Subordinated Notes due 2007, including unamortized premium of $2,985 million........ -- 89,985 Other..................................................... 1,215 1,215 -------- -------- Total debt........................................ 432,271 432,271 Stockholders' equity: Common stock.............................................. 100 100 Additional paid-in capital................................ 55,167 55,167 Retained earnings......................................... 13,866 13,866 Pension liability adjustment.............................. (1,570) (1,570) -------- -------- Total stockholders' equity........................ 67,563 67,563 -------- -------- Total capitalization.............................. $499,834 $499,834 ======== ========
- --------------- (1) The Term Loan Facilities consist of: (i) a Tranche A Loan Facility in an aggregate principal amount of $19.25 million with a final maturity of September 30, 2003 and (ii) a Tranche B Loan Facility in an aggregate principal amount of $124.6 million with a final maturity of September 30, 2005. (2) Total borrowings of up to $50.0 million are available under the Revolving Credit Facility for working capital purposes and to fund certain permitted acquisitions. The Revolving Credit Facility includes a $15 million sub-limit for letters of credit, of which $4.6 million were outstanding as of December 31, 1998. (3) Total borrowings of up to $50.0 million are available under the Acquisition Loan Facility to finance certain permitted acquisitions. 19 25 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA The following table sets forth selected consolidated financial and other data of (i) the Predecessor Company as of March 31, 1994, 1995, 1996, and 1997 and April 30, 1997 and for each of the years ended March 31, 1994, 1995, 1996 and 1997 and the one month period ended April 30, 1997, which have been derived from the Predecessor Company's consolidated financial statements which have been audited by Ernst & Young LLP, other than the consolidated balance sheet as of March 31, 1994 and April 30, 1997, which were audited by another independent auditor, (ii) the Company as of September 30, 1997 and 1998 and for the five months ended September 30, 1997 and for the year ended September 30, 1998, which have been derived from the Company's consolidated financial statements which have been audited by Ernst & Young LLP and (iii) the Company as of December 31, 1997 and 1998 and for the three months ended December 31, 1997 and 1998, which have been derived from the Company's unaudited interim condensed consolidated financial statements and include, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations and financial position for and as of the end of such period. Results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. The Company changed its fiscal year end to September 30 from March 31 effective September 30, 1997. The selected financial and other data should be read in conjunction with "Summary -- Recent Developments," "Capitalization," "Summary Consolidated Financial and Other Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus and the consolidated financial statements and related notes of the Company incorporated herein by reference. 20 26 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
PREDECESSOR COMPANY -------------------------------------------------------------- ONE MONTH FIVE MONTHS FISCAL YEAR ENDED MARCH 31, ENDED ENDED ----------------------------------------- APRIL 30, SEPTEMBER 30, 1994 1995 1996 1997 1997(5) 1997(6) -------- -------- -------- -------- ------------------ ----------------- (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DATA: Net sales.............................. $131,982 $160,621 $166,951 $165,426 $17,276 $108,353 Cost of sales.......................... 106,531 120,981 121,631 116,736 11,351 77,444 -------- -------- -------- -------- ------- -------- Gross profit........................... 25,451 39,640 45,320 48,690 5,925 30,909 Selling, general and administrative expenses............................. 13,614 16,673 16,983 17,547 1,752 8,652 Amortization expense................... -- -- -- -- -- 3,900 -------- -------- -------- -------- ------- -------- Operating income....................... 11,837 22,967 28,337 31,143 4,173 18,357 Interest expense (income), net......... 1,043 397 (481) (1,162) (121) 9,991 -------- -------- -------- -------- ------- -------- Income before income taxes and extraordinary item................... 10,794 22,570 28,818 32,305 4,294 8,366 Provision for income taxes............. 4,213 8,866 11,676 12,467 1,615 4,000 -------- -------- -------- -------- ------- -------- Income (loss) before extraordinary item................................. 6,581 13,704 17,142 19,838 2,679 4,366 Extraordinary item, net of income tax benefit.............................. -- -- -- -- -- 1,630 -------- -------- -------- -------- ------- -------- Net income (loss)...................... $ 6,581 $ 13,704 $ 17,142 $ 19,838 $ 2,679 $ 2,736 ======== ======== ======== ======== ======= ======== BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents.............. $ 118 $ 238 $ 10,126 $ 22,403 $29,043 $ 20,346 Working capital(1)..................... 14,596 15,174 18,094 21,438 21,124 23,175 Total assets........................... 74,327 73,813 82,957 93,869 103,402 358,406 Total debt............................. 13,325 887 241 134 128 218,413 Total stockholders' equity............. 37,929 43,198 54,790 68,857 74,883 47,407 OTHER DATA: EBITDA(2).............................. $ 18,577 $ 29,809 $ 35,113 $ 38,024 $ 4,691 $ 26,056 Depreciation and amortization.......... 6,740 6,842 6,776 6,881 518 7,699 Capital expenditures................... 4,583 3,665 7,275 4,546 190 3,081 Net cash provided by (used in): Operating activities................. 18,301 23,581 22,273 23,479 3,917 25,160 Investing activities................. (4,949) (3,412) (7,299) (3,104) (191) (14,702) Financing activities................. (13,313) (20,049) (5,086) (8,098) 2,917 (1,656) Cash interest expense(3)............... 1,049 624 84 39 1 10,016 Ratio of earnings to fixed charges(4)........................... 9.5x 25.9x 70.3x 81.4x 2.5x 1.8x YEAR THREE MONTHS THREE MONTHS ENDED ENDED ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1997 1998 ------------- ------------- ------------ STATEMENT OF INCOME DATA: Net sales.............................. $303,414 $ 57,988 $115,264 Cost of sales.......................... 222,451 43,343 94,145 -------- -------- -------- Gross profit........................... 80,963 14,645 21,119 Selling, general and administrative expenses............................. 23,230 4,268 7,607 Amortization expense................... 7,727 1,412 3,415 -------- -------- -------- Operating income....................... 50,006 8,965 10,097 Interest expense (income), net......... 27,203 5,840 9,907 -------- -------- -------- Income before income taxes and extraordinary item................... 22,803 3,125 190 Provision for income taxes............. 10,922 1,509 549 -------- -------- -------- Income (loss) before extraordinary item................................. 11,881 1,616 (359) Extraordinary item, net of income tax benefit.............................. 392 -- -- -------- -------- -------- Net income (loss)...................... $ 11,489 $ 1,616 $ (359) ======== ======== ======== BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents.............. $ 19,798 $ 21,994 $ 34,683 Working capital(1)..................... 62,573 26,782 75,001 Total assets........................... 584,309 348,511 638,608 Total debt............................. 371,871 212,389 432,271 Total stockholders' equity............. 67,922 55,770 67,563 OTHER DATA: EBITDA(2).............................. $ 69,660 $ 12,766 $ 18,923 Depreciation and amortization.......... 19,654 3,801 8,826 Capital expenditures................... 13,117 1,612 6,856 Net cash provided by (used in): Operating activities................. 24,236 2,473 6,780 Investing activities................. (182,168) (1,612) (49,340) Financing activities................. 157,384 787 57,445 Cash interest expense(3)............... 27,383 6,047 10,172 Ratio of earnings to fixed charges(4)........................... 1.8x 1.5x 1.0x
See accompanying Notes to Selected Consolidated Financial and Other Data. 21 27 NOTES TO SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (1) Working capital represents total current assets (excluding cash and cash equivalents) less total current liabilities (excluding the revolving credit facility and the current portion of long-term debt). (2) EBITDA represents operating income plus depreciation and amortization. The Company has included information concerning EBITDA because management believes that EBITDA is generally accepted as providing useful information regarding a company's ability to service and/or incur debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows or other income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. The Company understands that, while EBITDA is frequently used by securities analysts in the evaluation of companies, EBITDA, as used herein, is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation. EBITDA is not intended as an alternative to cash flow from operating activities as a measure of liquidity, an alternative to net income as an indicator of the Company's operating performance or an alternative to any other measure of performance in conformity with generally accepted accounting principles. (3) Cash interest expense is defined as interest expense less amortization of debt issuance costs plus amortization of premium on the senior subordinated notes issued July 1, 1997 and November 24, 1998. (4) For purposes of the computation, the ratio of earnings to fixed charges has been calculated by dividing (i) income before income taxes and extraordinary item plus fixed charges by (ii) fixed charges. Fixed charges are equal to interest expense plus the portion of the rent expense estimated to represent interest. (5) See "Summary -- The Merger." (6) The Company changed its fiscal year end to September 30 from March 31 effective September 30, 1997. 22 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations covers periods before consummation of the Merger (as defined), the Recent Acquisitions and the Offering. The following information should be read in conjunction with "Selected Consolidated Financial and Other Data" and the consolidated financial statements, in each case together with the notes thereto, incorporated by reference in this Prospectus. GENERAL On April 30, 1997, pursuant to an Agreement and Plan of Reorganization (the "Merger Agreement") with NC Merger Company ("NC Merger") and NFC Castings, Inc. ("Holdings"), Neenah Corporation (the "Predecessor Company") was acquired by Holdings as a result of a merger of NC Merger with and into the Predecessor Company (the "Merger"). Prior to July 1, 1997, Neenah Foundry Company was one of three wholly owned subsidiaries of Neenah Corporation, a holding company with no significant assets or operations other than its holdings in the common stock of its three wholly owned subsidiaries. On July 1, 1997, Neenah Foundry Company merged with and into Neenah Corporation and the surviving company changed its name to Neenah Foundry Company. The following discussion and analysis of the Company's financial condition and results of operations addresses periods both before and after the Merger. The Merger has had a significant impact on the Company's results of operations and financial condition. The Merger resulted in the recording of goodwill and identifiable intangible assets totaling $148.8 million. These amounts are being amortized over their estimated useful lives, ranging from five months to 40 years. The Merger also resulted in a significant increase in the Company's interest expense as a result of an increased level of indebtedness. The following discussion compares the results of operations of the Company for the three months ended December 31, 1998 (including the results of operations from the date of acquisition of any Recently Acquired Subsidiary that was acquired during such period), to the results of the operations of the Company for the three months ended December 31, 1997. On March 30, 1998, the Company acquired all the capital stock of Deeter for $24.3 million, consisting of $20.4 million in cash and a $3.9 million Deeter Seller Note. On April 3, 1998, the Company acquired all of the capital stock of Mercer for $47.0 million in cash. In addition, on September 8, 1998, the Company acquired all of the capital stock of Dalton for $102.0 million in cash and the capital stock of ACP was contributed to the Company by ACP Holdings in consideration for the assumption of $21.3 million of indebtedness, $14.9 million of which was refinanced through borrowings under the Senior Bank Facilities. See "Summary -- Recent Acquisitions." The discussion and analysis of financial condition and results of operations below incorporates the results of the Recently Acquired Subsidiaries to the extent such acquisition had been completed during the relevant period. The Recent Acquisitions have had a significant impact on the Company's results of operations and financial condition. Each of the Recent Acquisitions (other than the ACP acquisition) was accounted for using the purchase method of accounting. These Recent Acquisitions resulted in the recording of goodwill and identifiable intangible assets totaling $101.1 million. These amounts are being amortized over their estimated useful lives, ranging from four months to 40 years. The Recent Acquisitions have also resulted in a significant increase in the Company's interest expense as a result of a substantially increased level of indebtedness incurred to finance the Recent Acquisitions. The Company changed its fiscal year end to September 30 from March 31 effective September 30, 1997. 23 29 RESULTS OF OPERATIONS The following table sets forth for the periods shown certain statement of income data expressed as a percentage of net sales:
FISCAL YEAR PRO FORMA ENDED TWELVE MONTHS FISCAL YEAR THREE MONTHS THREE MONTHS MARCH 31, ENDED ENDED ENDED ENDED ------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1996 1997 1997 1998 1997 1998 ----- ----- ------------- ------------- ------------ ------------ Net sales................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales............. 72.9 70.6 70.8 73.3 74.7 81.7 ----- ----- ----- ----- ----- ------ Gross profit.............. 27.1 29.4 29.2 26.7 25.3 18.3 Selling, general and administrative expenses................ 10.1 10.6 9.3 7.7 7.4 6.6 Amortization of intangible assets.................. -- -- 1.9 2.5 2.4 3.0 ----- ----- ----- ----- ----- ------ Operating income.......... 17.0% 18.8% 18.0% 16.5% 15.5% 8.7% ===== ===== ===== ===== ===== ======
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1998 TO THREE MONTHS ENDED DECEMBER 31, 1997 Net sales. Net sales for the three months ended December 31, 1998 were $115,264 which are $57,276 or 98.8% higher than the quarter ended December 31, 1997. The increase in net sales resulted from the inclusion of the operating results of the Recently Acquired Subsidiaries, excluding ACP, after their acquisition. Gross profit. Gross profit for the three months ended December 31, 1998 was $21,119, an increase of $6,474, or 44.2%, as compared to the quarter ended December 31, 1997. The increase in gross profit resulted from the inclusion of the operating results of the Recently Acquired Subsidiaries, excluding ACP, after their acquisition. Gross profit as a percentage of net sales decreased to 18.3% for the three months ended December 31, 1998 from 25.3% for the quarter ended December 31, 1997. The decline in gross profit percentage is attributable to a greater percentage of sales of lower margin industrial products in the three months ended December 31, 1998 as compared to the three months ended December 31, 1997. Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended December 31, 1998 were $7,607, an increase of $3,339, or 78.2%, as compared to the $4,268 for the quarter ended December 31, 1997. Approximately $2,800 of the increase was due to the inclusion of the operating results of the Recently Acquired Subsidiaries, excluding ACP, and the remainder of the increase was due to professional and other expenses related to completed and potential acquisitions. As a percentage of net sales, selling, general and administrative expenses decreased from 7.4% for the quarter ended December 31, 1997 to 6.6% for the three months ended December 31, 1998. The decrease in selling, general and administrative expenses as a percentage of net sales was mainly due to expenses being spread over a larger revenue base with the inclusion of the Recently Acquired Subsidiaries, excluding ACP. Amortization of intangible assets. Amortization of intangible assets was $3,415 for the three months ended December 31, 1998, an increase of $2,003, or 141.9%, as compared to the $1,412 for the quarter ended December 31, 1997. The increase is due to the increased amortization of goodwill and identifiable intangible assets from the Recently Acquired Subsidiaries. Operating income. Operating income was $10,097 for the three months ended December 31, 1998, an increase of $1,132, or 12.6% from the quarter ended December 31, 1997. The improvement in operating income was achieved for the reasons discussed above under gross profit. As a percentage of net sales, operating income decreased from 15.5% for the quarter ended Decem- 24 30 ber 31, 1997 to 8.8% for the three months ended December 31, 1998. The decrease in operating income percentage was due to the factors discussed above under gross profit, as well as increased amortization of intangible assets. Net interest expense. Net interest expense was $9,907 for the three months ended December 31, 1998 compared to $5,840 for the quarter ended December 31, 1997. The increased interest expense resulted from the interest on the drawings under the Company's Senior Bank Facilities and the Senior Subordinated Notes used to finance the purchase of the Recently Acquired Subsidiaries. Provision for income taxes. The provision for income taxes for the three months ended December 31, 1997 and 1998 is higher than the amount computed by applying the statutory rate of approximately 40% to income before income taxes mainly due to the amortization of goodwill which is not deductible for income tax purposes. COMPARISON OF FISCAL YEAR ENDED SEPTEMBER 30, 1998 TO PRO FORMA TWELVE MONTHS ENDED SEPTEMBER 30, 1997 Net Sales. Net sales for the year ended September 30, 1998 were $303.4 million which was $102.1 million or 50.7% higher than the pro forma twelve months ended September 30, 1997. The Recently Acquired Subsidiaries, excluding ACP, accounted for an increase of $53.5 million in net sales. The inclusion of ACP for twelve months in 1998 versus five months in 1997 accounted for an increase of $33.7 million in net sales. Net sales of municipal castings increased by $3.1 million or 4.2% due primarily to a strong economy in the upper Midwest and market share gains in strategic focus areas of the East and Southwest. Net sales of industrial castings increased by $11.7 million or 11.8% due to the overall strength of the heavy duty truck market coupled with high demand in the agricultural business. Gross Profit. Gross profit for the year ended September 30, 1998 was $81.0 million, an increase of $22.2 million or 37.8%, as compared to the pro forma twelve months ended September 30, 1997. Approximately $8.0 million of the increase was from the inclusion of the operating results of the Recently Acquired Subsidiaries excluding ACP after their acquisition. The inclusion of ACP for twelve months in 1998 versus five months in 1997 accounted for an increase of $6.4 million in gross profit. The remaining margin improvement was due to the combined effect of spreading manufacturing overhead over a greater volume and improved efficiency in plant operations. Gross profit as a percentage of net sales decreased to 26.7% during the year ended September 30, 1998 from 29.2% for the pro forma twelve months ended September 30, 1997. The decline in gross profit percentage is attributable to the mix of industrial products and lack of seasoning from the Recently Acquired Subsidiaries excluding ACP. Selling, General and Administrative Expenses. Selling, general and administrative expenses for the year ended September 30, 1998 were $23.2 million, an increase of $4.5 million or 24.1% over the $18.7 million for the pro forma twelve months ended September 30, 1997. The increase in selling, general and administrative expense was due to the inclusion of $2.7 million of expenses from the Recently Acquired Subsidiaries, excluding ACP after their acquisition. The inclusion of ACP for twelve months in 1998 versus five months in 1997 accounted for an increase of $3.0 million in expenses. As a percentage of net sales, selling, general and administrative expenses decreased from 9.3% for the pro forma twelve months ended September 30, 1997 to 7.7% for the year ended September 30, 1998. The percentage decrease was due to expenses being spread over a larger volume base with the inclusion of the Recently Acquired Subsidiaries' operating results, excluding ACP. Amortization of intangible assets. Amortization of intangible assets was $7.7 million for the year ended September 30, 1998, an increase of $3.8 million, or 97.4%, as compared to the $3.9 million for the pro forma twelve months ended September 30, 1997. The increase is due to the recording of twelve months of amortization during the period ended September 30, 1998 for the goodwill and identifiable intangible assets arising from the Merger versus five months of amortiza- 25 31 tion during the period ended September 30, 1997 as well as increased amortization from goodwill and identifiable intangible assets from the Recently Acquired Subsidiaries, excluding ACP. Operating Income. Operating income was $50.0 million for the year ended September 30, 1998, an increase of $13.8 million or 38.1% from the pro forma twelve months ended September 30, 1997. The improvement in operating income was achieved for the reasons discussed above under gross profit. As a percentage of net sales, operating income decreased from 18.0% for the pro forma twelve months ended September 30, 1997 to 16.5% for the year ended September 30, 1998. The decrease in operating income percentage was due to the factors discussed above under gross profit, as well as increased amortization of intangible assets. Net Interest Expense. Net interest expense increased from $9.1 million for the pro forma twelve months ended September 30, 1997 to $27.2 million for the year ended September 30, 1998. The increased interest expense resulted from the Company's Senior Subordinated Notes being outstanding for twelve months during the year ended September 30, 1998 and only five months during the period ended September 30, 1997 and the interest on the drawings under the Company's Senior Bank Facilities to finance the Recent Acquisitions. Provision for Income Taxes. The provision for income taxes for the year ended September 30, 1998 is higher than the amount computed by applying the statutory rate of approximately 40% to income before income taxes mainly due to the amortization of goodwill which is not deductible for income tax purposes. Extraordinary Item. During the year ended September 30, 1998, the Company recorded an extraordinary loss of $0.4 million (which is net of an income tax benefit of $0.3 million) for the write-off of unamortized deferred financing costs in connection with the repayment in full of indebtedness of ACP prior to its scheduled maturity. For the pro forma twelve months ended September 30, 1997, the Company recorded an extraordinary loss of $1.6 million (which is net of an income tax benefit of $1.0 million) for the write-off of unamortized deferred financing costs in connection with the repayment in full of the term indebtedness under the Company's Senior Bank Facilities. COMPARISON OF FISCAL YEAR ENDED MARCH 31, 1997 TO FISCAL YEAR ENDED MARCH 31, 1996 Net Sales. Net sales were $165.4 million for the year ended March 31, 1997, a decrease of $1.6 million, or 0.9%, from $167.0 million for the year ended March 31, 1996. Net sales of industrial castings decreased $3.9 million, or 4.2%, to $88.3 million. The decrease in industrial casting sales was primarily the result of a decision by the Company to discontinue its production of certain lower margin brake components, which resulted in a decrease in tons produced compared to the year earlier period, and, to a lesser extent, reduced demand for casting products in the medium- and heavy-duty truck market. Net sales of municipal castings increased $1.9 million, or 2.7%, to $71.3 million, primarily due to increased pricing. Hartley Controls net sales grew $0.4 million, or 7.4%, to $5.8 million, principally due to increased volume of equipment sales. Gross Profit. Gross profit was $48.7 million for the year ended March 31, 1997, an increase of $3.4 million, or 7.5%, from $45.3 million for the year ended March 31, 1996. Gross profit as a percentage of net sales increased to 29.4% for the year ended March 31, 1997, from 27.1% for the year ended March 31, 1996. The increase in gross profit as a percentage of net sales was due mainly to improved product mix in the industrial product line and greater overall plant efficiency. Gross profit percentage also improved due to the continued effect of the lightweighted municipal casting program. Selling, General and Administrative Expenses. Selling, general and administrative expenses were $17.5 million for the year ended March 31, 1997, an increase of $0.5 million, or 2.9%, from $17.0 million for the year ended March 31, 1996. As a percentage of net sales, selling, general and administrative expenses increased to 10.6% for the year ended March 31, 1997, from 10.1% for the year ended March 31, 1996. Approximately $0.2 million of the increase in selling, general and 26 32 administrative expenses was due to a non-recurring charitable contribution and approximately $0.9 million of the increase was due to increased compensation and benefits to officers of the Company who resigned at Closing. Excluding the effects of estimated nonrecurring officer compensation and benefits and the charitable contribution, selling, general and administrative expenses, as a percentage of net sales, decreased slightly to 8.3% for the year ended March 31, 1997, from 8.4% for the year ended March 31, 1996. Operating Income. Operating income increased to $31.1 million for the year ended March 31, 1997, an increase of $2.8 million or 9.9% from $28.3 million for the year ended March 31, 1996. As a percentage of net sales, operating income increased to 18.8% for the year ended March 31, 1997, from 17.0% for the year ended March 31, 1996. The improvement in operating income was achieved primarily for the reasons discussed above. LIQUIDITY AND CAPITAL RESOURCES In connection with the Merger, the Company issued $150.0 million principal amount of 11 1/8% Senior Subordinated Notes due 2007 and entered into the credit agreement with Holdings and the lenders party thereto (the "Credit Agreement") providing for term loans of $45.0 million and a Revolving Credit Facility of up to $30.0 million, subject to a borrowing base formula. On July 1, 1997, the Company issued an additional $45.0 million principal amount of 11 1/8% Senior Subordinated Notes due 2007 and used the proceeds of $47.6 million to repay the term loans, the accrued interest thereon and related fees and expenses. On September 12, 1997, the Company, Holdings and the lenders party thereto amended and restated the Credit Agreement to increase the amount available under the Revolving Credit Facility (as defined) to $50.0 million and eliminate the borrowing base limitations. On April 3, 1998, in connection with the acquisition of Mercer, the Company, Holdings and the lenders party thereto amended the Credit Agreement to provide availability of $75.0 million of term loans to the Company (consisting of $20.0 million of Tranche A Loans and $55.0 million of Tranche B Loans) in addition to the Company's existing $50.0 million Revolving Credit Facility. On September 8, 1998, in connection with the acquisitions of Dalton and ACP, the Company, Holdings and the lenders party thereto amended and restated the Credit Agreement to provide for additional Tranche B Loans in an aggregate principal amount of $70.0 million and an Acquisition Loan Facility in aggregate principal amount outstanding at any one time not to exceed $50.0 million. On November 24, 1998, the Company sold $87.0 million in principal amount (excluding $3.0 million of unamortized premium) of 11 1/8 Senior Subordinated Notes due 2007 (the "Old Notes"). We used $29.0 million of the proceeds to pay down the borrowings under the Acquisition Loan Facility (as defined) and $[ ] million to acquire Cast Alloys. The remaining proceeds are to be used for general corporate purposes. The Company's liquidity needs will arise primarily from debt service on the above indebtedness, working capital needs, the funding of capital expenditures and additional acquisitions. Borrowings under the Senior Bank Facilities bear interest at variable interest rates. The Senior Bank Facility imposes restrictions on the Company's ability to make capital expenditures and both the Senior Bank Facility and the indentures governing the Senior Subordinated Notes limit the Company's ability to incur additional indebtedness. The covenants contained in the Senior Bank Facility also, among other things, restrict the ability of the Company and its subsidiaries to dispose of assets, incur guarantee obligations, prepay the Senior Subordinated Notes or amend its indentures, pay dividends, create liens on assets, enter into sale and leaseback transactions, make investments, loans or advances, make acquisitions, engage in mergers or consolidations, change the business conducted by the Company, make capital expenditures or engage in certain transactions with affiliates, and otherwise restrict corporate activities. For the three months ended December 31, 1998 and December 31, 1997, capital expenditures were $6,856 and $1,612, respectively. The $5,244 increase in capital expenditures was primarily the result of planned enhancements to certain equipment in the manufacturing area, including significant expenditures at ACP and Deeter, which were acquired in fiscal 1998. For the fiscal years ended 27 33 March 31, 1996 and 1997, the pro forma twelve months ended September 30, 1997 and the year ended September 30, 1998, capital expenditures were $7.3 million, $4.5 million, $5.1 million and $13.1 million, respectively. The capital expenditures for the year ended September 30, 1998 were primarily the result of planned enhancements to certain equipment in the manufacturing area and include expenditures of the Recently Acquired Subsidiaries, excluding ACP, since their acquisition date. The Company's principal source of cash to fund its liquidity needs will be net cash from operating activities and borrowings under its Senior Bank Facilities. Net cash from operating activities for the three months ended December 31, 1998 was $6,780, an increase of $4,307 from $2,473 for the three months ended December 31, 1997. The increase in net cash from operating activities was primarily the result of increased cash flow from the Recently Acquired Subsidiaries and improved control of inventory and accounts receivable balances. Net cash from operating activities for the year ended September 30, 1998 was $24.2 million. Net cash from operating activities for the pro forma twelve months ended September 30, 1997 was $37.4 million. The decrease resulted from lower net income and a paydown of accounts payable and accrued liabilities during the year ended September 30, 1998. Net cash from operating activities for the year ended March 31, 1997 was $23.5 million, an increase of $1.2 million from $22.3 million for the year ended March 31, 1996, primarily as a result of an increase in net income. The Company believes that cash generated from operations and existing revolving lines of credit under the Senior Bank Facilities will be sufficient to meet its normal operating requirements, including working capital needs and interest payments on the Company's outstanding indebtedness. Amounts under the $50.0 million Revolving Credit Facility may be used for working capital and general corporate purposes, subject to certain limitations under the Senior Bank Facilities. Amounts under the Acquisition Loan Facility may be used to make acquisitions permitted under the Senior Bank Facilities. The Company believes that such resources, together with the potential future use of debt or equity financing, will allow the Company to pursue its strategic goal of making selective acquisitions. RAW MATERIALS Although the prices of all raw materials used by the Company vary, the fluctuations in the price of steel scrap are the most significant to the Company. The Company has arrangements with most of its industrial customers which require the Company to adjust industrial casting prices to reflect scrap price fluctuations. In periods of rapidly rising or falling scrap prices, these adjustments will lag the current scrap price because they are generally based on average market prices for prior periods, which periods vary by customer but are generally no longer than six months. Castings are generally sold to the heavy municipal market on a bid basis and, after a bid is won, the price for the municipal casting subject to the bid generally cannot be adjusted for raw material price increases. However, in most cases the Company has been successful in obtaining higher municipal casting unit prices in subsequent bids to compensate for rises in scrap prices in prior periods. Rapidly fluctuating scrap prices may have a temporary adverse or positive effect on the Company's results of operations. INFLATION The Company does not believe that inflation has had a material impact on its financial position or results of operations during the past three years. CYCLICALITY AND SEASONALITY The Company has historically experienced moderate cyclicality in the heavy municipal market. Sales of municipal products are influenced by, among other things, public spending. In the industrial market, the Company has experienced cyclicality in sales resulting from fluctuations in the medium- 28 34 and heavy-duty truck market and the farm equipment market, which are subject to general economic trends. The Company experiences seasonality in its municipal business where sales tend to be higher during the construction season, which occurs during the warmer months, generally the third and fourth quarters of the Company's fiscal year. The Company maintains level production throughout the year in anticipation of such seasonality and does not experience production volume fluctuations as a result. The Company builds inventory in anticipation of the construction season with such inventories reaching a peak near the end of its second quarter in March. The Company has not historically experienced seasonality in industrial casting sales. YEAR 2000 The Company and its subsidiaries have conducted an evaluation of the actions necessary in order to ensure that its computer systems will be able to function without disruption with respect to the application of dating systems in the Year 2000. As a result of this evaluation, each company within the consolidated entity is engaged in the process of upgrading, replacing and testing certain of its information and other computer systems in order to operate without disruption due to Year 2000 issues. The Company's remedial actions are scheduled to be completed during the first quarter of 1999 and those of its subsidiaries are anticipated to be completed prior to the third quarter of 1999. The Company does not anticipate that the costs of its remedial actions will be material to its results of operations and financial position and are being expensed as incurred. Although there can be no assurance that the remedial actions being implemented by the Company will address every issue relating to the Year 2000 issue, the Company believes it is unlikely that any disruptions resulting from the Year 2000 issue would have a significant impact on its overall operations. In addition to its investigations of its own systems, the Company has begun assessing the Year 2000 readiness of its important vendors and customers. Management believes that all its important critical vendors and customers either have or will have addressed any problems associated with the Year 2000 issue such that there will be no significant deterioration in future business dealings due to this issue. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk related to changes in interest rates. The Company does not use derivative financial instruments for speculative or trading purposes. Interest Rate Sensitivity. The Company's earnings are affected by changes in short-term interest rates as a result of its borrowings under the Senior Bank Facilities. If market interest rates for such borrowings average 1% more during the fiscal year ended September 30, 1999 than they did during fiscal 1998, the Company's interest expense would increase, and income before income taxes would decrease by approximately $1.7 million. This analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management could take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific action that would be taken and their possible effects, the sensitivity analysis assumes no changes in the Company's financial structure. 29 35 BUSINESS THE COMPANY (OTHER THAN THE RECENTLY ACQUIRED SUBSIDIARIES) Overview On April 30, 1997, pursuant to the Merger Agreement with NC Merger and Holdings, the Predecessor Company was acquired by Holdings as a result of the Merger. Prior to July 1, 1997, Neenah Foundry Company was one of three wholly owned subsidiaries of Neenah Corporation, a holding company with no significant assets or operations other than its holdings in the common stock of its three wholly owned subsidiaries. On July 1, 1997, Neenah Foundry Company merged with and into Neenah Corporation and the surviving company changed its name to Neenah Foundry Company. The Company, founded in 1872, is one of the largest manufacturers of a wide range of high quality ductile and gray iron castings for the heavy municipal market and selected segments of the industrial market. The Company believes it is the largest manufacturer of heavy municipal iron castings in the United States with approximately a 19% market share. The Company's broad range of heavy municipal iron castings includes manhole covers and frames, storm sewer frames and grates, heavy duty airport castings, specialized trench drain castings, specialty flood control castings and ornamental tree grates. These municipal castings are sold throughout the United States to state and local government entities, utility companies, precast concrete manhole structure producers and contractors for both new construction and infrastructure replacement. The municipal market generated approximately 41% of the Company's net sales for the year ended September 30, 1998. The Company believes it is also a leading manufacturer of a wide range of complex industrial castings, including castings for medium- and heavy-duty truck drive line components, a broad range of castings for the farm equipment industry and specific components for compressors used in heating, ventilation and air conditioning systems ("HVAC"). The industrial market generated approximately 56% of the Company's net sales for the year ended September 30, 1998. In addition, the Company engineers, manufactures and sells customized sand control systems and related products, which are an essential part of the casting process, to other iron foundries. Sales of these sand control systems and related products represented approximately 3% of the Company's net sales for the year ended September 30, 1998. The Company currently operates two modern foundries with an annual aggregate rated capacity of approximately 187,000 tons at a single site in Neenah, Wisconsin. From 1985 to 1997, the Company has invested approximately $100 million in its production facilities, with approximately $73 million invested in a major plant modernization program from 1985 to 1990. This plant modernization program was a critical part of a long-term strategy to produce higher volume, value-added castings for its existing industrial customers and to penetrate other selected segments of the industrial market, while preserving its position as the leader in the heavy municipal market. This modernization program entailed the closing of the Company's oldest foundry, Plant 1, and the updating of the Company's other two foundries, Plants 2 and 3, which enabled the Company both to produce higher volume, complex castings for selected industrial segments and to improve the Company's cost position in the heavy municipal market. Following completion of the modernization program, the Company has steadily decreased its production of lower margin products such as axle covers and brake drums and increased the production of higher margin, more complex parts, such as transmission and axle housings. 30 36 Products, Customers and Markets The Company provides a variety of products to both the heavy municipal and industrial markets. The following table sets forth certain information regarding the end-user markets served by the Company, the products produced by the Company, representative customers in each end-user market and the percentage of net sales attributable to each of the Company's markets for the fiscal year ended September 30, 1998.
PERCENTAGE OF NET SALES(1) ------------------ REPRESENTATIVE FISCAL YEAR ENDED MARKET END PRODUCT CUSTOMERS SEPTEMBER 30, 1998 - ----------------- ------------------------- --------------- ------------------ Heavy Municipal Standard castings State and local 40.7% including storm and government sanitary sewer castings, entities, including manhole covers utility and frames, storm sewer companies, frames and grates; precast Specialty castings concrete including heavy duty structure airport castings, producers and specialized trench drain contractors(2) castings, specialty flood control castings and ornamental tree grates Industrial Medium- and Heavy-Duty Truck Differential carriers and Rockwell 37.3% cases, brackets, cages, International calipers, caps, carriers, Eaton Corp. hubs, knuckles, Dana Corp. transmission housings, yokes Farm Equipment Various gear housings, John Deere 16.0% planet carriers, axle New Holland housings, planting and harvesting equipment parts, counterweights Other Industrial Compressor components, Aisin 6.0% various housing and gear The Trane cases Company
- --------------- (1) Net sales include sales of Neenah Foundry Company only, excluding Hartley Controls Corporation and Neenah Transport, Inc. (2) No municipal customer represented more than 1.5% of Neenah Foundry's net sales for the fiscal year ended September 30, 1998. Heavy Municipal. The Company believes it is the largest manufacturer of heavy municipal iron castings in the United States and estimates its market share in calendar year 1998 to have been 19%. The Company's broad heavy municipal product line consists of two general categories of castings, "standard" and "specialty" castings. Standard castings principally consist of storm and sanitary sewer castings which are consistent with pre-existing dimension and strength specifications established by local authorities. Standard castings are generally high volume items that are routinely used in new construction and infrastructure replacement. Specialty castings are generally lower volume, higher margin products which include heavy-duty airport castings, trench drain castings, flood control castings, special manhole and inlet castings and ornamental tree grates. These specialty items are frequently selected and/or specified from the Company's municipal product catalog and its tree grate catalog, which together encompass over 4,400 standard and specialty patterns. For many of these specialty 31 37 products, the Company believes it is the only manufacturer with existing patterns to produce such a particular casting, although a competing manufacturer could elect to make the investment in patterns or equipment necessary to produce such a casting. The Company's municipal castings are sold to state and local government entities, utility companies, pre-cast concrete manhole structure producers and contractors for both new construction and infrastructure replacement. The Company's 17,000 active municipal customers generally make purchase decisions based on a number of criteria including acceptability of the product per local specification, quality, service, price and the customer's relationship with the foundry. Relative to customers in the industrial market, municipal market customers are less technically demanding and rely on published product specifications to ensure product performance. A key aspect of winning orders in the heavy municipal market is the specification process in which a local authority or design engineer sets specific criteria for the casting or castings to be used in a particular project. Those criteria then become part of the formal plans and specifications that will govern the acceptability of castings for a particular project. The Company seeks to be an active participant in the specification process. Its sales staff makes frequent calls on design engineers as part of a continuous effort to stay abreast of current specifications and upcoming projects. In these sales calls, the Company seeks to create opportunities for the selection of specifications which utilize an existing Company pattern. Although in many cases the design engineer who sets the specification does not make the purchase decision, when the Company's specialty product is specified it becomes more difficult for another manufacturer to provide an alternate part which is considered acceptable. The Company's professional sales staff and product engineering department are highly regarded by design engineers and are frequently consulted during the specification drafting process. The Company believes its reputation for its product engineering support, consistent quality and reliable service have made the Company's municipal and tree grate catalogs two of the most frequently used specification design tools in the municipal casting industry. Over the past three years, the Company has begun to introduce what it calls "lightweighted" parts to the heavy municipal market. These lightweighted parts have been reengineered in order to reduce both their weight and the amount of raw materials necessary for their manufacture, while maintaining the high quality performance characteristics of the heavier version of the casting. This improvement in the design and manufacture of municipal castings has resulted in lower material costs and improved margins for this product line. The Company is able to manufacture lightweighted castings because its manufacturing processes enable it to refine casting walls down to very narrow tolerances, many of which are currently not achievable by the Company's competitors. While only a portion of the municipal castings the Company sells are candidates for lightweighting, the Company expects to continue to increase the number of lightweighted castings which it offers for sale over the next several years. Industrial. The Company believes it is a leading manufacturer of a wide range of complex industrial castings, including castings for medium- and heavy-duty truck drive line components and farm equipment as well as castings for specific components for compressors used in HVAC systems. The Company's industrial castings have increased in complexity since the early 1990's and are generally produced in higher volumes than municipal castings. Complexity in the industrial market is determined by the intricacy of a casting's shape, the thinness of its walls and the amount of processing by a customer required before a part is suitable for use by it. Original equipment manufacturers ("OEMs") and their first tier suppliers have been demanding higher complexity parts principally to reduce labor costs in their own production processes by using fewer parts to manufacture the same finished product or assembly and by using parts which require less preparation before entering the production process. 32 38 The Company's industrial castings are primarily sold to a limited number of customers with whom the Company has established a close working relationship. The Company has sold to certain industrial customers for over 20 years and currently has multi-year arrangements with certain of those customers. These customers make purchasing decisions based on, among other things, technical ability, price, service, quality assurance systems, facility capabilities and reputation. However, as in the municipal market, the Company's assistance in product engineering plays an important role in winning the award of industrial castings. The average industrial casting typically takes between 12 and 18 months to go from the design phase to full production and has an average product life cycle of approximately 8 to 10 years. The patterns for industrial castings, unlike the patterns for municipal castings, are owned by the Company's customers rather than the Company, however, such industrial patterns are not readily transferrable to other foundries without, in most cases, significant additional investment. Although foundries, including the Company, do not design industrial castings, a close working relationship between a foundry and the customer during a product launch is critical to reduce potential production problems and minimize the customer's risk of incurring lost sales or reputation damage due to a delayed launch. Involvement by a foundry early in the design process generally improves the likelihood that the customer will design a casting within the manufacturing capabilities of such foundry and also improves the likelihood that such foundry will be awarded the casting for full production. The Company estimates that it has historically retained approximately 90% of the castings it has been awarded throughout the product life cycle, which is typical for the industry. The Company believes industrial customers will continue to seek out foundries with a strong reputation for performance who are capable of providing a cost-effective combination of manufacturing technology and quality. The Company's strategy is to further its relationships with existing customers by participating in the design and production of more complex industrial castings, while seeking out selected new customers who would value the Company's performance reputation, technical ability and high level of quality and service. In addition to increasing its sales to existing customers and seeking out new customers, the Company intends to explore opportunities in austempering and machining and assembling sub-components for specific industrial customers. Austempering is the process of heat treating a ductile iron casting to increase its strength, thereby increasing the casting's ability to replace steel in additional applications. Machining and sub-assembling are value-added processes often performed by the OEM or third parties. Austempering, machining and sub-assembly are both processes which generally provide higher margins and increase a customer's reliance on the manufacturer. Sales and Marketing Heavy Municipal. Over its 70 years of heavy municipal market participation, the Company has emphasized sales and marketing and believes it has built a strong reputation for customer service. The Company believes it is one of the leaders in United States heavy municipal casting production and has strong name recognition. The Company has the largest sales and marketing effort of any foundry serving the heavy municipal market, including 51 Company employees and \24 commissioned representatives. The dedicated sales force works out of regional sales offices to market the Company's municipal castings to contractors and state and local governmental entities throughout the United States. The Company operates nine regional distribution and sales centers and has two other sales offices in Oklahoma City, Oklahoma and Norwood, Pennsylvania. The Company believes this regional approach enhances its knowledge of local specifications and its position in the heavy municipal market. Industrial. The Company employs a dedicated industrial casting sales force of six people, five based in Neenah, Wisconsin and one based in Mansfield, Ohio. These six people consist of three account coordinators, who support the ongoing customer relationships and organize the 33 39 scheduling and delivery of shipments, and three major account managers who work with customers' engineers and procurement representatives, Company engineers, manufacturing management and quality assurance representatives throughout all stages of the production process to ensure that the final product consistently meets or exceeds customer specifications. This team approach between sales, manufacturing, marketing, engineering and quality assurance is an integral part of the Company's marketing strategy. Manufacturing Process The Company operates two modern foundries with an annual rated capacity of approximately 187,000 tons at a single location in Neenah, Wisconsin. The Company's foundries manufacture gray and ductile iron and cast it into intricate shapes according to customer metallurgical and dimensional specifications. From 1985 to 1997, the Company invested approximately $100 million in its production facilities, with approximately $73 million invested from 1985 to 1990 in plant modernization and new equipment. The Company also continually invests in the improvement of process controls and product performance and believes that these investments and its significant experience in the industry have made it one of the most efficient manufacturers of industrial and heavy municipal casting products. During the fiscal year ended September 30, 1998, the Company had a combined scrap rate of 2.3%. The casting process involves using metal, wood or urethane patterns to make an impression of a casting product in a mold made primarily of sand. Cores, also made primarily of sand, are used to make the internal cavities and openings in a casting product. Once the casting impression is made in the mold, the cores are set into the mold and the mold is closed. Molten metal is then poured into the mold, fills the mold cavity and takes on the shape of the desired casting product. Once the iron has solidified and cooled, the mold is shaken from the casting and the sand is recycled. The selection of the appropriate casting method, pattern, core making equipment and sand and other raw materials depends on the final product and its complexity, specifications, and function as well as intended production volumes. Because the casting process involves many critical variables, such as choice of raw materials, design and production of tooling, iron chemistry and metallurgy, and core and molding sand properties, it is important to monitor the process parameters closely to ensure dimensional precision and metallurgical consistency. See "-- Quality Assurance." The Company continually seeks to find ways to expand the capabilities of existing technology to improve manufacturing processes. An example of this expansion is the Company's integration of Disamatic molding machines into its operations. Disamatic molding machines are considered to be among the most efficient sand molding machines because of their ability to produce high quality molds at high production rates. Disamatic molding machines are used by most of the Company's direct competitors. Although the Company was not the first foundry to acquire Disamatic molding machines, it has significantly enhanced the equipment's range of production by combining it with core-setting capabilities which exceed those of most foundries. To further improve upon the productivity of the Disamatic molding machines, the Company has recently increased the length of two of its cooling lines, making each line among the longest lines in the world for comparable Disamatic equipment. This extension allows the Company to run its machines at higher production rates while providing sufficient inmold cooling time prior to mold shakeout to facilitate the production of high quality castings. As a result of these and other similar efforts, the Company has been able to increase productivity as measured in the number of molds per hour. The Company also achieves productivity gains by improving upon the individual steps of the casting process such as reducing the amount of time required to make a pattern change to produce a different casting product. The reduced time permits it to profitably produce castings in medium volume quantities on high volume, cost-effective equipment such as the Disamatic molding machines. Additionally, extensive effort in real time process controls permits the 34 40 Company to produce a consistent, dimensionally accurate casting product which requires less time and effort in the final processing stages of production. This accuracy contributes significantly to the Company's manufacturing efficiency. Manufacturing Facilities, Equipment and Properties The Company's headquarters and two foundries are located in Neenah, Wisconsin. The first manufacturing foundry, Plant 2, produces gray and ductile iron castings and is equipped with one BMD air impulse molding line, two Hydro slinger cope and drag molding units, and one 2070 Type B Disamatic molding machine. The second manufacturing foundry, Plant 3, produces ductile iron castings and is equipped with one 2013 Mark IV Disamatic molding machine and one 2070 Type B Disamatic molding machine. In July, 1995, the Company completed a program in Plant 3 to gain efficiencies in material handling, labor utilization and molding line productivity. Industrial and municipal castings are produced in both plants. The Company owns seven and leases six distribution and sales centers. Quality Assurance Constant testing and monitoring of the manufacturing process is important to maintain product quality. The Company has adopted sophisticated quality assurance techniques and policies for its manufacturing operations. During and after the casting process, the Company performs numerous tests, including tensile, proof-load, radiography, ultrasonic, magnetic particle and chemical analysis. The Company utilizes statistical process controls to measure and control significant process variables and casting dimensions. The results of this testing are documented in metallurgical certifications which are provided with each shipment to most industrial customers. The Company strives to maintain systems that provide for continuous improvement of operations and personnel, emphasize defect prevention and reduce variation and waste in all areas. Distribution The Company sells a substantial amount of its municipal castings through its network of two warehouses, nine distribution and sales centers and two other sales offices. Industrial castings are shipped direct to customers from the Company. For many municipal and a small portion of its industrial customers, castings are delivered by Neenah Transport, Inc. ("Neenah Transport"), a wholly owned subsidiary of the Company, which operates a fleet of 28 tractors and 101 trailers that deliver products throughout the Midwest. For sales outside of the Midwest, increased transportation costs impact the ability of the Company to compete on a cost basis. Neenah Transport also backhauls raw materials for use by the Company on return trips. Neenah Transport is staffed with professional drivers who are trained in service standards and product knowledge as representatives of the Company. To the Company's knowledge, none of the Company's major heavy municipal competitors have a captive transportation subsidiary. The Company believes Neenah Transport's service and drivers provide another differentiating factor in favor of the Company. Raw Materials The primary raw materials used by the Company to manufacture iron castings are steel scrap, pig iron, metallurgical coke and silica sand. While there are multiple suppliers for each of these commodities, the Company has sourcing arrangements with its suppliers of each of these major raw materials, with the exception of pig iron. Due to long standing relationships with each of its suppliers, the Company believes that it will continue to be able to secure raw materials from its suppliers at competitive prices. The primary energy sources for the Company's operations, electricity and natural gas, are purchased through utilities. 35 41 Although the prices of all raw materials used by the Company vary, the fluctuations in the price of steel scrap are the most significant to the Company. The Company has arrangements with most of its industrial customers which require the Company to adjust industrial casting prices to reflect scrap price fluctuations. In periods of rapidly rising or falling scrap prices, these adjustments will lag the current scrap price because they are generally based on average market prices for prior periods, which periods vary by customer but are generally no longer than six months. Castings are generally sold to the heavy municipal market on a bid basis and, after a bid is won, the price for the municipal casting subject to the bid generally cannot be adjusted for raw material price increases. However, in most cases the Company has been successful in obtaining higher municipal casting unit prices in subsequent bids to compensate for rises in scrap prices in prior periods. Rapidly fluctuating scrap prices may have a temporary adverse or positive effect on the Company's results of operations. See "Risk Factors -- Fluctuations in Price and Supply of Raw Materials." Competition The markets for the Company's products are highly competitive. Competition is based not only on price, but also on quality of product, range of capability, level of service and reliability of delivery. The Company competes with numerous independent and captive foundries, as well as with a number of foreign iron foundries, including certain foundries located in India. The Company also competes with several large domestic manufacturers whose products are made with materials other than ductile and gray iron, such as steel or aluminum. The industry consolidation that has occurred over the past 20 years has resulted in a significant reduction in the number of smaller foundries and a rise in the share of production by larger foundries, some of which have significantly greater financial resources than the Company. Competition from India has had a strong presence in the heavy municipal market and continues to be a factor, primarily in the western and eastern coastal states, due in part to costs associated with transportation. However, foreign companies have been, and continue to be, subject to antidumping and counterveiling duty enforcement litigation which the Company believes has had a negative effect on foreign companies' ability to compete in the United States markets. There can be no assurance that these factors will continue to mitigate the impact of foreign competition, or that the Company will be able to maintain or improve its competitive position in the markets in which it competes. Backlog The Company's industrial business generally involves supplying all or a portion of a customer's annual requirements for a particular casting. Industrial customers generally order castings on a monthly basis. Orders for the heavy municipal market are generally received for specific casting products and cover a much larger range of castings. The Company's backlog at any given time consists only of firm industrial and municipal orders. The Company's backlog was 18,203 tons at December 31, 1998 as compared to 18,723 tons at September 30, 1998. The decrease in backlog of approximately 3% was primarily the result of seasonal softening in the municipal segment and a decrease in product orders for components used in agriculture. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". Hartley Controls Hartley Controls, a wholly owned subsidiary of the Company, engineers, manufactures and sells customized sand control systems, which are an essential part of the casting process, to other iron foundries. The sand molding media used in all high production iron foundries is a critical element in determining the mold quality. Exacting and consistent control of this sand with respect to moisture and chemical additives is an essential element for process control, and relates directly to casting quality, scrap rate and the ability to produce complex molds for highly 36 42 engineered castings. Hartley Controls is a major United States supplier of sand control systems, with over 300 installations since 1986. Hartley Controls has made investments in process technology and has several patented technologies related to sand systems, including the "Automatic Moisture Controllers," the "Even-Flo Bin," the "Automatic Compactibility Tester," the "Automatic Bond Determinator," the "Green Sand Reconditioner" and the "Sandman." Sales of these sand systems and related products represented approximately 3% of the Company's net sales for year ended September 30, 1998. In addition, Hartley Controls has recently expanded overseas and after only three years has become a significant supplier of sand control systems in the United Kingdom. Hartley Controls is the only manufacturer to supply control systems in the United Kingdom for all brands of foundry sand mixers. Hartley Controls also currently exports sand control systems to India. Hartley Controls provides the Company access to the newest technology in sand control as it becomes available. Employees As of September 30, 1998, the Company had 970 full time employees, of whom 761 were hourly employees and 209 were salaried employees. The Local 121B of the Glass, Molders, Pottery, Plastics and Allied Workers International Union AFL-CIO is the major bargaining agent for and representative of 726 of the Company's hourly employees. The collective bargaining agreement with Local 121B was reached on December 31, 1998 and expires on December 31, 2001. The Independent Patternmakers Union of Neenah, Wisconsin is the major bargaining agent for and representative of 35 of the Company's hourly employees. The collective bargaining agreement with the Independent Patternmakers Union was reached on January 1, 1998 and expires on December 31, 2000. The Company believes that it has a good relationship with its employees. Litigation The Company is involved in routine litigation incidental to its business. Such litigation is not, in the opinion of management, likely to have a material adverse effect on the financial condition or results of operation of the Company. Environmental Matters Each of the Company's and the Recently Acquired Subsidiaries' facilities are subject to federal, state and local laws and regulations relating to pollution and the protection of the environment and worker health and safety, including those relating to discharges to air, water and land, the handling and disposal of waste, the operation of landfills and the cleanup of properties affected by hazardous substances. Such laws include, among others, the federal Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), and the Occupational Safety and Health Act. The Company believes that its and each of the Recently Acquired Subsidiaries' operations are currently in substantial compliance with applicable environmental laws and regulations and that it has no liabilities arising under such laws and regulations, except as would not be expected to have a material adverse effect on any of the Company's or any of the Recently Acquired Subsidiaries' operations, financial condition or competitive position. However, some risk of environmental liability and other costs is inherent in the nature of each of the Company's and the Recently Acquired Subsidiaries' businesses. Any of the Company or the Recently Acquired Subsidiaries might in the future incur significant costs to meet current or more stringent compliance, cleanup or other obligations pursuant to environmental requirements. Such costs may include expenditures related to remediation of historical releases of hazardous substances or clean-up of physical structures upon decommissioning. 37 43 Under the federal Clean Air Act Amendments of 1990, the U.S. Environmental Protection Agency ("EPA") is directed to establish maximum achievable control technology ("MACT") standards for certain industrial operations that are major sources of hazardous air pollutants ("HAPs"). The iron foundry industry is not expected to be required to implement the MACT emissions limits, control technologies or work practices until the year 2003 at the earliest. Although the Company cannot accurately estimate the costs to comply with the MACT standard until it is issued, the MACT standard, when implemented, and state laws governing the emission of toxic air pollutants may require that certain of the Company's or the Recently Acquired Subsidiaries' facilities incur significant costs for air emission control equipment, air emission monitoring equipment or process modifications. DALTON CORPORATION Overview Dalton manufactures and sells gray iron castings for refrigeration systems, air conditioners, heavy equipment, engines, gear boxes, stationary transmissions, heavy duty truck transmissions and other automotive parts. Dalton's four operating facilities have each been structured to manufacture or machine specific components to customer specifications. Dalton specializes in using cold box and shell core products as well as precision high-pressure molds to manufacture gray iron castings. The majority of Dalton's castings range in size from one pound to 700 pounds. Products and Market Share Dalton's revenues are generated from customers in several industries, however, refrigeration and air conditioning represent the largest concentration of tons shipped which management estimates is approximately 45% of tons shipped. Dalton serves primarily three markets: refrigeration and air conditioning, automotive/truck market and heavy equipment. Recent Financial Results Over the past five years Dalton has experienced consistent growth in tons of castings produced and net sales, but has generated a gradually decreased level of net income. The decrease in net income has been caused primarily by (i) increased interest expense due to indebtedness incurred to finance the repurchase of shares of Dalton's capital stock from employees when Dalton was owned by an employee stock ownership plan; (ii) increased fixed costs resulting from increased levels of production; and (iii) losses incurred by the Ashland facility as a result of its conversion from a ductile to a gray iron casting facility. This conversion, which has been completed, was undertaken due to lower than expected orders of the Ashland facilities ductile casting products. Customers Dalton has over 100 customers across several industries, with four of Dalton's largest five customers operating in the refrigeration/air conditioning industry. Dalton's largest 10 customers accounted for approximately 68% of Dalton's fiscal year 1998 net sales. Raw Materials The primary raw materials used by Dalton to manufacture iron castings are steel scrap, pig iron, metallurgical coke and silica sand. While there are multiple suppliers for each of these commodities, Dalton has sourcing arrangements with its suppliers of each of these major raw materials, with the exception of pig iron. Due to long standing relationships with each of its suppliers, Dalton believes that it will continue to be able to secure raw materials from its 38 44 suppliers at competitive prices. The primary energy sources for Dalton's operations, electricity and natural gas, are purchased through utilities. Although the prices of all raw materials used by Dalton vary, the fluctuations in the price of steel scrap are the most significant to Dalton. Dalton has arrangements with most of its industrial customers which require Dalton to adjust industrial casting prices to reflect scrap price fluctuations. In periods of rapidly rising or falling scrap prices, these adjustments will lag the current scrap price because they are generally based on average market prices for prior periods, which periods vary by customer but are generally no longer than six months. Rapidly fluctuating scrap prices may have a temporary adverse or positive effect on the Dalton's results of operations. See "Risk Factors -- Fluctuations in Price and Supply of Raw Materials." Competition Dalton operates in the same industry as the Company and therefore faces the same competitive environment as the company. See "-- The Company (other than the Recently Acquired Subsidiaries) -- Competition" and "Risk Factors -- Competition." Manufacturing Facilities Dalton currently operates four facilities. The main plant, located in Warsaw, Indiana ("Warsaw") was established in 1910. Between 1992 and 1995 Dalton acquired a second plant in Kendallville, Indiana ("Kendallville") and a third plant in Ashland, Ohio ("Ashland"). In addition, in 1997 Dalton acquired the remaining 50 percent interest in a machining facility located in Stryker, Ohio ("Stryker"). Dalton has established a separate headquarters and office facility in Warsaw, Indiana. Employees At September 30, 1998, Dalton employed 1,638 individuals, consisting of 1,336 hourly employees and 302 salaried and clerical employees. Almost all of Dalton's production employees are members of either the Steel Workers' Union or the Glass, Molders, Pottery, Plastics and Allied Workers International Union. A collective bargaining agreement is negotiated every three to five years. The current agreements expire as follows: Warsaw, April 2003; Kendallville, July 25, 1999; and Ashland, April 26, 1999. Management believes that employee relations are good. Litigation Dalton is involved in routine litigation incidental to its business. Such litigation is not, in the opinion of management, likely to have a material adverse effect on the financial condition or results of operation of Dalton. Environmental Matters Dalton is subject to environmental, health and safety laws comparable to those governing the Company. See "-- The Company (other than the Recently Acquired Subsidiaries) -- Environmental Matters." Status of Dalton's Air Emission Compliance In connection with Dalton's submission of draft operating permits for air emission sources at its facilities in Warsaw and Kendallville under Title V of the federal Clean Air Act Amendments of 1990 ("Title V"), the Indiana Department of Environmental Management ("IDEM") has asked Dalton to address several issues of concern: (i) alleged exceedances of particulate and volatile organic compound emission levels; (ii) the applicability of Prevention of Significant Deterioration ("PSD") permit review requirements; and (iii) alleged construction and operation of sources without the required permits. Depending 39 45 on the results of ongoing discussions with IDEM and the course of developing regulations, the costs of addressing Dalton's air emission control issues could be material. Dalton has retained an environmental consultant to address the concerns identified by IDEM. IDEM may require Dalton to perform tests on various emission sources, install new or upgrade existing emission capture or control equipment, use substitute materials or modify production rates to reduce regulated emissions and/or perform PSD review for several sources. IDEM could also assess penalties against Dalton for the identified concerns, but because the concerns were voluntarily disclosed to IDEM by Dalton in the Title V permit applications for these facilities, management believes that any penalties assessed by IDEM will not be material. Warsaw Monofill NOVs On May 15, 1998, IDEM issued an NOV to Dalton regarding Dalton's operation of an authorized landfill used exclusively by the Warsaw facility to dispose of its foundry waste (the "monofill"). IDEM issued the NOV after Dalton notified the agency that it had disposed of materials outside the authorized landfill area. IDEM is currently reviewing Dalton's request to modify the landfill permit and allow the disposal of wastes in the overfilled locations. IDEM is seeking a civil penalty of $100,000 to $150,000 from Dalton to resolve the NOV. Dalton could be required to relocate the overfill material to an authorized off-site disposal location if IDEM denies the pending request for permit modification. ADVANCED CAST PRODUCTS, INC. Overview ACP is headquartered in Dublin, Ohio. ACP produces its products through three principal facilities. The largest operation, Meadville, manufactures ductile iron castings through both the traditional green sand molding process and its proprietary Evapcast lost foam casting process. The Belcher operation manufactures malleable cast iron parts primarily for the electrical fittings industry. Finally, the Peerless operation produces bearing adapters for use in rail cars. Peerless is one of only three U.S. companies that manufacture railroad bearing adapters. Since 1990, ACP has generated gradually increasing sales and operating income primarily due to increased volume of products shipped. Products and Processes ACP is a leading independent manufacturer of ductile and malleable iron castings that are produced through both traditional casting methods and through ACP's Evapcast lost foam casting process. ACP's production capabilities also include a range of finishing operations including austempering and machining. ACP sells its products primarily to companies in the heavy truck, construction equipment, railroad, mining, electrical fittings and automotive industries. Evapcast and CasTuf are two of ACP's proprietary casting processes. Evapcast utilizes lost foam molding technology to produce near net-shape castings, which allow for tighter tolerances, a smoother surface and enhanced part complexity and require significantly less machining. CasTuf process produces austempered ductile iron castings with superior strength characteristics. CasTuf replaces more expensive steel castings, forgings and fabrications, providing increased design flexibility. Management believes that ACP is the first and only ductile foundry in the U.S. with its own in-house austemper furnace and is one of only two ductile iron foundries to have developed the lost-foam casting process. ACP is also a leading provider of in-house machined castings through its expanded machining capability, which utilizes state-of-the-art CNC machines. 40 46 ACP's products and processes have enabled the company to develop long-term working relationships with many key customers. This has allowed ACP to retain existing customers, build on its customer base and obtain favorable pricing. Customers ACP serves a diverse base of approximately 400 customers. Freightliner Corporation, ACP's largest customer, accounted for more than 16% of ACP's net sales for its fiscal year ended September 30, 1998. ACP specializes in meeting the more difficult requirements of its largest customers such as Caterpillar, Freightliner and Dana. ACP has been presented supplier awards from each of these OEMs and has earned the ability to obtain new part awards as they become available. ACP works closely with its customers from the beginning of the design process until the shipment of finished parts. Due to this level of customer service along with its products and services, ACP has been able to increase sales to existing customers as well as expand its customer base. ACP offers its customers a package, which includes casting, austempering, machining, painting and assembly. This combination of products and services reduces the risk of ACP customers moving their products to other manufacturers. ACP sells its products to customers in a wide range of industries. In fiscal year 1997, ACP's net sales were primarily to the heavy truck, railroad and pipe pressure fitting industries. Raw Materials The primary raw materials used by ACP to manufacture iron castings are steel scrap, alloys and silica sand. While there are multiple suppliers for each of these commodities, ACP has sourcing arrangements with its suppliers of each of these major raw materials. Due to long standing relationships with each of its suppliers, ACP believes that it will continue to be able to secure raw materials from its suppliers at competitive prices. The primary energy sources for ACP's operations, electricity and natural gas, are purchased through utilities and competitive third party bidding. Although the prices of all raw materials used by ACP vary over time, the fluctuations in the price of steel scrap are the most significant to ACP. ACP has arrangements with most of its industrial customers which allow ACP to adjust industrial casting prices to reflect scrap price fluctuations. See "Risk Factors -- Fluctuations in Price and Supply of Raw Materials." Competition ACP operates in the same industry as the Company and therefore faces the same competitive environment as the Company. See "-- The Company (other than the Recently Acquired Subsidiaries) -- Competition" and "Risk Factors -- Competition." Manufacturing Facilities ACP currently operates 3 facilities. Since 1989, ACP has spent over $14.0 million on capital equipment to expand production capacity, improve efficiency, add new production capabilities, replace equipment and improve the quality of its products. ACP investments have included, for example, state of the art Disamatic molding lines at both its Meadville and Belcher facilities and computer numerical controlled ("CNC") machining centers at Meadville. The new molding lines have increased capacity and reduced operating costs. In addition, new capital expenditures are underway for Meadville that include an autopour unit for its current Disamatic line, a larger Disamatic molding line for larger castings, a second austemper line, and additional CNC machines. Belcher's new capital expenditures also include 41 47 an autopour unit in addition to a heat treat furnace. Peerless is adding a new CNC machining center. Employees ACP has approximately 90 salaried and approximately 370 hourly employees represented by the United Steelworkers of America. The collective bargaining agreement for Belcher and Meadville expires in June 1999 and in October 1999, respectively. Litigation ACP is involved in routine litigation incidental to its business. Such litigation is not, in the opinion of management, likely to have a material adverse effect on the financial condition or results of operation of ACP. Environmental Matters ACP is subject to environmental, health and safety laws comparable to those governing the Company. See "-- The Company (other than the Recently Acquired Subsidiaries) -- Environmental Matters." Intellectual Property Meadville holds trademark rights on two advanced proprietary processes, Evapcast and CasTuf. ACP's Evapcast process utilizes a lost foam casting technique which produces near net shape castings. Evapcast eliminates or reduces the need for coring and machining resulting in significant cost savings to the customer. CasTuf is a process to produce a line of austempered ductile iron castings which have superior strength characteristics and are easier to cast than steel products, thus providing greater design freedom. Meadville is the only ductile iron casting company in North America with in-house austempering capabilities (CasTuf) and one of only two independent, ductile iron foundries with lost foam technology (EvapCast). Additionally, Meadville was one of the first foundry operations to provide completely finished parts through an integrated machining capability. MERCER FORGE CORPORATION Overview Founded in 1954, Mercer is a leading producer of complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer is also a leading producer of microalloy forgings. Mercer sells directly to OEMs, as well as to industrial end users. Until the mid-1980's, Mercer produced military tank parts, but successfully converted from a defense contractor to a commercial manufacturer and today is one of the leading suppliers to the heavy duty truck sector. Mercer produces approximately 500 individually forged components and has developed specialized expertise in forgings of microalloy steel which management estimates accounts for approximately 40% of its production. Products and Markets Mercer designs its products to customer specification with typical production runs of 1,000 or more units. Mercer currently operates eight mechanical press lines, from 1,300 tons to 4,000 tons. Mercer's principal plant is a 130,000 square foot facility located in Mercer, Pennsylvania. Key markets for Mercer include truck and automotive parts, railroad equipment and general industrial machinery. 42 48 The following is a summary of Mercer's product capabilities, broken out by the principal customer categories it serves:
-------------------------------------------------------------------------------------- INDUSTRY PRODUCTS -------------------------------------------------------------------------------------- Truck Drive Train Components; Sector Shafts; Knuckles, Spindles; King Pins -------------------------------------------------------------------------------------- Automotive Transmission Gears; Hubs, Front Wheel Universal Components; Drive Train Yokes; Spindles -------------------------------------------------------------------------------------- Mining Equipment Shoes; Fight Bars; Gear Blanks; Hubs; Sleeves -------------------------------------------------------------------------------------- Railroad Wheels; Draft Gear Components; Tank Car Valves; Piston Carries; Articulated Car Bearings; Connecting Rods -------------------------------------------------------------------------------------- Off-Highway/ Agriculture Yokes; Spindles; Flanges; Gear Blanks; Hubs; Track Links; Roller Shafts; Drive Line Components -------------------------------------------------------------------------------------- Industrial Gears; Bearings; Wheels; Cams -------------------------------------------------------------------------------------- Military Ordinance Projectile Components; Missile Components; Center Guides; End Connectors; Tank Track Components --------------------------------------------------------------------------------------
The Forged Components Market Demand for forged products for civilian application closely follows the general business cycle and the level demand for capital goods. While there is a consistent base level of demand for replacement parts which is somewhat inelastic, the strongest expansions in the forging industry coincide with periods of economic growth. With generally improved economic conditions and a boom in the transportation sector, Mercer and most other domestic forgers are currently experiencing growing demand for their products. The Forging Process -- Description and Benefits Manufacturing Process Forgings and casting (together with a third process, fabrication) are the principal commercial metal working processes. In forging metal is pressed, pounded or squeezed under great pressure, with or without the use of heat, into parts that retain the metal's original grain flow, imparting high strength, ductility and resistance properties. Forging itself usually entails one of four principal process: impression die; open die; cold; and seamless rolled ring forging. Mercer uses impression die, open die and cold forging, but not seamless rolled ring forging. Impression die forging, commonly referred to as "closed die" forging, is the principal process employed by Mercer, and involves bringing two or more dies containing "impressions" of the part shape together under extreme pressure, causing the forging stock to undergo plastic reformation. Because the metal flow is restricted by die containers, this process can yield more complex shapes and closer tolerances than the "open die" forging process. Impression die forging is used to produce products such as military and off-highway track and drive train parts; automotive and truck drive train and suspension parts; railroad engine, coupling and suspension parts; military ordinance parts and other items where close tolerances are required. Open die forging, so called because the metal is not confined laterally by impression dies during forging, progressively works the starting stock into the desired shape, generally between flat faced dies. Open die forging allows production of a broad range of shapes and sizes. 43 49 Similar in method to impression die forging, cold forging is a process in which a chemically-lubricated bar slug is forced into a closed die under extreme pressure. In this way, unheated metal flows into the desired shape. The cold forging process is best used to manufacture smaller, cylindrical pats such as shafts, spindles and small net gears. Once a rough forging is produced, regardless of the forging process, it must generally still be machined. This process, known as "finishing" or "conversion", smooths the component's exterior and mating surfaces and adds any required specification, such as groves, threads, bolt holes and brand name markings. The finishing process can contribute significantly to the value of the end product, in particular in certain custom situations where high value specialized machining is required. Machining can be performed either in-house by the forge, by a machine shop which performs this process exclusively or by the end-user. An internal staff of five engineers designs products to meet customer specifications incorporating computer assisted design (CAD) work stations for tooling design. Because its forged products are inherently less expensive and stronger, Mercer has been successful in replacing certain cast parts previously supplied by third party foundries. Management believes that Mercer is an industry leader in forging techniques using microalloy steel which produces parts which are lighter and stronger than those forged from conventional carbon steel. Customers Mercer's in-house sales organization sells direct to end users and OEMs. A key element of Mercer's sales strategy is its ability to develop strong customer relationships through responsive engineering capability, dependable quality and just-in-time performance. Raw Materials and Distribution The principal raw materials used in Mercer's products are carbon and microalloy steel. Mercer purchases substantially all of its carbon steel from four principal sources. Mercer typically maintains 30 to 60 days supply on hand. Mercer buys approximately 40,000 tons of raw steel per year. While Mercer has never suffered an interruption of materials supply, management believes that, in the event of any disruption from any individual source, adequate alternative sources of supply are available within the immediate vicinity although there can be no assurance in this regard. Competition Mercer competes primarily in a highly fragmented industry which includes several dozen other press forgers and hammer forge shops. Hammer shops cannot typically match press forgers' high volume, single component manufacturing, or close tolerance production. Competition in the forging industry has also historically been determined both by product and geography, with a large number of relatively small forgers across the country carving out their own product and customer niches. In addition, most end users manufacture some forgings themselves, often maintaining a critical minimum level of production in-house and contracting out the balance. The primary basis of competition in the forging industry is price, but engineering, quality and dependability are also important, particularly with respect to building and maintaining customer relationships. Some of Mercer's competitors have significantly greater resources than Mercer. There can be no assurance that Mercer will be able to maintain or improve its competitive position in the markets in which it competes. Mercer is not aware of any significant offshore competition within its current product categories. Due to the importance of customer relationships and engineering capabilities, most foreign producers are unable to compete. 44 50 Manufacturing Facilities Mercer is located in northwest Pennsylvania, about 60 miles north and west of the Greater Pittsburgh airport. Mercer owns it principal forging facility, which occupies a twenty-one acre site, and consists of a 130,000 square foot manufacturing facility (which was partially rebuilt and expanded by 50,000 square feet in 1989) and an adjacent office complex. Mercer also leases an 18,000 square foot machine shop facility located in Sharon, Pennsylvania, approximately ten miles from Mercer's headquarters. Mercer's main plant is able to forge complex components in runs from 500 to more than 10,000 units. Mercer manufactures approximately 500 individual products (SKUs) of which approximately half run throughout the production year. Heating capacity is 59,000 pounds per hour through eight induction heaters. Mercer's existing equipment can handle forging weights from 3 to 100 pounds and forging diameters ranging from 2 1/2 inches to 13 inches. Shear/saw production can handle up to 6 inch diameter billets. Mercer presently operates eight press lines consisting of one 4,000 ton, two 3,000 ton, two 2,000 ton and three 1,300 ton press lines. This equipment includes two new press lines including heating equipment, trim presses and billet loaders. The plant uses four microalloy conveyors. Mercer is also equipped with saws and shearers to cut billets from round and square steel bars. Mercer maintains a fully equipped quality control facility, magniflux machine, shot cleaning equipment, complete die welding facility and die repair machine shop. Backlog Forging backlog at December 31, 1998 is approximately 16.4 million, based on firm orders from existing customers. Even though Mercer is the sole supplier of certain specific components to several of its key accounts, Mercer does not book backlog until customer release dates are received. Mercer ships most orders within 30 days of manufacture. Employees Mercer currently has 155 full time hourly employees, all of whom are represented by a collective bargaining agreement with United Steel Workers of America. One such contract runs through March 31, 1999. In addition, Mercer's machining operation has a nine year contract with the United Steel Workers of America which expires in 2004. Management believes labor relations are good. Mercer also occasionally utilizes an outside temporary service in its packing operation. Litigation Mercer is involved in routine litigation incidental to its business. Such litigation is not, in the opinion of management, likely to have a material adverse effect on the financial condition or results of operation of Mercer. Environmental Matters Mercer is subject to environmental, health and safety laws comparable to those governing the Company. See "-- The Company (other than the Recently Acquired Subsidiaries) -- Environmental Matters." DEETER FOUNDRY, INC. Overview Since 1945, Deeter has been producing gray iron castings for the heavy municipal market. Deeter's municipal casting product line includes manhole frames and covers, storm sewer inlet 45 51 frames, grates and curbs, trench grating and tree grates. Deeter also produces a wide variety of special application construction castings. These products are utilized in waste treatment plants, airports, telephone and electrical construction projects. Deeter's centralized location in Lincoln, Nebraska allows it to service the majority of its geographical market area with overnight delivery. In addition, Deeter maintains 2 stockyards located in the midwest and western U.S. Customers Deeter serves the same customer and market base as Neenah's heavy municipal line. See "-- The Company (other than the Recently Acquired Subsidiaries) -- Products, Customers and Markets." Raw Materials The primary raw materials used by Deeter to manufacture iron castings are steel scrap, pig iron, metallurgical coke and silica sand. While there are multiple suppliers for each of these commodities, Deeter has sourcing arrangements with its suppliers of each of these major raw materials, with the exception of pig iron. Due to long standing relationships with each of its suppliers, Deeter believes that it will continue to be able to secure raw materials from its suppliers at competitive prices. The primary energy sources for Deeter's operations, electricity and natural gas, are purchased through utilities. Although the prices of all raw materials used by Deeter vary, the fluctuations in the price of steel scrap are the most significant to Deeter. Deeter builds to stock based on forecast sales during any given period and generally does not have any long term customer contracts. As a result, in periods of rapidly rising or falling scrap prices, prices charged to customers will relatively quickly reflect the current scrap price. Rapidly fluctuating scrap prices may have a temporary adverse or positive effect on Deeter's results of operations. See "Risk Factors -- Fluctuations in Price and Supply of Raw Materials." Competition Deeter operates in the same industry as the Company and therefore faces the same competitive environment as the Company. See "-- The Company (other than the Recently Acquired Subsidiaries) -- Competition" and "Risk Factors -- Competition." Manufacturing Facilities Deeter is located on an 18 acre site with 71,000 square feet of manufacturing area. Deeter operates three green sand molding lines with a current annual capacity of 20,000 net saleable tons. Deeter maintains stockyards located in Denver, Colorado and their primary distribution yard is located on site in Lincoln, Nebraska. Employees At September 30, 1998 Deeter had 97 full time hourly employees and 25 salaried employees. The workers are non-union and Deeter believes its relations with its employees are good. Litigation Deeter is involved in routine litigation incidental to its business. Such litigation is not, in the opinion of management, likely to have a material adverse effect on the financial condition or results of operation of Deeter. 46 52 Environmental Matters Deeter is subject to environmental, health and safety laws comparable to those governing the Company. See "-- Company (other than the Recently Acquired Subsidiaries) -- Environmental Matters." On May 30, 1997, prior to the Company's acquisition of Deeter, Deeter pleaded guilty to disposing of hazardous waste without a permit and agreed to pay a fine of $500,000, perform (by its president, Douglas E. Deeter) 300 hours of community service and provide certain information regarding its waste handling and disposal practices. Management believes that Deeter has complied and that the matter will result in no further liabilities. CAST ALLOYS, INC. Overview Cast Alloys' principal business is the manufacture of investment-cast titanium and stainless steel golf club heads. Cast Alloys operates out of three principal facilities in Chatsworth, California, Carlsbad, California and Northridge, California. Cast Alloys' wholly owned subsidiary, International Golf, operates as a cost center for Cast Alloys and is also principally involved in the manufacture of investment-cast titanium and stainless steel golf club heads. International Golf operates out of three facilities located in Tijuana, Baja California, Mexico. Cast Alloys is operated as our wholly owned subsidiary under the direction of our management. Customers The Company presently sells almost all of its products to Callaway Golf ("Callaway"). Sales for the trailing twelve months ended September 30, 1998 were $68.7 million, of which $63.0 million, or 91%, was sold to Callaway. Taylor Made was second on the customer list with $2.4 million in sales or 4%. The remaining 5% was made up of other smaller customers such as Wilson Sporting Goods. Raw Materials Raw materials include titanium ingot, revert titanium, stainless steel, and other foundry and polishing materials. The Company has contractual arrangements for the purchase of titanium ingot from foreign sources that cover their requirements at competitive prices. Competition The Company's main competitors include Coastcast Corporation ("Coastcast"), the primary supplier of clubs to Taylor Made, Sturm Ruger, Inc. ("Ruger"), a titanium ammunition manufacturer, and Selmet, Inc. ("Selmet"). Manufacturing Facilities Cast Alloys manufactures steel and titanium golf club heads for major golf club manufacturers. The Company's golf clubs are produced in four facilities. Steel clubs are cast and polished in separate facilities in Tijuana, Mexico. In 1996 and 1997, the Company installed three "arc melting" furnaces and four "cold wall" furnaces in its Northridge, California foundry for the production of titanium golf club heads. "Arc melting" furnaces have the ability to melt titanium in an ingot form while "cold wall" furnaces have the ability to melt titanium in various forms, such that the Company is able to recycle by melting scrap titanium pieces, resulting in significantly lower unit production costs. 47 53 Employees The Company employed approximately 2,158 people as of September 30, 1998. Of these, approximately 1,960 are employed at the Company's Mexican facilities. Litigation Cast Alloys is involved in routine litigation incidental to its business. Such litigation is not, in the opinion of management, likely to have a material adverse effect on the financial condition or results of operation of Cast Alloys. Environmental Matters Cast Alloys is subject to environmental, health and safety laws comparable to those governing the Company. See "-- The Company (other than the Recently Acquired Subsidiaries) -- Environmental Matters." 48 54 MANAGEMENT The following table identifies members of the Board of Directors, key executive officers and certain other key employees of the Company.
NAME AGE POSITION ---- --- -------- James K. Hildebrand.............. 62 Chairman of the Board and Chief Executive Officer William M. Barrett............... 52 President Gary W. LaChey................... 53 Vice President -- Finance, Treasurer and Secretary Charles M. Kurtti................ 61 Vice President -- Manufacturing and Engineering John Z. Rader.................... 50 Vice President -- Human Resources William J. Martin................ 51 Vice President -- Hartley Controls Corporation Timothy J. Koller................ 49 Vice President -- Construction Products, Sales, and Engineering Frank C. Headington.............. 49 Director -- Product Reliability David F. Thomas.................. 49 Director John D. Weber.................... 34 Director Brenton F. Halsey................ 71 Director
Mr. Hildebrand is Chairman of the Board and Chief Executive Officer of the Company. Mr. Hildebrand has been President and Chief Executive Officer of ACP since 1988, and will continue in that position for the foreseeable future. Previously, he served as President of the Cast Products Group of Amcast Industrial Corp. Mr. Hildebrand is also employed by ACP Holdings. See "Certain Relationships and Related Transactions." Mr. Barrett is President of the Company. Mr. Barrett joined the Company in 1992 and has served as Vice President and General Manager and General Sales Manager -- Industrial Castings. From 1985 to 1992, Mr. Barrett was the Vice President -- Sales for Harvard Industries Cast Products Group. Mr. LaChey is Vice President -- Finance, Treasurer and Secretary of the Company. Mr. LaChey joined the Company in 1971, serving in a variety of positions of increasing responsibility in the finance department. Mr. Kurtti is Vice President -- Manufacturing and Engineering, a position he has held since 1991. Mr. Kurtti joined the Company in 1976 as a salesman. Mr. Kurtti has served as Director of Marketing, Director of Purchasing -- Engineering and Director -- Manufacturing and Engineering. Mr. Rader is Vice President -- Human Resources, a position he has held since 1990. Mr. Rader joined the Company in 1987, serving as Director -- Personnel until 1989 and as Director -- Human Resources until 1990. Mr. Martin is Vice President -- Hartley Controls Corporation, a wholly owned subsidiary of the Company, a position he has held since 1996. Previously, Mr. Martin was Territory Sales Manager at Disamatic, Inc., a molding machine manufacturer, from 1986 to 1996. Mr. Koller is Vice President -- Construction Products, Sales and Engineering for the Company. Mr. Koller joined the Company in 1978, serving in a variety of positions of increasing responsibility in the sales and marketing departments. Mr. Headington is Director -- Product Reliability, a position he has held since 1991. Mr. Headington joined the Company in 1989 as Manager -- Technical Services, a position he held until 1991. Mr. Thomas is a director of the Company. Mr. Thomas has been a Managing Director of Citicorp Venture Capital, Ltd. for over five years. Mr. Thomas is a director of Lifestyle Furnishings 49 55 International Ltd., Galey & Lord, Inc., Anvil Knitwear, Inc., Plainwell, Inc., Stage Stores, Inc. and American Commercial Lines LLC. Mr. Weber is a director of the Company. Mr. Weber has been a Vice President at CVC since 1994. Previously, Mr. Weber worked at Putnam Investments from 1992 through 1994. Mr. Weber is a director of Anvil Knitwear, Inc., Electrocal Designs, Inc., FFC Holding, Inc., Graphic Design Technologies, Marine Optical, Inc., Gerber Childrenswear, Inc., Plainwell Paper Company, Sleepmaster, LLC, and Smith Alarm. Mr. Halsey is a director of the Company. Mr. Halsey was the founding Chief Executive Officer and Chairman of the James River Corporation from 1969 to 1990. He continued as Chairman until 1992 when he became Chairman Emeritus. COMPENSATION OF DIRECTORS Directors of the Company who are officers or employees of the Company or its affiliates are presently not expected to receive compensation for their services as directors. No determination has yet been made with respect to compensation for directors of the Company who are not officers or employees of the Company or any of its affiliates. Directors of the Company will be entitled to reimbursement of their reasonable out-of-pocket expenses in connection with their travel to and attendance at meetings of the board of directors or committees thereof. COMPENSATION OF EXECUTIVE OFFICERS The compensation of executive officers of the Company will be determined by the Board of Directors of the Company. None of the historical benefit or compensation plans of the Company are described herein because each were terminated with respect to the named officers and replaced as a group by a single compensation plan in connection with the Merger (with the exception of a 401(k) plan and a retirement plan for Mr. Kurtti). The following table sets forth information concerning compensation received by the five most highly compensated officers of the Company for services rendered in the fiscal year ended September 30, 1998, the five month period ended September 30, 1997 ("FM 1997"), the one month period ended April 30, 1997 ("OM 1997") and the fiscal year ended March 31, 1997. 50 56 SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION ----------------------------------- FISCAL ------------------ OTHER ANNUAL OPTIONS/ LTIP ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) SARS(#) PAYOUTS COMPENSATION - --------------------------- --------- -------- ------- --------------- --------- -------- ------------ James K. Hildebrand 1998 $120,000 $84,000 $34,107 -- -- -- Chairman of the Board FM 1997 50,000 -- 10,860 and Chief Executive OM 1997 -- -- -- Officer 1997 -- -- -- William M. Barrett 1998 $148,500 $85,575 $31,490 -- -- -- President FM 1997 55,000 -- 11,430 OM 1997 8,225 -- 1,936 1997 98,700 20,000 26,030 Gary W. LaChey 1998 $145,345 $86,980 $31,469 -- -- -- Vice President -- FM 1997 59,175 -- 10,723 Finance, Treasurer OM 1997 11,833 -- 2,081 and Secretary 1997 137,998 40,000 26,984 Charles M. Kurtti 1998 $137,500 $80,850 $34,510 -- -- -- Vice President -- FM 1997 55,000 -- 11,430 Manufacturing OM 1997 11,000 -- 2,229 and Engineering 1997 127,750 45,000 32,230 John Z. Rader 1998 $137,000 $80,850 $31,303 -- -- -- Vice President -- FM 1997 55,000 -- 11,430 Human Resources OM 1997 11,000 -- 2,229 1997 127,750 40,000 29,725
- --------------- (1) The named officers have participated in the Company's profit sharing, Company 401(k) contributions, and excess benefit programs. The aggregate payments made by the Company pursuant to such programs are listed as Other Annual Compensation. EMPLOYMENT AGREEMENTS Prior to the Merger, the Predecessor Company entered into a consulting agreement with James P. Keating, Jr. a former Senior Vice President of the Company, that provides that Mr. Keating will be available to serve as a consultant to the Company from July 1, 1997 to June 30, 1999. The Company, ACP, ACP Holdings and ACP Products L.L.C. entered into an executive employment and consulting agreement with James K. Hildebrand dated as of September 15, 1998. Such agreement provides for (i) an initial term of employment until September 30, 2001 after which, barring termination by the Company under certain circumstances (including gross negligence, wilful misconduct and commission of certain crimes), Mr. Hildebrand will serve as a consultant to the Company for a period of two years with automatic renewal, subject to earlier termination notice by either party, for successive one year periods up to an additional three years; (ii) a minimum base salary of $500,000 and a bonus to be calculated based on achieved EBITDA performance so long as Mr. Hildebrand is employed by the Company; (iii) severance benefits; (iv) non-competition, non-solicitation and confidentiality agreements; (v) an option to purchase certain common membership units of ACP Products L.L.C.; and (vi) other terms and conditions of Mr. Hildebrand's employment including health benefits. In addition, in connection with the Company's acquisition of all of the capital stock of Dalton, Dalton entered into an employment agreement with K.L. Davidson dated as of September 8, 1998 to serve as President of Dalton. Such agreement provides for (i) an initial one year term which shall be renewed automatically, subject to earlier termination notice by either party, for successive one year terms until Mr. Davidson attains the age of 65; (ii) a minimum base salary and bonus following the end of each fiscal year so long as Dalton employs Mr. Davidson; (iii) severance benefits; (iv) non-solicitation, non-compete and confidentiality agreements; and (v) other terms and conditions of Mr. Davidson's employment. 51 57 MANAGEMENT INCENTIVE PLAN The Company provides performance-based compensation awards to executive officers and key employees for achievement during each year as part of a bonus plan. Such compensation awards may be a function of individual performance and consolidated corporate results. The qualitative and quantitative criteria will be determined from time to time by the Board of Directors of the Company. MANAGEMENT EQUITY PARTICIPATION In connection with the Merger, the then current Management Investors acquired units representing membership interests in ACP Products, L.L.C., which represent, in the aggregate, approximately a ten percent beneficial interest in the Company (the "Purchased Interests"). In addition, in connection with certain of the Recent Acquisitions, certain senior managers of certain of the Recently Acquired Subsidiaries purchased common interests in ACP Products, L.L.C. The Management Investors and certain other employees of the Company may be given the opportunity to purchase additional Purchased Interests either in connection with future acquisitions or otherwise. Upon the termination of employment with the Company, an employee's Purchased Interests will be subject to certain repurchase provisions exercisable by ACP Products, L.L.C. or its designees. Any Purchased Interests issued in the future are expected to be subject to rights and restrictions similar to those of the Purchased Interests purchased in connection with the Merger. The price of the future Purchased Interests will be established by ACP Products, L.L.C. in consultation with the Board of Directors of the Company or a compensation committee thereof. 52 58 OWNERSHIP OF SECURITIES The Company's authorized capital stock consists of 11,000 shares of common stock, par value $100 per share (the "Common Stock"), 1,000 shares of which are issued and outstanding and owned by Holdings and are pledged to the lenders under the Senior Bank Facilities. Holdings' authorized capital stock consists of 1,000 shares of Common Stock, par value $.01 per share ("Holdings Common Stock"), of which 1,000 shares are issued and outstanding and 44,000 shares of 12% cumulative redeemable preferred stock, par value $.01 per share ("Holdings Preferred Stock") of which 44,000 shares are issued and outstanding. Dividends accrue on Holdings Preferred Stock at a rate of 12% per annum and accumulate and compound on a quarterly basis. Holdings Preferred Stock ranks prior to the Holdings Common Stock upon liquidation and in respect of dividends and redemption. The vote of 66% of the holders of the Holdings Preferred Stock, voting as a separate class is required to (i) cause Holdings to direct its subsidiaries to make distributions sufficient to enable Holdings to pay dividends on the Holdings Preferred Stock and (ii) cause the redemption of the Holdings Preferred Stock upon the occurrence of certain events. Except as described in the foregoing, or as otherwise required by law, the Holdings Preferred Stock is not entitled to the right to vote. The Holdings Preferred Stock is subject to mandatory redemption two years after the maturity of the Notes. Upon redemption, a holder of Holdings Preferred Stock is entitled to receive for each share of Holdings Preferred Stock redeemed its per share liquidation value plus accrued and unpaid dividends. The table below sets forth certain information regarding the equity ownership of Holdings by each person or entity who owns five percent or more of any class of voting capital stock as of June 30, 1998.
PERCENTAGE OF PERCENTAGE OF PREFERRED COMMON NAME AND ADDRESS OF BENEFICIAL OWNER STOCK STOCK ------------------------------------ ------------- ------------- ACP Holding Company(1).................................. 100% 100% 525 Metro Place North, Suite 330 Dublin, Ohio 43017
- --------------- (1) ACP Holding Company is an affiliate of Citicorp Venture Capital, Ltd., and a wholly-owned subsidiary of ACP Products, L.L.C. See "Certain Relationships and Related Transactions." The Management Investors have, through an investment in ACP Products, L.L.C., an approximately ten percent beneficial interest in the Company. See "Management -- Management Equity Participation." CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS RELATIONSHIP WITH ACP HOLDING COMPANY ACP Products, L.L.C. holds all of the issued and outstanding shares of capital stock of ACP Holdings. ACP Holdings is the parent company of Holdings, and thus indirectly owns 100% of the Common Stock of the Company. James K. Hildebrand, who serves as the Chairman of the Board and Chief Executive Officer of the Company, currently serves as President and Chief Executive Officer of ACP Holdings. Mr. Hildebrand held such positions prior to the contribution of the capital stock of ACP to the Company and received payment for such services. SHAREHOLDER RELATIONSHIPS The Management Investors and certain institutional investors, including Citicorp Venture Capital, Ltd., are parties to the Fifth Amended and Restated Limited Liability Agreement (the "L.L.C. Agreement"). The L.L.C. Agreement contains certain provisions with respect to the beneficial equity interests and corporate governance of the Company. The L.L.C. Agreement provides that the Investor Group and the Management Investors, as the only members of ACP Products, L.L.C. 53 59 holding beneficial interests in the Company, have the right to direct all actions taken in respect of Holdings and the Company, including, without limitation, appointing members of the Board of Directors of the Company and of Holdings. CONTRIBUTION OF ACP CAPITAL STOCK On September 8, 1998, the capital stock of ACP was contributed to the Company by ACP Holdings. In connection with the contribution, the Company assumed $14.9 million of indebtedness of ACP, $14.6 of which was refinanced through borrowings of Tranche A Loans. In connection with the contribution of the capital stock of ACP to the Company, (i) Holdings issued a $4.2 million senior subordinated note to CVC in exchange for a $4.2 million current pay obligation of ACP to CVC and (ii) $6.7 million of outstanding subordinated debt of ACP to ACP Holdings and Holdings was contributed to the capital of ACP. REGISTRATION RIGHTS AGREEMENT The Company entered into a registration rights agreement (the "Registration Rights Agreement") with the Investor Group and the Management Investors. Pursuant to the terms of the Registration Rights Agreement, certain holders of the Company's Common Stock have the right to require the Company, at the Company's sole cost and expense and subject to certain limitations, to register under the Securities Act or list on any recognized stock exchange all or part of the Common Stock beneficially owned by such holders (the "Registrable Securities"). All such holders will be entitled to participate in all registrations by the Company or other holders, subject to certain limitations. In connection with all such registrations, the Company agreed to indemnify all beneficial owners of Registrable Securities against certain liabilities, including liabilities under the Securities Act and other applicable state or foreign securities laws. Registrations pursuant to the Registration Rights Agreement will be made, if applicable, on the appropriate registration form and may be underwritten registrations. DESCRIPTION OF THE SENIOR BANK FACILITIES The following is a summary of the material terms of the Credit Agreement, dated April 30, 1997, as amended and restated as of September 12, 1997, April 3, 1998 and September 8, 1998, and as amended as of November 18, 1998, among the Company, Holdings, The Chase Manhattan Bank, as administrative agent and collateral agent (the "Agent"), and the lenders named therein (together with the Agent, the "Lenders"). The Senior Bank Facilities consist of (i) term loan facilities (the "Term Loan Facilities") in an aggregate principal amount of $145.0 million, (ii) an acquisition loan facility (the "Acquisition Loan Facility") in an aggregate principal amount of up to $50.0 million and (iii) a revolving loan facility (the "Revolving Credit Facility") in an aggregate principal amount of up to $50.0 million. The following summary is qualified in its entirety by reference to the Credit Agreement, copies of which will be made available to prospective purchasers of the Notes upon request. On November 18, 1998 the Lenders agreed to waive certain provisions and amend certain other provisions of the Credit Agreement. Pursuant to the amended Credit Agreement, the Company must use the net proceeds of the Offering to prepay borrowings under the Acquisition Loan Facility (without reducing the commitments thereunder). Any remaining proceeds of the Offering are required to be placed in a cash collateral account (the "Cash Collateral Account") with Chase, as collateral agent, for the benefit of the Lenders, to finance the Potential Acquisition or any permitted acquisition under the Credit Agreement. To the extent that funds placed in the Cash Collateral Account are not used to finance the Potential Acquisition or any other permitted acquisition under the Credit Agreement by February 15, 1999, the escrowed funds must be used to prepay borrowings pro rata under the Term Loan Facilities. 54 60 THE FACILITIES Term Loan Facilities. The Term Loan Facilities consist of two tranches of term loans. The tranche A term loans (the "Tranche A Loans") were made available on April 3, 1998 and were borrowed in a single drawing of $20.0 million on September 8, 1998 in connection with the acquisition of Dalton and ACP. The tranche B term loans were originally made in a single drawing of $55.0 million on April 3, 1998, of which $55.0 million was outstanding at June 30, 1998 (the "Initial Tranche B Loans"). On September 8, 1998, the Lenders agreed to commit to make additional tranche B term loans in an aggregate principal amount of $70.0 million, which was fully drawn by the Company on that date (the "Additional Tranche B Loans" and together with the Initial Tranche B Loans, the "Tranche B Loans"). The Tranche A Loans mature on September 30, 2003 and the Tranche B Loans mature on September 30, 2005. Installments of the Tranche A Loans are due in aggregate principal amounts of $0.75 million per quarter until September 30, 1999, $1.0 million per quarter from December 31, 1999 until September 30, 2002 and $1.25 million per quarter thereafter until maturity. Installments of the Initial Tranche B Term Loans are due in aggregate principal amounts of $0.25 million per quarter until September 30, 2003 and $6.25 million per quarter thereafter until maturity. Installments of the Additional Tranche B Loans are due in aggregate principal amounts of $8.75 million per quarter commencing on December 31, 2003 and continuing thereafter until maturity. Acquisition Loan Facility. The Lenders have agreed to provide loans under the Acquisition Loan Facility ("Acquisition Loans") from time to time to the Company in connection with permitted acquisitions under the Credit Agreement in an aggregate principal amount at any time outstanding not to exceed $50.0 million. Prior to the Acquisition Loan Termination Date (as defined), loans under the Acquisition Loan Facility may be paid and reborrowed. On September 8, 1998, the Company borrowed $29.0 million of Acquisition Loans in connection with the acquisition by the Company of Dalton. The Company will prepay all amounts outstanding under the Acquisition Loan Facility ($29.0 million) with the net proceeds of the Offering (but the Acquisition Loan Facility commitment will not be reduced). Future Acquisition Loans may be drawn until September 8, 2000 (the "Acquisition Loan Termination Date") with all amounts drawn maturing on June 30, 2004. Installments of Acquisition Loans outstanding on the Acquisition Loan Termination Date will be repaid quarterly beginning on such date until maturity. The aggregate principal amount due quarterly on and after the Acquisition Loan Termination Date is calculated by multiplying the principal amount outstanding (together with accrued but unpaid interest) on the Acquisition Loan Termination Date by 6.25%. Revolving Credit Facility. The Revolving Credit Facility consists of a revolving loan facility in an aggregate principal amount of $50.0 million. The Company is entitled to draw amounts under the Revolving Credit Facility for general corporate purposes, including permitted acquisitions. The Revolving Credit Facility includes a $15.0 million sub-limit for letters of credit available on same-day notice. The Revolving Credit Facility will mature on April 30, 2002. Availability. Availability of new drawings under the Acquisition Loan Facility and the Revolving Credit Facility is subject to various conditions precedent typical of bank facilities of this type including, among other things, the absence of any material adverse condition or material adverse change in or affecting the business, property, assets, nature of assets, liabilities or condition of the Company and no event of default having occurred and being continuing. Acquisition Loans may be drawn until September 8, 2000 and the Revolving Credit Facility may be borrowed, repaid and reborrowed until April 30, 2002. INTEREST Interest on borrowings under the Senior Bank Facilities accrues quarterly with reference to the base rate (the "Base Rate") plus the applicable interest margin; however the Company may elect that all or a portion of the borrowings under the facility bear interest at the Adjusted LIBO Rate plus 55 61 the applicable interest margin. The Base Rate is defined as the higher of (i) the certificate of deposit rate as published by the Federal Reserve Bank of New York, plus 1%, (ii) the Prime Rate (as defined in the Senior Bank Facilities) in effect on such day and (iii) the federal funds rate in effect on such date, plus 1/2%. The Adjusted LIBO Rate is defined as the rate at which eurodollar deposits for one, two, three or six months are quoted in the interbank eurodollar market, as adjusted to reflect statutory reserve requirements to which any lender is subject. The Senior Bank Facilities contain provisions under which commitment fees and interest rates are adjusted in increments based on the ratio (the "Leverage Ratio") of consolidated net debt to consolidated EBITDA in effect from time to time. Subject to certain exceptions, for Adjusted LIBO (a) the applicable interest margin for Tranche A Loans, loans under the Revolving Credit Facility and the Acquisition Loans and (b) the applicable interest margin for the Initial Tranche B Loans and the Additional Tranche B Loans are, in the case of a Leverage Ratio (i) greater than or equal to 4.5:1.0, 2.50% and 2.75%, respectively, (ii) greater than or equal to 4.0:1.0 but less than 4.5:1.0, 2.25% and 2.50%, respectively, (iii) greater than or equal to 3.5:1.0 but less than 4.0:1.0, 2.00% and 2.25%, respectively, (iv) greater than or equal to 3.0:1.0 but less than 3.5:1.0, 1.75% and 2.00%, respectively and (v) less than 3.0:1.0, 1.50% and 2.00%, respectively, with the applicable interest margin for Base Rate loans being 1.0% less than the corresponding margin for Adjusted LIBO loans (but not less than 0%). Currently all outstanding Tranche A Loans bear interest at the Adjusted LIBO Rate plus 2.50%, all outstanding Tranche B Loans bear interest at the Adjusted LIBO Rate plus 2.75%, and all outstanding Acquisition Loans bear interest at the Adjusted LIBO Rate plus 2.50%. FEES The Company has agreed to pay certain fees with respect to the Senior Bank Facilities, including (i) fees on the unused commitments of lenders equal to .50% on the undrawn portion of the commitments in respect of the Senior Bank Facilities (such fees being reduced to .375% should the Leverage Ratio be less than 3.5:1.0), (ii) letter of credit fees on the aggregate face amount of outstanding letters of credit equal to the then applicable borrowing margin for Adjusted LIBO loans under the Revolving Credit Facility and a issuing bank fee for the letter of credit issuing bank; (iii) annual administration fees; and (iv) agent, arrangement and other similar fees. SECURITY; GUARANTEES The obligations of the Company under the Senior Bank Facilities are irrevocably guaranteed, jointly and severally, by Holdings and by each existing and subsequently acquired or organized subsidiary of the Company. In addition, the Credit Agreement and the guarantees thereunder are secured by substantially all of the assets of Holdings, the Company and its domestic subsidiaries (collectively, the "Collateral"), including but not limited to (i) a first priority pledge of all the capital stock of the Company and of each existing and subsequently acquired or organized subsidiary of the Company and (ii) a perfected first priority security interest in, and mortgage on, substantially all tangible and intangible assets of the Company and the guarantors (including, but not limited to, accounts receivable, documents, inventory, equipment, investment property, general intangibles, real property, cash and cash accounts and proceeds of the foregoing), in each case subject to certain exceptions. MANDATORY AND OPTIONAL PREPAYMENT. The Term Loan Facilities and the Acquisition Loans are required to be prepaid, subject to certain conditions and exceptions, with (i) 100% of the net proceeds of any incurrence of indebtedness, subject to certain exceptions, by Holdings, the Company or its subsidiaries, (ii) 100% of the net proceeds of certain asset dispositions, (iii) 50% of excess cash flow (as such term is 56 62 defined in the Credit Agreement) on a consolidated basis and (iv) 100% of net proceeds from any insurance recovery events, subject to certain re-investment rights. Subject to certain exceptions, mandatory prepayments of debt must be made pro rata, among the Acquisition Loan Facility and the Term Loan Facility. In the case of an offering of qualified subordinated debt prior to September 8, 2000(including the Notes), mandatory prepayments must be made first to retire borrowings under the Acquisition Loan Facility with the remaining proceeds of any such offering used to retire pro rata borrowings under the Term Loan Facility. The Senior Bank Facilities provide that the Company may prepay loans in whole or in part without penalty, subject to minimum prepayments and reimbursement of the lenders' breakage and redeployment costs in the case of prepayment of Adjusted LIBO Loans. AFFIRMATIVE, NEGATIVE AND FINANCIAL COVENANTS The Credit Agreement contains a number of covenants that, among other things, restrict the ability of Holdings, the Company and its subsidiaries to dispose of assets, incur additional indebtedness, incur or guarantee obligations, amend other debt instruments, pay dividends, create liens on assets, make investments, loans or advances, make acquisitions, engage in mergers or consolidations, change the business conducted by the Company and its subsidiaries, make capital expenditures, or engage in certain transactions with affiliates and otherwise restrict certain corporate activities. In addition, the Credit Agreement requires the Company to comply with specified financial ratios and tests, including a maximum leverage ratio, an interest coverage ratio and a minimum consolidated net worth test. EVENTS OF DEFAULT The Senior Bank Facilities contains customary events of default, including non-payment of principal, interest or fees, violation of covenants, inaccuracy or representations or warranties in any material respect, cross default to certain other indebtedness, bankruptcy, ERISA events, material judgments and liabilities, actual or asserted invalidity of any material security interest and change of control. 57 63 DESCRIPTION OF NOTES GENERAL The form and terms of the series F senior subordinated notes due 2007 (the "Exchange Notes") are the same as the form and terms of the Old Notes except that (i) the Exchange Notes will have been registered under the Securities Exchange Act of 1934, as amended (the "Securities Act") and thus will not bear restrictive legends restricting their transfer pursuant to the Securities Act and (ii) holders of Exchange Notes will not be entitled to rights of holders of the Old Notes under the Registration Rights Agreement which terminate upon the consummation of the Exchange Offer. The Old Notes have been, and the Exchange Notes are to be, issued under an Indenture, dated as of April 30, 1997 (the "Indenture"), among the Company, the Guarantor Subsidiaries and United States Trust Company of New York, as Trustee (the "Trustee"). The following summary of certain provisions of the Indenture and the Exchange Notes does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Indenture, including the definitions of certain terms therein and those terms made a part thereof by the Trust Indenture Act of 1939, as amended ("TIA"). Capitalized terms used herein and not otherwise defined have the meanings set forth in the section "-- Certain Definitions" below. Principal of, premium, if any, and interest on the Exchange Notes will be payable, and the Exchange Notes may be exchanged or transferred, at the office or agency of the Company in the Borough of Manhattan, the City of New York (which initially shall be the corporate trust office of the Trustee at 114 West 47th Street, New York, N.Y. 10036, Attn: Gerard Ganey), except that, at the option of the Company, payment of interest may be made by check mailed to the registered holders of the Notes at their registered addresses. The Exchange Notes will be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge will be made for any registration of transfer or exchange of Exchange Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. TERMS OF THE NOTES The Exchange Notes will be unsecured senior subordinated obligations of the Company, limited to $87.0 million aggregate principal amount, and will mature on May 1, 2007. Each Exchange Note will bear interest at a rate per annum shown on the front cover of this Prospectus from the Issue Date or from the most recent date to which interest has been paid or provided for, payable semiannually to Holders of record at the close of business on the April 15 or October 15 immediately preceding the interest payment date on May 1 and November 1 of each year, commencing May 1, 1999. OPTIONAL REDEMPTION Except as set forth below, the Exchange Notes will not be redeemable at the option of the Company prior to May 1, 2002. On and after such date, the Exchange Notes will be redeemable, at the Company's option, in whole or in part, at any time upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's registered address, at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the 58 64 date of redemption), if redeemed during the 12-month period commencing on May 1 of the years set forth below:
REDEMPTION YEAR PRICE ---- ---------- 2002........................................................ 105.5625% 2003........................................................ 103.7083% 2004........................................................ 101.8542% 2005 and thereafter......................................... 100.0000%
In addition, at any time and from time to time on or prior to May 1, 2000, the Company may redeem in the aggregate up to 40% of the original aggregate principal amount of the Exchange Notes with the cash proceeds to it of one or more Public Equity Offerings following which there is a Public Market, at a redemption price (expressed as a percentage of principal amount thereof) of 111.125% plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption); provided, however, that at least 60% of the original aggregate principal amount of the Exchange Notes must remain outstanding after each such redemption. Notwithstanding the preceding two paragraphs, the Company will not be permitted to redeem any Existing Notes unless, substantially concurrently with such redemption, the Company redeems an aggregate principal amount of Exchange Notes (rounded to the nearest integral multiple of $1000) equal to the product of: (1) a fraction, the numerator of which is the aggregate principal amount of Existing Notes to be so redeemed and the denominator of which is the aggregate principal amount of Existing Notes outstanding immediately prior to such proposed redemption and (2) the aggregate principal amount of Exchange Notes outstanding immediately prior to such proposed redemption. Similarly, the Company will not be permitted to redeem the Exchange Notes unless, substantially concurrently with such redemption, the Company redeems an aggregate principal amount of each series of Existing Notes (rounded to the nearest integral multiple of $1,000) equal to the product of: (1) a fraction, the numerator of which is the aggregate principal amount of Exchange Notes to be so redeemed and the denominator of which is the aggregate principal amount of Exchange Notes outstanding immediately prior to such proposed redemption and (2) the aggregate principal amount of such series of Existing Notes outstanding immediately prior to such proposed redemption. The Exchange Notes will be subject to redemption at the option of the Company, prior to May 1, 2002, at any time within 180 days after a Change of Control on not less than 30 nor more than 60 days' prior notice to each Holder of Exchange Notes to be redeemed, in amounts of $1,000 or an integral multiple thereof, at a redemption price equal to the sum of (i) the principal amount thereof plus (ii) accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption) plus (iii) the Applicable Premium. Each Holder of Exchange Notes will also have certain rights to require the Company to purchase such Exchange Notes upon the occurrence of a Change of Control. See "-- Change of Control" below. SELECTION In the case of any partial redemption, selection of the Exchange Notes for redemption will be made by the Trustee on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, although no Exchange Note of $1,000 in original principal amount or less will be redeemed in part. If any Exchange Note is to be redeemed in part only, the notice of redemption relating to such Exchange Note shall state the portion of the principal amount thereof to be redeemed. A new note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original note. 59 65 RANKING The indebtedness evidenced by the Exchange Notes will be unsecured Senior Subordinated Indebtedness of the Company. The payment of the principal of, premium (if any) and interest on the Exchange Notes is subordinate in right of payment, as set forth in the Indenture, to all existing and future Senior Indebtedness of the Company, will rank pari passu in right of payment with all existing and future Senior Subordinated Indebtedness of the Company (including the Existing Notes) and will be senior in right of payment to all existing and future Subordinated Obligations of the Company. The Exchange Notes will also be effectively subordinated to any Secured Indebtedness of the Company to the extent of the value of the assets securing such indebtedness. However, payment from the money or the proceeds of U.S. Government Obligations held in any defeasance trust described under "Defeasance" below is not subordinated to any Senior Indebtedness or subject to the restrictions described herein. The indebtedness evidenced by a Subsidiary Guaranty will be unsecured Senior Subordinated Indebtedness of the Guarantor Subsidiary issuing such Subsidiary Guaranty. The payment of a Subsidiary Guaranty is subordinate in right of payment, as set forth in the Indenture, to all existing and future Senior indebtedness of such Guarantor Subsidiary, will rank pari passu in right of payment with the existing and future Senior Subordinated Indebtedness of such Guarantor Subsidiary and will be senior in right of payment to all existing and future Subordinated Obligations of such Guarantor Subsidiary. Each Subsidiary Guaranty will also be effectively subordinated to any Secured Indebtedness of the Guarantor Subsidiary to the extent of the value of the assets securing such indebtedness. As of December 31, 1998, on a pro forma basis after giving effect to the Recent Acquisitions, the Offering and the application of the net proceeds therefrom and assuming the proceeds of the Offering are not applied to repay amounts outstanding under the Term Loan Facilities, the Company and the Guarantor Subsidiaries would have had outstanding $145.1 million (excluding $4.6 million of outstanding letters of credit) of aggregate principal amount of Senior Indebtedness (all of which is Secured Indebtedness), $195.0 million aggregate principal amount of Senior Subordinated Indebtedness (other than the Indebtedness represented by the Exchange Notes), and no Indebtedness that is subordinate and junior in right of repayment to Senior Subordinated Indebtedness. Although the Indenture contains limitations on the amount of additional Indebtedness that the Company and its subsidiaries may incur, under certain circumstances the amount of such Indebtedness could be substantial and, in any case, such Indebtedness may be Senior Indebtedness of the Company or a Guarantor Subsidiary, as the case may be. See "-- Certain Covenants -- Limitation on Indebtedness" below. "Senior Indebtedness" of the Company means all principal of, premium (if any), accrued interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and other amounts owing with respect to all Indebtedness of the Company, and including all Bank Indebtedness, whether outstanding on the Issue Date or thereafter incurred, unless in the instrument creating or evidencing the same or pursuant to which the same is outstanding it is expressly provided that such obligations are not superior in right of payment to the Exchange Notes; provided, however, that Senior Indebtedness shall not include (1) any obligation of the Company to any Subsidiary, (2) any liability for federal, foreign, state, local or other taxes owed or owing by the Company, (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including Guarantees thereof or instruments evidencing such liabilities), (4) any Indebtedness or obligation of the Company which is subordinate or junior in any respect (other than as a result of the Indebtedness being unsecured) to any other Indebtedness or obligation of the Company, including any Senior Subordinated Indebtedness and any Subordinated Obligations, (5) any obligations with respect to any Capital Stock or (6) any Indebtedness Incurred in violation of the Indenture. "Senior Indebtedness" of any Guarantor Subsidiary has a correlative meaning. 60 66 Only Indebtedness of the Company or a Guarantor Subsidiary that is Senior Indebtedness will rank senior to the Exchange Notes and the relevant Subsidiary Guaranty in accordance with the provisions of the Indenture. The Exchange Notes and each Subsidiary Guaranty will in all respects rank pari passu with all other Senior Subordinated Indebtedness of the Company and the relevant Guarantor Subsidiary, respectively (including the Existing Notes). The Company and each Guarantor Subsidiary has agreed in the Indenture that it will not incur, directly or indirectly, any Indebtedness which is subordinate or junior in ranking in any respect to Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness, or is expressly subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured Indebtedness of the Company or a Guarantor Subsidiary is not deemed to be subordinated or junior to Secured Indebtedness, as the case may be, merely because it is unsecured. The Company may not pay principal of, or premium (if any) or interest on, the Exchange Notes or make any deposit pursuant to the provisions described under "-- Defeasance" below, and may not otherwise purchase, redeem or otherwise retire any Exchange Notes other than from funds held in a defeasance trust pursuant to the provisions described under "-- Defeasance" below (collectively, "pay the Exchange Notes"), if (i) any Senior Indebtedness of the Company is not paid when due or (ii) any other default on Senior Indebtedness of the Company occurs and the maturity of such Senior Indebtedness is accelerated in accordance with its terms unless, in either case, the default has been cured or waived and any such acceleration has been rescinded or such Senior Indebtedness has been paid in full. However, the Company may pay the Exchange Notes without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from the Representative of the holders of the Senior Indebtedness with respect to which either of the events set forth in clause (i) or (ii) of the immediately preceding sentence has occurred and is continuing. During the continuance of any default (other than a default described in clause (i) or (ii) of the second preceding sentence) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Company may not pay the Exchange Notes for a period (a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to the Company) of written notice (a "Blockage Notice") of such default from the Representative of the holders of the Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Trustee and the Company from the Person or Persons who gave such Blockage Notice, (ii) because the default giving rise to such Blockage Notice is no longer continuing or (iii) because such Designated Senior Indebtedness has been repaid in full). Notwithstanding the provisions described in the immediately preceding sentence, unless the holders of such Designated Senior Indebtedness have, or the Representative of such holders has, accelerated the maturity of such Designated Senior Indebtedness, the Company may resume payments on the Exchange Notes after the end of such Payment Blockage Period, including any missed payments. Not more than one Blockage Notice may be given in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period. However, if any Blockage Notice within such 360-day period is given by or on behalf of any holders of Designated Senior Indebtedness other than the Bank Indebtedness, the Representative of the Bank Indebtedness may give another Blockage Notice within such period. In no event, however, may the total number of days during which any Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate during any 360 consecutive day period. Upon any payment or distribution of the assets of the Company upon a total or partial liquidation or dissolution or reorganization of or similar proceeding relating to the Company or its property, the holders of Senior Indebtedness of the Company will be entitled to receive payment in full of the Senior Indebtedness of the Company before the Exchange Noteholders are entitled to receive any payment and until the Senior Indebtedness of the Company is paid in full, any payment or distribution to which Noteholders would be entitled but for the subordination provisions of the 61 67 Indenture will be made to holders of the Senior Indebtedness of the Company as their respective interests may appear. If a payment or distribution is made to Exchange Noteholders that due to the subordination provisions should not have been made to them, such Exchange Noteholders are required to hold such payment or distribution in trust for the holders of Senior Indebtedness and pay it over to them as their respective interests may appear. If payment of the Exchange Notes is accelerated because of an Event of Default, the Company or the Trustee shall promptly notify the holders of the Designated Senior Indebtedness or the Representative of such holders of the acceleration. The Company may not pay the Exchange Notes until five Business Days after such holders or the Representative of the holders of the Designated Senior Indebtedness receive notice of such acceleration and, thereafter, may pay the Notes only if the subordination provisions of the Indenture otherwise permit payment at that time. The terms of the subordination provisions described above with respect to the Company's obligations under the Exchange Notes apply equally to a Guarantor Subsidiary and the obligations of such Guarantor Subsidiary under its Subsidiary Guaranty. By reason of such subordination provisions contained in the Indenture, in the event of insolvency, creditors of the Company or a Guarantor Subsidiary who are holders of Senior Indebtedness of the Company or a Guarantor Subsidiary, as the case may be, may recover more, ratably, than the Exchange Noteholders, and creditors of the Company who are not holders of Senior Indebtedness of the Company or of Senior Subordinated Indebtedness (including the Exchange Notes) may recover less, ratably, than holders of Senior Indebtedness of the Company. SUBSIDIARY GUARANTIES Each of the Company's principal operating subsidiaries (the "Initial Guarantors," and together with all future issuers of Subsidiary Guaranties, the "Guarantor Subsidiaries") will jointly and severally as primary obligors and not merely as sureties, irrevocably Guarantee on an unsecured senior subordinated basis the performance and punctual payment when due, whether at Stated Maturity, by acceleration or otherwise, of all obligations of the Company under the Indenture and the Exchange Notes, whether for payment of principal of or interest on the Exchange Notes, expenses, indemnification or otherwise (all such obligations guaranteed by the Guarantor Subsidiaries being herein called the "Guaranteed Obligations"). The Guarantor Subsidiaries will agree to pay, in addition to the amount stated above, any and all expenses (including reasonable counsel fees and expenses) incurred by the Trustee or the Holders in enforcing any rights under the Subsidiary Guaranties. Each Subsidiary Guaranty will be limited in amount to an amount not to exceed the maximum amount that can be Guaranteed by the applicable Guarantor Subsidiary without rendering such Subsidiary Guaranty voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. The Company will cause (a) each Restricted Subsidiary that is a Domestic Subsidiary which Incurs Indebtedness and (b) each Restricted Subsidiary that is not a Domestic Subsidiary and that after the Original Issue Date enters into a Guarantee of any of the obligations of the Company, Holdings or any of the Company's subsidiaries pursuant to the Senior Bank Facilities to Guarantee payment of the Exchange Notes. See "-- Certain Covenants -- Future Guarantor Subsidiaries" below. Each Subsidiary Guaranty is a continuing guarantee and shall (a) remain in full force and effect until payment in full of all the Guaranteed Obligations, (b) be binding upon each Guarantor Subsidiary and (c) enure to the benefit of and be enforceable by the Trustee, the Holders and their successors, transferees and assigns. A Subsidiary Guaranty will be released upon the sale of the capital stock, or all or substantially all of the assets, of the applicable Guarantor Subsidiary if such sale is made in compliance with the Indenture. 62 68 Each of the Company's Guarantor Subsidiaries have also Guaranteed or will also Guarantee Indebtedness of the Company Incurred under the terms of the Senior Bank Facilities and the Existing Notes. CHANGE OF CONTROL Upon the occurrence of any of the following events (each a "Change of Control"), each Holder will have the right to require the Company to repurchase all or any part of such Holder's Exchange Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), pursuant to the offer described below and the other procedures set forth in the Indenture; provided, however, that notwithstanding the occurrence of a Change of Control, the Company shall not be obligated to purchase the Exchange Notes pursuant to this covenant in the event that it has exercised its rights to redeem all of the Exchange Notes as described under "-- Optional Redemption": (a) prior to the earlier to occur of the first public offering of Voting Stock of ACP Holdings, Holdings or the Company, the Permitted Holders cease to be entitled (by "beneficial ownership" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of Voting Stock, contract or otherwise) to elect or cause the election of directors of the Company having a majority of the total voting power of the Board of Directors of the Company, whether as a result of issuance of securities of the Company, any merger, consolidation, liquidation or dissolution of the Company, any direct or indirect transfer of securities by any Permitted Holder or otherwise (for purposes of this clause (a), the Permitted Holders shall be deemed to beneficially own any Voting Stock of a corporation (the "specified corporation") held by any other corporation (the "parent corporation") so long as one or more of the Permitted Holders beneficially own (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent corporation); (b) after the first public offering of Voting Stock of ACP Holdings, Holdings or the Company, any person or group (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more of the Permitted Holders, is or becomes the beneficial owner (as defined in clause (a) above), directly or indirectly, of Voting Stock that represents more than 40% of the aggregate ordinary voting power of all classes of the Voting Stock of ACP Holdings, Holdings or the Company voting together as a single class, and either (x) the Permitted Holders beneficially own (as defined in clause (a) above), directly or indirectly, in the aggregate Voting Stock that represents a lesser percentage of the aggregate ordinary voting power of all classes of the Voting Stock of ACP Holdings, Holdings, or the Company as the case may be, voting together as a single class, than such other person or group and are not entitled (by voting power, contract or otherwise) to elect directors of ACP Holdings, Holdings or the Company having a majority of the total voting power of the board of directors of ACP Holdings, Holdings or the Company, as the case may be, or (y) such other person or group is entitled to elect directors of ACP Holdings, Holdings or the Company having a majority of the total voting power of the board of directors of ACP Holdings, Holdings or the Company; (c) after the first public offering of Voting Stock of ACP Holdings, Holdings or the Company, during any period of not greater than two consecutive years beginning after the Issue Date, individuals who at the beginning of such period constituted the board of directors of ACP Holdings, Holdings or the Company, as the case may be (together with any new directors whose election by such board of directors, or whose nomination for election by shareholders was approved by the Permitted Holders or by such board of directors, in each case by a vote of a majority of the directors of ACP Holdings, Holdings or the Company, as the case may be, then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved), cease for any reason to have a majority of 63 69 the total voting power of the board of directors of ACP Holdings, Holdings or the Company, as the case may be; or (d) any sale, lease, or other transfer (in one transaction or in a series of related transactions) is made by the Company or its Restricted Subsidiaries of all or substantially all of the consolidated assets of the Company and its Restricted Subsidiaries to any Person. Within 30 days following any Change of Control, the Company shall mail a notice to each Holder with a copy to the Trustee stating, among other things: (1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase all or any portion of such Holder's Exchange Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of Holders of record on a record date to receive interest on the relevant interest payment date); (2) the circumstances and relevant facts and financial information regarding such Change of Control; (3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (4) the instructions determined by the Company, consistent with this covenant, that a Holder must follow in order to have its Exchange Notes or any portion thereof purchased. The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Exchange Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations described above by virtue thereof. The Change of Control purchase feature is a result of negotiations between the Company and the Initial Purchaser. Management has no present intention to engage in a transaction involving a Change of Control, although it is possible that the Company or Holdings would decide to do so in the future. Subject to the limitations discussed below, the Company could, in the future, enter into certain transactions, including acquisitions or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect the Company's capital structure or credit ratings. The occurrence of a Change of Control would constitute a default under the Senior Bank Facilities. Future Senior Indebtedness of the Company may contain prohibitions of certain events which would constitute a Change of Control or require such Senior Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise by the Holders of their right to require the Company to repurchase the Exchange Notes could cause a default under such Senior Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company. Finally, the Company's ability to pay cash to the Holders upon a repurchase may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any repurchases required in connection with a Change of Control. The Company's failure to purchase the Exchange Notes in connection with a Change of Control would result in a default under the Indenture. CERTAIN COVENANTS The Indenture will contain covenants including, among others, the following: Limitation on Indebtedness. (a) The Company will not, and will not permit any Restricted Subsidiary to, Incur any Indebtedness (other than pursuant to the following paragraph (b)) unless on the date of such Incurrence the Consolidated Coverage Ratio exceeds 2.00 to 1. 64 70 (b) Notwithstanding the foregoing paragraph (a), the Company and its Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness consisting of revolving credit, working capital or letters of credit financing in an aggregate principal amount at any time outstanding not in excess of the greater of $35.0 million and the Borrowing Base in effect from time to time (in each case less the aggregate amount of all repayments of principal actually made thereunder since the Original Issue Date with Net Available Cash from Asset Dispositions pursuant to clause (a)(iii)(A) of the covenant described under "-- Limitation on Sales of Assets and Subsidiary Stock"); (ii) Indebtedness of the Company owing to and held by any Wholly Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by the Company or any Wholly Owned Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of any such Indebtedness (except to the Company or a Wholly Owned Subsidiary) will be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (iii) Indebtedness of the Company represented by the Notes; (iv) any Indebtedness of the Company and its Restricted Subsidiaries (other than the Indebtedness described in clauses (i) or (ii) above) outstanding on the Original Issue Date and Indebtedness Incurred under Section 4.03(a) of the Original Indenture prior to the Issue Date; (v) Indebtedness of the Company and its Restricted Subsidiaries (A) in respect of judgment, appeal, surety, performance and other like bonds, bankers' acceptances and letters of credit provided by the Company and its Restricted Subsidiaries in the ordinary course of their business and which do not secure other Indebtedness and (B) under Commodity Agreements, Currency Agreements and Interest Rate Agreements that are designed to protect the Company and its Restricted Subsidiaries against fluctuations in commodity prices (for raw materials used by them), interest rates or currency exchange rates and not for the purposes of speculation; (vi) Indebtedness represented by Guarantees by the Company of Indebtedness of a Restricted Subsidiary, or in respect of letters of credit provided by the Company to support such Indebtedness, or Guarantees by a Restricted Subsidiary of Indebtedness of the Company or a Restricted Subsidiary, or in respect of letters of credit provided by a Restricted Subsidiary to support such Indebtedness; provided, however, that only Indebtedness that is Incurred in compliance with this covenant may be guaranteed pursuant to this clause (vi); (vii) Purchase Money Indebtedness, industrial revenue bonds or similar Indebtedness and Capitalized Lease Obligations of the Company and its Restricted Subsidiaries in an aggregate principal amount at any time outstanding not in excess of 10% of Total Assets; (viii) Indebtedness of the Company or any Restricted Subsidiary consisting of guarantees, indemnities or obligations in respect of purchase price adjustments, in connection with the acquisition or disposition of any business, assets or Subsidiary of the Company permitted under the Indenture; (ix) Indebtedness of the Company and its Restricted Subsidiaries, to the extent the proceeds thereof are immediately used after the Incurrence thereof to purchase Notes tendered in an offer to purchase made as a result of a Change of Control; (x) Indebtedness of the Company or a Restricted Subsidiary owed to (including obligations in respect of letters of credit for the benefit of) any Person in connection with liability insurance provided by such Person to the Company or such Restricted Subsidiary, pursuant to reimbursement or indemnification obligations to such Person, in each case Incurred in the ordinary course of business; 65 71 (xi) Indebtedness of the Company consisting of guarantees of up to an aggregate principal amount of $2.0 million of borrowings by Management Investors in connection with purchases of Voting Stock of Holdings on or after the Original Issue Date and in accordance with "-- Limitation on Restricted Payments;" (xii) Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount at any time outstanding not in excess of $15.0 million which Indebtedness may be incurred pursuant to clause (i) above; and (xiii) any Refinancing Indebtedness incurred in respect of any Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (i), (ii), (iv), (vii), (ix) or (xiii) of this paragraph (b). (c) Notwithstanding the foregoing, the Company may not Incur any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness of the Company unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness of the Company. In addition, the Company may not Incur any Secured Indebtedness which is not Senior Indebtedness of the Company unless contemporaneously therewith effective provision is made to secure the Exchange Notes equally and ratably with (or on a senior basis to, in the case of Indebtedness subordinated in right of payment to the Exchange Notes) such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. A Guarantor Subsidiary may not Incur any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness of the Guarantor Subsidiary unless such Indebtedness is Senior Subordinated Indebtedness of such Guarantor Subsidiary or is expressly subordinated in right of payment to Senior Subordinated Indebtedness of such Guarantor Subsidiary. In addition, a Guarantor Subsidiary may not incur any Secured Indebtedness which is not Senior Indebtedness of such Guarantor Subsidiary unless contemporaneously therewith effective provision is made to secure the Subsidiary Guaranty equally and ratably with (or on a senior basis to, in the case of Indebtedness subordinated in right of payment to such Subsidiary Guaranty) such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. Limitation on Restricted Payments. (a) The Company will not, and will not permit any Restricted Subsidiary, directly or indirectly, to: (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving the Company) except dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and except dividends or distributions payable to the Company or another Restricted Subsidiary (and, if such Restricted Subsidiary has shareholders other than the Company or other Restricted Subsidiaries, to its other shareholders on a pro rata basis or on a basis that results in the receipt by the Company or a Restricted Subsidiary of dividends or distributions of equal or greater value); (ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company or any Restricted Subsidiary held by Persons other than the Company or another Restricted Subsidiary; (iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition); or (iv) make any Investment (other than a Permitted Investment) in any Person (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement, Investment or payment being herein referred to as a "Restricted Payment") if at the time 66 72 the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default will have occurred and be continuing (or would result therefrom); (2) the Company could not Incur at least $1.00 of additional Indebtedness under paragraph (a) of the covenant described under "-- Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments (the amount so expended, if other than in cash, to be determined in good faith by the Board of Directors, whose determination will be conclusive and evidenced by a resolution of the Board of Directors) declared or made subsequent to the Original Issue Date would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the Original Issue Date to the end of the most recent fiscal quarter ending at least 45 days prior to the date of such Restricted Payment (or, in case such Consolidated Net Income will be a deficit, minus 100% of such deficit); (B) 100% of the aggregate net proceeds received by the Company (including the fair market value (as determined in good faith by the Board of Directors, whose determination will be conclusive and evidenced by a resolution of the Board of Directors) of property received by the Company; provided, however, that such property is related, ancillary or complementary to any business of the Company and the Restricted Subsidiaries conducted on the Original Issue Date) as a capital contribution or from the issue or sale of Capital Stock (other than Disqualified Stock) of the Company or Holdings subsequent to the Original Issue Date (other than an issuance or sale to a Subsidiary of the Company or an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries to the extent the purchase by such plan or trust is financed by Indebtedness of such plan or trust and for which the Company or a Subsidiary is liable, directly or indirectly, as a guarantor or otherwise (including by the making of cash contributions to such plan or trust which are used to pay interest or principal on such Indebtedness)); (C) the amount by which Indebtedness of the Company or its Restricted Subsidiaries is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary) of any Indebtedness of the Company or its Restricted Subsidiaries issued subsequent to the Original Issue Date and convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash or other property (other than such Capital Stock) distributed by the Company or any Restricted Subsidiary upon such conversion or exchange) (including any such exchange pursuant to the exercise of a conversion right or privilege in connection with which cash is paid in lieu of the issuance of fractional shares or scrip); (D) the aggregate Net Cash Proceeds received subsequent to the Original Issue Date by the Company or Holdings (other than from any Restricted Subsidiary) upon the exercise of any options or warrants to purchase Capital Stock (other than Disqualified Stock) of the Company or Holdings; and (E) the amount equal to the net reduction in Investments in Unrestricted Subsidiaries resulting from (i) payments of dividends, repayments of the principal of loans, return of capital or advances or other transfers of assets to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries or (ii) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investment") or the receipt of proceeds from the sale or other disposition of any portion of any Investment in an Unrestricted Subsidiary not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount was included in the calculation of the amount of Restricted Payments. 67 73 (b) The provisions of the foregoing paragraph (a) will not prohibit: (i) any purchase, redemption, retirement or other acquisition of Capital Stock or Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries to the extent the purchase by such plan or trust is financed by Indebtedness of such plan or trust and for which the Company or a Subsidiary is liable, directly or indirectly, as a guarantor or otherwise (including by the making of cash contributions to such plan or trust which are used to pay interest or principal on such Indebtedness)); provided, however, that (A) such purchase, redemption, retirement or other acquisition will be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale to the extent so used will be excluded from clause (iv)(B) of paragraph (a) above; (ii) any purchase, defeasance, retirement, redemption or other acquisition of (A) Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be Incurred pursuant to paragraph (b) of the covenant described under "-- Limitation on Indebtedness" or (B) Subordinated Obligations of a Restricted Subsidiary made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of any Restricted Subsidiary or the Company which is permitted to be Incurred pursuant to paragraph (b) of the covenant described under "-- Limitation of Indebtedness"; provided, however, that such purchase, defeasance, retirement, redemption or other acquisition will be excluded in the calculation of the amount of Restricted Payments; (iii) any purchase, redemption, retirement or other acquisition of Disqualified Stock made by exchange for, or out of the proceeds of the substantially concurrent sale of, Disqualified Stock; provided, however, that such purchase, redemption, retirement or other acquisition will be excluded in the calculation of the amount of Restricted Payments; (iv) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted by the covenant described under "-- Limitation on Sales of Assets and Subsidiary Stock"; provided, however, that such purchase or redemption will be excluded in the calculation of the amount of Restricted Payments; (v) upon the occurrence of a Change of Control and within 60 days after the completion of the offer to repurchase the Exchange Notes pursuant to the covenant described under "-- Change of Control" above (including the purchase of all Notes tendered), any purchase, defeasance, retirement, redemption or other acquisition of Subordinated Obligations required pursuant to the terms thereof as a result of such Change of Control; provided, however, that such purchase, defeasance, retirement, redemption or other acquisition will be included in the calculation of the amount of Restricted Payments; (vi) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with this covenant; provided, however, that such dividend will be included in the calculation of the amount of Restricted Payments; (vii) the repurchase, for cash or notes, of shares of, or options or warrants to purchase shares of, or payments to Holdings to enable Holdings to repurchase shares of, or options or warrants to purchase shares of, Capital Stock of Holdings, the Company or any of the Subsidiaries of the Company from present or former Management Investors in an amount not in excess of $2.0 million in any one year and $5.0 million in the aggregate since the Original Issue Date; provided, however, that the amount of such repurchase will be included in the calculation of the amount of Restricted Payments; 68 74 (viii) payments in lieu of fractional shares in amount not in excess of $250,000 in the aggregate since the Original Issue Date; (ix) payments by the Company to Holdings to pay Federal, state and local taxes to the extent such taxes are attributable to the Company and its Restricted Subsidiaries; provided, however, that such payments will be excluded from the calculation of the amount of Restricted Payments; (x) loans, advances, dividends or distributions by the Company to Holdings to pay dividends on the common stock of Holdings following a Public Equity Offering of such stock; but only to the extent that such loans, advances, dividends or distributions do not exceed 6% per annum of the net proceeds received by the Company in such Public Equity Offering; provided, however, that the amount of such loans, advances, dividends or distributions will be included in the amount of Restricted Payments; or (xi) in each case to the extent such payments by Holdings are attributable to the Company and its Restricted Subsidiaries, payments by the Company to Holdings not to exceed an amount necessary to permit Holdings to (A) make payments in respect to its indemnification obligations owing to directors, officers or other Persons under Holding's charter or by-laws or pursuant to written agreements with any such Person, (B) make payments in respect of its other operational expenses (other than taxes) incurred in the ordinary course of business, or (C) make payments in respect of indemnification obligations and costs and expenses incurred by Holdings in connection with any offering of common stock of Holdings; provided, however, that all such payments will be included in the calculation of the amount of Restricted Payments. Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness owed to the Company, (ii) make any loans or advances to the Company or (iii) transfer any of its property or assets to the Company, except: (1) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Original Issue Date; (2) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness entered into prior to the date on which such Restricted Subsidiary was acquired or designated as a Restricted Subsidiary by the Company (other than as consideration in, in contemplation of, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was otherwise acquired by the Company); (3) any encumbrance or restriction pursuant to (x) an agreement constituting Refinancing Indebtedness of Indebtedness Incurred pursuant to an agreement referred to in clause (1) or (2) of this covenant or this clause (3) or contained in any amendment to an agreement referred to in clause (1) or (2) of this covenant or this clause (3) or (y) Indebtedness Incurred pursuant to clause (i) of paragraph (b) of the covenant described above under "-- Limitation on Indebtedness;" provided, however, that the encumbrances and restrictions contained in (A) any such refinancing agreement or amendment referred to in clause (x) above are, collectively, no more restrictive in any material respect than the encumbrances and restrictions contained in such agreements (as determined in good faith by the Company) and (B) any instrument relating to any Indebtedness referred to in clause (y) above, are, collectively, no more restrictive in any material respect than the encumbrances and restrictions contained in the Senior Bank Facilities as in effect on the Original Issue Date (as determined in good faith by the Company); 69 75 (4) in the case of clause (iii) above, any encumbrance or restriction contained in security agreements or mortgages securing Indebtedness of a Restricted Subsidiary which are not prohibited by the covenant described under "-- Limitation on Liens" to the extent such encumbrances or restrictions restrict the transfer of the property or assets subject to such security agreements or mortgages; (5) any encumbrance or restriction existing under or by reason of applicable law; (6) customary non-assignment provisions of any licensing agreement or of any lease; (7) any encumbrance or restriction contained in contracts for sales of assets otherwise permitted by the Indenture; (8) with respect to a Restricted Subsidiary, any encumbrance or restriction imposed pursuant to an agreement that has been entered into for the sale of all or substantially all of the Capital Stock of such Restricted Subsidiary; and (9) Purchase Money Obligations for property acquired in the ordinary course of business that impose restrictions of the type referred to in clause (iii) of this covenant. Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless: (i) the Company or such Restricted Subsidiary receives consideration (including by way of relief from, or by any other Person assuming sole responsibility for, any liabilities, contingent or otherwise) at the time of such Asset Disposition at least equal to the fair market value, as may be determined (and shall be determined, to the extent an Asset Disposition (or a series of related Asset Dispositions) involves a fair market value greater than $1.0 million) in good faith by the Board of Directors, whose determination will be conclusive and evidenced by a resolution of the Board of Directors (including as to the value of all non-cash consideration), of the shares and assets subject to such Asset Disposition; (ii) in the case of an Asset Disposition (or a series of related Asset Dispositions) having a fair market value of $1.0 million or more, at least 80% (or 100% in the case of lease payments) of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or cash equivalents; and (iii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) (A) first, to the extent the Company or such Restricted Subsidiary elects (or is required by the terms of any Senior Indebtedness), to prepay, repay or purchase Senior Indebtedness of the Company or a Wholly Owned Subsidiary or, in the case of a sale by a Restricted Subsidiary which is not a Wholly Owned Subsidiary, to prepay, repay or purchase Senior Indebtedness of such Restricted Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within 365 days after the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) second, to the extent of the balance of Net Available Cash after application in accordance with clause (A), to the extent the Company or such Restricted Subsidiary elects, to reinvest (or enter into a binding contract to do so) in Additional Assets (including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by the Company or another Restricted Subsidiary), within 365 days from the later of such Asset Disposition or the receipt of such Net Available Cash; (C) third, to the extent of the balance of Net Available Cash after application in accordance with clauses (A) and (B), to offer to purchase Original Notes to the extent required by the Original Indenture; (D) fourth, to the extent of the balance of Net Available Cash after application in accordance with clauses (A), (B) and (C), to offer to purchase the Add-on Notes to the extent required by the Add-on Indenture and the Second Add-on Indenture; (E) fifth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B), (C) and (D), 70 76 to make an Offer (as defined below) to purchase Exchange Notes pursuant to and subject to the conditions set forth in section (b) of this covenant and (F) sixth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B), (C), (D) and (E), to fund (to the extent consistent with any other applicable provision of the Indenture) any corporate purpose; provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) above, the Company or such Restricted Subsidiary will retire such Indebtedness and will cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this covenant, the Company and its Restricted Subsidiaries will not be required to apply any Net Available Cash in accordance with this covenant except to the extent that the aggregate Net Available Cash from all Asset Dispositions in any year which are not applied in accordance with this covenant exceed $5.0 million in such year. For the purposes of clause (ii) of this covenant, the following are deemed to be cash: (w) the assumption of Indebtedness of the Company (other than Disqualified Stock of the Company) or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition, (x) securities received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash, (y) Indebtedness of any Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of such Asset Disposition, to the extent that the Company and each other Restricted Subsidiary is released from any Guarantee of such Indebtedness in connection with such Asset Disposition, and (z) consideration consisting of Indebtedness of the Company or any Restricted Subsidiary. (b) In the event of an Asset Disposition that requires the purchase of Exchange Notes pursuant to clause (a)(iii)(E) of this covenant, the Company will be required to purchase Exchange Notes tendered pursuant to an offer, commenced within 30 days following the expiration of the 365 day period referred to in clause (a)(iii)(B) of this covenant (or, if the Company so elects, at any time within such 365 day period), by the Company for the Exchange Notes, (the "Offer") at a purchase price of 100% of their principal amount plus accrued and unpaid interest, if any, to the date of purchase in accordance with the procedures (including prorationing in the event of oversubscription) set forth in the Indenture. If the aggregate purchase price of Exchange Notes tendered pursuant to the Offer is less than the Net Available Cash allotted to the purchase of the Exchange Notes, the Company will apply the remaining Net Available Cash in accordance with clause (a)(iii)(F) of this covenant and upon completion of the purchase of the Notes tendered pursuant to the Offer, the remaining amount of Net Available Cash, if any, will be reset at zero. The Company will not be required to make an Offer for Exchange Notes pursuant to this covenant if the Net Available Cash available therefor (after application of the proceeds as provided in clauses (A) and (B) of section (a)(iii) of this covenant) is less than $5.0 million (which lesser amount will be carried forward for purposes of determining whether an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). (c) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue thereof. Limitation on Transactions with Affiliates. (a) The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or conduct any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") on terms (i) that are less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time of 71 77 such transaction in arm's-length dealings with a Person who is not such an Affiliate and (ii) that, in the event such Affiliate Transaction involves an aggregate amount in excess of $1.0 million, are not in writing and have not been approved by a majority of the members of the Board of Directors having no material direct or indirect financial interest in or with respect to such Affiliate Transaction. In addition, if such Affiliate Transaction involves an amount in excess of $5.0 million, a fairness opinion must be obtained from a nationally recognized appraisal or investment banking firm. (b) The provisions of the foregoing paragraph (a) will not prohibit (i) any Restricted Payment or Permitted Investment permitted to be made pursuant to the covenant described under "-- Limitation on Restricted Payments," (ii) fees, compensation or employee benefit arrangements paid to, and any indemnity provided for the benefit of, directors, officers or employees of the Company, Holdings or any Subsidiary of the Company in the ordinary course of business or any Indebtedness permitted to be Incurred pursuant to clause (xii) of paragraph (b) of the covenant described under "-- Limitation on Indebtedness," or any payments in respect thereof, (iii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (iv) transactions pursuant to agreements entered into or in effect on the Original Issue Date, including amendments thereto entered into after the Original Issue Date, provided that the terms of any such amendment are not, in the aggregate, less favorable to the Company or such Restricted Subsidiary than the terms of such agreement prior to such amendment, (v) loans or advances to employees that are Affiliates of the Company in the ordinary course of business, but in any event not to exceed $2.0 million in the aggregate outstanding at any one time, (vi) any transaction between the Company and a Restricted Subsidiary or between Restricted Subsidiaries (so long as the other stockholders of any participating Restricted Subsidiaries which are not Wholly Owned Subsidiaries are not themselves Affiliates of the Company) or (vii) payments with respect to Indebtedness Incurred pursuant to clause (viii) of paragraph (b) of the covenant described under "-- Limitation on Indebtedness." Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries. The Company will not sell any shares of Capital Stock of a Restricted Subsidiary, and will not permit any Restricted Subsidiary, directly or indirectly, to issue or sell any shares of its Capital Stock, except (i) to the Company or a Wholly Owned Subsidiary, (ii) if, immediately after giving effect to such issuance or sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary, (iii) directors' qualifying shares or (iv) in a Public Equity Offering as a result of or after which a Public Market exists. The proceeds of any sale of such Capital Stock permitted by clause (ii) must be treated as Net Available Cash from an Asset Disposition and must be applied in accordance with the terms of the covenant described under "-- Limitation on Sales of Assets and Subsidiary Stock." Limitation on Liens. (a) The Company will not, and will not permit any Guarantor Subsidiary to, directly or indirectly, create or permit to exist any Lien (the "Initial Lien") on any of its property or assets (including Capital Stock), whether owned on the Original Issue Date or thereafter acquired, securing any Indebtedness other than Senior Indebtedness of the Company, in the case of the Company, or Senior Indebtedness of a Guarantor Subsidiary, in the case of a Guarantor Subsidiary, unless contemporaneously therewith effective provision is made to secure the Notes and, in respect of Liens on any Guarantor Subsidiary's property or assets, the Subsidiary Guaranty of such Guarantor Subsidiary equally and ratably with (or on a senior basis to, in the case of Indebtedness expressly subordinated in right of payment to the Exchange Notes and such Subsidiary Guaranty) such obligation for so long as such obligation is so secured. The preceding sentence will not require the Company or any Restricted Subsidiary to equally and ratably secure the Notes if the Initial Lien consists of Permitted Liens. (b) Any Lien created for the benefit of the Holders of the Exchange Notes pursuant to the foregoing paragraph (a) shall provide by its terms that such Lien shall be automatically and unconditionally released and discharged upon the release and discharge of the Initial Lien. 72 78 SEC Reports. Notwithstanding that the Company may not be required to be or remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the Commission, and provide the Trustee and Noteholders and prospective Exchange Noteholders (upon request) with, the annual reports and the information, documents and other reports which are specified in Sections 13 and 15(d) of the Exchange Act. The Company also will comply with the other provisions of TIA Sec. 314(a). Future Guarantor Subsidiaries. The Company will cause (a) each Restricted Subsidiary that is a Domestic Subsidiary which Incurs Indebtedness and (b) each Restricted Subsidiary that is not a Domestic Subsidiary and that after the Issue Date enters into a Guarantee of any of the obligations of the Company, Holdings or any of the Company's Subsidiaries pursuant to the Senior Bank Facilities to execute and deliver to the Trustee a supplemental indenture pursuant to which such Subsidiary will Guarantee payment of the Exchange Notes; provided, however, that such Subsidiary shall not be required to execute and deliver a supplemental indenture pursuant to this section in the event that such Subsidiary is a party to the Indenture or the Supplemental Indenture at the time of such Incurrence of Indebtedness. Each Subsidiary Guaranty will be limited to an amount not to exceed the maximum amount that can be Guaranteed by that Subsidiary without rendering the Subsidiary Guaranty, as it relates to such Subsidiary, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Limitation on Lines of Business. The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than (i) a Related Business and (ii) the making of Permitted Investments and the operations of any business that is part of a Permitted Investment. Holdings will not engage in any business other than managing its investment in the Company. Limitation on Sale/Leaseback Transactions. The Company will not, and will not permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with respect to any property unless (i) the Company or such Restricted Subsidiary would be entitled to Incur Indebtedness in an amount equal to the Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to the covenant described under "-- Limitation on Indebtedness" and (ii) the net cash proceeds received by the Company or any Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at least equal to the fair market value (in the case of Sale/Leaseback Transactions involving amounts in excess of $1.0 million, as determined by the Board of Directors, whose determination will be conclusive and evidenced by a resolution of the Board of Directors) of such property and (iii) the transfer of such property is permitted by, and the Company applies the proceeds of such transaction in compliance with, the covenant described under "-- Limitation on Sale of Assets and Subsidiary Stock." MERGER AND CONSOLIDATION The Company will not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person, unless: (i) the resulting, surviving or transferee Person (the "Successor Company") will be a corporation, limited liability company, limited partnership or business trust organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) will expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Exchange Notes and the Indenture; (ii) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), no Default will have occurred and be continuing; (iii) except in the case of a merger the sole purpose of which is to change the Company's jurisdiction of incorporation, immediately after giving effect to such transaction, the Successor Company would be able to Incur 73 79 an additional $1.00 of Indebtedness under paragraph (a) of the covenant described under "-- Limitation on Indebtedness"; (iv) immediately after giving effect to such transaction, the Successor Company will have Consolidated Net Worth in an amount which is not less than the Consolidated Net Worth of the Company immediately prior to such transaction and (v) the Company will have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture. Notwithstanding the foregoing clauses (ii), (iii) and (iv), any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company. The Successor Company will succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture, but the predecessor Company in the case of a conveyance, transfer or lease of all or substantially all its assets will not be released from the obligation to pay the principal of and interest on the Exchange Notes. DEFAULTS An Event of Default is defined in the Indenture as: (i) a default in any payment of interest on any Exchange Note when due (whether or not such payment is prohibited by the provisions described under "Ranking" above), continued for 30 days; (ii) a default in the payment of principal of any Exchange Note when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise (whether or not such payment is prohibited by the provisions described under "Ranking" above); (iii) the failure by the Company to comply with its obligations under the covenant described under "Merger and Consolidation" above; (iv) the failure by the Company to comply for 30 days after notice with any of its obligations under the covenants described under "Change of Control" or "Certain Covenants" above (in each case, other than a failure to purchase Exchange Notes); (v) the failure by the Company or any Guarantor Subsidiary to comply for 60 days after notice with its other agreements contained in the Exchange Notes or the Indenture; (vi) the failure by the Company or any Significant Subsidiary to pay any Indebtedness within any applicable grace period after final maturity or the acceleration of any such Indebtedness by the holders thereof because of a default, if the total amount of such Indebtedness unpaid or accelerated exceeds $5.0 million or its foreign currency equivalent (the "cross acceleration provision"); (vii) certain events of bankruptcy, insolvency or reorganization of the Company or a Restricted Subsidiary (the "bankruptcy provisions"); (viii) the rendering of any judgment or decree in excess of $5.0 million or its foreign currency equivalent (net of amounts paid within 30 days of any such judgment or decree under any insurance, indemnity, bond, surety or similar instrument) against the Company or a Restricted Subsidiary by a court or other adjudicatory authority of competent jurisdiction for which the Company or the Restricted Subsidiary, as applicable, is not fully insured by a third Person and (A) an enforcement proceeding is commenced with respect to such judgment or decree or (B) such judgment or decree remains outstanding the later of (i) the day which is the sixtieth day after the judgment is rendered and (ii) the day on which any right to appeal expires (the "judgment default provision"); or 74 80 (ix) any Subsidiary Guaranty ceases to be in full force and effect (except as contemplated by the terms thereof) or any Guarantor Subsidiary denies or disaffirms its obligations under the Indenture or any Subsidiary Guaranty and such Default continues for 10 days. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. However, a default under clauses (iv) or (v) will not constitute an Event of Default until the Trustee or the Holders of 25% in principal amount of the outstanding Notes notify the Company of the default and the Company does not cure such default within the time specified in clauses (iv) and (v) hereof after receipt of such notice. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the outstanding Exchange Notes by notice to the Company may declare the principal of and accrued but unpaid interest on all the Exchange Notes to be due and payable. Upon such a declaration, such principal and interest will be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs and is continuing, the principal of and interest on all the Exchange Notes will become immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in principal amount of the outstanding Exchange Notes may rescind any such acceleration with respect to the Exchange Notes and its consequences. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no Holder may pursue any remedy with respect to the Indenture or the Exchange Notes unless (i) such Holder has previously given the Trustee notice that an Event of Default is continuing, (ii) Holders of at least 25% in principal amount of the outstanding Exchange Notes have requested the Trustee to pursue the remedy, (iii) such Holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity and (v) the Holders of a majority in principal amount of the outstanding Exchange Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount of the outstanding Exchange Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee will be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. The Indenture provides that if a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each Holder notice of the Default within the earlier of 90 days after it occurs or 30 days after it is known to a Trust Officer or written notice of it is received by the Trustee. Except in the case of a Default in the payment of principal of, premium (if any) or interest on any Note, the Trustee may withhold notice if and so long as a committee of its Trust Officers in good faith determines that withholding notice is in the interests of the Noteholders. In addition, the Company is required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. 75 81 The Company also is required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event which would constitute certain Defaults, their status and what action the Company is taking or proposes to take in respect thereof. AMENDMENTS AND WAIVERS Subject to certain exceptions, the Indenture may be amended with the consent of the Holders of a majority in principal amount of the Exchange Notes then outstanding and any past default and its consequences or compliance with any provisions may be waived with the consent of the Holders of a majority in principal amount of the Exchange Notes then outstanding. However, without the consent of each Holder of an outstanding Exchange Note affected, no amendment may (i) reduce the amount of Exchange Notes whose Holders must consent to an amendment or waiver, (ii) reduce the rate of or extend the time for payment of interest on any Exchange Note, (iii) reduce the principal of or extend the Stated Maturity of any Exchange Note, (iv) reduce the premium payable upon the redemption of any Exchange Note or change the time at which any Exchange Note may be redeemed as described under "Optional Redemption" above, (v) make any Exchange Note payable in money other than that stated in the Exchange Note, (vi) impair the right of any Holder to receive payment of principal of and interest on such Holder's Exchange Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder's Exchange Notes, (vii) make any change in the amendment provisions which require each Holder's consent or in the waiver provisions or (viii) make any change in any Subsidiary Guaranty that would adversely affect the Exchange Noteholders. Without the consent of any Holder, the Company and Trustee may amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to provide for the assumption by a successor corporation of the obligations of the Company under the Indenture, to provide for uncertificated Exchange Notes in addition to or in place of certificated Exchange Notes (provided that the uncertificated Exchange Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Exchange Notes are described in Section 163(f)(2)(B) of the Code), to add further Guaranties with respect to the Exchange Notes, to release Guarantor Subsidiaries when permitted by the Indenture, to secure the Exchange Notes, to add to the covenants of the Company for the benefit of the Exchange Noteholders or to surrender any right or power conferred upon the Company, to make any change that does not adversely affect the rights of any Holder or to comply with any requirement of the Commission in connection with the qualification of the Indenture under the TIA. The consent of the Exchange Noteholders is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment under the Indenture becomes effective, the Company is required to mail to Exchange Noteholders a notice briefly describing such amendment. However, the failure to give such notice to all Exchange Noteholders, or any defect therein, will not impair or affect the validity of the amendment. TRANSFER AND EXCHANGE An Exchange Noteholder may transfer or exchange Exchange Notes in accordance with the Indenture. Upon any transfer or exchange, the registrar and the Trustee may require an Exchange Noteholder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require an Exchange Noteholder to pay any taxes required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Exchange Note selected for redemption or to transfer or exchange any Exchange Note for a period of 15 days prior to a selection of Exchange Notes to be redeemed. The Exchange Notes will be issued in registered form 76 82 and the registered holder of an Exchange Note will be treated as the owner of such an Exchange Note for all purposes. DEFEASANCE The Company at any time may terminate all its obligations under the Exchange Notes and the Indenture ("legal defeasance"), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Exchange Notes, to replace mutilated, destroyed, lost or stolen Exchange Notes and to maintain a registrar and paying agent in respect of the Exchange Notes. The Company at any time may terminate its obligations under the covenants described under "Certain Covenants," the operation of the cross acceleration provision, the bankruptcy default provisions with respect to Subsidiaries and the judgment default provision described under "Defaults" above and the limitations contained in clauses (iii) and (iv) under "Merger and Consolidation" above ("covenant defeasance"). If the Company exercises its legal defeasance option or its covenant defeasance option, each Guarantor Subsidiary will be released from all of its obligations with respect to its Subsidiary Guaranty. The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Exchange Notes may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Exchange Notes may not be accelerated because of an Event of Default specified in clause (iv), (vi), (vii) (with respect to Restricted Subsidiaries only), (viii) (with respect to Significant Subsidiaries only), (ix) or (x) under "Defaults" above or because of the failure of the Company to comply with clause (iii) or (iv) under "Merger and Consolidation" above. Defeasance options with respect to the Exchange Notes may be exercised to any redemption date or the applicable maturity date. In order to exercise either defeasance option, the Company must irrevocably deposit in trust (the "defeasance trust") with the Trustee money or U.S. Government Obligations for the payment of principal, premium (if any) and interest on the Notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that holders of the Exchange Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable Federal income tax law). The Company will not be permitted to exercise either defeasance option described above with respect to the Exchange Notes unless it defeases Existing Notes equivalently and substantially simultaneously. Similarly, the Company will not be permitted to defease Old Notes unless it defeases the Notes equivalently and substantially simultaneously. CONCERNING THE TRUSTEE United States Trust Company of New York is to be the Trustee under the Indenture and has been appointed by the Company as Registrar and Paying Agent with regard to the Exchange Notes. GOVERNING LAW The Indenture provides that it and the Exchange Notes will be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. 77 83 CERTAIN DEFINITIONS "ACP Holdings" means ACP Holding Company, a Delaware corporation. "ACP Products, L.L.C." means ACP Products, L.L.C., a Delaware limited liability company. "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock), including improvements to existing assets, to be used by the Company or a Restricted Subsidiary in a Related Business; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; provided, however, that, in the case of clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a Related Business. "Add-on Indenture" means the indenture dated July 1, 1997 among Neenah Corporation, the subsidiaries of the Company party thereto, and the Trustee, as amended. "Add-on Notes" means the Company's 11 1/8% Series C Senior Subordinated Notes due 2007 issued under the Add-on Indenture and any of the Company's 11 1/8% Series D Senior Subordinated Notes due 2007 exchanged therefor and the Company's 11 1/8% Series E Senior Subordinated Notes due 2007 issued under the Second Add-on Indenture. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the provisions described under "-- Certain Covenants -- Limitation on Transactions with Affiliates" only, "Affiliate" shall also mean any beneficial owner of shares representing 5% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Voting Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Applicable Premium" means, with respect to an Exchange Note, the greater of (i) 1.0% of the then outstanding principal amount of such Exchange Note and (ii) the excess of (A) the present value of all remaining required interest and principal payments due on such Exchange Note, computed using a discount rate equal to the Treasury Rate plus 75 basis points, over (B) the then outstanding principal amount of such Exchange Note. "Asset Disposition" means any sale, lease, transfer or other disposition of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares), property or assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its Restricted Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction) other than (i) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Restricted Subsidiary; (ii) a disposition of inventory, in the ordinary course of business consistent with past practices of the Company and its Subsidiaries; (iii) dispositions with a fair market value of less than $500,000 in the aggregate in any fiscal year; (iv) a disposition of properties and assets that is governed by the provisions under the first paragraph of "-- Merger and Consolidation" above; and (v) for purposes of the provisions described under "-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only, a disposition subject to the covenant described under "-- Certain Covenants -- Limitation on Restricted Payments." "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate assumed in making calculations in 78 84 accordance with FAS 13) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or scheduled redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "Bank Indebtedness" means any and all amounts payable under or in respect of the Senior Bank Facilities or any refinancing or replacements thereof including principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not a claim for post-filing interest is allowed in such proceeding), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Borrowing Base" means, as of the date of determination, an amount equal to the sum, without duplication, of (i) 80% of the net book value of the Company's accounts receivable at such date and (ii) 50% of the net book value of the Company's inventories at such date. Net book value shall be determined in accordance with GAAP and shall be that reflected on the most recent available balance sheet (it being understood that the accounts receivable and inventories of an acquired business may be included if such acquisition has been completed on or prior to the date of determination). "Business Day" means a day other than a Saturday, Sunday or other day on which banking institutions in New York State are authorized or required by law to close. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Capitalized Lease Obligations" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP. The amount of Indebtedness represented by a Capitalized Lease Obligation shall be the capitalized amount of such obligation determined in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last scheduled payment of rent or any other amount due under the relevant lease. "Citicorp" means Citicorp, a Delaware corporation. "Code" means the Internal Revenue Code of 1986, as amended. "Commodity Agreement" means one or more of the following agreements entered into by a Person and one or more financial institutions: commodity future contracts, forward contracts, options or other similar arrangements or agreements designed to protect against fluctuations in the price of, or the shortage of supply of, commodities from time to time. "Consolidated Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters 79 85 ending at least 45 days prior to the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters; provided, however, that: (1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness and the application of the proceeds thereof as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period (except that in the case of Indebtedness to finance seasonal fluctuations in working capital needs Incurred under a revolving credit or similar arrangement, the amount thereof shall be deemed to be the average daily balance of such Indebtedness during such four quarter period); (2) if since the beginning of such period the Company or any Restricted Subsidiary shall have disposed of any assets constituting all or substantially all of the assets of an operating unit of a business (a "Disposal"), (x) the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Disposal for such period or increased by an amount equal to the EBITDA (if negative) directly attributable thereto for such period and (y) Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Disposal for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale); (3) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of the assets of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness in connection therewith) as if such Investment or acquisition occurred on the first day of such period; and (4) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Disposal or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Disposal, Investment or acquisition of assets occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining 80 86 term as at the date of determination in excess of 12 months). If any Indebtedness bears, at the option of the Company or a Restricted Subsidiary, a fixed or floating rate of interest and is being given pro forma effect, then (i) if any interest had accrued on such Indebtedness prior to the date of determination, the interest expense on such Indebtedness shall be computed by applying a fixed or floating rate of interest as selected by the Company or such Restricted Subsidiary for the interest period immediately preceding such determination or (ii) if no interest accrued on such Indebtedness prior to the date of determination, the interest expense on such Indebtedness shall be computed by applying, at the option of the Company or such Restricted Subsidiary, either a fixed or floating rate. If any Indebtedness which is being given pro forma effect was Incurred under a revolving credit facility that was in effect throughout the applicable period, the interest expense on such Indebtedness shall be computed based upon the average daily balance of such Indebtedness during the applicable period. "Consolidated Interest Expense" means, for any period, the total consolidated interest expense of the Company and its Restricted Subsidiaries for such period, plus, to the extent Incurred by the Company and its Restricted Subsidiaries in such period but not included in such interest expense, (i) interest expense attributable to Capitalized Lease Obligations and Attributable Debt, (ii) amortization of debt discount, (iii) capitalized interest, (iv) noncash interest expense, (v) commissions, discounts and other fees and charges with respect to letters of credit and bankers' acceptance financing, (vi) net costs associated with Interest Rate Agreements, (vii) the interest portion of any deferred payment obligation for goods or services, (viii) interest actually paid by the Company or any Restricted Subsidiary on any Indebtedness of any other Person that is Guaranteed by the Company or any Restricted Subsidiary, (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company or a Wholly Owned Subsidiary) in connection with Indebtedness Incurred by such plan or trust and (x) the earned discount or yield with respect to the sale of receivables (without duplication of amounts included in Consolidated Net Income); but in no event shall include (i) amortization of debt issuance costs, (ii) Preferred Stock dividends in respect of all Preferred Stock of Subsidiaries of the Company and Disqualified Stock of the Company held by Persons other than the Company or a Wholly Owned Subsidiary, or (iii) interest Incurred in connection with Investments in discontinued operations. "Consolidated Net Income" means, for any period, the consolidated net income (loss) of the Company and its Subsidiaries for such period; provided, however, that there shall not be included in such Consolidated Net Income: (i) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (A) subject to the limitations contained in clause (iv) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person (other than an Unrestricted Subsidiary) for such period shall be included in determining such Consolidated Net Income, (ii) for purposes of subclause (a)(3)(A) of the covenant described under "Limitation on Restricted Payments" only, any net income (loss) of any person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition, (iii) any net income (loss) of any Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) subject to the limitations contained in (iv) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend (subject, in the case of a dividend that could have been made to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such 81 87 period shall be included in determining such Consolidated Net Income, (iv) any gain (or loss) realized upon the sale or other disposition of any asset of the Company or its Consolidated Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is not sold or otherwise disposed of in the ordinary course of business and any gain (or loss) realized upon the sale or other disposition of any Capital Stock of any Person, (v) any extraordinary gain or loss, and (vi) the cumulative effect of a change in accounting principles after the Issue Date. Notwithstanding the foregoing, for the purpose of the covenant described under "Certain Covenants-Limitation on Restricted Payments" only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof. Notwithstanding anything to the contrary in the covenant described under "Certain Covenants -- Limitations on Restricted Payments," all amounts paid to Holdings pursuant to clause (b)(xi)(B) of such covenant shall be deducted in computing Consolidated Net Income. "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and the Restricted Subsidiaries, determined on a Consolidated basis, as of the end of the most recent fiscal quarter of the Company ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital Stock of the Company plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock. "Consolidated Non-Cash Charges" of any Person means, for any period, the aggregate depreciation, amortization and other non-cash charges of such Person and its Consolidated Subsidiaries for such period, on a Consolidated basis, as determined in accordance with GAAP (excluding any such other non-cash charge which consists of an accrual or reserve for cash charges for any future period). "Consolidation" means the consolidation of the accounts of each of the Restricted Subsidiaries with those of the Company in accordance with GAAP consistently applied; provided, however, that "Consolidation" will not include consolidation of the accounts of any Unrestricted Subsidiary, but the interest of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary will be accounted for as an investment. The term "Consolidated" has a correlative meaning. "Currency Agreement" means with respect to any Person any foreign exchange contract, currency swap agreement or other similar agreement or arrangement as to which such Person is a party or a beneficiary. "CVC" means Citicorp Venture Capital, Ltd., a New York corporation. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii) any other Senior Indebtedness of the Company which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend at least $25.0 million and is specifically designated by the Company in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to ninety-one days after the Stated Maturity of the Exchange Notes. 82 88 Disqualified Stock shall not include any Capital Stock that is not otherwise Disqualified Stock if by its terms the holders have the right to require the issuer to repurchase such stock upon a Change of Control (or upon events substantially similar to a Change of Control). "Domestic Subsidiary" means a Subsidiary that is incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia. "EBITDA" for any period means the Consolidated Net Income for such period, plus the following to the extent deducted in calculating such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest Expense and (iii) Consolidated Non-Cash Charges, in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization of, a Subsidiary of the Company shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income (loss) of such Subsidiary was included in calculating Consolidated Net Income. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Notes" means the Original Notes and the Add-On Notes. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, in statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in the Indenture shall be computed in conformity with GAAP. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person through an agreement enforceable by or for the benefit of the holder of such Indebtedness and any such obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Commodity Agreement, Interest Rate Agreement or Currency Agreement. "Holder" or "Exchange Noteholder" means the Person in whose name an Exchange Note is registered on the Registrar's books. "Holdings" means NFC Castings, Inc., a Delaware corporation, any Person succeeding to its ownership, and successors thereto. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such person at the time it becomes a Restricted Subsidiary; provided further, however, that in the case of a discount security, the accretion of original issue discount on such security shall not be considered an Incurrence of Indebtedness if (but only if) at the time of issuance of such security, the Company elects to treat the whole face amount of such security as Incurred at such time (and such Incurrence is then permitted in accordance with the terms of the Indenture). 83 89 "Indebtedness" means, with respect to any Person on any date of determination (without duplication), (i) the principal of indebtedness of such Person for borrowed money; (ii) the principal of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto) other than letters of credit or similar instruments supporting Trade Payables entered into in the ordinary course of business of such Person to the extent that such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed not later than the third business day following such drawing; (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services (except Trade Payables), which purchase price is due more than twelve months after the date of placing such property in service or taking delivery and title thereto or the completion of such services; (v) all Capitalized Lease Obligations and all Attributable Debt of such Person; (vi) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of the Company, any Preferred Stock (but excluding, in each case, any accrued dividends); (vii) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of Indebtedness of such Person shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness of such other Persons; (viii) all Indebtedness of other Persons to the extent Guaranteed by such Person; and (ix) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. "Interest Rate Agreement" means, with respect to any Person, any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary. "Investment" in any Person means any direct or indirect advance or loan (other than advances or loans to customers or suppliers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the Person making such loan or advance) or other extension of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary" and the covenant described under "-- Certain Covenants -- Limitation on Restricted Payments," only (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Issue Date" means the date on which the Exchange Notes are originally issued. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). 84 90 "Management Investors" means the officers and employees of ACP Holdings, ACP Products, L.L.C., Holdings, the Company or a Subsidiary of the Company who acquire Voting Stock of ACP Holdings, ACP Products, L.L.C., Holdings or the Company on or after the Original Issue Date. "Moody's" means Moody's Investors Service, Inc. and its successors. "NC Merger" means NC Merger Company, a Wisconsin corporation. "Neenah Merger" means the merger, consummated on April 30, 1997 of NC Merger Company with and into the Company under the terms of the Agreement and Plan of Reorganization (as amended) by and among Holdings, the Company and NC Merger Company and dated November 20, 1996. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or from an escrow account or otherwise, in each case only as and when received, but excluding any other consideration received in the form of assumption by the acquiring person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other non-cash form) therefrom, in each case net of (i) all legal, title and recording expenses, commissions and other expenses (including fees and expenses of counsel and investment bankers) incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such asset disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) appropriate amounts to be provided by the party or parties making such Asset Disposition as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Disposition. "Net Cash Proceeds" with respect to any issuance or sale of Capital Stock, means the proceeds of such issuance or sale in the form of cash, including payments in respect of deferred payment obligations when received in form of, or stock or other assets when disposed for, cash, net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, filing and registration fees, trustee's fees, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Notes" means the Existing Notes and the Exchange Notes. "Officer" means the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, the President, any Vice President, the Treasurer or the Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Original Indenture" means the Indenture dated April 30, 1997 between NC Merger and the Trustee, as amended. "Original Issue Date" means the date of issuance of the Original Notes, April 30, 1997. "Original Notes" means the Company's 11 1/8% Senior Subordinated Notes due 2007 issued under the Original Indenture and any of the Company's 11 1/8% Series B Senior Subordinated Notes due 2007 exchanged therefor. 85 91 "Permitted Holders" means (i) CVC and its Affiliates and Permitted Transferees and (ii) the Management Investors and their Permitted Transferees. "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in (i) the Company, (ii) a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Related Business; (iii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that such Person's primary business is a Related Business; (iv) Temporary Cash Investments; (v) receivables owing to the Company or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (vi) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (vii) loans or advances to employees made in the ordinary course of business and not exceeding $1.0 million in the aggregate outstanding at any one time; (viii) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; (ix) securities received as consideration in sales of assets made in compliance with the covenant described under "-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock"; (x) other Investments, of any type, provided that the amount of such Investments made after the Issue Date in reliance on this clause (x) and outstanding at any time does not exceed 7.5% of Total Assets; or (xi) Guarantees relating to Indebtedness which is permitted to be Incurred under the covenant described under "-- Certain Covenants -- Limitation on Indebtedness." "Permitted Liens" means with respect to any Person: (a) Liens to secure Indebtedness permitted under the provisions described under clause (b)(i) or (ii) under "-- Certain Covenants -- Limitation on Indebtedness"; (b) pledges or deposits made or other Liens granted by (1) such Person under workmen's compensation laws, unemployment insurance laws or similar legislation, (2) in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or (3) to secure public or statutory obligations of such Person or deposits of cash or United States government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business; (c) Liens imposed by law, such as carriers', warehousemen's, mechanics', employees' and other like Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings or other Liens arising out of judgments, awards, decrees or orders of any court or other governmental authority against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review; (d) Liens for property taxes not yet due or payable or subject to penalties for non-payment or which are being contested in good faith and by appropriate proceedings; (e) Liens in favor of issuers of surety, performance, judgment, appeal and other like bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business; (f) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning provisions, carveouts, conditional waivers or other restrictions as to the use of real properties or minor irregularities of title (and with respect to leasehold 86 92 interests, mortgages, obligations, Liens and other encumbrances incurred, created, assumed or permitted to exist and arising by, through or under a landlord or owner of the leased property, with or without consent of the lessee) or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not Incurred in connection with Indebtedness and which do not in the aggregate materially impair the use of such properties in the operation of the business of such Person; (g) Liens existing or provided for under written arrangements existing on the Original Issue Date; (h) Liens securing Indebtedness or other obligations of a Subsidiary of such Person owing to such Person or a wholly owned Subsidiary of such Person; (i) Liens securing Hedging Obligations so long as the related Indebtedness is, and is permitted to be under the Indenture, secured by a Lien on the same property securing such Hedging Obligations; (j) Liens to secure any refinancing, refunding, replacement, renewal, repayment or extension (or successive refinancings, refundings, replacements, renewals, repayments or extensions) as a whole, or in part, of any Indebtedness secured by any Lien referred to in clause (g), (i), (l), (m) or (n); provided, however, that (x) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements on such property) and (y) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clauses (g), (i), (l), (m) and (n) at the time the original Lien became a Permitted Lien and (B) an amount necessary to pay any fees and expenses, including premiums, related to such refinancing, refunding, replacement, renewal, repayment or extension; (k)(i) mortgages, liens, security interests, restrictions or encumbrances that have been placed by any developer, landlord or other third party on property over which the Company or any Restricted Subsidiary or the Company has easement rights or on any real property leased by the Company and subordination or similar agreements relating thereto and (ii) any condemnation or eminent domain proceedings affecting any real property; (l) Liens on property, assets or shares of stock of a Person at the time such Person becomes a Subsidiary; provided, however, such Liens are not created, Incurred or assumed by such Person in connection with, or in contemplation of, such other Person becoming such a Subsidiary; provided further, however, that such Liens may not extend to any other property owned by the Company or any Restricted Subsidiary; (m) Liens on property or assets at the time the Company or a Restricted Subsidiary acquired the property or assets, including any acquisition by means of a merger or consolidation with or into the Company or a Restricted Subsidiary; provided, however, that such Liens are not created in connection with, or in contemplation of, such acquisition; provided further, however, that the Liens may not extend to any other property owned by the Company or any Restricted Subsidiary; and (n) any Lien on stock or other securities of an Unrestricted Subsidiary that secures Indebtedness of such Unrestricted Subsidiary. "Permitted Transferee" means (a) with respect to CVC (i) Citicorp, any direct or indirect wholly owned subsidiary of Citicorp, and any officer, director or employee of CVC, Citicorp or any wholly owned subsidiary of Citicorp, (ii) any spouse or lineal descendant (including by adoption and stepchildren) of the officers, directors and employees to in clause (a)(i) above or (iii) any trust, corporation or partnership 100% in interest of the beneficiaries, stockholders or partners of which consists of one or more of the persons described in clause (a)(i) or (ii) above and (b) with 87 93 respect to any officer or employee of ACP Products, L.L.C., ACP Holdings, Holdings, the Company or a Subsidiary of the Company (i) any spouse or lineal descendant (including by adoption and stepchildren) of such officer or employee and (ii) any trust, corporation or partnership 100% in interest of the beneficiaries, stockholders or partners of which consists of such officer or employee, any of the persons described in clause (b)(i) above or any combination thereof. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Public Equity Offering" means an underwritten public offering of common stock of ACP Holdings, the Company or Holdings (or, for purposes of the covenant described under "-- Certain Covenants -- Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries," any Restricted Subsidiary) pursuant to an effective registration statement (other than a registration statement on Form S-4, S-8 or any successor or similar forms) under the Securities Act (whether alone or in conjunction with any secondary public offering); provided, however, that if any such offering is an offering of the common stock of ACP Holdings, only the net proceeds thereof that are contributed to the Company shall be taken into consideration for the purposes of this definition. "Public Market" means any time after (x) a Public Equity Offering has been consummated and (y) at least 15% of the total issued and outstanding common stock of ACP Holdings, the Company or Holdings (or, for purposes of the covenant described under "-- Certain Covenants -- Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries," any Restricted Subsidiary) has been distributed by means of an effective registration statement under the Securities Act. "Purchase Money Indebtedness" means Indebtedness (i) consisting of the deferred purchase price of an asset or assets (including Capital Stock and the assets of an ongoing business) including additions and improvements, any conditional sale obligation, any obligation under any title retention agreement or any other purchase money obligation, or (ii) incurred to finance the acquisition by the Company or a Restricted Subsidiary of an asset or assets (including Capital Stock and the assets of a Related Business) including additions and improvements; provided in the case of clause (i) that the Average Life of such Indebtedness is less than the anticipated useful life of assets having an aggregate fair market value representing more than 50% of the aggregate fair market value of all assets so acquired and that in the case of clauses (i) and (ii) such Indebtedness is incurred within 180 days after the acquisition by the Company or Restricted Subsidiary of such asset or assets, or is in existence with respect to any asset or other property at the time such asset or property is acquired. "Refinancing Indebtedness" means Indebtedness that is Incurred to refund, refinance, replace, renew, repay or extend (including pursuant to any defeasance or discharge mechanism) (collectively, "refinances" and "refinanced" shall have a correlative meaning) any Indebtedness existing on the Original Issue Date or Incurred in compliance with or which is permitted by the Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary (to the extent permitted in the Indenture) and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of that or another Restricted Subsidiary of the Company), including Indebtedness that refinances Refinancing Indebtedness; provided, however, that (i) the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced, (iii) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or, if issued with original issue discount, an aggregate issue price) that is equal to or less than the 88 94 aggregate principal amount (or, if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced plus the amount of any premium reasonably determined by the Company or such Restricted Subsidiary, as applicable, as necessary at the time of such refinancing to accomplish such refinancing or required pursuant to the terms thereof, plus the amount of expenses of the Company or such Restricted Subsidiary, as applicable, Incurred in connection with such refinancing and (iv) if the Indebtedness being refinanced is subordinated in right of payment to the Exchange Notes, such Refinancing Indebtedness is subordinated in right of payment to the Exchange Notes to the extent of the Indebtedness being refinanced provided further, however, that Refinancing Indebtedness shall not include Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary. "Related Business" means any business of the Company and the Restricted Subsidiaries as conducted on the Issue Date and any business related, ancillary or complementary thereto. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill, Inc. and its successors. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired by the Company or a Restricted Subsidiary whereby the Company or such Restricted Subsidiary transfers such property to a Person and the Company or such Restricted Subsidiary leases it from such Person, other than leases between the Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries. "SEC" means the Securities and Exchange Commission. "Second Add-on Indenture" means the indenture dated November 24, 1998 among the Company, the subsidiaries of the Company party thereto, and the Trustee, as amended. "Secured Indebtedness" means any Indebtedness of the Company secured by a Lien. "Secured Indebtedness" of any Guarantor Subsidiary has a correlative meaning. "Senior Bank Facilities" means the credit agreement dated as of the Original Issue Date, as amended, waived or otherwise modified from time to time, among Holdings, the Company, the lenders party thereto from time to time and The Chase Manhattan Bank, a New York banking corporation, as agent (except to the extent that any such amendment, waiver or other modification thereto would be prohibited by the terms of the Indenture). "Senior Subordinated Indebtedness" means the Exchange Notes, the Existing Notes and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank pari passu with the Exchange Notes and is not subordinated by its terms to any Indebtedness or other obligation of the Company which is not Senior Indebtedness. "Senior Subordinated Indebtedness" of any Guarantor Subsidiary has a correlative meaning. "Significant Subsidiary" means any Restricted Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of clause (w)(1) or (2) of Rule 1-02 under Regulation S-X promulgated by the SEC. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the purchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred). "Subordinated Obligation" means any Indebtedness of the Company (whether outstanding on the Original Issue Date or thereafter Incurred) which is expressly subordinate in right of payment to 89 95 the Exchange Notes pursuant to a written agreement. "Subordinated Obligation" of any Guarantor Subsidiary shall have a correlative meaning. "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, trustees or members of any other governing body thereof is at the time owned or controlled, directly or indirectly, by (i) such Person or (ii) one or more Subsidiaries of such Person. "Subsidiary Guaranty" means any Guarantee of the Exchange Notes which may from time to time be executed and delivered pursuant to the terms of the Indenture. Each such Subsidiary Guaranty shall be in the form prescribed in the Indenture. "Temporary Cash Investments" means any of the following: (i) any investment in direct obligations (x) of the United States of America or any agency thereof or obligations Guaranteed by the United States of America or any agency thereof or (y) of any foreign country recognized by the United States of America rated at least "A" by S&P or "A-1" by Moody's, (ii) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 365 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America having capital and surplus in excess of $250.0 million (or the foreign currency equivalent thereof) and whose long-term debt is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act), (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) investments in commercial paper, maturing not more than 365 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P, (v) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's, (vi) any money market deposit accounts issued or offered by a domestic commercial bank or a commercial bank organized and located in a country recognized by the United States of America, in each case, having capital and surplus in excess of $250.0 million (or the foreign currency equivalent thereof), or investments in money market funds complying with the risk limiting conditions of Rule 2a-7 (or any successor rule) of the Commission under the Investment Company Act of 1940, as amended, and (vii) similar investments approved by the Board of Directors in the ordinary course of business. "Total Assets" means, at any date of determination, the total consolidated assets of the Company and its Restricted Subsidiaries, as set forth on the Company's then most recent consolidated balance sheet. "Trade Payables" means, with respect to any Person, any accounts payable or any indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person arising in the ordinary course of business in connection with the acquisition of goods or services. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled by, and published in, the most recent Federal Reserve Statistical Release H.15(519) which has become publicly available at least two Business Days prior to the date fixed for redemption of the Exchange Notes following a Change of Control (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the then remaining Average Life to Stated Maturity of the 90 96 Exchange Notes; provided, however, that if the Average Life to Stated Maturity of the Notes is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the Average Life to Stated Maturity of the Exchange Notes is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "Trustee" means the party named as such in the Indenture until a successor replaces it and, thereafter, means the successor. "Trust Officer" means the Chairman of the Board, the President or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any property of, the Company or any other Restricted Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (A) the Subsidiary to be so designated has total Consolidated assets of $1,000 or less or (B) if such Subsidiary has Consolidated assets greater than $1,000, then such designation would be permitted under the covenant entitled "Limitation on Restricted Payments." The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under paragraph (a) of the covenant described under "Limitation on Indebtedness" and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares and, to the extent required by local ownership laws in foreign countries, shares owned by foreign shareholders) is owned by the Company or another Wholly Owned Subsidiary (including shares held of record by a nominee for the benefit of the Company or another Wholly Owned Subsidiary). 91 97 EXCHANGE OFFER TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal (which together constitute the "Exchange Offer"), we will accept for exchange Old Notes which are properly tendered and not withdrawn on or prior to the Expiration Date and not withdrawn as permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New York City time, on [ ], 1999; provided, however, that if we have extended the period of time for which the Exchange Offer is open, the term "Expiration Date" means the latest time and date to which the Exchange Offer is extended. As of the date of this Prospectus, $87.0 million aggregate principal amount of the Old Notes are outstanding. This Prospectus, together with the Letter of Transmittal, is first being sent on or about [ ], 1999, to all holders of Old Notes known to us. Our obligation to accept Old Notes for exchange pursuant to the Exchange Offer is subject to certain conditions as set forth under "-- Certain Conditions to the Exchange Offer" below. We expressly reserve the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance for any exchange of any Old Notes, by giving notice of such extension to the holders thereof. During any such extension, all Old Notes previously tendered will remain subject to the Exchange Offer and may be accepted for exchange by our Company. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. We expressly reserve the right to amend or terminate the Exchange Offer, and not to accept for exchange any Old Notes not theretofore accepted for exchange, upon the occurrence of any of the conditions of the Exchange Offer specified below under "-- Certain Conditions to the Exchange Offer." We will give notice of any extension, amendment, non-acceptance or termination to the holders of the Old Notes as promptly as practicable, such notice in the case of any extension to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. PROCEDURES FOR TENDERING OLD NOTES The tender to our Company of Old Notes by a holder thereof as set forth below and the acceptance thereof by our Company will constitute a binding agreement between the tendering holder and our Company upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. Except as set forth below, a holder who wishes to tender Old Notes for exchange pursuant to the Exchange Offer must transmit a properly completed and duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal, to United States Trust Company of New York (the "Exchange Agent") at one of the addresses set forth below under "Exchange Agent" on or prior to the Expiration Date. In addition, either (i) certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date, or the holder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE 92 98 ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO OUR COMPANY. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Old Notes surrendered for exchange pursuant thereto are tendered (i) by registered holder of the Old Notes who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution (as defined below). In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a firm that is a member or participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program or by an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (collectively, "Eligible Institutions"). If Old Notes are registered in the name of a person other than a signer of the Letter of Transmittal, the Old Notes surrendered for exchange must be endorsed by or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by our Company in its sole discretion, duly executed by, the registered holder with the signature thereon guaranteed by an Eligible Institution. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Old Notes tendered for exchange will be determined by our Company in its sole discretion, which determination shall be final and binding. We reserve the absolute right to reject any and all tenders of any particular Old Notes not properly tendered or to not accept any particular Old Notes which acceptance might, in our judgment or that of our counsel, be unlawful. We also reserve the absolute right to waive any defects or irregularities or conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date. The interpretation of the terms and conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the Letter of Transmittal and the instructions thereto) by our Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes for exchange must be cured within such reasonable period of time as we shall determine. Neither our Company, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Old Notes for exchange, nor shall any of them incur any liability for failure to give such notification. The Exchange Offer is subject to certain customary conditions relating to compliance with any applicable law, or any applicable interpretation by any staff of the Commission, or any order of any governmental agency or court of law. See "--Certain Conditions of the Exchange Offer." If the Letter of Transmittal or any Old Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by us, proper evidence satisfactory to us of their authority to do so must be submitted. By tendering, each holder will represent to us that, among other things, the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the holder and any beneficial holder, that neither the holder nor any such beneficial holder has an arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that neither the holder nor any such other person is our "affiliate," as defined under Rule 405 of the Securities Act. If the holder is a broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer, it must acknowledge that it acquired the Old Notes for its own account as the result of market-making activities or other trading activities, and must agree that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. 93 99 ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES For each Old Note accepted for exchange, the holder of such Old Note will receive an Exchange note having a principal amount equal to that of the surrendered Old Notes. For purposes of the Exchange Offer, we shall be deemed to have accepted properly tendered Old Notes for exchange when, as and if we have given oral and written notice thereof to the Exchange Agent. In all cases, issuance of Exchange Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's accountant the Book-Entry Transfer Facility, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Old Notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged Old Notes will be returned without expense to the tendering holder thereof (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described below, such non-exchanged Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration of the Exchange Offer. BOOK-ENTRY TRANSFER Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Old Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Old Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof with any required signature guarantees and any other required documents must, in any case, be transmitted to and received by the Exchange Agent at one of the addresses set forth below under "Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. The Exchange Agent and the Book-Entry Transfer Facility have confirmed that the Exchange Offer is eligible for the Book-Entry Transfer Facility Automated Tender Offer Program ("ATOP"). Accordingly, the Book-Entry Transfer Facility participants may electronically transmit their acceptance of the Exchange Offer by causing the Book-Entry Transfer Facility to transfer notes to the Exchange Agent in accordance with the Book-Entry Transfer Facility's ATOP procedures for transfer. The Book-Entry Transfer Facility will then send an Agent's Message to the Exchange Agent. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility, received by the Exchange Agent and forming part of the confirmation of a book-entry transfer, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering Notes which are the subject of such book-entry confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Company may enforce such agreement against such participant. In the case of an Agent's Message relating to guaranteed delivery, the term means a message transmitted by the Book-Entry Transfer Facility and received by the Exchange Agent, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering Notes that such participant has received and agrees to be bound by the Notice of Guaranteed Delivery. Delivery of the Agent's Message by the Book-Entry Transfer Facility will satisfy the terms of the Exchange Offer as to execution and delivery of a Letter of Transmittal by the participant identified in the Agent's Message. 94 100 GUARANTEED DELIVERY PROCEDURES If a registered holder of the Old Notes desires to tender such Old Notes and the Old Notes are not immediately available, or time will not permit such holder's Old Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if (i) the tender is made through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by our Company (by telegram, telex, facsimile and transmission, mail or hand delivery), setting forth the name and address of the holder of Old Notes and the amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Old Notes, in proper form for transfer or a confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry Confirmation"), as the case may be, and any other documents required by the letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent and (iii) the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. WITHDRAWAL RIGHTS Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time on the business day prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at one of the addresses set forth below under "Exchange Agent." Any such notice of withdrawal must specify the name of the person having tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn (including the principal amount of such Old Notes), and (where certificates for Old Notes have been transmitted) specify the name in which such Old Notes are registered, if different from that of the withdrawing holder. If certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates, the withdrawing holder must also submit the serial number of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. If Old Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by us, which determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book entry transfer described above, such Old Notes will be credited to an account maintained with such Book- Entry Transfer Facility for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "-- Procedures for Tendering Old Notes" above at any time on or prior to the Expiration Date. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the Exchange Offer, we shall not be required to accept for exchange, or to issue Exchange Notes in exchange for, any Old Notes and may terminate or amend the Exchange Offer if at any time before the Expiration Date, we determine that the Exchange Offer violates applicable law, any applicable interpretation of the staff of the Commission or any order of any governmental agency or court of competent jurisdiction. 95 101 The foregoing conditions are for the sole benefit of our Company and may be asserted by our Company regardless of the circumstances giving rise to any such condition or may be waived by our Company in whole or in part at any time and from time to time in its reasonable discretion. Our failure at any time to exercise any of the foregoing rights shall not be deemed a waiver of such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, we will not accept for exchange any Old Notes tendered, and no Exchange Notes will be issued in exchange for any such Old Notes, if prior to the Expiration Date any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939, as amended (the "TIA"). In any such event, we are required to use every reasonable effort to obtain the withdrawal of any stop order at the earliest possible time. EXCHANGE AGENT United States Trust Company of New York has been appointed as the Exchange Agent for the Exchange Offer. All executed Letters of Transmittal should be directed to the Exchange Agent at the address set forth below. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: By Overnight Courier and By Hand: By Registered or by Hand after 4:30 pm United States Trust Certified Mail: on the Expiration Date: Company of New York United States Trust United States Trust 111 Broadway, Lower Level Company of New York Company of New York New York, New York 10006 P.O. Box 844 770 Broadway, 13th Floor Attn: Corporate Trust Services Cooper Station New York, New York 10003 Via Facsimile: New York, New York 10276-0844 Attn: Corporate (212) 780-0592 Attn: Corporate Trust Services Attn: Corporate Trust Services Trust Services Confirm by Telephone: (800) 548-6565
DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. FEES AND EXPENSES We will not make any payments to brokers, dealers or other soliciting acceptances of the Exchange Offer. The principal solicitation is being made by mail; however, additional solicitations may be made in person or by telephone by officers and employees of our Company. The expenses to be incurred in connection with the Exchange Offer will be paid by us. Such expenses include fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs among others. ACCOUNTING TREATMENT The Exchange Notes will be recorded at the same carrying value as the Old Notes, which is the principal amount as reflected in our accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized. The expenses of the Exchange Offer will be capitalized for accounting purposes. TRANSFER TAXES Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct us to register Exchange Notes in the name of, or request that Old Notes not tendered or not accepted in the Exchange Offer be returned to, a 96 102 person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax thereon. CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF EXCHANGE NOTES Holders of Old Notes who do not exchange their Old Notes for Exchange Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of, the Securities Act and applicable state securities law. Old Notes not exchanged pursuant to the Exchange Offer will continue to accrue interest at 11 1/8% per annum and will otherwise remain outstanding in accordance with their terms. Holders of Notes do not have any appraisal or dissenters' rights under the Delaware General Corporation Law in connection with the Exchange Offer. In general, the Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. To the extent that Notes are exchanged for Exchange Notes, the market for the Notes may be adversely affected. We do not currently anticipate that we will register the Notes under the Securities Act. However, (i) if the Initial Purchasers so request with respect to Notes not eligible to be exchanged for Exchange Notes in the Exchange Offer and held by them following consummation of the Exchange Offer or (ii) if any holder of Notes is not eligible to participate in the Exchange Offer, or, in the case of any holder of Notes that participates in the Exchange Offer, does not receive freely tradable Exchange Notes in exchange for Notes, we are obligated to file a Registration Statement on the appropriate form under the Securities Act relating to the Notes held by such persons. Based on certain interpretive letters issued by the staff of the Commission to third parties in unrelated transactions, we believe that Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold or otherwise transferred by holders thereof (other than (i) any such holder which is our "affiliate" within the meaning of Rule 405 under the Securities Act or (ii) any broker-dealer that purchases Notes from us to resell pursuant to Rule 144A or any other available exemption) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no intention, or any arrangement or understanding with any person, to participate in the distribution of such Exchange Notes. If any holder has any arrangement or understanding with respect to the distribution of the Exchange Notes to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. A broker-dealer who holds Old Notes that were acquired for its own account as a result of market-making or other trading activities may be deemed to be an "underwriter" within the meaning of the Securities Act and must, therefore, deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of Exchange Notes. Each such broker-dealer that acquired Exchange Notes as a result of market-making activities or other trading activities, must acknowledge in the Letter of Transmittal that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." In addition, to comply with the securities laws of certain jurisdictions, if applicable, the Exchange Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdiction or an exemption from registration or qualification is available and is complied with. We have agreed, pursuant to the Registration Rights Agreement and subject to certain specified limitations therein, to register or qualify the Exchange Notes for offer or sale under the securities or blue sky laws of such jurisdictions as any holder of the notes reasonably requests in writing. 97 103 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following discussion (including the opinion of counsel described below) is based upon current provisions of the Internal Revenue Code of 1986, as amended, applicable Treasury regulations, judicial authority and administrative rulings and practice. There can be no assurance that the Internal Revenue Service (the "Service") will not take a contrary view, and no ruling from the Service has been or will be sought. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conditions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to holders. Certain holders (including insurance companies, tax-exempt organizations, financial institutions, broker-dealers, foreign corporations and persons who are not citizens or residents of the United States) may be subject to special rules not discussed below. The Company recommends that each holder consult such holder's own tax advisor as to the particular tax consequences of exchanging such holder's Old Notes for Exchange Notes, including the applicability and effect of any state, local or foreign tax laws. Kirkland & Ellis, counsel to the Company, has advised the Company that in its opinion, the exchange of the Old Notes for Exchange Notes pursuant to the Exchange Offer will not be treated as an "exchange" for federal income tax purposes because the Exchange Notes will not be considered to differ materially in kind or extent from the Old Notes. Rather, the Exchange Notes received by a holder will be treated as a continuation of the Old Notes in the hands of such holder. As a result, there will be no federal income tax consequences to holders exchanging Old Notes for Exchange Notes pursuant to the Exchange Offer. 98 104 PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for series E notes where such series E notes were acquired as a result of market-making activities or other trading activities. Each of the Company and the Guarantor Subsidiaries has agreed that, for a period of not less than 180 DAYS after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer to use in connection with any such resale. In addition, until [ , 1999] (90 days after the date of this Prospectus), all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus. Neither the Company nor the Guarantor Subsidiaries will receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. With respect to resales of Exchange Notes, based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, the Company and the Guarantor Subsidiaries believe that a holder or other person who receives Exchange Notes, whether or not such person is the holder (other than a person that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who receives Exchange Notes in exchange for Old Notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with person to participate, in the distribution of the Exchange Notes, will be allowed to resell the Exchange Notes to the public without further registration under the Securities Act and without delivering to the purchasers of the Exchange Notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires Exchange Notes in the Exchange Offer for the purpose of distributing or participating in a distribution of the Exchange Notes, such holder cannot rely on the position of the staff of the Commission enunciated in such no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction and such a secondary resale transaction should be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K under the Securities Act, unless an exemption from registration is otherwise available. Further, each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Company and each of the Guarantor Subsidiaries has agreed that, for a period of not less than 180 DAYS from the consummation of the Exchange Offer, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. 99 105 For a period of not less than 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company and each of the Guarantor Subsidiaries has jointly and severally agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the holders of the series E notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the series E notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS Certain legal matters with respect to issuance of the Exchange notes offered hereby will be passed upon for the Company and the Guarantor Subsidiaries by Kirkland & Ellis, New York, New York. EXPERTS The consolidated financial statements of the Company at March 31, 1996 and 1997 and at September 30, 1997 and 1998, and for the years ended March 31, 1996 and 1997, the one month ended April 30, 1997, the five months ended September 30, 1997 and for the year ended September 30, 1998, incorporated by reference in this Prospectus and in the Registration Statement, and the financial statement schedule incorporated by reference in the Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon incorporated by reference in this Prospectus and in the Registration Statement, and are included herein in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of Dalton Corporation (formerly known as The Dalton Foundries, Inc.) as of January 3, 1998 and December 28, 1996 and for each of the three fiscal years in the period ended January 3, 1998 included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on authority of said firm as experts in auditing and accounting. The consolidated financial statements of Mercer Forge Corporation and Subsidiary as of November 30, 1997 and 1996, and for each of the years in the two year period ended November 30, 1997, have been incorporated by reference herein and in the registration statement in reliance upon the report of KPMG LLP, independent auditors, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. 100 106 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following portions of documents filed by the Company with the Commission pursuant to Section 13 or 15(d) of the Exchange Act (File No. 333-28751) are incorporated herein by reference: (i) The consolidated financial statements, including the notes thereto and schedules filed therewith of the Company and its predecessor company, and the independent auditors' reports thereon, filed as part of the Annual Report on Form 10-K for the fiscal year ended September 30, 1998; (ii) The consolidated financial statements, including the notes thereto, of Mercer Forge Corporation and the independent auditors' report thereon contained in Item 7(a) "Financial Statements of Business Acquired" and the unaudited pro forma condensed consolidated financial statements, including the notes thereto, of the Company contained in Item 7(b) "Pro Forma Financial Information," contained in Item 7 "Financial Statements, Pro Forma Financial Information and Exhibits" of the Current Reports on Form 8-K/A dated June 12, 1998 and November 5, 1998; (iii) The consolidated financial statements, including the notes thereto, of Dalton Corporation and the report of independent accountants thereon contained in Item 7(a) "Financial Statements of Business Acquired" and the unaudited pro forma condensed consolidated financial statements, including the notes thereto, of the Company contained in Item 7(b) "Pro Forma Financial Information," contained in Item 7 "Financial Statements, Pro Forma Financial Information and Exhibits" of the Current Reports on Form 8-K/A dated November 6, 1998 and November 19, 1998; and (iv) The unaudited condensed consolidated financial statements, including the notes thereto of the Company, filed as part of the Current Report on Form 10-Q for the three months ended December 31, 1998. All documents and reports filed by the Company pursuant to the Exchange Act after the date of this Prospectus will be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the dates of filing such documents or reports. Any statement contained herein or in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained or incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom a copy of this Prospectus is delivered, on the written or oral request of any such person, a copy of any or all of the other documents incorporated herein by reference and not delivered herewith, except the exhibits to such documents (unless such exhibits are specifically incorporated by reference in such documents). Requests for such documents should be directed to the attention of the Secretary of the Company at (920) 725-7000. The reports and other information, including the annual, quarterly and current reports incorporated herein by reference and filed by the Company with the Commission should also be available for inspection at the public reference facilities of the Commission located at 450 Fifth Street, N.W., Washington, DC 20549, and at the regional offices of the Commission located at Citicorp Center, 500 West Madison Street (Suite 1400), Chicago, IL 60661 and Seven World Trade Center, 13th Floor, New York, NY 10048. Copies should be obtainable by mail, upon payment of the Commission's customary charges, by writing to the Commission's principal office at 450 Fifth Street, N.W., Washington, DC 20549. The Commission also maintains an internet website at http://www.sec.gov that contains reports and other information. 101 107 AVAILABLE INFORMATION The Company and the Guarantor Subsidiaries have filed with the Commission a Registration Statement on Form S-4 (the "Exchange Offer Registration Statement," which term shall encompass all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the Exchange Notes being offered hereby. This Prospectus does not contain all the information set forth in the Exchange Offer Registration Statement. For further information with respect to the Company, the Guarantor Subsidiaries and the Exchange Offer, reference is made to the Exchange Offer Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Exchange Offer Registration Statement, reference is made to the exhibit for a more complete description of the document or matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Exchange Offer Registration Statement, including the exhibits thereto, can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of such Web site is: http://www.sec.gov. The Company is currently subject to the informational requirements of the Securities Act, and in accordance therewith will be required to file periodic reports and other information with the Commission. The obligation of the Company to file periodic reports and other information with the Commission will be suspended if the Exchange Notes are held of record by fewer than 300 holders as of the beginning of any fiscal year of the Company other than the fiscal year in which the Exchange Offer Registration Statement is declared effective. The Company will nevertheless be required to continue to file reports with the Commission if the Exchange Notes are listed on a national securities exchange. In the event the Company ceases to be subject to the informational requirements of the Exchange Act, the Company will be required under the Indenture to continue to file with the Commission the annual and quarterly reports, information, documents or other reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K, which would be required pursuant to the informational requirements of the Exchange Act. Under the Indenture, the Company shall file with the Trustee annual, quarterly and other reports after it files such reports with the Commission. Annual reports delivered to the Trustee and the holders of Exchange Notes will contain financial information that has been examined and reported upon, with an opinion expressed by an independent public accountant. The Company will also furnish such other reports as may be required by law. Information contained in this Prospectus contains "forward-looking statements" which can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other similar terminology, or by discussions of strategy. The Company's actual results could differ materially from those anticipated by any such forward-looking statements as a result of certain factors, including those set forth under the "Risk Factors" beginning on page 11 and elsewhere in this Prospectus. ------------------------ 102 108 INDEX TO THE FINANCIAL STATEMENTS FOR DALTON CORPORATION Report of Independent Accountants........................... F-2 Consolidated Balance Sheets for January 3, 1998 and December 28, 1996.................................................. F-3 Consolidated Statements of Income for the years ended January 3, 1998, December 28, 1996 and December 30, 1995...................................................... F-4 Consolidated Statements of Stockholders' Equity for the years ended January 3, 1998, December 28, 1996 and December 30, 1995......................................... F-5 Consolidated Statements of Cash Flows for the years ended January 3, 1998, December 28, 1996 and December 30, 1995...................................................... F-6 Notes to Consolidated Financial Statements.................. F-7
F-1 109 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Dalton Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Dalton Corporation (formerly known as The Dalton Foundries, Inc.) and its subsidiaries at January 3, 1998 and December 28, 1996, and the results of their operations and their cash flows for each of the three years in the period ended January 3, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICEWATERHOUSECOOPERS LLP -------------------------------------- PricewaterhouseCoopers LLP Indianapolis, Indiana March 6, 1998, except as to Note 13, which is as of September 8, 1998 F-2 110 CONSOLIDATED BALANCE SHEETS
JANUARY 3, DECEMBER 28, 1998 1996 ------------ ------------ ASSETS Current assets: Cash and cash equivalents................................. $ 184,097 $ 167,377 Accounts receivable, trade, net of allowance for doubtful accounts of $150,000 in each year (Note 6)............. 19,907,606 19,203,346 Accounts receivable from affiliate (Note 5)............... -- 1,887,391 Income taxes receivable (Notes 1 and 7)................... 219,361 702,971 Inventories (Notes 1, 3 and 6)............................ 13,065,647 13,304,238 Prepaid expenses and other assets......................... 2,031,280 1,208,056 Current deferred taxes (Notes 1 and 7).................... 922,238 737,416 ------------ ------------ Total current assets................................... 36,330,229 37,210,795 ------------ ------------ Property, plant and equipment, net (Notes 1, 4 and 6)....... 34,637,663 30,592,885 Cash value of life insurance................................ 1,759,410 1,577,954 Other assets................................................ 1,473,183 1,323,636 Investment in and advances to affiliate (Note 5)............ -- 925,894 ------------ ------------ Total assets........................................... $ 74,200,485 $ 71,631,164 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term obligations and notes payable (Notes 6 and 13)....................................... $ 202,847 $ 1,060,922 Trade accounts payable.................................... 9,742,856 7,811,748 Salaries and wages........................................ 3,481,816 3,472,222 Group medical insurance................................... 931,900 821,313 Taxes, other than income taxes............................ 605,757 480,298 Retirement benefits and deferred compensation (Note 8).... 818,103 339,596 Accrued ESOP contribution (Note 8)........................ 1,006,568 -- Other..................................................... 804,197 1,087,954 ------------ ------------ Total current liabilities.............................. 17,594,044 15,074,053 ============ ============ Long-term obligations and notes payable (Notes 6 and 13).... 41,238,089 27,054,830 Long-term retirement benefits and deferred compensation (Note 8).................................................. 2,752,499 3,278,630 Long-term deferred income taxes (Notes 1 and 7)............. 1,362,753 1,233,270 Commitments and contingencies (Notes 11 and 13) Stockholders' equity: Common stock -- no par value, 8,750,000 shares authorized, 4,801,750 shares issued (Notes 11, 12 and 13).......... 350,000 350,000 Paid in capital........................................... 11,384,837 11,384,837 Retained earnings......................................... 38,211,260 36,449,277 Treasury stock, 2,430,407 and 1,889,573 shares at cost (Notes 11 and 12)...................................... (38,445,695) (22,723,640) Minimum pension liability adjustment, net of tax (Note 8)..................................................... (247,302) (470,093) ------------ ------------ Total stockholders' equity............................. 11,253,100 24,990,381 ------------ ------------ Total liabilities and stockholders' equity............. $ 74,200,485 $ 71,631,164 ============ ============
The accompanying notes are an integral part of this statement. F-3 111 CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED -------------------------------------------- JANUARY 3, DECEMBER 28, DECEMBER 30, 1998 1996 1995 ------------ ------------ ------------ Net sales.................................... $172,107,096 $154,506,085 $146,007,312 Cost of goods sold........................... 158,906,460 136,523,283 124,393,208 ------------ ------------ ------------ Gross profit............................ 13,200,636 17,982,802 21,614,104 ------------ ------------ ------------ Expenses: Selling.................................... 2,745,837 2,803,663 2,137,483 General and administrative................. 3,986,329 4,403,056 4,307,217 ------------ ------------ ------------ Operating profit........................ 6,468,470 10,776,083 15,169,404 Other income (expense): Interest expense........................... (2,958,124) (1,798,819) (1,057,600) Other income (expense), net................ (196,281) 242,474 (230,880) ------------ ------------ ------------ Pretax income from operations........... 3,314,065 9,219,738 13,880,924 Provision for income taxes................... 1,017,480 3,553,628 5,319,000 ------------ ------------ ------------ Income from operations....................... 2,296,585 5,666,110 8,561,924 Equity income (loss) from Stryker (Note 5)... -- 8,099 (42,728) ------------ ------------ ------------ Net income................................... $ 2,296,585 $ 5,674,209 $ 8,519,196 ------------ ------------ ------------
The accompanying notes are an integral part of this statement. F-4 112 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NUMBER OF SHARES ---------------------------- COMMON STOCK TREASURY COMMON PAID IN RETAINED TREASURY OUTSTANDING STOCK STOCK CAPITAL EARNINGS STOCK ---------------- --------- -------- ----------- ----------- ------------ JANUARY 1, 1995.................... 3,582,950 1,218,800 $350,000 $10,079,926 $23,455,420 $ (5,720,129) Net income......................... 8,519,196 Purchase of treasury stock......... (298,460) 298,460 (6,292,705) Cash dividends of $.18 per share... (599,501) Change in minimum pension liability adjustment....................... Contribution of treasury stock to ESOP............................. 18,685 (18,685) 429,179 48,638 Reduction in loan to ESOP.......... --------- --------- -------- ----------- ----------- ------------ DECEMBER 30, 1995.................. 3,303,175 1,498,575 350,000 10,509,105 31,375,115 (11,964,196) Net income......................... 5,674,209 Purchase of treasury stock......... (424,086) 424,086 (10,845,579) Cash dividends of $.18 per share... (600,047) Change in minimum pension liability adjustment....................... Contribution of treasury stock to ESOP............................. 33,088 (33,088) 875,732 86,135 --------- --------- -------- ----------- ----------- ------------ DECEMBER 28, 1996.................. 2,912,177 1,889,573 350,000 11,384,837 36,449,277 (22,723,640) Net income......................... 2,296,585 Purchase of treasury stock......... (540,834) 540,834 (15,722,055) Cash dividends of $.20 per share... (534,602) Change in minimum pension liability adjustment....................... --------- --------- -------- ----------- ----------- ------------ JANUARY 3, 1998.................... 2,371,343 2,430,407 $350,000 $11,384,837 $38,211,260 $(38,445,695) ========= ========= ======== =========== =========== ============ MINIMUM PENSION TOTAL LIABILITY LOAN TO STOCKHOLDERS' ADJUSTMENT ESOP EQUITY ---------- --------- ------------- JANUARY 1, 1995.................... $(340,523) $(289,272) $27,535,422 Net income......................... 8,519,196 Purchase of treasury stock......... (6,292,705) Cash dividends of $.18 per share... (599,501) Change in minimum pension liability adjustment....................... 108,087 108,087 Contribution of treasury stock to ESOP............................. 477,817 Reduction in loan to ESOP.......... 289,272 289,272 --------- --------- ----------- DECEMBER 30, 1995.................. (232,436) -- 30,037,588 Net income......................... 5,674,209 Purchase of treasury stock......... (10,845,579) Cash dividends of $.18 per share... (600,047) Change in minimum pension liability adjustment....................... (237,657) (237,657) Contribution of treasury stock to ESOP............................. 961,867 --------- --------- ----------- DECEMBER 28, 1996.................. (470,093) -- 24,990,381 Net income......................... 2,296,585 Purchase of treasury stock......... (15,722,055) Cash dividends of $.20 per share... (534,602) Change in minimum pension liability adjustment....................... 222,791 222,791 --------- --------- ----------- JANUARY 3, 1998.................... $(247,302) $ -- $11,253,100 ========= ========= ===========
The accompanying notes are an integral part of this statement. F-5 113 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 3, DECEMBER 28, DECEMBER 30, 1998 1996 1995 ------------ ------------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income..................................... $ 2,296,585 $ 5,674,209 $ 8,519,196 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense......................... 6,659,295 5,551,810 5,084,829 Equity (income) loss from Stryker............ -- (8,099) 42,728 Contribution of treasury stock to ESOP....... -- 961,867 477,817 Loss (gain) on disposal of property, plant and equipment............................. 191,091 (33,049) 52,664 Change in, excluding effects of acquisitions: Accounts receivable, trade and other...... 2,989,447 (1,947,507) (4,278,637) Inventories............................... 571,246 (2,627,894) (8,116) Accounts payable, trade and accrued liabilities............................. 1,055,552 585,925 (3,688,036) Deferred taxes............................ (339,224) 486,673 (278,696) Other..................................... (1,138,550) (30,525) (518,271) ------------ ------------ ----------- Total adjustments......................... 9,988,857 2,939,201 (3,113,718) ------------ ------------ ----------- Net cash provided by operating activities.... 12,285,442 8,613,410 5,405,478 ------------ ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment, excluding effects of acquisitions............ (6,706,277) (6,594,714) (7,439,097) Proceeds from sale of property, plant and equipment.................................... 5,919 -- 8,250 Acquisition of Stryker, net of cash assumed.... (200,000) -- -- Cash assumed in acquisition of Ashland......... -- -- 44,382 ------------ ------------ ----------- Net cash used in investing activities........ (6,900,358) (6,594,714) (7,386,465) ------------ ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings under revolving loan............ (131,000) 10,128,243 7,393,757 Borrowing of long-term debt.................... 11,019,293 -- 8,000,000 Repayment of long-term obligations............. -- (1,084,130) (6,262,184) Dividends paid................................. (534,602) (600,047) (599,501) Purchase of treasury stock..................... (15,722,055) (10,845,579) (6,292,705) ------------ ------------ ----------- Net cash (used in) provided by financing activities................................ (5,368,364) (2,401,513) 2,239,367 ------------ ------------ ----------- Increase (decrease) in cash and cash equivalents.................................. 16,720 (382,817) 258,380 Cash and cash equivalents at beginning of period....................................... 167,377 550,194 291,814 ------------ ------------ ----------- Cash and cash equivalents at end of period..... $ 184,097 $ 167,377 $ 550,194 ============ ============ =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest......................... $ 2,985,453 $ 1,831,683 $ 829,457 Cash paid for income taxes..................... $ 1,192,614 $ 3,005,000 $ 6,126,557
The accompanying notes are an integral part of this statement. F-6 114 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION. The consolidated financial statements include the accounts of Dalton Corporation (formerly known as The Dalton Foundries, Inc., the Company or Dalton) and its wholly-owned subsidiaries, Warsaw Manufacturing Facility (Warsaw), Kendallville Manufacturing Facility (formerly known as Newnam Manufacturing, Inc., Kendallville), Ashland Manufacturing Facility (formerly known as Ashland Castings Corporation, Ashland) and Stryker Machining Facility (formerly known as Economy North, Stryker -- see Note 5). All intercompany accounts and transactions have been eliminated. Prior to January 2, 1998, the Company was majority owned by an employee stock ownership plan (ESOP, see Note 8), with 4.8% of the shares held outside of the ESOP, primarily by certain key executives and officers of the Company. Effective January 2, 1998, the Company repurchased all shares held outside of the ESOP at the market value of the Company's stock as of December 28, 1996 (Note 8), for a total purchase price of $3,492,935. As a result, effective January 3, 1998 the Company is 100% owned by the ESOP. DESCRIPTION OF BUSINESS. The Company manufactures and sells grey iron castings, primarily to the refrigeration, heavy equipment and automotive industries. The Company operates foundries in Warsaw and Kendallville, Indiana and Ashland, Ohio and a machining facility in Stryker, Ohio. The Company has no foreign operations and direct export sales are not significant. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure 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. FISCAL YEAR. The Company's fiscal year ends on the Saturday nearest December 31. Included in these financial statements are the fiscal years ended January 3, 1998 (1997 -- 53 weeks), December 28, 1996 (1996 -- 52 weeks), and December 30, 1995 (1995 -- 52 weeks). CASH FLOWS. For purposes of the Statement of Cash Flows, the Company considers all highly liquid instruments with a maturity of three months or less at date of purchase to be cash and cash equivalents. INVENTORIES. Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method for approximately 67% of the Company's inventories. Inventories not valued on LIFO are valued on the first-in, first-out (FIFO) method. REVENUE RECOGNITION. Revenues from product sales are recognized at the time of shipment to the customer. PROPERTY, PLANT AND EQUIPMENT. Properties are stated at cost. Maintenance and minor repairs are expensed as incurred. Depreciation for financial reporting purposes is determined using the straight-line method over the estimated useful lives of the assets. The estimated lives are 7 to 8 years for land improvements, 7 to 20 years for buildings and improvements, and 2 to 10 years for machinery and equipment. When property is retired from service or otherwise disposed of, the cost and related amount of accumulated depreciation are eliminated from the asset and reserve accounts, with the resulting gain or loss recognized in income. INCOME TAXES. The Company records income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes". Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting carrying values of assets and liabilities and the income tax carrying amounts. F-7 115 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS. The fair value of all financial instruments where the face value differs from the fair value are estimated based upon the use of current rates available for similar financial instruments. If fair value accounting had been used at January 3, 1998 instead of the historic basis of accounting used in the financial statements, long-term debt would be reduced from the reported level by approximately $600,000. 2. ACQUISITION OF ASHLAND MANUFACTURING FACILITY On July 1, 1995 the net assets of Ashland were acquired by Dalton. At the time of the acquisition, the fair value of the assets exceeded the fair value of the liabilities by $1,887,000. The basis of long-term assets, primarily machinery and equipment, was reduced by this excess. The purchase agreement requires that Dalton pay the seller, as purchase price consideration, the lesser of 50% of Ashland's cumulative net income earned through December 31, 2001 or $7,000,000. Dalton has made no payments to the seller since the date of acquisition. This transaction was recorded as a purchase of assets in accordance with Accounting Principles Board Opinion No. 16 (APB 16), "Business Combinations". The results of Ashland subsequent to July 1, 1995 have been included in these financial statements. These results reflect cumulative net losses of $7,724,338. 3. INVENTORIES Inventories consist of the following:
JANUARY 3, DECEMBER 28, 1998 1996 ----------- ------------ Raw materials and supplies............................. $ 1,651,054 $ 1,342,007 In process and finished goods.......................... 8,434,856 8,754,406 Factory supplies....................................... 2,979,737 3,207,825 ----------- ----------- Total inventories............................ $13,065,647 $13,304,238 =========== ===========
If the FIFO method of accounting had been used for all inventories, inventories would have increased by $1,165,699 at January 3, 1998 and $542,909 at December 28, 1996. 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
JANUARY 3, DECEMBER 28, 1998 1996 ----------- ------------ Land and improvements.................................. $ 1,777,812 $ 1,709,710 Buildings and improvements............................. 10,157,540 7,813,421 Machinery and equipment................................ 59,361,016 51,947,021 ----------- ----------- 71,296,368 61,470,152 Accumulated depreciation............................... (37,874,273) (32,244,594) ----------- ----------- 33,422,095 29,225,558 Construction in progress............................... 1,215,568 1,367,327 ----------- ----------- Net property, plant and equipment...................... $34,637,663 $30,592,885 ----------- -----------
F-8 116 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. STRYKER MACHINING FACILITY Prior to January 2, 1997, the Company owned a 50% interest in Stryker. Stryker machines castings produced by Kendallville and sells the finished castings primarily within the automotive industry. This investment was accounted for using the equity method of accounting. Effective January 2, 1997, the Company purchased from its joint venture partner the remaining 50% interest in Stryker, for a purchase price of $1,000,000, $200,000 payable in cash and the balance in the form of an interest-free installment note payable in equal annual payments over a five year period. Based upon its non-cash nature, the installment note payable has not been reflected within the Statements of Cash Flows. The net present value of the purchase price approximated the book value of the remaining 50% interest. This transaction was accounted for as a purchase transaction in accordance with APB 16. Sales of castings to Stryker were $5,503,725 in 1996 and $5,584,428 in 1995. Management fees charged to Stryker were $12,000 in 1996 and 1995. All such amounts in 1997 have been eliminated as the results of Stryker have been consolidated with the Company subsequent to the purchase of the remaining 50% ownership interest. A summary of Stryker's financial information for 1996 and 1995 is as follows:
DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Cash...................................................... $ 57,588 $ 98,573 Trade accounts receivable................................. 1,223,954 1,108,272 Inventories............................................... 332,655 294,074 Other assets.............................................. 188,245 75,033 Property and equipment, net............................... 4,228,721 4,694,814 ---------- ---------- Total assets......................................... $6,031,163 $6,270,766 ========== ========== Accounts payable to Kendallville.......................... $1,887,391 $1,512,952 Advances payable to Kendallville.......................... 31,583 31,583 Other current liabilities................................. 785,735 807,372 Long-term obligations..................................... 1,537,832 2,146,435 Stockholders' equity...................................... 1,788,622 1,772,424 ---------- ---------- Total liabilities and stockholders' equity........... $6,031,163 $6,270,766 ========== ==========
FOR THE YEAR ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Net sales................................................. $9,191,675 $9,004,353 ========== ========== Net income (loss)......................................... $ 16,197 $ (85,455) ========== ==========
F-9 117 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. LONG-TERM OBLIGATIONS AND NOTES PAYABLE Long-term obligations and notes payable consist of the following:
JANUARY 3, DECEMBER 28, 1998 1996 ----------- ------------ Revolving and reducing line of credit.................. $20,000,000 $ 7,000,000 Revolving line of credit............................... 20,691,000 20,822,000 Capital lease obligations, 10%......................... 2,847 60,922 Borrowings against cash value of insurance policies, 5%................................................... 232,830 232,830 Notes payable.......................................... 514,259 -- ----------- ----------- Total obligations and notes payable.................... 41,440,936 28,115,752 Amounts due within one year............................ (202,847) (1,060,922) ----------- ----------- Long-term obligations and notes payable................ $41,238,089 $27,054,830 =========== ===========
The Company negotiated a number of modifications to its two primary outstanding debt obligations during the course of fiscal 1997. The commitment under the revolving and reducing line of credit was increased to $20,000,000, payable in annual installments beginning in May 1999, with a balloon payment in May 2002. The first annual installment due in May 1999 is $2,000,000, with annual installments due in May 2000 and 2001 of $2,670,000. The facility bears interest at a fixed rate of 8.56% for its entire term, with interest payable monthly. The commitment under the revolving line of credit was increased to $25,000,000 during the year. Interest on amounts outstanding under the facility are charged at a rate which floats with LIBOR and the Company's Tangible Net Worth Ratio, as defined in the loan agreement, and is payable monthly. The interest rate approximated 9.465% as of January 3, 1998. The revolving line of credit expires in May 1999, with a one-year renewal option if the Company maintains compliance with terms of the agreement and certain covenants. Amounts available under the revolving line of credit are also subject to a borrowing base computation based upon receivable and inventory balances. As of January 3, 1998, the borrowing base computation indicated available borrowings under the facility of $22,740,000. Each of the above debt obligations are secured by substantially all of the assets of the Company, including accounts receivable, inventories and property, plant and equipment. The obligations are jointly and severally guaranteed by the Company and all its subsidiaries. The Company is subject to certain covenants in relation to the above debt obligations, including the maintenance of a minimum level of Tangible Net Worth, a maximum ratio of Total Liabilities to Tangible Net Worth, and a minimum Debt Service ratio as defined in the loan agreements. As of January 3, 1998, the Company was not in compliance with certain of these covenants, which could effectively result in the obligations being callable on demand. See Note 13 for subsequent actions taken by the lenders with respect to such non-compliance. The outstanding notes payable of $514,259 at January 3, 1998 represents the present value of the remaining installments due in relation to the acquisition of Stryker (Note 5). Annual equal installments are due under the interest-free note through 2001. F-10 118 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Scheduled payments under the Company's debt agreements as of January 3, 1998 are as follows: 1998.......................................... $ 202,847 1999.......................................... 22,841,996 2000.......................................... 2,833,263 2001.......................................... 2,670,000 2002.......................................... 12,660,000 Thereafter.................................... 232,830 ----------- Total......................................... $41,440,936 ===========
7. INCOME TAXES At January 3, 1998, deferred tax assets consist primarily of temporary differences associated with accruals such as pensions, deferred compensation liabilities, self-insurance reserves, employee benefits and environmental accruals, along with state operating loss carryforwards at Ashland. Deferred tax liabilities relate to temporary differences primarily associated with property, plant and equipment due to accelerated methods of depreciation for tax purposes. Components of the net deferred tax liability are as follows:
JANUARY 3, DECEMBER 28, 1998 1996 ------------ ------------ Deferred tax assets................................... $ 4,045,405 $ 3,349,762 Deferred tax liabilities.............................. (3,862,059) (3,428,116) ------------ ------------ 183,346 (78,354) Valuation allowances.................................. (623,861) (417,500) ------------ ------------ Net deferred tax liability............................ $ (440,515) $ (495,854) ============ ============
A full valuation allowance has been recorded at January 3, 1998 and December 28, 1996 relating to the net state deferred tax assets at Ashland, including operating loss carryforwards. An operating loss carryforward of $14,115,000 is available for Ohio State tax purposes, with expiration dates in 2010 through 2012. The provision for income taxes consists of the following:
1997 1996 1995 ---------- ---------- ---------- Current income taxes: Federal.................................. $1,235,179 $1,797,665 $4,481,000 State.................................... 241,486 1,141,322 1,175,000 ---------- ---------- ---------- Total current.............................. 1,476,665 2,938,987 5,656,000 Deferred income taxes: Federal.................................. (394,379) 649,655 (303,000) State.................................... (64,806) (35,014) (34,000) ---------- ---------- ---------- Total deferred............................. (459,185) 614,641 (337,000) ---------- ---------- ---------- Total provision for income taxes........... $1,017,480 $3,553,628 $5,319,000 ---------- ---------- ----------
F-11 119 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation of the statutory Federal income tax rate to the effective income tax rate for each fiscal year is as follows:
1997 1996 1995 ---- ---- ---- Federal income tax at statutory rate........................ 34.0% 34.0% 34.0% State income tax, net of Federal benefit.................... 3.5 7.9 5.4 ESOP dividend............................................... (5.5) (2.2) (1.5) Other....................................................... (1.3) (1.2) 0.4 ---- ---- ---- Effective income tax rate................................... 30.7% 38.5% 38.3%
On March 2, 1998, the Company filed an election to be treated as an S-Corporation for income tax purposes effective January 4, 1998. As a result of this election, the Company will no longer be subject to Federal and state income taxes, other than potential taxes resulting from the disposal of assets within a ten-year period of the election or non-income based taxes. With this change in tax status, the deferred tax accounts and other income tax accounts of the Company will be adjusted in fiscal 1998 to take into account the new tax status of the Company, subject to the maintenance of certain tax liabilities associated with potential taxes due upon the disposition of assets subsequent to the effective date of the S-Corporation election. 8. RETIREMENT BENEFITS AND DEFERRED COMPENSATION Accrued retirement benefits and deferred compensation consist of the following:
JANUARY 3, DECEMBER 28, 1998 1996 ---------- ------------ Defined benefit plan..................................... $1,578,197 $1,922,806 Supplemental benefits.................................... 1,800,826 1,518,194 Defined contribution plans............................... 126,550 103,329 Multi-employer plan...................................... 45,390 36,376 Other.................................................... 19,639 37,521 ---------- ---------- 3,570,602 3,618,226 Amounts to be paid within one year....................... (818,103) (339,596) ---------- ---------- Long-term retirement benefits and deferred compensation.................................. $2,752,499 $3,278,630 ========== ==========
DEFINED BENEFIT PLAN. Substantially all of the Company's employees in the Warsaw bargaining units are covered by a non-contributory defined benefit pension plan. The plan provides benefits of stated amounts for each year of service. The Company's pension expense was determined in accordance with SFAS No. 87, "Employers' Accounting for Pensions". The discount rate used was 7.25% for all fiscal years. The assumed long-term rate of return on assets was 7.50% for all fiscal years. F-12 120 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net pension expense consists of the following for each fiscal year:
1997 1996 1995 --------- --------- --------- Service cost -- benefits earned during the period..................................... $ 389,411 $ 363,655 $ 313,182 Interest on projected benefit obligation..... 501,806 430,603 394,839 Amortization of transition liability......... 26,437 26,437 26,437 Amortization of prior service cost........... 23,251 23,251 23,251 Actual return on plan assets................. (820,660) (418,620) (664,568) Unrecognized net gain........................ 427,313 78,565 387,168 --------- --------- --------- Net pension expense.......................... $ 547,558 $ 503,891 $ 480,309 ========= ========= =========
The funded status of the Company's defined benefit pension plan and the net accrued pension liability recognized in the Company's consolidated Balance Sheet consists of the following:
1997 1996 ---------- ---------- Actuarial present value of benefit obligations: Vested.................................................. $7,272,722 $6,544,105 Nonvested............................................... 457,705 519,208 ---------- ---------- Projected benefit obligation.............................. 7,730,427 7,063,313 Plan assets at fair value................................. 6,152,230 5,140,507 ---------- ---------- Projected benefit obligation in excess of plan assets..... 1,578,197 1,922,806 Unrecognized prior service cost........................... (209,263) (232,514) Unrecognized net liability at January 4, 1987 being recognized over 15 years................................ (105,760) (132,197) Unrecognized net gains.................................... (380,463) (723,215) Recorded additional minimum liability..................... 695,486 1,087,926 ---------- ---------- Accrued pension liability................................. $1,578,197 $1,922,806 ========== ==========
The Company has recognized the amount of the projected benefit obligation in excess of plan assets as a liability in its financial statements. An intangible asset of $315,023 and $364,711 was recorded at January 3, 1998 and December 28, 1996 with the remaining $380,463 and $723,215 of the minimum liability recorded as a reduction of stockholders' equity, net of tax. SUPPLEMENTAL BENEFITS. The Company provides supplemental retirement benefits and death benefits for certain executives. As a method of funding a portion of the benefits under this plan, the Company purchased and is the beneficiary of life insurance policies with a cash value of $1,759,410 and a face value of $3,246,392 at January 3, 1998. Provisions for these benefits are charged to operations over the employees' expected terms of employment. Expense of the plan, net of the increase in cash value of life insurance policies, was $244,431 in 1997, $286,577 in 1996, and $253,763 in 1995. DEFINED CONTRIBUTION PLANS. The Company maintains defined contribution plans for substantially all non-union employees and Ashland union employees. Participants may contribute up to 10% of their compensation on a pretax basis. The Company may make contributions to the plans at its discretion. The expense associated with these plans was $126,550 in 1997, $103,329 in 1996, and $82,643 in 1995. Warsaw also has a defined contribution plan for the union employees. Participants may contribute up to 15% of their compensation on a pretax basis and an additional 10% on a posttax basis. The Company does not make contributions to the Plan. F-13 121 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) MULTI-EMPLOYER PLAN. Substantially all of Kendallville's hourly employees are covered by a union-sponsored multi-employer defined benefit pension plan. As long as the Company remains a participant in this plan, its obligation is satisfied by its defined contributions. Information is not available for the union-sponsored plan to permit Kendallville to determine its share of any unfunded vested benefits. Contributions to the Plan are established under a collective bargaining agreement and charges to operations related to this plan totaled $477,106 in 1997, $451,678 in 1996, and $391,623 in 1995. EMPLOYEE STOCK OWNERSHIP PLAN. All employees of the Corporate location and all non-union employees of the Company's Warsaw operation and Kendallville operation participate in the ESOP. Effective January 1, 1996, all non-union employees of the Ashland operation began participating in the ESOP. Effective January 1, 1997, all employees of the Stryker facility also began participating in the ESOP. The amount of the Company's annual contribution to the ESOP is at the discretion of the Board of Directors. The total contribution is allocated to participants based upon participant compensation. There is no outstanding debt under the ESOP and all shares have been released and allocated. Historically, the Company has funded a portion of its annual ESOP contribution with Company stock. The market value of the Company's stock, as determined by an independent appraiser, was $29.07 per share at December 28, 1996. There has been no updated appraisal of stock value as of January 3, 1998. During 1997 the Company funded its entire ESOP contribution with a cash contribution and in 1995 the contribution was partially funded by cash. The Company's ESOP contributions for each fiscal year were as follows:
1997 1996 1995 ---------- -------- -------- Contribution based on compensation............. $1,006,568 $961,867 $847,308 ========== ======== ========
9. SIGNIFICANT CUSTOMERS The Company sells its products primarily to large industrial companies. During each fiscal year, two customers individually comprised more than 10% of sales. One customer comprised 17% of sales in 1997, and 20% of sales in 1996 and 1995, while the other customer comprised 12% of sales in 1997 and 1996, and 15% of sales in 1995. At January 3, 1998 these two customers and one additional customer collectively comprised 27% of trade accounts receivable. The Company generally does not require collateral as a basis for granting credit. 10. LEASES The Company maintains several operating leases with terms in excess of one year. Minimum payments are approximately $320,000 in 1998, $200,000 in 1999 and are approximately $100,000 in each of the three years subsequent to 1999. Lease expense in fiscal 1997 was approximately $675,000 and was minimal in the other two fiscal years. 11. COMMITMENTS AND CONTINGENCIES STOCK REPURCHASE OBLIGATION. When employees leave the Company they are required to put, and the Company is obligated to purchase, all of their Dalton common shares at an appraised price. The repurchase of these shares is generally paid in equal annual installments over a five year period as allowed under the ESOP. The Company is obligated to purchase approximately $23,560,770 of Company stock from employees who have terminated or retired prior to January 3, 1998. There has been no appraisal update for the 1997 year-end, therefore, this amount is based upon the appraised price of the stock as of December 28, 1996, and is subject to change based upon future appraised values. F-14 122 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Repurchase commitments over the next five years, based upon the December 28, 1996 stock valuation, are as follows: 1998............................................ $6,268,384 1999............................................ $6,051,822 2000............................................ $6,051,822 2001............................................ $3,769,942 2002............................................ $1,418,800
See Note 13 for subsequent events impacting the stock repurchase obligation. MEDICAL BENEFITS AND WORKERS' COMPENSATION. The Company is essentially self-insured with respect to medical benefits and maintains excess insurance coverage to limit its exposure. The Company is also self-insured for workers' compensation exposures at the Warsaw operation and maintains excess insurance coverage limiting its exposure to no more than $275,000 per accident. The Company pays all Warsaw claims below the insured level. The Company charges the expected ultimate costs of self-insured claims to income in the period the accident or illness occurs. At January 3, 1998 the Company had accrued $1,391,000 for reported and unreported medical and workers' compensation claims. Actual costs may be different than this estimate. ENVIRONMENTAL. The Company has been identified by the United States Environmental Protection Agency (EPA) as a Potentially Responsible Party (PRP) under Superfund legislation because industrial wastes were allegedly sent to two hazardous waste sites (Wayne Reclamation Superfund site and Lakeland Superfund site). Dalton has entered into a consent decree filed with the U.S. District Court for the Wayne Reclamation Superfund site. All involved parties have accepted the consent decree, and it is pending approval by the court. Dalton is one of 16 defendants at the Lakeland Superfund site. Dalton has been previously dismissed from the PRP list at this site; however, during 1997, the plaintiffs appealed the dismissal previously entered in Dalton's favor. During February 1998, the Company reached an agreement with the EPA to settle its obligation for the Lakeland Superfund site. The amount owed under the terms of the settlement approximates the accrued amount recorded at January 3, 1998. The Company is also in the process of closing an on-site surface impoundment. The amount accrued relative to this closure represents the estimated total clean up, monitoring and administrative costs associated with this closure. This project has been substantially completed as of January 3, 1998. The Company also operates an operating landfill at which on-going environmental monitoring costs will be incurred. Total accruals for environmental liabilities are $150,370 at January 3, 1998. 12. COMMON STOCK SPLIT Effective August 1, 1996, the Board of Directors approved an increase in the number of authorized common shares to 8,750,000 and simultaneously declared a five-for-one stock split on the Company's common stock. All share and per share data included in this report reflect this stock split. 13. SUBSEQUENT EVENTS On July 28, 1998, the Company had a fire at the Warsaw operation. There is no current estimate of damages, however, the Company is fully insured for property damage subject to a minimal deductible of $25,000. There were no reported personal injuries and the Company did not suffer significant business interruption as a result of the fire. F-15 123 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On August 7, 1998, the Company entered into an agreement to sell all its operations to Neenah Foundry Company (Neenah) for a purchase price of $102,000,000, less amounts due under outstanding debt agreements and subject to certain other adjustments. The agreement was subject to shareholder and regulatory approval, which was received, and the transaction closed September 8, 1998. With consummation of the transaction, the ESOP was terminated, pending approval from the Internal Revenue Service, and all shares were acquired. Furthermore, certain "change in control" provisions of select benefit agreements may be activated as a result of the transaction. Effective August 14, 1998, the Company's primary lenders formally waived their rights with respect to certain covenant violations to accelerate payment of amounts outstanding under the bank term loan and the revolving loan through May 31, 1999, the scheduled expiration date of the revolving loan agreement. Based upon the waiver of compliance, the amounts outstanding under these loan agreements were classified as long-term within the Balance Sheet. With consummation of the sale transaction to Neenah on September 8, 1998, all outstanding debt obligations were paid in full from the sale proceeds. F-16 124 - ------------------------------------------------------ - ------------------------------------------------------ WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS PROSPECTUS IS CURRENT AS OF , 1999. ------------------------ TABLE OF CONTENTS Prospectus Summary................... 1 Risk Factors......................... 11 Use of Proceeds...................... 18 Capitalization....................... 19 Selected Consolidated Financial and Other Data......................... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 23 Business............................. 30 Management........................... 49 Ownership of Securities.............. 53 Certain Relationships and Related Transactions....................... 53 Description of Senior Bank Facilities......................... 54 Description of Notes................. 58 Exchange Offer....................... 92 Certain United States Federal Income Tax Considerations................. 98 Plan of Distribution................. 99 Legal Matters........................ 100 Experts.............................. 100 Incorporation of Certain Documents by Reference.......................... 101 Available Information................ 102 Index to the Financial Statements of Dalton Corporation................. F-1
UNTIL , 1999 ([ ] DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ $87,000,000 11 1/8% SENIOR SUBORDINATED NOTES DUE 2007 [NEENAH CORPORATION LOGO] ------------------------ PROSPECTUS ------------------------ , 1999 - ------------------------------------------------------ - ------------------------------------------------------ 125 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Sections 180.0850 to 180.0859 of the Wisconsin Statutes require a corporation to indemnify any director or officer who is a party to any threatened, pending or completed civil, criminal, administrative or investigative action, suit, arbitration or other proceeding, whether formal or informal, which involves foreign, federal, state or local law and which is brought by or in the right of the corporation or by any other person. A corporation's obligation to indemnify any such person includes the obligation to pay any judgment, settlement, penalty, assessment, forfeiture or fine, including any excise tax assessed with respect to an employee benefit plan, and all reasonable expenses including fees, costs, charges, disbursements, attorney's and other expenses except in those cases in which liability was incurred as a result of the breach or failure to perform a duty which the director or officer owes to the corporation and the breach or failure to perform constitutes: (i) a willful failure to deal fairly with the corporation or its shareholders in connection with a matter in which the director or officer has a material conflict of interest; (ii) a violation of criminal law, unless the person has reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful; (iii) a transaction from which the person derived an improper personal profit; or (iv) willful misconduct. Unless otherwise provided in a corporation's articles of incorporation or by-laws or by written agreement, an officer or director seeking indemnification is entitled to indemnification if approved in any of the following manners: (i) by majority vote of a disinterested quorum of the board of directors, or if such quorum of disinterested directors cannot be obtained, by a majority vote of a committee or two or more disinterested directors; (ii) by independent legal counsel; (iii) by a panel of three arbitrators; (iv) by affirmative vote of shareholders; (v) by a court; or (vi) with respect to any additional right to indemnification granted by any other method permitted in Section 180.0859 of the Wisconsin Statutes. Reasonable expenses incurred by a director or officer who is a party to a proceeding may be reimbursed by a corporation at such time as the director or officer furnishes to the corporation written affirmation of his good faith belief that he has not breached or failed to perform his duties and a written undertaking to repay any amounts advanced if it is determined that indemnification by the corporation is not required. The indemnification provisions of Sections 180.0850 to 180.0859 are not exclusive. A corporation may expand an officer's or director's right to indemnification (i) in its articles of incorporation or by-laws; (ii) by written agreement, (iii) by resolution of its board of directors; or (iv) by resolution of a majority of all of the corporation's voting shares then issued and outstanding. As permitted by Section 180.0859, the Registrant has adopted indemnification provisions in its By-Laws which closely track the statutory indemnification provisions with certain exceptions. In particular, Article VIII of the Registrant's By-Laws provides that payment or reimbursement of expenses, subject to certain limitations, will be mandatory rather than permissive. The Registrant maintains and has in effect insurance policies covering all of their respective directors and officers against certain liabilities for actions taken in such capacities, including liabilities under the Securities Act of 1933. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits. See Exhibit Index (b) Financial Statement Schedules. II-1 126 ITEM 22. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof; (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and (4) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (5) The registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 20 or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-2 127 The undersigned registrant hereby undertakes that: (6) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (7) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (8) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (9) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-3 128 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on February 16, 1999. NEENAH FOUNDRY COMPANY By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney on Form S-4 has been signed by the following persons in the capacities and on February 16, 1999.
SIGNATURE CAPACITY --------- -------- /s/ JAMES K. HILDEBRAND Chairman of the Board and Chief Executive - --------------------------------------------- Officer (principal executive officer) James K. Hildebrand /s/ WILLIAM M. BARRETT President - --------------------------------------------- William M. Barrett /s/ GARY W. LACHEY Vice President -- Finance, Treasurer and - --------------------------------------------- Secretary (principal financial officer and Gary W. LaChey accounting officer) /s/ CHARLES M. KURTTI Vice President -- Manufacturing and - --------------------------------------------- Engineering Charles M. Kurtti /s/ DAVID F. THOMAS Director - --------------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director - --------------------------------------------- John D. Weber /s/ BRENTON S. HALSEY Director - --------------------------------------------- Brenton S. Halsey
II-4 129 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on February 16, 1999. Hartley Controls Corporation By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney on Form S-4 has been signed by the following persons in the capacities and on February 16, 1999.
SIGNATURE CAPACITY --------- -------- /s/ JAMES K. HILDEBRAND Chairman of the Board and Chief Executive Officer - --------------------------------------------- (principal executive officer) James K. Hildebrand /s/ WILLIAM M. BARRETT President - --------------------------------------------- William M. Barrett /s/ GARY W. LACHEY Vice President -- Finance, Treasurer and Secretary - --------------------------------------------- (principal financial officer and accounting officer) Gary W. LaChey /s/ CHARLES M. KURTTI Vice President -- Manufacturing and Engineering - --------------------------------------------- Charles M. Kurtti /s/ DAVID F. THOMAS Director - --------------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director - --------------------------------------------- John D. Weber /s/ BRENTON S. HALSEY Director - --------------------------------------------- Brenton S. Halsey
II-5 130 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on February 16, 1999. NEENAH TRANSPORT, INC. By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney on Form S-4 has been signed by the following persons in the capacities and on February 16, 1999.
SIGNATURE CAPACITY --------- -------- /s/ JAMES K. HILDEBRAND Chairman of the Board and Chief Executive Officer - --------------------------------------------------- (principal executive officer) James K. Hildebrand /s/ WILLIAM M. BARRETT President - --------------------------------------------------- William M. Barrett /s/ GARY W. LACHEY Vice President -- Finance, Treasurer and - --------------------------------------------------- Secretary (principal financial officer Gary W. LaChey and accounting officer) /s/ CHARLES M. KURTTI Vice President -- Manufacturing and Engineering - --------------------------------------------------- Charles M. Kurtti /s/ DAVID F. THOMAS Director - --------------------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director - --------------------------------------------------- John D. Weber /s/ BRENTON S. HALSEY Director - --------------------------------------------------- Brenton S. Halsey
II-6 131 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on February 16, 1999. DEETER FOUNDRY, INC. By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney on Form S-4 has been signed by the following persons in the capacities and on February 16, 1999.
SIGNATURE CAPACITY --------- -------- /s/ JAMES K. HILDEBRAND Chairman of the Board and Chief Executive Officer - --------------------------------------------------- (principal executive officer) James K. Hildebrand /s/ WILLIAM M. BARRETT President - --------------------------------------------------- William M. Barrett /s/ GARY W. LACHEY Vice President -- Finance, Treasurer and - --------------------------------------------------- Secretary (principal financial officer Gary W. LaChey and accounting officer) /s/ CHARLES M. KURTTI Vice President -- Manufacturing and Engineering - --------------------------------------------------- Charles M. Kurtti /s/ DAVID F. THOMAS Director - --------------------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director - --------------------------------------------------- John D. Weber /s/ BRENTON S. HALSEY Director - --------------------------------------------------- Brenton S. Halsey
II-7 132 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on February 16, 1999. MERCER FORGE CORPORATION By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney on Form S-4 has been signed by the following persons in the capacities and on February 16, 1999:
SIGNATURE CAPACITY --------- -------- /s/ JAMES K. HILDEBRAND Chairman of the Board and - --------------------------------------------------- Chief Executive Officer James K. Hildebrand (principal executive officer) /s/ WILLIAM M. BARRETT President - --------------------------------------------------- William M. Barrett /s/ GARY W. LACHEY Vice President -- Finance, Treasurer and - --------------------------------------------------- Secretary (principal financial officer Gary W. LaChey and accounting officer) /s/ CHARLES M.KURTTI Vice President -- Manufacturing and Engineering - --------------------------------------------------- Charles M. Kurtti /s/ DAVID F. THOMAS Director - --------------------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director - --------------------------------------------------- John D. Weber /s/ BRENTON S. HALSEY Director - --------------------------------------------------- Brenton S. Halsey
II-8 133 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on February 16, 1999. A & M SPECIALTIES, INC. By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney on Form S-4 has been signed by the following persons in the capacities and on February 16, 1999.
SIGNATURE CAPACITY --------- -------- /s/ JAMES K. HILDEBRAND Chairman of the Board and Chief Executive Officer - --------------------------------------------------- (principal executive officer) James K. Hildebrand /s/ WILLIAM M. BARRETT President - --------------------------------------------------- William M. Barrett /s/ GARY W. LACHEY Vice President -- Finance, Treasurer and - --------------------------------------------------- Secretary Gary W. LaChey (principal financial officer and accounting officer) /s/ CHARLES M. KURTTI Vice President -- Manufacturing and Engineering - --------------------------------------------------- Charles M. Kurtti /s/ DAVID F. THOMAS Director - --------------------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director - --------------------------------------------------- John D. Weber /s/ BRENTON S. HALSEY Director - --------------------------------------------------- Brenton S. Halsey
II-9 134 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on February 16, 1999. ADVANCED CAST PRODUCTS, INC. By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney on Form S-4 has been signed by the following persons in the capacities and on February 16, 1999.
SIGNATURE CAPACITY --------- -------- /s/ JAMES K. HILDEBRAND Chairman of the Board and Chief Executive Officer - --------------------------------------------------- (principal executive officer) James K. Hildebrand /s/ WILLIAM M. BARRETT President - --------------------------------------------------- William M. Barrett /s/ GARY W. LACHEY Vice President -- Finance, Treasurer and - --------------------------------------------------- Secretary (principal financial officer and Gary W. LaChey accounting officer) /s/ CHARLES M. KURTTI Vice President -- Manufacturing and Engineering - --------------------------------------------------- Charles M. Kurtti /s/ DAVID F. THOMAS Director - --------------------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director - --------------------------------------------------- John D. Weber /s/ BRENTON S. HALSEY Director - --------------------------------------------------- Brenton S. Halsey
II-10 135 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on February 16, 1999. BELCHER CORPORATION By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney on Form S-4 has been signed by the following persons in the capacities and on February 16, 1999.
SIGNATURE CAPACITY --------- -------- /s/ JAMES K. HILDEBRAND Chairman of the Board and Chief Executive Officer - --------------------------------------------------- (principal executive officer) James K. Hildebrand /s/ WILLIAM M. BARRETT President - --------------------------------------------------- William M. Barrett /s/ GARY W. LACHEY Vice President -- Finance, Treasurer and - --------------------------------------------------- Secretary (principal financial officer and Gary W. LaChey accounting officer) /s/ CHARLES M. KURTTI Vice President -- Manufacturing and Engineering - --------------------------------------------------- Charles M. Kurtti /s/ DAVID F. THOMAS Director - --------------------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director - --------------------------------------------------- John D. Weber /s/ BRENTON S. HALSEY Director - --------------------------------------------------- Brenton S. Halsey
II-11 136 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on February 16, 1999. PEERLESS CORPORATION By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney on Form S-4 has been signed by the following persons in the capacities and on February 16, 1999.
SIGNATURE CAPACITY --------- -------- /s/ JAMES K. HILDEBRAND Chairman of the Board and Chief Executive Officer - --------------------------------------------------- (principal executive officer) James K. Hildebrand /s/ WILLIAM M. BARRETT President - --------------------------------------------------- William M. Barrett /s/ GARY W. LACHEY Vice President -- Finance, Treasurer and - --------------------------------------------------- Secretary (principal financial officer and Gary W. LaChey accounting officer) /s/ CHARLES M. KURTTI Vice President -- Manufacturing and Engineering - --------------------------------------------------- Charles M. Kurtti /s/ DAVID F. THOMAS Director - --------------------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director - --------------------------------------------------- John D. Weber /s/ BRENTON S. HALSEY Director - --------------------------------------------------- Brenton S. Halsey
II-12 137 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on February 16, 1999. DALTON CORPORATION By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney on Form S-4 has been signed by the following persons in the capacities and on February 16, 1999.
SIGNATURE CAPACITY --------- -------- /s/ JAMES K. HILDEBRAND Chairman of the Board and Chief Executive - ----------------------------------------------------- Officer James K. Hildebrand (principal executive officer) /s/ WILLIAM M. BARRETT President - ----------------------------------------------------- William M. Barrett /s/ GARY W. LACHEY Vice President -- Finance, Treasurer and - ----------------------------------------------------- Secretary (principal financial officer Gary W. LaChey and accounting officer) /s/ CHARLES M. KURTTI Vice President -- Manufacturing and - ----------------------------------------------------- Engineering Charles M. Kurtti /s/ DAVID F. THOMAS Director - ----------------------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director - ----------------------------------------------------- John D. Weber /s/ BRENTON S. HALSEY Director - ----------------------------------------------------- Brenton S. Halsey
II-13 138 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on February 16, 1999. DALTON CORPORATION, WARSAW MANUFACTURING FACILITY By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney on Form S-4 has been signed by the following persons in the capacities and on February 16, 1999.
SIGNATURE CAPACITY --------- -------- /s/ JAMES K. HILDEBRAND Chairman of the Board and Chief Executive Officer - --------------------------------------------------- (principal executive officer) James K. Hildebrand /s/ WILLIAM M. BARRETT President - --------------------------------------------------- William M. Barrett /s/ GARY W. LACHEY Vice President -- Finance, Treasurer and - --------------------------------------------------- Secretary (principal financial officer Gary W. LaChey and accounting officer) /s/ CHARLES M. KURTTI Vice President -- Manufacturing and Engineering - --------------------------------------------------- Charles M. Kurtti /s/ DAVID F. THOMAS Director - --------------------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director - --------------------------------------------------- John D. Weber /s/ BRENTON S. HALSEY Director - --------------------------------------------------- Brenton S. Halsey
II-14 139 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on February 16, 1999. DALTON CORPORATION, ASHLAND MANUFACTURING FACILITY By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney on Form S-4 has been signed by the following persons in the capacities and on February 16, 1999.
SIGNATURE CAPACITY --------- -------- /s/ JAMES K. HILDEBRAND Chairman of the Board and Chief Executive Officer - --------------------------------------------------- (principal executive officer) James K. Hildebrand /s/ WILLIAM M. BARRETT President - --------------------------------------------------- William M. Barrett /s/ GARY W. LACHEY Vice President -- Finance, Treasurer and - --------------------------------------------------- Secretary (principal financial officer and Gary W. LaChey accounting officer) /s/ CHARLES M. KURTTI Vice President -- Manufacturing and Engineering - --------------------------------------------------- Charles M. Kurtti /s/ DAVID F. THOMAS Director - --------------------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director - --------------------------------------------------- John D. Weber /s/ BRENTON S. HALSEY Director - --------------------------------------------------- Brenton S. Halsey
II-15 140 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on February 16, 1999. DALTON CORPORATION, KENDALLVILLE MANUFACTURING FACILITY By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney on Form S-4 has been signed by the following persons in the capacities and on February 16, 1999.
SIGNATURE CAPACITY --------- -------- /s/ JAMES K. HILDEBRAND Chairman of the Board and Chief Executive Officer - --------------------------------------------------- (principal executive officer) James K. Hildebrand /s/ WILLIAM M. BARRETT President - --------------------------------------------------- William M. Barrett /s/ GARY W. LACHEY Vice President -- Finance, Treasurer and - --------------------------------------------------- Secretary (principal financial officer and Gary W. LaChey accounting officer) /s/ CHARLES M. KURTTI Vice President -- Manufacturing and Engineering - --------------------------------------------------- Charles M. Kurtti /s/ DAVID F. THOMAS Director - --------------------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director - --------------------------------------------------- John D. Weber /s/ BRENTON S. HALSEY Director - --------------------------------------------------- Brenton S. Halsey
II-16 141 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on February 16, 1999. STRYKER MACHINING FACILITY CO. By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney on Form S-4 has been signed by the following persons in the capacities and on February 16, 1999.
SIGNATURE CAPACITY --------- -------- /s/ JAMES K. HILDEBRAND Chairman of the Board and Chief Executive Officer - --------------------------------------------------- (principal executive officer) James K. Hildebrand /s/ WILLIAM M. BARRETT President - --------------------------------------------------- William M. Barrett /s/ GARY W. LACHEY Vice President -- Finance, Treasurer and - --------------------------------------------------- Secretary (principal financial officer Gary W. LaChey and accounting officer) /s/ CHARLES M. KURTTI Vice President -- Manufacturing and Engineering - --------------------------------------------------- Charles M. Kurtti /s/ DAVID F. THOMAS Director - --------------------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director - --------------------------------------------------- John D. Weber /s/ BRENTON S. HALSEY Director - --------------------------------------------------- Brenton S. Halsey
II-17 142 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on February 16, 1999. NIEMIN PORTER & CO. By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney on Form S-4 has been signed by the following persons in the capacities and on February 16, 1999.
SIGNATURE CAPACITY --------- -------- /s/ JAMES K. HILDEBRAND Chairman of the Board and Chief Executive Officer - --------------------------------------------------- (principal executive officer) James K. Hildebrand /s/ WILLIAM M. BARRETT President - --------------------------------------------------- William M. Barrett /s/ GARY W. LACHEY Vice President -- Finance, Treasurer and - --------------------------------------------------- Secretary (principal financial officer and Gary W. LaChey accounting officer) /s/ CHARLES M. KURTTI Vice President -- Manufacturing and Engineering - --------------------------------------------------- Charles M. Kurtti /s/ DAVID F. THOMAS Director - --------------------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director - --------------------------------------------------- John D. Weber /s/ BRENTON S. HALSEY Director - --------------------------------------------------- Brenton S. Halsey
II-18 143 EXHIBIT INDEX
EXHIBITS - -------- 2.1 Agreement and Plan of Reorganization, dated November 20, 1996, by and among NFC Castings, Inc., NC Merger Company and Neenah Corporation.** 2.2 First Amendment to Agreement and Plan of Reorganization, dated as of January 13, 1997, by and among NFC Castings, Inc., NC Merger Company and Neenah Corporation.** 2.3 Second Amendment to Agreement and Plan of Reorganization, dated as of February 21, 1997, by and among NFC Castings, Inc., NC Merger Company and Neenah Corporation.** 2.4 Third Amendment to Agreement and Plan of Reorganization, dated as of April 3, 1997, by and among NFC Castings, Inc., NC Merger Corporation.** 2.5 Merger Agreement, made as of July 1, 1997, by and between Neenah Corporation and Neenah Foundry Company.** 2.6 Stock Purchase Agreement for the acquisition of Deeter Foundry, Inc. dated as of March 26, 1998 by and among Neenah Foundry Company and the Selling Shareholders of Deeter Foundry, Inc. (incorporated by reference to the Company's Form 10-Q for the period ended March 31, 1998 filed on May 14, 1998.) 2.7 Stock Purchase Agreement for the acquisition of Mercer dated as of April 3, 1998 by and among Neenah Foundry Company, Mercer Forge Corporation and the Selling Shareholders of Mercer (incorporated by reference to the Company's Form 8-K filed on April 14, 1998.) 2.8 Stock Purchase Agreement for the acquisition of Dalton dated as of August 7, 1998 by and among Neenah Foundry Company, Dalton Corporation and the Dalton Corporation Employee Stock Ownership Plan and Trust (incorporated by reference to the Company's Form 8-K filed on September 21, 1998.) 2.9 Stock Purchase Agreement dated as of December 3, 1998 among Niemin Porter & Co. d/b/a Cast Alloys, Inc., the Sellers as defined therein and Neenah Foundry Company.* 2.10 First Amendment to the Stock Purchase Agreement dated December 30, 1998 among Niemin Porter & Co. d/b/a Cast Alloys, Inc., the Sellers as defined therein and Neenah Foundry Company.* 3.1 Restated Articles of Incorporation of Neenah Foundry Company.** 3.2 By-laws of Neenah Foundry Company.** 3.3 (Intentionally omitted.) 3.4 (Intentionally omitted.) 3.5 Restated Articles of Incorporation of Hartley Controls Corporation.** 3.6 By-laws of Hartley Controls Corporation.** 3.7 Restated Articles of Incorporation of Neenah Transport, Inc.** 3.8 By-laws of Neenah Transport, Inc.** 4.1 Indenture dated as of April 30, 1997 among NC Merger Company and United States Trust Company of New York.** 4.2 Purchase Agreement dated as of April 23, 1997 among NC Merger Company, Chase Securities Inc. and Morgan Stanley & Co. Incorporated.** 4.3 Exchange and Registration Rights Agreement dated as of April 30, 1997 among Neenah Corporation, Neenah Foundry Company, Hartley Controls Corporation and Neenah Transport, Inc. and Chase Securities, Inc.** 4.4 First Supplemental Indenture, dated as of April 30, 1997 among Neenah Corporation, Neenah Foundry Company, Neenah Transport, Inc. and Hartley Controls Corporation and United States Trust Company of New York.**
144
EXHIBITS - -------- 4.5 Letter Agreement, dated as of April 30, 1997 among Neenah Corporation, Neenah Foundry Company, Hartley Controls Corporation and Neenah Transport, Inc. and Chase Securities Inc. and Morgan Stanley & Co. Incorporated.** 4.6 Form of Global Note relating to the Indenture dated as of April 23, 1997.** 4.7 Indenture dated as of July 1, 1997 among Neenah Corporation, Neenah Foundry Company, Neenah Transport, Inc., Hartley Controls Corporation and United States Trust Company of New York.** 4.8 Purchase Agreement dated as of June 26, 1997 among Neenah Corporation, Neenah Foundry Company, Hartley Controls Corporation, Neenah Transport, Inc. and Chase Securities Inc.** 4.9 Exchange and Registration Rights Agreement dated as of July 1, 1997 by and between Neenah Corporation, Neenah Foundry Company, Hartley Controls Corporation, Neenah Transport, Inc. and Chase Securities, Inc.** 4.10 Form of Global Note related to the Indenture dated as of July 1, 1997.** 4.11 Indenture dated as of November 24, 1998 among Neenah Foundry Company, Neenah Transport, Inc., Hartley Controls Corporation, the Guarantors and United States Trust Company of New York.* 5.1 Opinion and Consent of Kirkland & Ellis.* 8.1 Opinion of Kirkland & Ellis as to federal income tax consequences.* 10.1 Master Lease Agreement between Neenah Foundry Company and Bank One Leasing Corporation dated December 14, 1992.** 10.2 Agreement between Neenah Foundry Company and Rockwell International Corporation effective April 1, 1995.** 10.3 Letter Agreement between Neenah Foundry Company and Eaton Corporation dated April 4, 1996.** 10.4 (Internationally omitted). 10.5 1996-1998 Collective Bargaining Agreement between Neenah Foundry Company and Local 121B Glass, Molders, Pottery, Plastics and Allied Workers International Union AFL-CIO-CLC.** 10.6 1998-2000 Collective Bargaining Agreement between Neenah Foundry Company and The Independent Patternmakers Union of Neenah, Wisconsin.*** 10.7 Credit Agreement dated as of April 30, 1997 as Amended and Restated as of September 12, 1997, as of April 3, 1998, and as of September 8, 1998 by and among Neenah Foundry Company, NFC Castings, Inc., the Chase Manhattan Bank as Administrative Agent, Chase Securities, Inc. as Arranger and the other Lenders from time to time party thereto (incorporated by reference to the Company's Form 8-K filed on September 21, 1998) 10.8 Employment Agreement dated September 9, 1994 between the Neenah Corporation, Neenah Foundry Company, Harley Controls Corporation, Neenah Transport, Inc. and James P. Keating, Jr.** 10.9 Consulting Agreement dated September 9, 1994 between the Neenah Foundry Company and the Guarantors and James P. Keating, Jr.** 10.10 First Amendment to Employment Agreement, dated September 9, 1994, between Neenah Foundry Company, Neenah Corporation, Hartley Controls Corporation and James P. Keating, Jr.** 10.11 Pledge Agreement dated as of April 30, 1997, among NC Merger Company, a Wisconsin Corporation, NFC Castings, Inc., a Delaware Corporation.**
145
EXHIBITS - -------- 10.12 Subsidiary Guarantee Agreement dated as of April 30, 1997, among each of the subsidiaries listed of NC Merger Company, a Wisconsin corporation, and The Chase Manhattan Bank, a New York banking corporation, as collateral agent for the secured parties.** 10.13 Parent Guarantee Agreement dated as of April 30, 1997, between NFC Castings, Inc., a Delaware corporation and The Chase Manhattan Bank, a New York banking corporation, as collateral agent for the secured parties.** 10.14 Security Agreement dated as of April 30, 1997, among NC Merger Company, a Wisconsin corporation, each subsidiary of the borrower and The Chase Manhattan Bank, a New York banking corporation, as collateral agent for the secured parties.** 10.15 Form of Mortgage.** 10.16 Amendment No. 1, Consent and Waiver, dated as of November 18, 1998, to the Credit Agreement dated as of April 30, 1997 as Amended and Restated as of September 12, 1997, as of April 3, 1998, and as of September 8, 1998 by and among Neenah Foundry Company, NFC Castings, Inc., the Lenders from time to time party thereto, and the Chase Manhattan Bank.*** 10.17 Cash Collateral Account Agreement dated as of November 24, 1998, between Neenah Foundry Company and the Chase Manhattan Bank.*** 10.18 Executive Employment and Consulting Agreement dated September 15, 1998 by and among Neenah Foundry Co., Advanced Cast Products, Inc., ACP Holding Co., ACP Products, LLC and James K. Hildebrand.*** 10.19 Dalton Corporation, K.L. Davidson Employment Agreement dated September 8, 1998.*** 10.20 Purchase Agreement dated November 19, 1998 among Neenah Foundry Company, Neenah Transport, Inc., Hartley Controls Corporation, the Guarantors and the Initial Purchasers.* 10.21 Exchange and Registration Rights Agreement dated November 24, 1998 among Neenah Foundry Company Neenah Transport, Inc., Hartley Controls Corporation, the Guarantors and the Initial Purchasers.* 12.1 Computation of Ratio of Earnings to Fixed Charges.* 21.1 Subsidiaries of the Registrant.* 23.1 Consent of Ernst & Young LLP.* 23.2 Consent of PricewaterhouseCoopers LLP.* 23.3 Consent of KPMG LLP.* 23.4 Consent of Kirkland & Ellis (included in exhibit 5.1).* 24.1 Powers of Attorney (included in signature pages).* 25.1 Statement of Eligibility of Trustee on Form T-1.* 27.1 Financial Data Schedule.*** 27.2 Financial Data Schedule (Incorporated by Reference to the Company's Form 10-Q for the period ended December 31, 1998 filed on February 11, 1999).
146
EXHIBITS - -------- 99.1 Form of Letter of Transmittal.* 99.2 Form of Notice of Guaranteed Delivery.* 99.3 Form of Tender Instructions.*
- --------------- * Filed herewith. ** Incorporated by reference to the Company's Form S-4 (Registration No. 333-28751) which became effective August 29, 1997. *** Incorporated by reference to the Company's Form 10-K (Registration No. 332-28751) which was filed December 23, 1998. EX-2.9 2 STOCK PURCHASE AGREEMENT DATED AS OF 12/3/1998 1 EXECUTION COPY STOCK PURCHASE AGREEMENT By and Among NIEMIN PORTER & CO. d/b/a CAST ALLOYS, INC. and THE STOCKHOLDERS OF NIEMIN PORTER & CO. LISTED ON ANNEX I HERETO, as Sellers and NEENAH FOUNDRY COMPANY, as Buyer December 3, 1998 2 EXECUTION COPY TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS; INTERPRETATION..............................................................................1 Section 1.1 Certain Defined Terms..................................................................1 Section 1.2 Interpretation........................................................................10 Section 1.3 Business Days.........................................................................10 Section 1.4 Accounting Conventions................................................................10 ARTICLE II PURCHASE AND SALE OF STOCK AND EQUIVALENTS; CLOSING.....................................................11 Section 2.1 Transfer of Stock and Warrants........................................................11 Section 2.2 Closing...............................................................................11 Section 2.3 Consideration for Stock and Warrants..................................................11 Section 2.4 Purchase Price Adjustment.............................................................12 Section 2.5 Closing Deliveries by Sellers.........................................................14 Section 2.6 Closing Deliveries by Buyer...........................................................15 Section 2.7 EBITDA Adjustment.....................................................................16 Section 2.8 Stock Options.........................................................................18 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS........................................................................19 Section 3.1 Representations and Warranties of the Sellers Concerning the Transaction...........................................................................19 Section 3.2 Representations and Warranties Concerning the Company and Its Subsidiaries..........................................................................20 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER.................................................................37 Section 4.1 Organization of Buyer.................................................................37 Section 4.2 Authorization; Validity...............................................................37 Section 4.3 No Conflict or Violation..............................................................37 Section 4.4 Consents and Approvals................................................................38 Section 4.5 No Brokers............................................................................38 ARTICLE V COVENANTS OF THE SELLERS AND COMPANY....................................................................38 Section 5.1 Access to Information and Records.....................................................38 Section 5.2 Conduct of Business...................................................................39
-i- 3 EXECUTION COPY
PAGE Section 5.3 Preservation of Business..............................................................39 Section 5.4 Notice of Events......................................................................39 Section 5.5 Exclusivity...........................................................................40 Section 5.6 Non-Competition; Non-Interference; Non-Solicitation...................................40 Section 5.7 Consents and Best Efforts.............................................................43 Section 5.8 Public Announcements..................................................................44 Section 5.9 Appointment of Sellers' Representatives...............................................44 Section 5.10 Indemnification of Sellers' Representatives...........................................45 Section 5.11 Additional Shares.....................................................................45 ARTICLE VI TERMINATION.............................................................................................45 Section 6.1 Termination...........................................................................45 Section 6.2 Effect of Termination.................................................................46 ARTICLE VII CONDITIONS TO SELLER'S OBLIGATIONS......................................................................46 Section 7.1 Representations, Warranties and Covenants.............................................46 Section 7.2 No Injunction.........................................................................46 Section 7.3 Opinion of Counsel....................................................................46 Section 7.4 Payments..............................................................................47 Section 7.5 Certificates..........................................................................47 Section 7.6 HSR Act Waiting Period................................................................47 Section 7.7 Absence of Litigation.................................................................47 Section 7.8 Documents to be Delivered by Buyer....................................................47 Section 7.9 Management Arrangements...............................................................48 Section 7.10 Additional Seller.....................................................................48 ARTICLE VIII CONDITIONS TO BUYER'S OBLIGATIONS.......................................................................48 Section 8.1 Representations, Warranties and Covenants.............................................48 Section 8.2 Consents; Releases....................................................................48 Section 8.3 No Injunction.........................................................................48 Section 8.4 HSR Act Waiting Period................................................................48 Section 8.5 No Material Adverse Effect............................................................48 Section 8.6 Additional Seller.....................................................................48 Section 8.7 Documents to be Delivered by Company..................................................49 Section 8.8 Absence of Litigation.................................................................50 Section 8.9 Management Arrangements...............................................................51 Section 8.10 Real Property.........................................................................51 Section 8.11 Financing.............................................................................51 Section 8.12 Due Diligence.........................................................................52
-ii- 4 EXECUTION COPY
PAGE Section 8.13 All Proceedings To be Satisfactory....................................................52 ARTICLE IX POST-CLOSING COVENANTS..................................................................................52 Section 9.1 Further Assurances....................................................................52 Section 9.2 Tax Matters...........................................................................52 Section 9.3 Employee Benefits Matters.............................................................55 Section 9.4 Transition............................................................................56 Section 9.5 Confidentiality.......................................................................56 Section 9.6 Subsidiary Shares.....................................................................56 ARTICLE X INDEMNIFICATION.........................................................................................57 Section 10.1 Survival, Representations and Warranties..............................................57 Section 10.2 Indemnification Obligation of Sellers.................................................57 Section 10.3 Indemnification Obligation of Buyer...................................................60 Section 10.4 Indemnification Procedures............................................................60 Section 10.5 Payment...............................................................................62 ARTICLE XI MISCELLANEOUS...........................................................................................63 Section 11.1 Assignment............................................................................63 Section 11.2 Notices...............................................................................63 Section 11.3 Choice of Law.........................................................................65 Section 11.4 Entire Agreement; Amendments and Waivers..............................................65 Section 11.5 Counterparts..........................................................................65 Section 11.6 Invalidity............................................................................65 Section 11.7 Headings..............................................................................66 Section 11.8 Expenses..............................................................................66 Section 11.9 Specific Performance..................................................................66 Section 11.10 Time is of the Essence; Computation of Time...........................................66 Section 11.11 Waiver of Jury Trial..................................................................66
-iii- 5 EXECUTION COPY Annexes and Exhibits Annex I - Stockholders Exhibit A - Financial Statements Exhibit B - Form of Working Capital Statement Exhibit C - EBITDA Calculation Exhibit D - Form of Nieminski Release Exhibit E - Form Opinion of Kirkland & Ellis Exhibit F - Form Opinion of Counsel to Company and Sellers Exhibit G-1 - Form of Executive Release Exhibit G-2 - Form of Employee Release Exhibit H - Form of Nieminski Agreement Disclosure Schedule Section 2.3 - Allocable Share Section 3.1(c) - Shares Held by Sellers Section 3.2(a) - Jurisdictions in Which the Company and International Golf Are Qualified to Do Business Section 3.2(b) - Capitalization Section 3.2(c) - Non-Contravention Section 3.2(e) - Title to Assets Section 3.2(f) - Subsidiaries Section 3.2(h) - Agreements Entered Into Since 6-30-98 Section 3.2(k) - Tax Matters Section 3.2(l) - Real Property Section 3.2(m) - Proprietary Rights Section 3.2(p) - Contracts Section 3.2(r) - Insurance Section 3.2(s) - Litigation Section 3.2(t) - Product Warranty Provisions Section 3.2(w) - Employee Benefit Plans Section 3.2(x) - Transactions with Affiliates Section 3.2(y) - Environmental Matters Section 3.2(z) - Funded Debt Section 4.4 - Buyers Consents and Approvals Section 8.2 - Consents and Releases -iv- 6 EXECUTION COPY STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT, dated as of December 3, 1998, by and among NIEMIN PORTER & CO. d/b/a CAST ALLOYS, INC., a California corporation (the "Company"), the stockholders, option holders and warrant holders of the Company listed on Annex I hereto (the "Stockholders" or the "Sellers"), and NEENAH FOUNDRY COMPANY, a Wisconsin corporation (the "Buyer"). The Sellers, the Company and the Buyer are referred to collectively herein as the "Parties". WHEREAS, Sellers own 1,285,439 shares of Common Stock (as defined below) of the Company and have the right to acquire 274,999 shares of Common Stock pursuant to the Nieminski Agreement (as defined below), and 245,000 shares of Preferred Stock (as defined below) of the Company, and Executive Options (as defined below) to purchase 117,000 shares of Common Stock (collectively, the "Stock"), and warrants and contingent warrants to purchase 446,123 shares of Common Stock (the "Warrants") constituting all of the issued and outstanding capital stock and capital stock equivalents of the Company; and WHEREAS, Buyer desires to purchase from Sellers, and Sellers desire to sell, transfer and convey to Buyer, the Stock and the Warrants, all subject to the terms and conditions of this Agreement. NOW THEREFORE, in consideration of the mutual covenants and promises contained herein and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS; INTERPRETATION Section 1.1 Certain Defined Terms. As used herein, the terms below shall have the following meanings: "Acquisition Proposal" has the meaning specified in Section 5.5. "Adjustment Statement" has the meaning specified in Section 2.4(c)(i). "Affiliate" means, with respect to any Person, any other Person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlled" and "controlling" have meanings correlative thereto. 7 EXECUTION COPY "Affiliated Group" means any affiliated group within the meaning of Section 1504(a) of the Code or any similar group defined under a similar provision of state, local or foreign law. "Allocable Share" means with respect to the proportionate share of any Seller in a particular amount, a fraction the numerator of which is equal to the total portion of the Purchase Price payable to such Seller as set forth in Section 2.3 of the Disclosure Schedule and the denominator of which is the total portion of the Purchase Price payable to the Sellers in aggregate as set forth in Section 2.3 of the Disclosure Schedule. "Balance Sheet" means the audited consolidated balance sheet of the Company and its Subsidiary International Golf as at June 30, 1998 together with the notes thereon audited by Arthur Andersen & Co., previously delivered to Buyer and attached hereto as part of Exhibit A. "Balance Sheet Date" means June 30, 1998. "Base Rate" means the prime lending rate announced from time to time by the Chase Manhattan Bank. "Benefit Arrangement" means any employment, consulting, severance or other similar contract, arrangement or policy and each plan, arrangement, program, agreement or commitment providing for insurance coverage (including any self-insured arrangements), workers' compensation, disability benefits, retirement benefits, life, health, disability or accident benefits (including, without limitation, any "voluntary employees' beneficiary association" as defined in Section 501(c)(9) of the Code providing for the same or other benefits) or for deferred compensation, profit-sharing, bonuses, stock options, stock appreciation rights, stock purchases or other forms of incentive compensation or post-retirement insurance, compensation or benefits which (A) is not an Employee Welfare Benefit Plan, an Employee Pension Benefit Plan or Multiemployer Plan, (B) is maintained or contributed to by or required to be maintained or contributed to by Sellers or the Company or any of its Subsidiaries, or (C) covers any current or former employee of the Company or any of its Subsidiaries. "Buyer" has the meaning set forth in the first paragraph of this Agreement. "Buyer Indemnitee" has the meaning specified in Section 10.2. "Buyer Accountant" has the meaning specified in Section 2.4(c)(i). "Closing" has the meaning specified in Section 2.2. "Closing Date Balance Sheet" has the meaning specified in Section 2.4(c)(i). "Code" means the Internal Revenue Code of 1986, as amended from time to time. -2- 8 EXECUTION COPY "Common Stock" means the Company's common stock, no par value. "Common Stock Equivalents" has the meaning set forth in Section 3.2(b). "Company" has the meaning set forth in the first paragraph of this Agreement. "Company Business" has the meaning specified in Section 5.6(a). "Company Proprietary Rights" means all Proprietary Rights owned or used by the Company, along with all income, royalties, damages and payments due or payable at the Closing or thereafter (including, without limitation, damages and payments for past and future infringements or misappropriation thereof), the right to sue and recover for past infringement or misappropriation thereof, and all corresponding rights that, now or hereafter, may be secured throughout the world and all copies and tangible embodiments of any such Proprietary Rights. "Company's Accountant" has the meaning specified in Section 2.4(c)(i). "Confidential Company Information" has the meaning specified in Section 5.6(a). "Confidential Information" means any information concerning the businesses and affairs of the Company that is not already generally available to the public (including, technology, methods of doing business, supplier and customer information, and financial information). "Controlled Group" has the meaning set forth in Section 1563 of the Code. "Covered Person" means each of John R.C. Porter, John Sheehan, Randy Kelch, Ajendra Singh and Jim Collins. "Credit Agreement" means the Credit Agreement by and among Buyer and the lenders and other parties thereto dated as of April 30, 1997 as amended and restated as of September 12, 1997, as of April 3, 1998 and as of September 8, 1998, as the same may be amended, restated, supplemented, modified, refinanced or replaced, from time to time. "DGCL" means the Delaware General Corporation Law, as amended. "Disclosure Schedule" means the disclosure schedule delivered by the Company and the Sellers to the Buyer on the date hereof and initialed by the Parties. The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Agreement. "Earn-Out Amount" has the meaning specified in Section 2.7(a). -3- 9 EXECUTION COPY "Earn-Out Statement" has the meaning specified in Section 2.7(d). "EBITDA" has the meaning specified in Section 2.7(c). "EBITDA Deficiency" has the meaning specified in Section 2.7(b). "EBITDA Rebate Amount" has the meaning specified in Section 2.7(b). "Employee Benefit Plans" means all Benefit Arrangements, Employee Pension Benefit Plans and Employee Welfare Benefit Plans. "Employee Option" means each option to purchase Common Stock issued pursuant to the Employee Option Plan, and collectively, the "Employee Options." "Employee Option Plan" means the Niemin Porter & Co. 1996 Employee Stock Option Plan adopted by the Company's board of directors as of January 7, 1997, as the same may be amended, supplemented or modified from time to time. "Employee Pension Benefit Plan" means any "employee pension benefit plan" as defined in Section 3(2) of ERISA (other than a Multiemployer Plan) (A) which the Company or any Subsidiary maintains or contributes to or with respect to which the Company or any Subsidiary has any liability, or (B) which covers any current or former employee of the Company or any Subsidiary. "Employee Release" has the meaning specified in Section 2.8. "Employee Welfare Benefit Plan" means any "employee welfare benefit plan" as defined in Section 3(1) of ERISA (A) which the Company or any Subsidiary maintains or contributes to or with respect to which the Company or any Subsidiary has any liability, or (B) which covers any current or former employee of the Company or any Subsidiary. "Encumbrances" means all Liens, encumbrances or other defects in title. "Environmental, Health, and Safety Laws" means all federal, state, local and foreign statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including without limitation all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as now or hereafter in effect, including, the General Law of Ecological -4- 10 EXECUTION COPY Equilibrium and Environmental Protection and its amendments, the Regulations of the General Law of Ecological Equilibrium and Environmental Protection in Matters of Hazardous Waste, the Regulations to the General Law of Ecological Equilibrium and Environmental Protection in Matters of Air Pollution, and related Regulations, the Federal Labor Law, applicable Official Mexican Norms, and any and all other Decrees, Regulations, Agreements which would apply in Mexico to all those hazardous materials and wastes classified as such under the applicable Official Mexican Norm and corresponding amendments. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agent" means The Chase Manhattan Bank. "Escrow Agreement" means the Escrow Agreement dated as of the Closing Date by and among the Buyer, the Sellers and the Escrow Agent. "Escrow Portion" has the meaning specified in Section 2.7(b). "Estimated Adjustment" has the meaning specified in Section 2.4(b). "Estimated Closing Balance Sheet" has the meaning specified in Section 2.4(a). "Estimated Closing Working Capital" has the meaning specified in Section 2.4(b). "Estimated Taxes" has the meaning specified in Section 9.2(b). "Executive Committee" means the managing body of the Company comprised of Messrs. John Sheehan, Randy Kelch, Ajendra Singh and Jim Collins. "Executive Option" means each option to purchase Common Stock issued pursuant to the Executive Option Plan, and collectively, the "Executive Options." "Executive Option Plan" means the Niemin Porter & Co. 1996 Key Executive Option Plan adopted June 28, 1996, as the same may be amended, restated, supplemented or modified from time to time. "Executive Release" has the meaning specified in Section 2.8. "Executives" shall mean each of Ajendra Singh, John Sheehan, Randy Kelch and any other person holding Executive Options. "Final Closing Date Balance Sheet" has the meaning specified in Section 2.4(c)(iv). -5- 11 EXECUTION COPY "Final Closing Date Working Capital" has the meaning specified in Section 2.4(c)(iv). "Financial Statements" has the meaning specified in Section 3.2(g). "Funded Debt" of the Company or any Subsidiary means, without duplication, all obligations under indebtedness for borrowed money (including, without limitation, principal, interest, overdrafts, penalties, premiums, fees, expenses, indemnities and breakage costs), all obligations under capital leases, notes payable, guaranties of indebtedness for borrowed money and drafts accepted representing extensions of credit. "GAAP" means generally accepted accounting principles as in effect in the United States on the date of this Agreement, applied on a consistent basis. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Income Taxes" means taxes measured by or with reference to net income imposed by any federal, state, local or foreign governmental taxing authority, including additions to tax and penalties related to such taxes, and interest on such taxes and on such additions to tax and penalties. "Independent Accounting Firm" has the meaning specified in Section 2.4(c)(iii). "International Golf" means International Golf, S.A. de C.V., a corporation duly organized and validly existing under the laws of the United Mexican States ("Mexico"), incorporated under Public Instrument number 15596, Volume 206, dated 17 July, 1974, issued by Mr. Nicolas Gomez, Notary Public number 2, in and for Mexicali, in Baja California, Mexico, same which is recorded with the Public Registry of the Property, Commerce Section, in Mexicali, Mexico, under entry number 11327, Folio 410, Book No. 34, on 29 August, 1974. "Knowledge" means any fact or information of which a Person has a conscious awareness or, by virtue of such Person's position should know because the fact or information would ordinarily be reported to such Person or the fact or information is a matter of public record or would be easily discovered upon reasonable inspection or inquiry. "Knowledge of the Company" means any fact or information of which any member of the Executive Committee or board of directors of the Company has conscious awareness or, by virtue of such person's position should know because the fact or information would ordinarily be reported to such person or the fact or information is a matter of public record or would be easily discovered upon reasonable investigation or inquiry. "Leased Property" has the meaning specified in Section 3.2(l)(ii). -6- 12 EXECUTION COPY "Leases" has the meaning specified in Section 3.2(l)(ii). "Lender" means the Chase Manhattan Bank, N.A. or such other bank or financial institution as shall serve from time to time as the senior lender or administrative agent under the Credit Agreement. "Lien" means any claim, lien, pledge, option, charge, security interest, mortgage, right-of-way, encumbrance or other right of any third party. "Losses" means any claims, liabilities, losses, damages (including consequential damages and damages for lost profits), deficiencies, assessments, judgments, remediations and costs or expenses (including reasonable attorneys', consultants' and experts' fees and expenses). "Material Adverse Effect" has the meaning specified in Section 3.2(c). "Monogram" means Monogram Software, Inc., a California corporation. "Most Recent Balance Sheet" has the meaning specified in Section 3.2(g). "Most Recent Financial Statements" has the meaning specified in Section 3.2(g). "Most Recent Fiscal Month End" has the meaning specified in Section 3.2(g). "Multiemployer Plan" means any "multiemployer plan," as defined in Section 4001(a)(3) of ERISA with respect to which the Company has any obligation to contribute or any liability or potential liability. "Nieminski Agreement" means that certain Purchase and Sale Agreement dated as of the date hereof by and between Gerald J. Nieminski as Trustee of the Nieminski Living Trust and certain of the Sellers parties thereto to purchase in the aggregate 274,999 shares of Common Stock in the form attached hereto as Exhibit H. "Nieminski Release" has the meaning specified in Section 6.1(b)(v). "Objection Notice" has the meaning specified in Section 2.4(c)(i). "Option Exercise and Sale Agreement" has the meaning specified in Section 2.8. "Option Plans" shall mean the Executive Option Plan and the Employee Option Plan. "Option Share Purchase Price" has the meaning specified in Section 2.3(b). -7- 13 EXECUTION COPY "Option Shares" has the meaning specified in Section 2.8. "Options" means collectively the Employee Options and the Executive Options. "Optionholders" shall mean the Executives and the Specified Employees. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Parties" has the meaning set forth in the first paragraph of this Agreement. "Paying Agent" shall mean a Person specified by Sellers in a notice delivered to Buyer not less than five (5) business days prior to Closing, who shall be responsible for the distribution of the Option Share Purchase Price. "PBGC" means the Pension Benefit Guaranty Corporation. "Person" means an individual, partnership, corporation, limited liability company, joint stock company, unincorporated organization or association, trust, joint venture, association or other organization, whether or not a legal entity, or a governmental authority. "Potential Sale" has the meaning specified in Section 5.5. "Pre-Closing Period" means any taxable period ending on or before the Closing Date. "Preferred Stock" means the Company's preferred stock, no par value. "Prohibited Transaction" has the meaning set forth in Section 406 of ERISA and Section 4975 of the Code. "Proprietary Rights" means all (i) patents, patent applications, patent disclosure and inventions (whether patentable or unpatentable and whether or not reduced to practice), (ii) trademarks, service marks, trade dress, trade names, logos, slogans, corporate names and Internet domain names, and registrations and applications for registration thereof, together with all of the goodwill associated therewith, (iii) copyrights and copyrightable works, and registrations and applications for registration thereof, (iv) computer software, data bases and documentation, and (v) trade secrets and other confidential information (including ideas, formulae and compositions), know-how, processes, techniques, research and development information, drawings, specifications, designs, plans, proposals, data, financial, business and marketing plans and customer and supplier lists and information. "Real Property" has the meaning specified in Section 3.2(l)(ii). -8- 14 EXECUTION COPY "Restricted Period" has the meaning specified in Section 5.6(a)(i). "Restrictive Covenants" has the meaning specified in Section 5.6(b). "Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanic's, materialmen's, and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings and for which adequate reserves have been established on the Most Recent Financial Statements, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the ordinary course of business and not incurred in connection with the borrowing of money. "Sellers" has the meaning set forth in the first paragraph of this Agreement. "Sellers' Representatives" means Thomas H. Lauer, John R. C. Porter, and Randy Kelch acting from and after the date hereof as a committee on behalf of the Sellers in accordance with Section 5.9. "Specified Employees" means each Person listed in Section 3.2(b) of the Disclosure Schedule as a holder of Employee Options. "Statement" has the meaning specified in Section 5.9(b). "Stock" has the meaning set forth in the first recital to this Agreement. "Stockholders" has the meaning set forth in the first paragraph of this Agreement. "Subsidiary" means any Person whose (a) securities having ordinary voting power to elect a majority of its board of directors or managing or general partners (or other persons having similar functions) or (b) other ownership interests (including partnership and membership interests) ordinarily constituting a majority interest in the capital, profits or cash flow of such Person, are at the time, directly or indirectly, owned or controlled by such other Person, or by one or more other Subsidiaries of such other Person, or by such other Person and one or more of its other Subsidiaries. Unless the context otherwise requires, each reference herein to a Subsidiary refers to a Subsidiary of the Company. With respect to United Mexican States, Subsidiary shall mean International Golf. "Target Working Capital" means $10,819,000. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Section 59A of the Code), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, -9- 15 EXECUTION COPY personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not, and any amounts payable pursuant to the determination or settlement of an audit. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Title Company" has the meaning specified in Section 8.10. "Warrants" has the meaning set forth in the first recital to this Agreement. "Working Capital" means, as of the date of determination, an amount equal to the consolidated current assets of the Company , less the consolidated current liabilities of the Company, in each case determined in accordance with GAAP, applied in a manner consistent with the preparation of the Financial Statements, except that amounts in respect of Taxes and Funded Debt shall not be included in the determination of current assets or current liabilities and amounts in respect of capitalized tooling costs and amounts paid in respect of brokerage expenses shall not be included in the determination of current assets. "Working Capital Rebate Amount" has the meaning specified in Section 2.4(d). "Working Capital Statement" has the meaning specified in Section 2.4(a). "1998 EBITDA" has the meaning specified in Section 2.7. "1998 Fiscal Year" means the twelve month period beginning January 1, 1998 and ending December 31, 1998. Section 1.2 Interpretation. Unless otherwise indicated to the contrary herein by the context or use thereof: (i) the words, "herein," "hereto," "hereof" and words of similar import refer to this Agreement as a whole and not to any particular Section or paragraph hereof; (ii) the word "including" means "including, but not limited to"; (iii) masculine gender shall also include the feminine and neutral genders, and vice versa; and (iv) words importing the singular shall also include the plural, and vice versa. Section 1.3 Business Days. Whenever the last day for the exercise of any privilege or the discharge of any duty hereunder shall fall upon any day which is not a business day, the party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding business day. -10- 16 EXECUTION COPY Section 1.4 Accounting Conventions. Each accounting term used herein shall have the meaning that is applied thereto in accordance with GAAP and each account included in the Closing Date Balance Sheet and the Earn-Out Statement shall be calculated in accordance with GAAP and shall be consistent with the books and records of the Company; provided, that all known arithmetic errors shall be taken into account in the calculation of each account set forth above, regardless of their materiality. With respect to the calculation of the levels of the accounts set forth above, except as specified in Exhibit B with respect to the Closing Date Balance Sheet or Exhibit C with respect to the Earn-Out Statement, no change in accounting principles shall be made from those utilized in preparing the Financial Statements, including, with respect to the nature or classification of accounts, closing proceedings, levels of reserves or levels of accruals other than as a result of objective changes in the underlying business. For purposes of the preceding sentence, "changes in accounting principles" includes all changes in accounting principles, policies, practices, procedures or methodologies with respect to financial statements, their classification or their display, as well as all changes in practices, methods, conventions or assumptions utilized in making accounting estimates. ARTICLE II PURCHASE AND SALE OF STOCK AND EQUIVALENTS; CLOSING Section 2.1 Transfer of Stock and Warrants. On the Closing Date (as defined below), upon the terms and subject to the conditions contained herein, Sellers hereby agree to sell, convey, transfer, assign and deliver to Buyer the Stock and the Warrants, and to cause each of the Optionholders to sell, convey, transfer, assign and deliver to Buyer the Option Shares, in each case free and clear of all Liens and other encumbrances or restrictions on transfer or voting, and in reliance upon the representations, warranties and covenants contained herein, at the Closing, Buyer shall acquire the Stock and the Warrants and the Option Shares. In addition, on the Closing Date, Sellers hereby agree that they will cause the respective owners to endorse for transfer to Buyer (or its designee) the stock certificates of International Golf designated in Section 2.1 of the Disclosure Schedule. Section 2.2 Closing. The closing of the transactions contemplated herein shall be held at 10:00 a.m., local time, on the later of (i) December 18, 1998 and (ii) three (3) business days after the satisfaction or waiver of all conditions to closing contained in Articles VII and VIII, at the offices of Kirkland & Ellis, 153 East 53rd Street, New York, New York 10022, (the "Closing") or such other time and/or place as the parties hereto otherwise agree. Section 2.3 Consideration for Stock and Warrants. (a) Upon the terms and subject to the conditions contained herein, as consideration for the purchase of the Stock and the Warrants, Buyer shall pay to Sellers an aggregate amount of $57,570,000 (the "Purchase Price"), as the same may be adjusted as described in Sections -11- 17 EXECUTION COPY 2.4 and 2.7 below by (i) depositing or causing to be deposited with the Escrow Agent by wire transfer of immediately available funds, $10,000,000 (the "Escrow Deposit") to be held by the Escrow Agent in accordance with Sections 2.4, 2.7 and 10.2 of this Agreement and in accordance with the Escrow Agreement and (ii) tendering to Sellers, in accordance with Section 2.6, an aggregate amount (the "Cash Purchase Price") equal to $47,570,000, less the sum of (A) the amount of any Funded Debt outstanding as of the close of business on the Closing Date, (B) the aggregate amount of any liability for Taxes shown as a current obligation, liability or reserve on the Estimated Closing Balance Sheet, determined after giving effect to the exercise of the Employee Options and the Executive Options in accordance with Section 2.8, (C) the aggregate amount of any liability for bonuses to employees shown as a current obligation, liability or reserve on the Estimated Closing Balance Sheet, (D) the Option Share Purchase Price, and (E) the Estimated Adjustment, if any. The Cash Purchase Price will be allocated among the Sellers as set forth in Section 2.3(a) of the Disclosure Schedule, as amended as of the Closing Date, taking into account the transfer of the Common Stock, Preferred Stock and Warrants held thereby and the exercise or surrender of any Option Shares in accordance with Section 2.8 hereof. Buyer and Sellers have agreed that the portion of the Purchase Price allocable to the transfer of all of the capital stock of International Golf shall be $20,000. (b) Consideration for Option Shares. Upon the terms and subject to the conditions contained herein, as consideration for the purchase of the Option Shares, Buyer shall pay to the Specified Employees, by delivery to the Paying Agent in accordance with Section 2.6(a)(iii), an aggregate amount equal to the total purchase price to be paid to the Specified Employees for the Option Shares to be sold thereby pursuant to the Option Exercise and Sale Agreements (the "Option Share Purchase Price"), less the aggregate exercise price payable to the Company with respect to the Option Shares, to be allocated among the Specified Employees in accordance with Section 2.3(b) of the Disclosure Schedule, as amended as of the Closing Date. Section 2.4 Purchase Price Adjustment. (a) Estimated Closing Balance Sheet. The Company shall prepare and deliver to Buyer a balance sheet (the "Estimated Closing Balance Sheet"), on or before a date not less than 5 business days prior to the Closing Date together with a statement, substantially in the form of Exhibit B, setting forth the Company's estimate of the Working Capital of the Company as of the Closing Date (the "Working Capital Statement"). The Estimated Closing Balance Sheet and the Working Capital Statement will be prepared from the books and records of the Company in accordance with the accounting principles set forth in Section 1.4 above. (b) Estimated Working Capital Adjustment. If the Working Capital, as determined from the Working Capital Statement (the "Estimated Closing Working Capital"), is less than the Target Working Capital, then the Purchase Price payable at Closing shall be -12- 18 EXECUTION COPY reduced dollar-for-dollar by the excess of the Target Working Capital over the Estimated Closing Working Capital (the "Estimated Adjustment"). (c) Preparation of Closing Balance Sheet; Dispute Resolution. (i) Preparation of Closing Balance Sheet. On or before the 30th day after the Closing Date, personnel of the Company and Arthur Andersen & Co. (the "Company's Accountant") will prepare and deliver to the Buyer and the Sellers' Representatives a consolidated balance sheet of the Company and its Subsidiary as of the open of business on the Closing Date which shall be audited by the Company's Accountant (the "Closing Date Balance Sheet"), together with the related audit report, and a statement, prepared in accordance with Exhibit B (including with respect to capitalized tooling costs), setting forth the Company's determination of the Working Capital as of the Closing Date (the "Adjustment Statement"). The Closing Date Balance Sheet shall be prepared from the Company's books and records in accordance with the accounting principles set forth in Section 1.4 above taking into account the payments to be made by the Company in connection with the Closing, including the payments by the Company of expenses of the Sellers required to have been paid by Sellers or the Company in accordance with Section 11.8. During the preparation of the Closing Date Balance Sheet and all activities in connection therewith, the Buyer will be entitled to designate a representative (the "Buyer Accountant") to observe and comment on the preparation of the Closing Date Balance Sheet and the Adjustment Statement and procedures relating thereto. On or prior to the 30th day after the Buyer's receipt of the Closing Date Balance Sheet and the Adjustment Statement, the Buyer may deliver to the Sellers' Representatives a written notice stating in reasonable detail the Buyer's objections (an "Objection Notice") to the Closing Date Balance Sheet and/or the Adjustment Statement. If the Buyer does not tender to the Sellers' Representatives an Objection Notice within such 30-day period or if the Buyer consents in writing to the Closing Date Balance Sheet and the Adjustment Statement, then the Closing Date Balance Sheet and the Adjustment Statement will be conclusive and binding upon the parties and the Final Closing Date Working Capital determined therefrom will likewise be binding on the parties, in each case, for purposes of Section 2.4(d) below. (ii) Dispute and Amicable Resolution. If the Buyer timely gives an Objection Notice as described in subsection (i) above, then the Sellers' Representatives and the Buyer will attempt amicably to resolve their disputes as reflected in the Objection Notice, and any amount agreed to in writing by the Sellers' Representatives and the Buyer as the Final Closing Date Working Capital of the Company as of the Closing Date, will be conclusive and binding upon the parties for purposes of Section 2.4(d) below. -13- 19 EXECUTION COPY (iii) Resolution by Independent Accounting Firm. If the Sellers' Representatives and the Buyer do not resolve all disputes as reflected in the Objection Notice on or prior to the 30th day after the Objection Notice is given, then the Sellers' Representatives and the Buyer will retain a single firm of certified public accountants that is mutually acceptable to the Sellers' Representatives and the Buyer (if the Sellers' Representatives and the Buyer are unable to agree on a mutually acceptable accounting firm prior to the 5th day following delivery of the Objection Notice, then such firm will be chosen randomly by lot from among the accounting firms formerly constituting the "big six" other than the Buyer Accountant and the Company's Accountant) (the "Independent Accounting Firm") to determine the Final Closing Date Working Capital, as soon as practicable, and, in any event, within 30 days after the submission of any dispute thereto, all in accordance with the standards and definitions set forth herein and in Section 1.4 above. The Final Closing Date Working Capital, determined by the Independent Accounting Firm (1) must be within the range of values established for such amount as determined by reference to the value assigned to such amount by the Buyer Accountant and the Company in the Objection Notice and the Adjustment Statement, respectively, and, assuming compliance with the preceding clause, (2) will be conclusive and binding upon the Parties for purposes of Section 2.4(d) below. The fees and expenses of the Independent Accounting Firm shall be paid by the party whose position on Working Capital as determined from the Adjustment Statement and the Objection Notice is farthest afield from the Final Closing Date Working Capital. (iv) "Final Closing Date Working Capital" means the Working Capital as set forth on the Closing Date Balance Sheet as finally determined pursuant to clauses (i), (ii) and (iii) above (the "Final Closing Date Balance Sheet"). (d) Purchase Price Adjustment. The Cash Purchase Price will be adjusted if the Final Closing Date Working Capital is greater or less than the Estimated Closing Working Capital. (i) If the Final Closing Date Working Capital is greater than the Estimated Closing Working Capital, then there shall be paid to the Sellers' Representatives, on behalf of the Sellers: an aggregate amount equal to the lesser of (x) the excess of the Target Working Capital over the Estimated Closing Working Capital and (y) the excess of the Final Closing Date Working Capital over the Estimated Closing Working Capital, plus interest thereon at the Base Rate from the Closing Date. Any such payment shall be made by wire transfer of immediately available funds to an account or accounts designated by the Sellers' Representatives in writing, no later than (five) 5 business days after the completion of the Final Closing Date Balance Sheet, and the Sellers' Representatives shall distribute to each Seller, its Allocable Share of such amount. -14- 20 EXECUTION COPY (ii) If the Final Closing Date Working Capital is less than the Estimated Closing Working Capital, then the Purchase Price will be decreased on a dollar-for-dollar basis by the amount of such deficiency plus interest thereon at the Base Rate from the Closing Date (the "Working Capital Rebate Amount"). In such event, subject to the terms of the proviso set forth below, the Buyer and the Sellers agree to cause the Escrow Agent to pay to the Buyer from the Escrow Deposit the Working Capital Rebate Amount, by wire transfer of immediately available funds to an account or accounts designated by Buyer in writing, no later than five (5) business days after the completion of the Final Closing Date Balance Sheet; provided, however, that if the Working Capital Rebate Amount exceeds $500,000, at Buyer's sole discretion, the Buyer may (A) direct the Escrow Agent to pay to the Buyer all or any portion of the Working Capital Rebate Amount from the Escrow Deposit, but in no event less than $500,000, and (B) each of the Sellers shall be jointly and severally liable to the Buyer for the excess of the Working Capital Rebate Amount over the amount paid to Buyer from the Escrow Deposit pursuant to clause (A) above and the Sellers shall pay to the Buyer such excess by wire transfer of immediately available funds to an account or accounts designated by Buyer in writing, no later than five (5) business days after completion of the Final Closing Date Balance Sheet. Section 2.5 Closing Deliveries by Sellers. (a) To effect the transfer referred to in Section 2.1 hereof and the delivery of the consideration described in Section 2.3 hereof, at the Closing, subject to the satisfaction or waiver of the conditions specified in Article VII below, Sellers shall deliver or cause to be delivered to the Buyer, the following: (i) certificates evidencing the Stock, the Warrants and the Option Shares, free and clear of any and all Liens duly endorsed in blank for transfer or accompanied by stock powers duly executed in blank or by such other instruments for transfer as shall be reasonably acceptable to Buyer; (ii) evidence of the exercise or cancellation of all outstanding Options, in form and substance reasonably satisfactory to Buyer; (iii) evidence of the approval by the Company's Board of Directors of the acceleration of the vesting of the Options in form and substance reasonably satisfactory to Buyer; (iv) all consents, approvals, releases, and waivers from governmental authorities and other third parties required or necessary as a result of the transactions contemplated hereby, all of which are set forth in Section 3.2(c) of the Disclosure Schedule, in each case in form and substance reasonably satisfactory to Buyer and its counsel; -15- 21 EXECUTION COPY (v) all other documents required to be delivered pursuant to Article VIII hereof not specifically mentioned above in this Section; (vi) the original stock certificates of each Subsidiary, which, with respect to International Golf, shall be duly dated and endorsed in ownership by its owner, as it appears in the shareholders' registry book of International Golf; and (vii) a certified copy of the shareholders' registry book posting the transfer of the corresponding shares of International Golf; (b) All instruments and documents executed and delivered to Buyer pursuant hereto shall be in form and substance, and shall be executed in a manner, reasonably satisfactory to Buyer and its counsel. Section 2.6 Closing Deliveries by Buyer. (a) To effect the transfer referred to in Section 2.1 hereof and the delivery of the consideration described in Section 2.3 hereof, at the Closing, subject to the satisfaction or waiver of each of the conditions specified in Article VIII below, Buyer shall tender or cause to be tendered the following: (i) to Sellers, the Cash Purchase Price, by wire transfer of immediately available funds to such account of which Sellers shall have given notice to Buyer hereunder not later than (five) 5 business days prior to the Closing Date; (ii) to the Escrow Agent, the Escrow Deposit; (iii) to the Paying Agent, the Option Share Purchase Price by wire transfer of immediately available funds to such account of which Sellers shall have given notice to Buyer hereunder not later than (five) 5 business days prior to the Closing Date; (iv) all other documents required to be delivered pursuant to Article VII hereof and not specifically mentioned above in this Section. (b) All instruments and documents executed and delivered to Sellers pursuant hereto shall be in form and substance, and shall be executed in a manner, reasonably satisfactory to Sellers and their counsel. Section 2.7 EBITDA Adjustment. The Cash Purchase Price will be adjusted if EBITDA for the Company's 1998 Fiscal Year, determined in accordance with Section 2.7(c) below ("1998 EBITDA"), is greater than $10,100,000 or less than $8,000,000 as follows: -16- 22 EXECUTION COPY (a) If, and only if, 1998 EBITDA is equal to or greater than $10,100,000, the Sellers shall be entitled to receive an additional payment, subject to Section 2.7(e) below, in an amount (the "Earn-Out Amount") equal to the excess of (x) the product of 1998 EBITDA multiplied by 5.50, minus (y) the Purchase Price (prior to any adjustment thereto pursuant to Section 2.4 hereof). (b) If 1998 EBITDA is less than $8,000,000 (an "EBITDA Deficiency"), then the Cash Purchase Price shall be decreased by an amount (the "EBITDA Rebate Amount") equal to the product of (i) the excess of (x) $8,000,000 over (y) 1998 EBITDA multiplied by (ii) 5.7. In the event of an EBITDA Deficiency, subject to the last sentence of this Section 2.7(b), Buyer and the Sellers agree to cause the Escrow Agent to pay to the Buyer from the Escrow Deposit the EBITDA Rebate Amount, plus interest thereon at the Base Rate from the Closing Date, by wire transfer of immediately available funds to an account or accounts designated by Buyer in writing, no later than five (5) business days after completion of the Earn-Out Statement. In the event that the sum of (x) the Working Capital Rebate Amount plus (y) the EBITDA Rebate Amount plus interest exceeds $5,000,000, then at Buyer's sole discretion, (A) the Buyer may direct the Escrow Agent to pay to the Buyer all or any portion of the EBITDA Rebate Amount (plus interest thereon at the Base Rate from the Closing Date) from the Escrow Deposit, but in no event less than the difference of $5,000,000 minus the portion of the Working Capital Rebate Amount paid from the Escrow Deposit pursuant to Section 2.4(d) (such portion of the EBITDA Rebate Amount (plus interest) paid to Buyer from the Escrow Deposit pursuant to clause (A) being referred to herein as the "Escrow Portion") and (B) each of the Sellers shall be jointly and severally liable to pay to the Buyer an aggregate amount equal to the EBITDA Rebate Amount (plus interest thereon at the Base Rate from the Closing Date) minus the Escrow Portion, by wire transfer of immediately available funds to an account or accounts designated by Buyer in writing, no later than five (5) business days after completion of the Earn-Out Statement. (c) For purposes of this Section 2.7, "EBITDA" means, for any period, the consolidated net income or loss of the Company, excluding any gains or losses from the sale of assets outside the ordinary course of business and any extraordinary gains or losses, plus, without duplication and to the extent deducted in determining net income of the Company for such period, the sum of (i) interest expense for indebtedness for borrowed money (including capitalized leases) for such period, (ii) Income Tax expense for such period, (iii) non-cash charges or non-cash losses (including non-cash transaction expenses and the amortization of debt discounts), (iv) management fees, director's fees and charge-offs of impaired assets, to the extent incurred after the Closing Date, and (v) the amount of depreciation and amortization in respect of the Company's assets for such period in each case determined in accordance with GAAP for such period in accordance with Exhibit C and the accounting principles set forth in Section 1.4 and derived from the Company's consolidated financial statements for such period. -17- 23 EXECUTION COPY (d) As promptly as practicable, but in any event not later than 90 days after the later of the Closing Date and the last day of the Company's 1998 Fiscal Year, Buyer shall cause to be prepared and delivered to the Sellers' Representatives on behalf of the Sellers a statement setting forth the 1998 EBITDA, which statement shall be prepared from the Company's books and records in accordance with the accounting principles set forth in Section 1.4 and shall be derived from the Company's consolidated financial statements for such period (the "Earn-Out Statement"). If the Earn-Out Statement reflects 1998 EBITDA in excess of $10,100,000, the Buyer shall pay or cause to be paid to Sellers the Earn-Out Amount (plus interest) in accordance with Section 2.7(a) above and if 1998 EBITDA is less than $8,000,000, the Sellers shall pay or cause to be paid to the Buyer the EBITDA Rebate Amount (plus interest) in accordance with Section 2.7(b) above. If the Sellers disagree in any respect with Buyer's calculation of 1998 EBITDA as set forth in the Earn-Out Statement, the Sellers' Representatives may give Buyer a written notice stating in reasonable detail the Sellers' objections to the Earn-Out Statement and the basis therefor within 15 days after delivery of the Earn-Out Statement. The Sellers' Representatives and the Buyer shall thereafter negotiate in good faith to resolve any such disagreements. If the Sellers' Representatives and the Buyer are unable to resolve any such disagreements within 30 days after delivery of the Earn-Out Statement, the Sellers' Representatives and the Buyer shall select an Independent Accounting Firm to resolve the disagreements over accounting matters in accordance with the provisions of Section 2.4(c) hereof. The fees and expenses of the Independent Accounting Firm shall be paid by the party whose position on 1998 EBITDA is most incorrect. (e) Notwithstanding the provisions of Section 2.7(a) above, if there shall have occurred and be continuing or result from the payment of the Earn-Out Amount, any Default or Event of Default (as such terms are defined in the Credit Agreement) under the Credit Agreement, Buyer shall have no obligation to pay the Earn-Out Amount as provided in paragraph (d) above, but in lieu thereof shall deliver to the Sellers' Representatives on behalf of the Sellers a promissory note bearing interest at a rate of 9% per annum and containing such terms and conditions with reference to subordination as the Lender shall require, in an aggregate amount equal to the Earn-Out Amount. Section 2.8 Stock Options. To ensure the transfer to Buyer of all of the outstanding capital stock and capital stock equivalents of the Company, the Company and the Sellers shall take such actions as may be necessary or appropriate in order to (a) accelerate the vesting of all outstanding Options, if and to the extent any such Option is not currently exercisable in full, (b) cause all outstanding Options to be exercised by the Optionholders prior to the Closing, and (c) cancel and extinguish, without any liability of the Company to make any payment with respect thereto, any Option that remains unexercised as of the Closing. Each such exercise of Options by an Optionholder shall be made pursuant to an agreement between the Company and such Optionholder that is in form and substance satisfactory to the Buyer in the exercise of its reasonable business judgment, which agreement (each, an "Option Exercise and Sale Agreement") shall -18- 24 EXECUTION COPY (i) provide for the sale and transfer to Buyer of the shares of Common Stock issuable to such Optionholder upon exercise of such Option (the "Option Shares") pursuant to Section 2.1 hereof without any further action by such Optionholder, (ii) provide for the payment by such Optionholder of the aggregate exercise price of his or her Options as set forth in Section 3.2(b) of the Disclosure Schedule from the proceeds to such Optionholder of such sale, by directing the Buyer to pay such amount to the Company concurrently with, but subject to and conditioned upon, the purchase of such Option Shares by the Buyer, (iii) if the Company has a withholding obligation generated by the exercise of such Option or the sale of such Option Shares to the Buyer, provide for a portion of the proceeds of such sale equal to the amount of such withholding to be paid by the Buyer to the Company, for the purpose of the Company's remitting such amounts to the appropriate taxing authorities, (iv) contain such representations and warranties of the Optionholders as to title authority and capacity to sell the Option Shares as the Buyer shall reasonably request and to require all such Optionholders' signatures to be notarized, and (v) include a release in form and substance as set forth in Exhibit G-1 (for the Executives (the "Executive Release")) or Exhibit G-2 (for the Specified Employees (the "Employee Release")). Except as otherwise agreed to by the parties, (i) the Option Plans shall terminate as of the Closing and the provisions in any other plan, program or arrangement providing for the issuance or grant of any other interest in respect of the capital stock of the Company or any subsidiary shall be terminated as of the Closing, and (ii) the Sellers shall take all action necessary to ensure that following the Closing no participant in the Executive Option Plan or the Employee Option Plan or other plans, programs or arrangements shall have any right thereunder to acquire or participate in changes in value of equity securities of the Company, or any subsidiary and to terminate all such plans effective as of the Closing. Each Executive who exercises his Options pursuant to this Section 2.8 shall be deemed a Seller for all purposes of this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS Section 3.1 Representations and Warranties of the Sellers Concerning the Transaction. Each of the Sellers represents and warrants to the Buyer that the statements contained in this Section 3.1 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3.1) with respect to himself, herself or itself, except as set forth in Annex I attached hereto. (a) Authorization of Transaction. The Seller has full power and authority to execute and deliver this Agreement and to perform his, her or its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Seller, enforceable in accordance with its terms and conditions. Assuming compliance with the HSR Act, the Seller need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. -19- 25 EXECUTION COPY (b) Brokers' Fees. Neither the Company nor the Buyer has or will have any liability or otherwise suffer or incur any loss as a result of or in connection with any brokerage or finder's fee or other commission of any person retained by or on behalf of the Company or any Seller in connection with any of the transactions contemplated by this Agreement. (c) Company Shares. The Seller owns (or, with respect to the shares of Common Stock purchasable by such Seller pursuant to the Nieminski Agreement will own at or prior to the Closing), beneficially and of record, the shares of Common Stock, Preferred Stock and Common Stock Equivalents set forth opposite such Seller's name in Section 3.1(c) of the Disclosure Schedule, free and clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities laws), Taxes, Security Interests, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands and the sale, transfer and assignment of the Stock and Warrants to Buyer hereunder will vest in Buyer good and clear title to the Stock and Warrants free and clear of all Encumbrances of any kind. The Stock, Warrants and Option Shares to be transferred to Buyer constitute all of the issued and outstanding shares of capital stock and all of the issued and outstanding Common Stock Equivalents of the Company. (d) International Golf Shares. As of the Closing, the Sellers shall have caused the additional shareholders of record of International Golf other than the Company to endorse the ownership, in favor of the Buyer (or its designee), their respective stock certificates. (e) Purchase Price Allocation. Each of the Sellers hereby acknowledges and agrees to the allocation of the Purchase Price among the Sellers in accordance with Section 2.3 of the Disclosure Schedule. Section 3.2 Representations and Warranties Concerning the Company and Its Subsidiaries. Each of the Company and the Sellers represents and warrants to the Buyer that the statements contained in this Section 3.2 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3.2). (a) Organization, Qualification, and Corporate Power. Each of the Company and its Subsidiaries is a corporation duly organized, and other than with respect to Monogram, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. Each of the Company and its Subsidiaries, other than Monogram, is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the lack of such qualification would not have a material adverse effect on the business, condition (financial or otherwise), operations, results of operations, or future prospects of the Company and its Subsidiaries. Each of the -20- 26 EXECUTION COPY Company and its Subsidiaries, other than Monogram, has full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. Section 3.2(a) of the Disclosure Schedule lists each jurisdiction in which the Company or its Subsidiaries is qualified to do business and the directors and officers of each of the Company and its Subsidiaries. (b) Capitalization. The entire authorized capital stock of the Company consists of (i) 2,500,000 shares of Common Stock of which 1,560,438 shares are issued and outstanding and 796,062 shares of which are reserved for issuance upon exercise of the Warrants and the Options and (ii) 245,000 shares of Preferred Stock of which 245,000 shares are issued and outstanding, and all of which together represent the Stock and Option Shares. All of the issued and outstanding shares of capital stock of the Company have been duly authorized, are validly issued, fully paid, and nonassessable. Except as set forth under clause (i) of the preceding sentence, no shares of the Company's capital stock are reserved for issuance or are held as treasury shares. Except as set forth in Section 3.2(b) of the Disclosure Schedule, there are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other commitments that could require the Company to issue, sell, or otherwise cause to become outstanding any of its capital stock, nor are there outstanding or authorized any stock appreciation rights, phantom stock, or similar rights or instruments (collectively, "Common Stock Equivalents"). There is no action, suit, proceeding, hearing, investigation, charge, complaint, demand or notice pending, or to the Knowledge of the Company or any Seller, threatened by any present or former shareholder of the Company with respect to the Company's capital stock, nor to the Knowledge of the Company or any Seller do any facts exist which could form the basis for any such claim. (c) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, or other restriction of any government, governmental agency, or court to which any of the Company and its Subsidiaries is subject or any provision of the charter or bylaws of the Company and its Subsidiaries or (ii) except as set forth in Section 3.2(c) of the Disclosure Schedule conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which any of the Company and its Subsidiaries is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Lien upon any of its assets), except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, failure to give notice, or Security Interest would not have a material adverse effect on the business, condition (financial or otherwise), operations, results of operations of the Company and its Subsidiaries taken as a whole, or on the ability of the Parties to consummate the transactions contemplated by this Agreement (a "Material Adverse Effect"). Except as set -21- 27 EXECUTION COPY forth in Section 3.2(c) of the Disclosure Schedule, neither the Company nor any of its Subsidiaries needs to obtain any authorization, consent, or approval of, or make any declaration, filing or registration with, any government or governmental agency or regulatory authority in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, except where the failure to obtain such authorizations, consents, approvals, declarations, filings or registrations would not have a Material Adverse Effect. The parties acknowledge and agree that with respect to the shares of International Golf to be transferred to Buyer or its designee, such shares will not be transferred until the parties have provided the corresponding concentration notification established in Article 20 of the Mexican Federal Competition Law (Ley Federal de Competencia Economica) to the Mexican Economic Competition Commission ("ECC") in the event said notification is to be applicable to the transaction. Thus, it is understood by both parties that the transaction related to the Subsidiary will legally and economically take place only after the notification of concentration mentioned above has been officially filed with the ECC. (d) Brokers' Fees. None of the Company or its Subsidiaries has any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement, save for fees and expenses payable to Prudential Securities Incorporated solely by the Stockholders from proceeds of the sale of the Stock and Warrants. (e) Title to Assets; Sufficiency. Except as set forth on Section 3.2(e)(i) of the Disclosure Schedule, the Company and its Subsidiaries have good and marketable title to, or a valid leasehold interest in, the properties and assets used by them or otherwise necessary to conduct their business, located on their premises, or shown on the Most Recent Balance Sheet or acquired after the date thereof, free and clear of all Security Interests, except for properties and assets disposed of in the Ordinary Course of Business since the date of the Most Recent Balance Sheet. Except as set forth in Section 3.2(e)(ii) of the Disclosure Schedule, the assets currently owned by the Company or any of its Subsidiaries, or leased or licensed by the Company or any of its Subsidiaries pursuant to a valid and enforceable license or lease agreement, entered into in the ordinary course of business or otherwise disclosed to Buyer constitute all of the assets necessary to conduct the business of the Company and any of its Subsidiaries in accordance with past practices as of the Most Recent Fiscal Month End and as of the date hereof. (f) Subsidiary. Section 3.2(f) of the Disclosure Schedule sets forth for each Subsidiary of the Company (i) its name and jurisdiction of incorporation, (ii) the number of shares of authorized capital stock of each class of its capital stock, (iii) the number of issued and outstanding shares of each class of its capital stock, the names of the holders thereof, and the number of shares held by each such holder, and (iv) the number of shares of its capital stock held in treasury. All of the issued and outstanding shares of capital stock of -22- 28 EXECUTION COPY each Subsidiary have been duly authorized and are validly issued, fully paid, and nonassessable. Except for each director's qualifying shares identified on Section 3.2(f) of the Disclosure Schedule, the Company owns all of the issued and outstanding shares of capital stock in each of its Subsidiaries. Shares owned by the Company in each of its Subsidiaries are owned free and clear of any restrictions on transfer (other than restrictions under the Securities Act and state securities laws), Taxes, Security Interests, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require any of the Company or its Subsidiaries to sell, transfer, or otherwise dispose of any capital stock of any of its Subsidiaries or that could require any Subsidiary of the Company to issue, sell, or otherwise cause to become outstanding any of its own capital stock, nor any stock appreciation rights, phantom stock, or similar rights or instruments. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of any capital stock of any Subsidiary of the Company. Except for Monogram and International Golf, the Company has no Subsidiaries. Monogram has no assets or liabilities. (g) Financial Statements. Attached hereto as Exhibit A are the following financial statements (collectively the "Financial Statements"): (i) audited consolidated balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and for the three most recent fiscal years ended December 31, 1995, 1996 and 1997 (the "Most Recent Fiscal Year End") for the Company and International Golf; and (ii) an audited consolidated balance sheet (the "Most Recent Balance Sheet") and audited statements of income, changes in stockholders' equity, and cash flow (the "Most Recent Financial Statements") as of and for the twelve months ended June 30, 1998 (the "Most Recent Fiscal Month End") for the Company and International Golf. The Financial Statements (including the notes thereto) have been prepared from the books and records of the Company, are correct and complete, have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby and present fairly the financial condition of the Company and International Golf as of such dates and the results of operations of the Company and International Golf for such periods. (h) Events Subsequent to Most Recent Fiscal Month End. Except as set forth in Section 3.2(h) of the Disclosure Schedule, since the Most Recent Fiscal Month End, there has not been any material adverse change in the business, condition (financial or otherwise), operations, results of operations, or future prospects of the Company and its Subsidiaries taken as a whole. Without limiting the generality of the foregoing, since that date neither the Company nor any of its Subsidiaries has: (i) sold, leased, transferred, or assigned any material assets, tangible or intangible, outside the Ordinary Course of Business; -23- 29 EXECUTION COPY (ii) entered into any material agreement, contract, lease, or license (or series of related agreements, contracts, leases or licenses) involving more than $100,000, nor modified the terms of any such existing contract or agreement, other than in the Ordinary Course of Business; (iii) (nor has any other party thereto) accelerated, terminated, made material modifications to, or canceled any material agreement, contract, lease, or license to which any of the Company and its Subsidiaries is a party or by which any of them is bound; (iv) other than with respect to the cancellation of Affiliate receivables and payables at or prior to Closing in accordance with the proviso in Section 5.2, engaged in any activity which has resulted in any acceleration or delay of the collection of its accounts or notes receivable or any delay in the payment of its accounts payable; (v) made any capital expenditures in an amount in excess of $100,000 individually or in the aggregate, other than in the Ordinary Course of Business; (vi) imposed any Security Interest upon any of its assets, tangible or intangible; (vii) made any equity or debt investment in, or any loan to, any other Person in an amount in excess of $100,000 individually or in the aggregate; (viii) created, incurred, assumed, or guaranteed more than $100,000 in aggregate indebtedness for borrowed money and capitalized lease obligations; (ix) granted any license or sublicense of any material rights under, allowed to lapse, disposed of or otherwise experienced any material adverse change with respect to any Company Proprietary Rights; (x) made or authorized any change in the charter or bylaws of any of the Company and its Subsidiaries; (xi) issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its capital stock; (xii) declared, set aside, or paid any dividend or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, -24- 30 EXECUTION COPY purchased, or otherwise acquired any of its capital stock (other than any such dividend or distribution by any of its Subsidiaries solely to the Company); (xiii) experienced any material damage, destruction, or loss (whether or not covered by insurance) to its property; (xiv) made any loan to, or entered into any other transaction with, any of its directors, officers, and employees, other than employment arrangements entered into in the Ordinary Course of Business and disclosed in writing to Buyer; (xv) granted any increase in the base compensation of or made any other material change in the employment terms of any of its directors, officers and employees outside the Ordinary Course of Business; (xvi) entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement; (xvii) adopted, amended, modified, or terminated any bonus, profit-sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its directors, officers, and employees (or taken any such action with respect to any other Employee Benefit Plan) or, other than in the Ordinary Course of Business, granted any increases in the base compensation of or made any other change in he employment terms of any of its directors, officers and employees; and (xviii) committed to do any of the foregoing. (i) Undisclosed Liabilities. Neither the Company nor any of its Subsidiaries has any material liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due, including any liability for taxes), except for (i) liabilities set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) and (ii) liabilities which have arisen after the Most Recent Fiscal Month End in the Ordinary Course of Business, none of which is a liability resulting from, arising out of, relating to, in the nature of or caused by any breach of contract, breach of warranty (other than for replacement or repair in the Ordinary Course of Business), tort, infringement, claim or lawsuit. (j) Legal Compliance. Each of the Company and its Subsidiaries has complied and is in compliance with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof), and no action, suit, grievance -25- 31 EXECUTION COPY proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed, commenced or to the Knowledge of the Company, threatened against any of them alleging any failure so to comply, except in each case where the failure to so comply would not have a Material Adverse Effect. (k) Tax Matters. (i) Except as set forth in Section 3.2(k)(i) of the Disclosure Schedule, the Company and each of its Subsidiaries have duly and timely filed all Tax Returns they were required to file. Except as set forth in Section 3.2(k)(i) of the Disclosure Schedule, all such Tax Returns were correct and complete in all material respects. Except as set forth in Section 3.2(k)(i) of the Disclosure Schedule, all Taxes owed by the Company and any of its Subsidiaries (whether or not shown on any Tax Return) have been timely paid. Neither the Company nor any of its Subsidiaries currently is the beneficiary of any extension of time within which to file any Tax Return. The Company and each of its Subsidiaries have maintained adequate provision for, and adequate funds to pay, Taxes payable by the Company and its Subsidiaries as of the Most Recent Fiscal Month End, and such provision and funds (as adjusted for the passage of time through the Closing Date in accordance with the past custom and practices of the Company and each of its Subsidiaries in filing their respective Tax Returns) will be adequate for Taxes payable by the Company and each of its Subsidiaries as of the Closing Date. (ii) There is no material dispute or claim concerning any Tax liability of the Company or any of its Subsidiaries either (A) claimed or raised by any authority in writing or (B) as to which any of the Sellers has Knowledge based upon personal contact with any agent of such authority. (iii) Section 3.2(k)(iii) of the Disclosure Schedule lists all federal, state, local, and foreign Tax Returns filed with respect to any of the Company and its Subsidiaries for taxable periods ended on or after December 31, 1991, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. The Sellers have delivered to the Buyer correct and complete copies of all federal Tax Returns, examination reports, and statements of deficiencies assessed against, or agreed to by any of the Company and its Subsidiaries for all taxable periods for which the applicable statute of limitations has not yet expired. Neither the Company nor any of its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to any Tax assessment or deficiency. (iv) neither the Company nor any of its Subsidiaries has received, or expects to receive, from any taxing authority any written notice of proposed -26- 32 EXECUTION COPY adjustment, deficiency, underpayment of Taxes or any other such notice which has not been satisfied by payment or been withdrawn, and, to the Knowledge of the Company or any Seller, no claims have been asserted relating to such Taxes against the Company or any of its Subsidiaries; (v) the Company and its Subsidiaries have withheld and paid all required Taxes in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other similar third party; (vi) neither the Company nor any of its Subsidiaries has filed a consent to the application of Section 341(f) of the Code; (vii) neither the Company nor any of its Subsidiaries will be required, as a result of (A) a change in accounting method for a Tax period beginning on or before the Closing Date, to include any adjustment under Section 481(c) of the Code (or any corresponding provision of state, local or foreign Tax law) in taxable income for any Tax period beginning on or after the Closing Date, or (B) any "closing agreement," as described in Section 7121 of the Code (or any corresponding provision of state, local or foreign Tax law), to include any item or income in or exclude any item of deduction from any Tax period beginning on or after the Closing Date; (viii) the Company and each of its Subsidiaries have disclosed on its income Tax Returns all positions taken therein that could give rise to an accuracy-related penalty under Section 6662 of the Code (or any corresponding provision of Tax law); (ix) neither the Company nor any of its Subsidiaries has made any payments, is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Section 280G or Section 162(m) of the Code; (x) to the Knowledge of the Company or any Seller, no claim has been made with respect to any taxable year of the Company or its Subsidiaries for which the applicable statute of limitations has not yet expired by a taxing authority in a jurisdiction where neither the Company nor any of its Subsidiaries pays Taxes or files Tax Returns that any such entity is or may be subject to Taxes assessed by such jurisdiction; (xi) neither the Company nor any of its Subsidiaries has been a United States real property holding corporation within the meaning of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii); -27- 33 EXECUTION COPY (xii) neither the Company nor any of its Subsidiaries is a party to any Tax allocation or sharing agreement; and (xiii) neither the Company nor any of its Subsidiaries (A) has been a member of an Affiliated Group filing a consolidated federal income Tax Return or (B) has any liability for the Taxes of any Person (other than the Company) under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (l) Real Property. (i) Section 3.2(l)(i) of the Disclosure Schedule contains a legal description of each parcel of real property owned by the Company or any Subsidiary (the "Owned Property"). The Company or its applicable Subsidiary has good and marketable title in and to all of the Owned Property subject to no Encumbrances, except as described on such section of the Disclosure Schedule. (ii) Section 3.2(l)(ii)(a) of the Disclosure Schedule contains a list of all leases, subleases and other occupancy agreements, including all amendments, extensions and other modifications (the "Leases") for real property (the "Leased Property"; the "Owned Property" and the "Leased Property" collectively the "Real Property") to which the Company or any Subsidiary is the "tenant", "subtenant" or other lessee party. The Company or its applicable Subsidiary has a good and valid leasehold interest in and to all of the Leased Property, subject to no Encumbrances except as described in such section of the Disclosure Schedule. Each Lease is in full force and effect and is enforceable in accordance with its terms. There exists no default or condition which, with the giving of notice, the passage of time or both, would reasonably be expected to become a material default by the Company or its Subsidiary under any Lease. Sellers have previously delivered to Buyer true and complete copies of all the Leases. Except as described on Section 3.2(l)(ii)(b) to the Disclosure Schedule, no consent, waiver, approval or authorization is required from the landlord under any Lease as a result of the execution of this Agreement or the consummation of the transactions contemplated hereby. (iii) The Real Property constitutes all of the real property owned, leased, occupied or otherwise utilized in connection with the business of the Company and its Subsidiaries. Except as set forth on Section 3.2(l)(iii) of the Disclosure Schedule, other than the Company and the Subsidiaries, there are no parties in possession or parties having any current or future right to occupy any of the Real Property. The Real Property is sufficient and appropriate for the conduct of the business of the Company and its Subsidiaries as currently conducted and as conducted since December 31, 1997. The Real Property and all plants, buildings and -28- 34 EXECUTION COPY improvements located thereon conform to all applicable building, zoning and other laws, ordinances, rules and regulations. All permits, licenses and other approvals required of the Company by applicable law or contract for the current occupancy and use of the Real Property by the Company or its Subsidiaries have been obtained, are in full force and effect and have not been violated. There exists no violation of any law, covenant, condition, restriction, easement, agreement or order affecting any portion of the Real Property which would have a material adverse effect on the value, ownership, occupancy or use of such Real Property. All improvements located on the Real Property have direct access to a public road adjoining such Real Property. No such improvements or accessways encroach on land not included in the Real Property and no such improvement is dependent for its access, operation or utility on any land, building or other improvement not included in the Real Property. There is no pending or, to the Knowledge of the Company and its Subsidiaries, any threatened condemnation proceeding affecting any portion of the Real Property. (m) Intellectual Property. (i) Neither the Company nor any of its Subsidiaries has interfered with, infringed upon, misappropriated, or violated any material Proprietary Rights of any third party in any material respect. Neither of the Company nor the Sellers has, since January 1, 1993, received any written charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, or violation (including any claim that any of the Company and its Subsidiaries must license or refrain from using any Proprietary Rights of any third party). To the Knowledge of the Company or any Seller, no third party has interfered with, infringed upon, misappropriated, or violated any material Proprietary Rights of any of the Company or any of its Subsidiaries in any material respect. (ii) Section 3.2(m)(ii) of the Disclosure Schedule identifies each patent or registration which has been issued to the Company or any of its Subsidiaries with respect to any of the Company Proprietary Rights, identifies each pending patent application or application for registration which the Company or any of its Subsidiaries has made with respect to any of the Company Proprietary Rights, and identifies each material license, agreement, or other permission which the Company or any of its Subsidiaries has granted to any third party with respect to any of the Company Proprietary Rights (together with any exceptions). The Company has delivered to the Buyer correct and complete copies of all such patents, registrations, applications, licenses, agreements, and permissions (as amended to date). Section 3.2(m)(ii) of the Disclosure Schedule also identifies each material trade name or unregistered trademark used by the Company or any of its Subsidiaries. -29- 35 EXECUTION COPY (iii) Section 3.2(m)(iii) of the Disclosure Schedule identifies each material item of the Company Proprietary Rights that any third party owns and that any of the Company or its Subsidiaries uses pursuant to license, sublicense, agreement, or permission. The Sellers have delivered to the Buyer correct and complete copies of all such licenses, sublicenses, agreements, and permissions (as amended to date). With respect to each item of the Company Proprietary Rights required to be identified in Section 3.2(m)(iii) of the Disclosure Schedule: (A) the license, sublicense, agreement, or permission covering the item is legal, valid, binding, enforceable, and in full force and effect in all material respects; (B) no party to the license, sublicense, agreement, or permission is in material breach or default, and no event has occurred which with notice or lapse of time would constitute a material breach or default or permit termination, modification, or acceleration thereunder; (C) no party to the license, sublicense, agreement, or permission has repudiated any material provision thereof; and (D) neither the Company nor any of its Subsidiaries has granted any sublicense or similar right with respect to the license, sublicense, agreement, or permission. (iv) The Company and its Subsidiaries own or have a license to use all Proprietary Rights necessary for the operation of their businesses as conducted as of the Most Recent Fiscal Year End and as currently conducted. (v) All material computer systems used by the Company or its Subsidiary recognize and shall recognize the advent of the year 2000 and can correctly recognize and manipulate date information relating to dates before, on or after January 1, 2000 and the operation and functionality of such material computer systems will not be adversely affected in any material respect by the advent of the year 2000 or any manipulation of data featuring date information relating to dates on or after January 1, 2000. (n) Tangible Assets. The buildings, machinery, equipment, and other tangible assets that the Company and any of its Subsidiaries own and lease are free from material defects (patent and latent), have been maintained in accordance with normal industry practice, and are in good operating condition and repair (subject to normal wear and tear), considering their age and operational use. -30- 36 EXECUTION COPY (o) Inventory. The inventory of the Company and its Subsidiaries consists of raw materials, manufactured and processed parts, work in process, titanium scrap, and finished goods, all of which is or was, prior to the sale thereof, in good condition, suitable and usable or salable in the Ordinary Course of Business (subject only to the reserve for inventory write-down reflected on the Closing Date Balance Sheet) and merchantable and fit for the purpose for which it was procured or manufactured. (p) Contracts. Section 3.2(p) of the Disclosure Schedule lists the following contracts and other agreements to which any of the Company and its Subsidiaries are parties: (i) any agreement (or group of related agreements) for the consignment or lease of machinery, equipment or other personal property to or from any Person providing for lease payments in excess of $50,000 per annum; (ii) any agreement (or group of related agreements) for the purchase or sale of raw materials, products, machinery, equipment or other personal property, or for the furnishing or receipt of services, the performance of which will extend over a period of more than one year or involve consideration in excess of $50,000, other than releases under blanket purchase orders entered into in the Ordinary Course of Business; (iii) any pledge, conditional sale or title retention agreement involving the payment of more than $50,000 in the aggregate; (iv) any agreement concerning a partnership or joint venture; (v) any agreement (or group of related agreements) under which it has created, incurred, assumed, or guaranteed any indebtedness for borrowed money, any mortgage, indenture, note, bond or other agreement relating to indebtedness incurred or provided by the Company or any of its Subsidiaries, or any capitalized lease obligation, or under which it has imposed a Security Interest on any of its assets, tangible or intangible; (vi) any agreement concerning confidentiality or noncompetition; (vii) any agreement with any of the Sellers and their Affiliates (other than agreements solely between the Company and its Subsidiaries); (viii) any profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance, or other material plan or -31- 37 EXECUTION COPY arrangement for the benefit of its current or former directors, officers, and employees; (ix) any material license, royalty or other agreement relating to the Company Proprietary Rights; (x) except as provided under subsection (v) above, any agreement containing commitments of suretyship, guarantee or indemnification (except for guarantees, warranties and indemnities provided by the Company or any Subsidiary in the ordinary course of business and those having a contract value, individually or in the aggregate of $25,000 or less); (xi) any written agreement with a governmental body; (xii) any collective bargaining agreement; (xiii) any agreement for the employment of any individual on a full-time, part-time, consulting, or other basis providing annual compensation in excess of $50,000 or providing severance benefits in excess of $50,000; (xiv) any agreement under which the consequences of a default or termination would reasonably be expected to have a Material Adverse Effect; (xv) any other agreement (or group of related agreements) the performance of which involves consideration in excess of $50,000; (xvi) any commitment to do any of the foregoing described in clauses (i) through (xv). The Company has delivered to the Buyer a correct and complete copy of each written agreement listed in Section 3.2(p) of the Disclosure Schedule and a written summary setting forth the material terms and conditions of each oral agreement referred to in Section 3.2(p) of the Disclosure Schedule. With respect to each such agreement: (A) the agreement is legal, valid, binding, enforceable, and in full force and effect in accordance with its terms in all material respects and will continue to be so following the Closing; (B) the Company is not, and to the Knowledge of the Company or any Seller, no third party is in material breach or default, and no event has occurred which with notice or lapse of time would constitute a material breach or default, or permit termination, modification, or acceleration, under the agreement; and (C) no party has repudiated any material provision of the agreement. Except as identified in Section 3.2(p) of the Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party to any contract, agreement or understanding which contains a "change in control", "potential change in control" or similar provision which could be triggered by the transactions contemplated by this Agreement. -32- 38 EXECUTION COPY (q) Notes and Accounts Receivable. All notes and accounts receivable of the Company and its Subsidiaries are reflected properly on their books and records, are valid receivables subject to no setoffs or counterclaims, are current and collectible, and will be collected in accordance with their terms at their recorded amounts, subject only to the reserve for bad debts set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for operations and transactions through the Closing Date in accordance with the past custom and practice of the Company and its Subsidiaries. (r) Insurance. Section 3.2(r) of the Disclosure Schedule sets forth the following information with respect to each material insurance policy (including policies providing property, casualty, liability, and workers' compensation coverage and bond and surety arrangements) with respect to which any of the Company and its Subsidiaries is a party, a named insured, or otherwise the beneficiary of coverage: (i) the name, address, and telephone number of the agent; (ii) the name of the insurer, the name of the policyholder, and the name of each covered insured; (iii) the policy number and the period of coverage; (iv) the scope (including an indication of whether the coverage is on a claims made, occurrence, or other basis) and amount (including a description of how deductibles and ceilings are calculated and operate) of coverage; and (v) a description of any retroactive premium adjustments or other material loss-sharing arrangements. With respect to each such insurance policy: (A) the policy is in full force and effect in all material respects; (B) neither the Company, its Subsidiaries, nor to the Knowledge of the Company, any other party to the policy is in material breach or default (including with respect to the payment of premiums or the giving of notices), and no event has occurred which, with notice or the lapse of time, would constitute such a material breach or default, or permit termination, modification, or acceleration, under the policy; and (C) no party to the policy has repudiated any material provision thereof. Section 3.2(r) of the Disclosure Schedule describes any material self-insurance arrangements affecting any of the Company and its Subsidiaries. All known claims, if any, made against the Company or any of its Subsidiaries that are covered by insurance have been disclosed to and accepted by the appropriate insurance companies and are being defended by such appropriate insurance companies and are described in Section 3.2(r) of the Disclosure Schedule and, except as disclosed in Section 3.2(r) of the Disclosure Schedule, no claims have been denied coverage during the last three years. -33- 39 EXECUTION COPY (s) Litigation. Section 3.2(s) of the Disclosure Schedule sets forth each instance in which the Company or any of its Subsidiaries (i) is subject to any outstanding injunction, judgment, order, decree, ruling, settlement, claim or charge or (ii) is a party or, to the Knowledge of the Company, is threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator, none of which, individually or in the aggregate, will have or result in a Material Adverse Effect. (t) Product Warranty. Substantially all of the products manufactured, sold, leased, and delivered by the Company and its Subsidiaries have conformed in all material respects with all applicable contractual commitments and all express and implied warranties, and none of the Company and its Subsidiaries has any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due) for replacement or repair thereof or other damages in connection therewith, subject only to the reserve for product warranty claims set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for operations and transactions through the Closing Date in accordance with past custom and practice of the Company and its Subsidiaries and in accordance with the accounting principles set forth in Section 2.4(e). Substantially all of the products manufactured, sold, leased, and delivered by the Company or any of its Subsidiaries are subject to standard terms and conditions of sale or lease. Section 3.2(t) of the Disclosure Schedule includes copies of the standard terms and conditions of sale or lease for each of the Company and any of its Subsidiaries (containing applicable guaranty, warranty, and indemnity provisions). (u) Product Liability. Neither the Company nor any of its Subsidiaries has any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due) arising out of any injury to individuals or property as a result of the ownership, possession, or use of any product manufactured, sold, leased, or delivered by the Company or any of its Subsidiaries. (v) Employees. To the Knowledge of the Company and each Seller, no executive, key employee, or significant group of employees plans to terminate employment with the Company or any of its Subsidiaries during the next twelve months. Neither the Company nor any of its Subsidiaries is a party to or bound by any collective bargaining agreement, nor has any of them experienced any strike or material grievance, claim of unfair labor practices, or other collective bargaining dispute within the past three years. Neither the Company nor any of its Subsidiaries has committed any material unfair labor practice. Neither the Company nor any of its Subsidiaries nor any of the Sellers has any Knowledge of any union organizing or decertification effort presently underway or threatened by or on -34- 40 EXECUTION COPY behalf of or against any labor union with respect to any employee of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has engaged in any plant closing or employee layoff activities that would implicate the Worker Adjustment Retraining and Notification Act of 1988, as amended, or any similar state or local plant closing or mass layoff statute, rule or regulation. The Company has satisfied or will, prior to the Closing, satisfy any notice or bargaining obligation it may have under any law or collective bargaining agreement to any employee representative with respect to the effects of the transactions contemplated by this Agreement. (w) Employee Benefits. (i) Section 3.2(w) of the Disclosure Schedule lists each Employee Benefit Plan and each Multiemployer Plan. (A) Each Employee Benefit Plan (and each related trust, insurance contract, or fund) complies in form and in operation in all material respects with its terms and, to the extent applicable, with the requirements of ERISA, the Code, any applicable collective bargaining agreement, and other applicable laws. (B) All required reports and descriptions (including Form 5500 annual reports, summary annual reports, PBGC-l's, and summary plan descriptions) have been filed or distributed appropriately with respect to each Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and of Code Section 4980B ("COBRA") have been met in all material respects with respect to each Employee Benefit Plan which is an Employee Welfare Benefit Plan. (C) All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each Employee Pension Benefit Plan and to each Multiemployer Plan and all contributions for any period ending on or before the Closing Date which are not yet due have been paid to each Employee Pension Benefit Plan and to each Multiemployer Plan or accrued in accordance with the past custom and practice of the Company and its Subsidiaries. All premiums or other payments for all periods ending on or before the Closing Date have been paid with respect to each Employee Welfare Benefit Plan and to each Multiemployer Plan. No Employee Pension Benefit Plan has an "accumulated funding deficiency" within the meaning of Code Section 412 or Section 302 of ERISA. -35- 41 EXECUTION COPY (D) Each Employee Benefit Plan which is an Employee Pension Benefit Plan has received a determination letter from the Internal Revenue Service that such Employee Benefit Plan is qualified under Code Section 401(a), and nothing has occurred since the date of such determination that could adversely affect the qualification of such Employee Benefit Plan. (E) Sellers have delivered to Buyer correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, the three most recent Form 5500 annual reports, and all related trust agreements, insurance contracts, and other funding agreements which implement each Employee Benefit Plan. (F) There have been no Prohibited Transactions with respect to any Employee Benefit Plan. No fiduciary (as defined in Section 3(21) of ERISA) has any liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any such Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or, to the Knowledge of any Seller or any director or officer of the Company or its Subsidiaries, threatened. (ii) None of the Company and its Subsidiaries has incurred any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due) to the PBGC (other than PBGC premium payments) or otherwise under Title IV of ERISA or under the Code. (iii) None of the Company, its Subsidiaries, and the other members of the Controlled Group of Corporations that includes the Company and its Subsidiaries contributes to, has contributed to, or has been required to contribute to any Multiemployer Plan or has any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any withdrawal liability, under any Multiemployer Plan. (iv) None of the Employee Welfare Benefit Plans presently provides or in the past provided for medical, health, or life insurance or other welfare-type benefits for current or future retired or terminated employees, their spouses, or their dependents (other than in accordance with COBRA). -36- 42 EXECUTION COPY (x) Transaction With Affiliates. Except as set forth on in Section 3.2 (x) of the Disclosure Schedule, none of the Company's shareholders, directors, officers nor, to the Knowledge of the Company or to the Knowledge of any Seller, any of their respective relatives or Affiliates nor any employee of the Company is involved in any material business arrangement or relationship with the Company or any of its Subsidiaries (whether written or oral), and none of the Company's shareholders, directors, officers or employees nor any of their respective relatives or Affiliates owns any property or right, tangible or intangible, which is used by the Company or any of its Subsidiaries. (y) Environment, Health, and Safety. (i) Other than as set forth in Section 3.2(y)(i) of the Disclosure Schedule, each of the Company, its Subsidiaries, and their respective predecessors and Affiliates (A) has complied and is in compliance with all applicable Environmental, Health, and Safety Laws in all material respects (and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any such failure to comply with or any actual or potential liability under, Environmental, Health and Safety Laws), and (B) has obtained and complied with and is in material compliance with all of the terms and conditions of all material permits, licenses, and other authorizations which are required under the Environmental, Health, and Safety Laws, and (C) has complied in all material respects with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in the Environmental, Health, and Safety Laws. (ii) Other than as set forth in Section 3.2(y)(ii) of the Disclosure Schedule, neither the Company nor any of its Subsidiaries has liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due) under any Environmental, Health and Safety Laws, and the Company, its Subsidiaries, and their respective predecessors and Affiliates have not handled or disposed of or released any substance, arranged for the disposal of any substance, exposed any employee or other individual to any substance or condition, or owned or operated any property or facility in any manner that would give rise to any material liability, for damage to any site, location, or body of water (surface or subsurface), for any illness of or personal injury to any employee or other individual, or for any reason under any Environmental, Health, and Safety Law. (iii) Other than as set forth in Section 3.2(y)(iii) of the Disclosure Schedule neither the Company nor any of its Subsidiaries has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or released any substance, including without limitation any hazardous substance, or -37- 43 EXECUTION COPY owned or operated any property or facility and no such property or facility is contaminated by any such substance in a manner that has given or would give rise to material liabilities, including any liability for response costs, corrective action costs, personal injury, property damage, natural resources damages or attorney fees, or any investigative, corrective or remedial obligations, pursuant to Environmental, Health and Safety Laws (including CERCLA and RCRA). (iv) None of the following exists at any Owned Property or Leased Property: (1) underground storage tanks; (2) asbestos-containing material in any form or condition; (3) materials or equipment containing polychlorinated biphenyls; or (4) landfills, surface impoundments or disposal areas, except in each case for such items for which neither the Company nor any of its Subsidiaries has liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due) under any Environmental, Health and Safety Laws. (v) Except as set forth in Section 3.2(y)(v) of the Disclosure Schedule, neither this Agreement nor the consummation of the transactions contemplated hereby will result in any obligations for site investigation or cleanup, or notification to or consent of government agencies or third parties, pursuant to any so-called "transaction-triggered" or "responsible transfer" Environmental, Health and Safety Laws. (z) Funded Debt. Except as set forth in Section 3.2(z) of the Disclosure Schedule neither the Company nor any of its Subsidiaries has outstanding any Funded Debt, nor is a guarantor or is otherwise responsible for any liability or obligation (including indebtedness) of any other Person. (aa) Disclosure. The representations and warranties contained in this Section 3.2 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 3.2 not misleading. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Company and the Sellers as follows: Section 4.1 Organization of Buyer. Buyer is a corporation organized, validly existing and in good standing under the laws of the State of Wisconsin and has all requisite power -38- 44 EXECUTION COPY and authority to conduct its business as it is presently being conducted and to own and lease its properties and assets. Section 4.2 Authorization; Validity. Buyer has all necessary power and authority to enter into this Agreement and has taken all action necessary (including, without limitation, authorization from its board of advisors) to consummate the transactions contemplated hereby and to perform its obligations hereunder. This Agreement has been duly executed and delivered by Buyer and is a legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms. Section 4.3 No Conflict or Violation. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in: (a) a violation of or a conflict with any provision of the constitutive documents of Buyer; (b) a breach of, or a default under, any term or provision of any contract, commitment, indenture, undertaking, instrument or license to which Buyer is a party or by which its assets are bound, which breach or default would have a material adverse affect on Buyer's ability to consummate the transactions contemplated hereby; or (c) a violation by Buyer of any statute, rule, regulation, ordinance, code, order, judgment, writ, injunction, decree or award, which violation would have a material adverse effect on Buyer's ability to consummate the transactions contemplated hereby. Section 4.4 Consents and Approvals. Except as set forth in Section 4.4 of the Disclosure Schedule, no consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority, or any other person or entity, is required to be made or obtained by Buyer in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, except for consents, approvals or authorizations, declarations, filings or registrations, the failure of which to obtain would not in the aggregate impair the ability of Buyer to perform its obligations hereunder. Section 4.5 No Brokers. Neither Buyer nor any affiliate of Buyer has entered into or will enter into any agreement, arrangement or understanding with any person or entity which will result in the obligation of Seller to pay any finder's fee, brokerage commission or similar payment in connection with the transactions contemplated hereby. -39- 45 EXECUTION COPY ARTICLE V COVENANTS OF THE SELLERS AND COMPANY The Sellers and the Company hereby each covenant and agree with Buyer that from and after the date hereof to and including the Closing Date, the Sellers and the Company shall do or refrain from doing the following: Section 5.1 Access to Information and Records. At or prior to the Closing Date, Buyer and its financing sources shall be entitled, through their respective representatives and agents, to make such investigation of the assets, properties, business and operations of the Company and its Subsidiaries and such examination of the books, records, Tax Returns, financial condition and operations of the Company and its Subsidiaries as Buyer or its financing sources may reasonably request. Any such investigation and examination shall be conducted at reasonable times and under reasonable circumstances and the Company and Sellers shall cooperate fully therein, including with respect to all communications with the Company's customers, suppliers and lenders with Company's prior written consent. No investigation by Buyer shall diminish or obviate any of the representations, warranties, covenants or agreements of the Company or Sellers under this Agreement. In order that Buyer and its financing sources may have full opportunity to make such a business, accounting and legal review, examination or investigation as it or they may wish of the business and affairs of the Company and its Subsidiaries, the Company shall furnish the representatives of Buyer and its financing sources during such period with all such information and copies of such documents concerning the affairs of the Company and its Subsidiaries as such representatives may reasonably request and cause its officers, employees, consultants, agents, accountants and attorneys to cooperate fully with such representatives in connection with such review and examination and to make full disclosure to Buyer and its financing sources of all material facts affecting the financial condition and business operations of the Company and its Subsidiaries. Until the Closing and if the Closing shall not occur, thereafter, Buyer and its Affiliates and financing sources shall keep confidential and shall not use in any manner inconsistent with the transactions contemplated by this Agreement and after termination of this Agreement, Buyer and its Affiliates and financing sources shall not disclose, nor use for their own benefit, any information or documents obtained from the Company concerning its assets, properties, business and operations, unless (a) readily ascertainable from public or published information, or trade sources, (b) already known or subsequently developed by Buyer independently of any investigation of the Sellers or Company, (c) received from a third party not under an obligation to the Sellers or Company to keep such information confidential or (d) required by any law or order. In the event this transaction does not close for any reason, Buyer and its Affiliates and financing sources shall return or destroy all such confidential information and compilations thereof as is practicable. Buyer shall cause its officers, directors, agents and advisors to comply with the provisions of this Section 5.1. Section 5.2 Conduct of Business. From the date hereof through the Closing Date, each of the Company and its Subsidiaries shall (i) conduct its business in the ordinary course in the same manner as it has been conducted since the date of the Most Recent Financial Statements and -40- 46 EXECUTION COPY in such a manner so that the representations and warranties contained in Article III shall continue to be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date (except as otherwise expressly contemplated herein), and (ii) without limiting the generality of the foregoing, not undertake any of the action, fail to take any action or permit to occur any event, which such action, failure or occurrence, had it taken place prior to the date hereof, would be required to be disclosed pursuant to Section 3.2(h) without the prior written consent of the Buyer, not to be unreasonably withheld. Section 5.3 Preservation of Business. From the date hereof through the Closing Date, each of the Company, its Subsidiaries and Sellers shall use its best efforts to (i) preserve intact its business, assets, properties and organizations; (ii) keep available the services of their present officers and key employees; and (iii) maintain its present suppliers and customers and to preserve its goodwill. Section 5.4 Notice of Events. The Company, its Subsidiaries and each Seller, with knowledge thereof, shall promptly notify Buyer of (a) any event, condition or circumstance occurring, or failing to occur, from the date hereof through the Closing Date, which occurrence or failure to occur would constitute, or would reasonably be expected to result in a violation or breach of this Agreement, (b) any event, occurrence, transaction or other item which would have been required to have been disclosed on any Schedule or statement delivered hereunder had such event, occurrence, transaction or item existed on the date hereof, other than items arising in the ordinary course of business which would not render any representation or warranty of the Company or Sellers materially misleading. Section 5.5 Exclusivity. Until the earlier occurs of the Closing or the termination of this Agreement, none of the Sellers, the Company, nor any of their respective directors, officers, employees, agents, representatives, shareholders or Affiliates (collectively, the "Company Group") shall initiate, solicit, entertain, negotiate, accept or discuss, directly or indirectly, or encourage inquiries or proposals (each, an "Acquisition Proposal") with respect to, or furnish any information relating to or participate in any negotiations or discussions concerning, or enter into any agreement with respect to, any acquisition or purchase of all or a substantial portion of the business, assets, properties, capital stock or capital stock equivalents of the Company or any of its Subsidiaries (a "Potential Sale"), whether by merger, combination, sale of stock, sale of assets, or otherwise, or enter into any agreement, arrangement or undertaking requiring it to abandon, terminate or fail to consummate the transaction contemplated by this Agreement. The Sellers and the Company shall, and shall cause each other member of the Company Group to, immediately cease and cause to be terminated any existing activities, including discussions or negotiations with any parties, other than Buyer, conducted prior to the date hereof with respect to any Acquisition Proposal. The Company or the Sellers shall (i) immediately inform Buyer of any inquiries any member of the Company Group receives after the date hereof concerning an Acquisition Proposal or Potential Sale and provide Buyer with copies of all correspondence or other documents received in connection therewith, and (ii) inform the Persons sending such inquiries, requests or proposals that the Company -41- 47 EXECUTION COPY is bound by an exclusivity arrangement (without any reference to Buyer, its Affiliates, or its potential financing sources). The Sellers and the Company represent that each is not a party to or bound by any agreement with respect to an Acquisition Proposal other than under this Agreement. Each of the Sellers and the Company shall cause its officers, directors, agents and advisors to comply with the provisions of this Section 5.5. Section 5.6 Non-Competition; Non-Interference; Non-Solicitation. As a significant inducement to Buyer to enter into and perform its obligations under this Agreement, each Covered Person agrees as follows: (a) Covenant Against Competition. The Covered Person acknowledges that (1) the principal business of Buyer and the Company (as successor in interest to the Stock the Company) is the manufacture and sale of investment-cast products, including golf club heads, (collectively, the "Company Business"); (2) the Covered Person is one of a limited number of Persons who have developed the Company Business; (3) the Company Business is, in part, national and international in scope; the Covered Person's work for the Company has given and will continue to give him access to the confidential affairs and proprietary information of the Buyer and the Company; the information, observations and data disclosed to, developed by or obtained by him while employed by the Company or any of its Subsidiaries (collectively, the "Consolidated Company") concerning the business or affairs of any member of the Consolidated Company (including, without limitation, the Company's technology, methods of doing business and supplier and customer information, but excluding any personal biographical information or personal diaries, payroll records, appointment books or calendars, except to the extent any Confidential Information regarding the Company is contained therein) (collectively, "Confidential Company Information") are the property of Buyer and the Company or such other member of the Consolidated Company and that the continued success of the Company Group depends in large part on keeping this information from becoming known to its competitors; the agreements and covenants of the Covered Person contained in this Section 5.6 are essential to the business and goodwill of Buyer and the Company; and Buyer would not have entered into this Agreement and purchased the Stock but for the covenants and agreements set forth in this Section 5.6. Accordingly, the Covered Person covenants and agrees that: (i) During the period commencing on the date hereof ending three (3) years following the Closing Date (the "Restricted Period"), the Covered Person shall not in the United States of America, directly or indirectly, own, operate, manage, control, participate in, consult with, advise, permit his name to be used by, provide services for, lease, or in any manner engage (including by himself, in association with any Person, or through any Person) in (A) the Company Business; or (B) in any business which manufactures or sells any products or provides any services which may be used as substitutes for or are otherwise in competition with any products or services in the business of the Consolidated Company as such -42- 48 EXECUTION COPY businesses exist or are proposed as part of the Company's plans as of the Closing Date or the date of this Agreement, or logical extensions thereof in the area of golf club manufacture, assembly or distribution (collectively, "Covered Activities"); or (C) become interested in any such Person which engages in any Covered Activities (other than Buyer) as a partner, shareholder, principal, agent, consultant or in any other relationship or capacity; provided, however, that notwithstanding the above, the Covered Person may own, directly or indirectly, solely as an investment, securities of any such Person which are traded on any national securities exchange or NASDAQ if the Covered Person is not a controlling person of, or a member of a group which controls, such Person, does not, directly or indirectly, own three percent (3%) or more of any class of securities of such Person and has no active participation in the business of such Person. (ii) At all times after the date hereof, the Covered Person shall keep secret and retain in strictest confidence, and shall not use for his benefit or the benefit of others, except in connection with the business and affairs of Buyer, the Company and their affiliates, all Confidential Company Information including, without limitation, information with respect to (A) prospective facilities, (B) sales figures, (C) profit or loss figures, and (D) customers, clients, suppliers, sources of supply and customer lists and shall not disclose such Confidential Company Information to anyone outside of Buyer, the Company and their Affiliates, advisors, financiers and others having a similar confidential relationship to the Company, except with the express written consent of the Buyer and except for Confidential Company Information which is at the time of receipt or thereafter becomes publicly known through no wrongful act of the Covered Person. The Covered Person shall deliver to Buyer on the Closing Date, or at any other time Buyer may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Company Information, Work Product (as defined below) or the business of the Company or any Subsidiary which he may then possess or have under his control. (iii) During the two-year period following the Closing Date the Covered Person shall not, without the prior written consent of the Buyer, directly or indirectly, (A) induce or attempt to induce any employee of Buyer, the Company or any Subsidiary to leave the employ of Buyer, the Company or such Subsidiary, or in any way interfere with the relationship between Buyer, the Company or any Subsidiary and any employee thereof, (B) hire any person within two years of the last day such person was an employee of Buyer, the Company or any Subsidiary other than any such person terminated by the Company or the Subsidiary, other than for cause or (C) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of Buyer, the Company or any Subsidiary to cease doing business with or otherwise materially alter its relationship with Buyer, -43- 49 EXECUTION COPY the Company or such Subsidiary, or make any disparaging statements or communications about Buyer or its Subsidiaries. (iv) All inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, characters, props, molds and all similar or related information (whether or not patentable) which relate to the Company's or any of its Subsidiaries' actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by the Covered Person while an employee of, or a consultant to, the Company or its Subsidiaries (collectively, "Work Product") belong to the Company and its Subsidiaries. Covered Person shall promptly disclose such Work Product to the Buyer and perform all actions requested by the Buyer (whether on or after the Closing Date) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments). (v) That (A) the covenants set forth in Section 5.6(a) are reasonable in geographical and temporal scope and in all other respects, (B) Buyer would not have entered into this Agreement but for the covenants of the Covered Person contained herein, and (C) the covenants contained herein have been made in order to induce Buyer to enter into this Agreement and purchase the Stock from which Covered Person will receive substantial benefit; and (vi) That if, at the time of enforcement of the covenants contained in Section 5.6 (a)(i), a court shall hold that the duration, scope or area restrictions stated therein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope, or area reasonable under such circumstances shall be substituted for the stated duration, scope or area. (b) Rights and Remedies upon Breach. If the Covered Person breaches, or threatens to commit a breach of, any of the provisions of Section 5.6 (a) (the "Restrictive Covenants"), Buyer shall have the following rights and remedies (upon compliance with any necessary prerequisites imposed by law upon the availability of such remedies), each of which rights and remedies shall be independent of the other and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to Buyer under law or in equity: (i) The right and remedy to have the Restrictive Covenants specifically enforced (without posting bond) by any court having equity jurisdiction, including, without limitation, the right to an entry against the Covered Person of restraining orders and injunctions (preliminary, mandatory, temporary and permanent) against violations, threatened or actual, and whether or not then continuing, of such covenants, it being acknowledged and agreed that Covered -44- 50 EXECUTION COPY Person's services are unique and that the Covered Person has, and has had, access to confidential Company Information and Work Product and that any breach or threatened breach of the Restrictive Covenants will cause irreparable injury to Buyer and that money damages will not provide an adequate remedy to Buyer. (ii) The right and remedy to require the Covered Person to account for and pay over to Buyer all compensation, profits, monies, accruals, increments or other benefits (collectively, "Benefits") derived or received by him as the result of any transactions constituting a breach of the Restrictive Covenants, and the Covered Person shall account for and pay over such Benefits to Buyer. (iii) In the event of an alleged breach or violation by the Covered Person of Section 5.6(a), the Restricted Period shall be tolled during the period of such breach until such breach or violation has been duly cured. Section 5.7 Consents and Best Efforts. Each of the Buyer, the Sellers and the Company will, as soon as reasonably practicable, commence to take all commercially reasonable actions required to obtain all consents, approvals, waivers and agreements of, and to give all notices and make all other registrations or filings with, any third parties, including governmental authorities, including any such filing required under the HSR Act, necessary to authorize, approve or permit the full and complete sale, conveyance, assignment, transfer and delivery of the Stock and the continuance in full force and effect of the permits, contracts and other agreements set forth on the Disclosure Schedules, and shall cooperate with each other with respect thereto; provided, that it shall be the obligation of the Company and Sellers to procure all authorizations, consents and approvals set forth in Section 5.7 and Section 3.2(l)(ii)(b) of the Disclosure Schedule, except to the extent applicable law requires Buyer to obtain its own permit or license. In addition, subject to the terms and conditions herein provided, each of the parties hereto covenants and agrees to use all commercially reasonable efforts to take, or cause to be taken, all actions, or do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations, to consummate and make effective as promptly as practicable the transactions contemplated hereby and to cause the fulfillment of the Parties' obligations hereunder. Sellers shall use their best efforts to cause the execution and delivery to Buyer of the Nieminski Agreement and the Nieminski Release within five (5) days of the date hereof. Section 5.8 Public Announcements. The timing and content of all announcements regarding any aspect of this Agreement or the transactions contemplated hereto to the financial community, government agencies, employees (except as necessary to further due diligence) or the general public shall be mutually agreed upon in advance by the Parties hereto; provided, that each party hereto may make any such announcement which it in good faith believes, based on advice of counsel, is necessary or advisable in connection with any requirement of law or regulation, it being understood and agreed that each party shall promptly provide the other parties hereto with copies of any such announcement; and provided further that Buyer or its affiliates may make any -45- 51 EXECUTION COPY announcement or disclosure to current or future financing sources or subsequent purchasers or assignees of substantially all of the capital stock or assets of Buyer, or any Subsidiary or Affiliate thereof without consent of or disclosure to the Company or the Sellers. Section 5.9 Appointment of Sellers' Representatives. (a) By execution of a counterpart of this Agreement, each of the Sellers hereby irrevocably makes, constitutes and appoints the Sellers' Representatives as the representatives of the Sellers and as their agents and attorneys-in-fact with the power and authority to take all action on behalf of all Sellers with respect to (i) all matters provided for herein and required under this Agreement, including the resolution or dispute of any matters related to Article X, and (ii) any action or decision required to be made under the Escrow Agreement. The Sellers' Representatives shall act as a committee in accordance with the procedures set forth in the DGCL applicable to boards of directors of Delaware corporations and the provisions of the bylaws of the Company as in effect as of the date hereof applicable to the board of directors of the Company, and the Buyer shall be entitled to deal with the Sellers' Representatives on such basis. (b) Actions by the Sellers' Representatives. The Company, Buyer, Escrow Agent, and all other Persons shall be entitled to rely, as conclusive evidence of any action, decision or notice by or from the Sellers' Representatives, on a written statement that the Sellers' Representatives have taken such action or decision or given such notice (a "Statement") tendered by (i) not less than two of the Sellers' Representatives, or (ii) any other Person whose name is provided to the Buyer and the Escrow Agent in a writing executed by each individual who is then a Sellers' Representative; and neither the Buyer, the Company, Escrow Agent nor any other Person shall be required to make any inquiry or investigation as to the accuracy of any Statement or shall be deemed to have knowledge, actual or constructive, that any Statement is not accurate in any respect. Each Sellers' Representative (i) hereby delegates the power and authority to such Persons to give Statements, (ii) shall be bound by any Statements, (iii) shall be estopped from asserting that any Statement is not accurate in any respect or does not bind the Sellers, and (iv) hereby releases the Company, the Buyer, the Escrow Agent and all other Persons from any liability arising from any action taken by them in reliance on any Statement. Section 5.10 Indemnification of Sellers' Representatives. The Sellers hereby agree to indemnify, defend and save and hold harmless each of the Sellers' Representatives from and against any and all expenses, losses, claims, liabilities, and causes of action (including attorneys' fees) incurred by such Sellers' Representatives or asserted against such Sellers' Representative arising from his capacity as a Sellers' Representative, except to the extent that such Sellers' Representative is determined to have acted fraudulently or in breach of the provisions of this Agreement. -46- 52 EXECUTION COPY Section 5.11 Additional Shares. The Company and Sellers shall use their best efforts (a) to cause John Sheehan to execute a counterpart of this Agreement on or before December 8, 1998 and if Mr. Sheehan shall fail to do so, the Sellers jointly and severally agree to reimburse the Buyer for the filing fees incurred by Buyer in filing the notification required under the HSR Act, and (b) to cause the performance of the obligations of Gerald J. Niminski as Trustee under the Nieminski Agreement. ARTICLE VI TERMINATION Section 6.1 Termination. This Agreement may be terminated and the sale and purchase of the Stock may be abandoned, notwithstanding the approval thereof by the shareholders of the Company: (a) within 15 days of the date hereof by Buyer or the Sellers' Representatives if Nieminski shall have failed to execute and deliver the Nieminski Agreement and the Nieminski Release on terms and conditions satisfactory to the Sellers' Representatives and Buyer; or (b) at any time prior to Closing: (i) by mutual written consent of the Company, Sellers' Representatives and Buyer; (ii) by either the Sellers' Representatives or Buyer, if the sale and purchase of the Stock shall not have been consummated on or before December 31, 1998 (the "Termination Date"); (iii) by Buyer, in the event that the conditions to its obligations set forth in Article VIII hereof have not been satisfied or waived at or prior to the Termination Date; (iv) by the Sellers' Representatives, in the event that the conditions to the Sellers' obligations set forth in Article VII hereof have not been satisfied or waived at or prior to the Termination Date; (v) by Buyer, if Nieminski shall have failed to execute a release in the form of Exhibit D hereto (the "Nieminski Release"); (vi) by either the Sellers' Representatives or Buyer, if as of the Closing, 1998 EBITDA is estimated to be less than $7.0 million based on the good -47- 53 EXECUTION COPY faith projection of such terminating party as evidenced in writing to the reasonable satisfaction of the other Parties; and (vii) by Buyer if John Sheehan shall have failed to have executed a counterpart to this Agreement as a Seller on or before December 8, 1998. Section 6.2 Effect of Termination. If this Agreement is terminated pursuant to Section 6.1 hereof, all rights and obligations of the parties hereunder shall terminate and no party shall have any liability to the other party, except for obligations of the parties hereto in Sections 5.8, 9.5 and 11.8 and the obligations of Buyer contained in Section 5.1 with respect to confidentiality, which shall survive the termination of this Agreement, and except that nothing herein will relieve any party from liability for any breach of any representation, warranty, agreement or covenant contained herein prior to such termination. ARTICLE VII CONDITIONS TO SELLER'S OBLIGATIONS The obligation of Sellers to transfer the Stock to Buyer on the Closing Date are subject, in the discretion of the Sellers' Representatives, to the satisfaction, on or prior to the Closing Date, except as contemplated by this agreement, of each of the following conditions: Section 7.1 Representations, Warranties and Covenants. All representations and warranties of Buyer contained in this Agreement shall be true and correct at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date, and Buyer shall have performed all agreements and covenants required hereby to be performed by it prior to or at the Closing Date. Section 7.2 No Injunction. No injunction, stay or restraining order shall be in effect prohibiting the consummation of the transactions contemplated by this Agreement. Section 7.3 Opinion of Counsel. Buyer shall have delivered to Seller an opinion of Kirkland & Ellis, counsel to Buyer, substantially in the form of Exhibit E hereto. Section 7.4 Payments. Buyer shall have tendered the Cash Purchase Price to Sellers and the Escrow Deposit to the Escrow Agent in accordance with Section 2.6. Section 7.5 Certificates. Buyer will furnish Sellers with such certificates of its officers, directors and others to evidence compliance with the conditions set forth in this Article VII as may be reasonably requested by and satisfactory to Sellers and their counsel. -48- 54 EXECUTION COPY Section 7.6 HSR Act Waiting Period. All applicable waiting periods related to the HSR Act shall have expired. Section 7.7 Absence of Litigation. No action, suit, investigation or proceeding shall have been commenced or threatened by a governmental agency or third party against Seller, the Company, its Subsidiary, or any of the affiliates, officers or directors of any of them, with respect to the transactions contemplated hereby, challenging the rights of the parties hereto to consummate such transactions or which reasonably would be expected to have a Material Adverse Effect. Section 7.8 Documents to be Delivered by Buyer. At the Closing, Buyer shall have delivered to Sellers, the following documents, in each case duly executed or otherwise in proper form: (a) Compliance Certificate. A certificate signed by the chief executive officer of the Buyer that each of the representations and warranties made by the Buyer in this Agreement is true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made or given on and as of the Closing Date, and that the Buyer has performed and complied in all material respects with all of its obligations under this Agreement which are to be performed or complied with on or prior to the Closing Date. (b) Certified Resolutions. Certified copies of the resolutions of the Board of Directors of the Buyer, authorizing and approving this Agreement and the consummation of the transactions contemplated hereby. (c) Consents and Approvals. Material consents, if any, of third parties necessary for the Buyer to execute, deliver and perform this Agreement. (d) Incumbency Certificate. Incumbency certificates relating to each person executing (as corporate officer or otherwise on behalf of another person) any document executed and delivered to Sellers pursuant to the terms hereof. (e) Other Documents. All other documents, instruments or writings required to be delivered to Seller at or prior to the Closing pursuant to this Agreement and such other certificates of authority and documents as Sellers may reasonably request. Section 7.9 Management Arrangements. Buyer shall have made arrangements with the members of the Executive Committee with respect to the bonus to be payable thereto with respect to the Company's 1999 earnings on terms and conditions satisfactory to the Executive Committee. -49- 55 EXECUTION COPY Section 7.10 Additional Seller. John Sheehan shall have executed a counterpart of this Agreement. ARTICLE VIII CONDITIONS TO BUYER'S OBLIGATIONS The obligations of Buyer to purchase the Stock as provided hereby are subject, in the discretion of Buyer, to the satisfaction, on or prior to the Closing Date, of each of the following conditions: Section 8.1 Representations, Warranties and Covenants. All representations and warranties of Sellers and the Company contained in this Agreement shall be true and correct when made and, except as contemplated by this Agreement, at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date, and Seller and the Company shall have performed all agreements and covenants required hereby to be performed by either of them prior to or at the Closing Date. Section 8.2 Consents; Releases. All consents, approvals and waivers from governmental authorities and other parties required or necessary as a result of the transactions contemplated hereby, including, without limitation, those set forth in Section 8.2 of the Disclosure Schedule, shall have been obtained, including under the HSR Act. Releases reasonably satisfactory in form and substance to Buyer and its counsel shall have been obtained from all of the persons and entities set forth in Section 8.2 of the Disclosure Schedule, including the Nieminski Release. Section 8.3 No Injunction. No injunction, stay or restraining order shall be in effect prohibiting the consummation of the transactions contemplated by this Agreement. Section 8.4 HSR Act Waiting Period. All applicable waiting periods related to the HSR Act shall have expired. Section 8.5 No Material Adverse Effect. During the period from the date hereof to the Closing Date, no event shall have occurred or be continuing (including any litigation) which has had or would reasonably be expected to have a Material Adverse Effect. Section 8.6 Additional Seller. John Sheehan shall have executed a counterpart of this Agreement. Section 8.7 Documents to be Delivered by Company. At the Closing, Company and Sellers shall have delivered to Buyer the following documents, in each case duly executed or otherwise in proper form: -50- 56 EXECUTION COPY (a) Stock and Warrant Certificate(s). Stock certificates representing all of the outstanding shares of the Company's Common Stock and Preferred Stock and certificates representing all of the outstanding Warrants, in each case duly endorsed in blank or otherwise acceptable for transfer, with all restrictive legends (if any) either removed or properly canceled. (b) Stock Options, etc. Evidence of the exercise, conversion or cancellation of all options, warrants, convertible securities and other rights or securities disclosed in Section 3.2(b) of the Disclosure Schedule, if any, in form and substance satisfactory to Buyer. (c) Compliance Certificate. A certificate signed by a member of the Company's Executive Committee that each of the representations and warranties made by the Company in this Agreement is true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made or given on and as of the Closing Date, and that the Company and each of the Sellers has performed and complied in all material respects with all of its obligations under this Agreement which are to be performed or complied with on or prior to the Closing Date. (d) Opinion of Counsel. A written opinion of Sidley & Austin, counsel to the Company, and of counsel to each of the Sellers, each dated as of the Closing Date, addressed to Buyer, substantially in the form of Exhibit F hereto. (e) Certified Resolutions. Certified copies of the resolutions of the Board of Directors and the stockholders of the Company, authorizing and approving this Agreement and the consummation of the transactions contemplated hereby. (f) Escrow Agreement. The Escrow Agreement duly executed by the Escrow Agent, Company and Sellers. (g) Articles; Bylaws; Good Standings. (i) A copy of the articles of incorporation of Company and Monogram certified as of a recent date by the Secretary of State of the State of California, (ii) a copy of the bylaws of the Company certified by the secretary of the Company, (iii) certificates of good standing for the Company and International Golf from the Secretary of State of the state of incorporation of each such company and from each other jurisdiction in which such company is required to qualify to do business, in each case dated not more than ten days prior to the Closing Date, (iv) copies of the Certificate of Suspension of Monogram from the Secretary of State of California, and (v) original or certified copy of the articles of incorporation and bylaws of International Golf, bearing the registration number and relative information issued by the Public Registry of Property of the City of Tijuana. -51- 57 EXECUTION COPY (h) Consents and Approvals. Material consents, if any, of third parties necessary for the Company, or the Stockholders to execute, deliver and perform this Agreement. (i) Incumbency Certificate. Incumbency certificates relating to each person executing (as corporate officer or otherwise on behalf of another person) any document executed and delivered to Buyer pursuant to the terms hereof. (j) Releases. Fully executed UCC-3 Termination Statements and other terminations and/or releases necessary to terminate or release all Security Interests in, and Liens on, any assets of the Company or the Subsidiary relating to any Funded Debt. (k) Resignations. Written resignations and releases of the directors and officers of the Company and International Golf. (l) Nieminski Release; Employee and Executive Releases. The Nieminski Agreement and the Nieminski Release, duly executed by all parties thereto; and the Executive Release or Employee Release, as applicable, duly executed by each Executive or Specified Employee, as applicable. (m) Subsidiary Shares. The shares of capital stock of each Subsidiary, duly endorsed in blank or otherwise acceptable for transfer, with all restrictive legends (if any) either removed or properly cancelled. (n) Other Agreements. Evidence of the termination of each of (i) the Niemin Porter & Co. Redeemable Preferred Stock and Warrant Purchase Agreement dated March 5, 1991 between the Company, John R.C. Porter, Gerald J. Nieminski, Gerald J. Nieminski as Trustee of the Nieminski Living Trust and the Investors (as defined therein) (the "Preferred Stock Purchase Agreement"), (ii) the Registration Rights Agreement (as defined in the Preferred Stock Purchase Agreement) and (iii) the Voting Agreement dated March 5, 1991 between the Company, John R.C. Porter, Gerald J. Nieminski, Gerald J. Nieminski as Trustee of the Nieminski Living Trust and the Investors (as defined therein). (o) Other Documents. All other documents, instruments or writings required to be delivered to Buyer at or prior to the Closing pursuant to this Agreement and such other certificates of authority and documents as Buyer may reasonably request. Section 8.8 Absence of Litigation. No action, suit, investigation or proceeding shall have been commenced or threatened by a governmental agency or third party against Buyer, the Company, its Subsidiary, or any of the affiliates, officers or directors of any of them, with respect to the transactions contemplated hereby, challenging the rights of the parties hereto to consummate such transactions or which reasonably would be expected to have a Material Adverse Effect. -52- 58 EXECUTION COPY Section 8.9 Management Arrangements. Buyer shall have entered into formal arrangements with such members of management as Buyer shall determine, on terms and conditions satisfactory to Buyer in its sole discretion. Section 8.10 Real Property. (a) At the Closing, a title insurance company selected by Buyer (the "Title Company") shall have delivered policies of title insurance, issued at standard rates, insuring the Company's or as applicable, the Subsidiary's marketable title in and to the Owned Property in fee simple, the Company's or, as applicable, the Subsidiary's leasehold estate in any financeable Leased Property (a "Financeable Leasehold") and Lender's mortgage lien on the Owned Property and each Financeable Leasehold, in each case free and clear of all Encumbrances, and including such endorsements and affirmative coverages as Buyer and the Lender shall reasonably require (including without limitation non-imputation endorsements). Sellers shall provide all such affidavits, indemnities and other such information as the Title Company reasonably shall require in order to afford such coverage. Buyer and Sellers shall each bear 50% of the cost of obtaining such title insurance. (b) Buyer shall have obtained a survey of each Owned Property and each Leased Property to which the Company or the Subsidiary holds a Financeable Leasehold conforming to the Minimum Standard Detail Requirements jointly established and approved in 1992 by ALTA and ACSM certified to the Buyer, Lender, Title Company and the Company or the Subsidiary, showing no Encumbrances. Sellers and Buyer shall each bear 50% of the cost of obtaining such surveys. (c) Buyer shall have received (i) from each landlord under a Lease an estoppel, (ii) from each landlord under a Lease described in Section 3.2(l)(ii) of the Disclosure Schedule, a consent to the transactions contemplated by this agreement and (iii) from each mortgagee and ground lessor of any Leased Property a nondisturbance agreement, in each case in form and substance reasonably satisfactory to Buyer and Lender. Lender shall receive from each landlord under a Lease designated by Lender an agreement regarding the subordination to Lender of such landlord's lien against personal property on the applicable demised premises and such other matters as Lender shall have reasonably required. Section 8.11 Financing. Buyer shall have received cash proceeds of financing from the Lender in an amount necessary to consummate the purchase of the Stock and Warrants and to pay all fees and expenses in connection therewith and to provide for ongoing working capital needs of Buyer and the Company, and having such terms and conditions as are satisfactory to Buyer in its sole discretion. -53- 59 EXECUTION COPY Section 8.12 Due Diligence. Buyer shall have completed its due diligence review of the Company and the Subsidiary, and Buyer shall, in good faith, be satisfied with the results of such due diligence review. Section 8.13 All Proceedings To be Satisfactory. All corporate and other proceedings to be taken by the Company or the Sellers in connection with the transactions contemplated hereby, and all documents incident thereto shall be reasonably satisfactory in form and substance to the Buyer and its counsel, and the Buyer and said counsel shall have received all such counterpart originals or certified or other copies of such documents as it or they may reasonably request. ARTICLE IX POST-CLOSING COVENANTS Section 9.1 Further Assurances. On and after the Closing Date, Sellers and Buyer will take all appropriate action and execute (or cause to be executed) all documents, instruments or conveyances of any kind which may be reasonably necessary or advisable to carry out any of the provisions hereof. Section 9.2 Tax Matters. (a) As used herein, the term "Pre-Closing Period" shall mean any taxable year or period that ends on or before the Closing Date and that portion of any Straddle Period which occurs prior to the Closing Date and includes the Closing Date. As used herein, the term "Straddle Period" shall mean any taxable year or period beginning before and ending after the Closing Date. As used herein, the term "Post-Closing Period" shall mean any taxable year or period that begins after the Closing Date and that portion of any Straddle Period which occurs after the Closing Date. (b) Sellers shall be responsible for the payment of any Taxes that are imposed on the Company with respect to any Pre-Closing Period; provided, however, that Sellers shall not be responsible for (i) any Taxes to the extent shown as a current obligation, liability or reserve on the Estimated Closing Balance Sheet (determined after giving effect to the exercise of the Options in accordance with Section 2.8) (the "Estimated Taxes"), and (ii) any Taxes that result from any actual or deemed election under Section 338 of the Code or any similar provisions of state, local or foreign law as a result of the purchase of the Stock or the deemed purchase of the stock of any Subsidiary (such Taxes described in this proviso being referred to herein as "Excluded Taxes"). Sellers shall be entitled to any refund of (or credit for) Taxes allocable to any Pre-Closing Period and in the event that the Estimated Taxes withheld from the Purchase Price pursuant to Section 2.3 exceed the actual Taxes paid by the Company with respect to the Pre-Closing Period, the Company shall pay to the Sellers' Representatives on behalf of the Sellers the amount of such excess. If, as a result -54- 60 EXECUTION COPY of any action, suit, investigation, audit, claim, assessment or amended Tax Return, there is any change after the Closing Date in an item of income, gain, loss, deduction, credit or amount of Tax that results in an increase in a Tax liability for which Sellers would otherwise be liable pursuant to this Section 9.2, and such change results in a decrease in the Tax liability of the Company, any Subsidiary, Buyer or an Affiliate or successor of any thereof for any taxable year or period beginning after the Closing Date or for the portion of any Straddle period beginning after the Closing Date, Sellers shall not be liable pursuant to this Section 9.2 with respect to such increase to the extent of such decrease. (c) Buyer and the Company shall be responsible for the payment of any Taxes that are imposed on the Company with respect to any Post-Closing Period and for the payment of any Excluded Taxes. (d) For purposes of this Section 9.2, whenever it is necessary to determine the liability for Taxes of the Company for a Straddle Period, such determination of the Taxes of the Company for the Pre-Closing Period and Post-Closing Period portions of the Straddle Period shall be determined: (i) in the case of Taxes that are either (x) based upon or related to income or receipts, or (y) imposed in connection with any sale or other transfer or assignment of property (real or personal, tangible or intangible), by assuming that the Straddle Period consisted of two taxable years or periods, one which ended at the close of the Closing Date and the other which began at the beginning of the day following the Closing Date, and items of income, gain, loss, deduction and credit of Company for the Straddle Period shall be allocated between such two taxable years or periods on a "closing of the books basis" by assuming that the books of the Company were closed at the close of the Closing Date, provided, however, that transactions that are not in the ordinary course of business and that occur on the Closing Date after the Closing shall be allocated to the portion of the Straddle Period beginning after the Closing Date; and (ii) in the case of Taxes not described in clause (i) above that are imposed on a periodic basis and measured by the level of any item, the amount of such Taxes attributable to the Pre-Closing Period portion of the Straddle Period shall be deemed to be the amount of such Taxes for the entire Straddle Period (or, in the case of such Taxes determined on an arrears basis, the amount of such Taxes for the immediately preceding period) multiplied by a fraction the numerator of which is the number of calendar days in the Pre-Closing Period portion of the Straddle Period and the denominator of which is the number of calendar days in the entire Straddle Period. -55- 61 EXECUTION COPY (e) None of Buyer or any Affiliate of Buyer shall (or shall cause or permit Company to) amend, refile or otherwise modify (or grant an extension of any statute of limitation with respect to) any Tax Return relating to the Company with respect to any Pre-Closing Period without the prior written consent of the Sellers' Representatives, which consent shall not be unreasonably withheld. (f) The Company shall file or cause to be filed when due (taking into account all extensions properly obtained) all Tax Returns that are required to be filed by or with respect to Company for taxable years or periods ending on or before the Closing Date, and Sellers shall remit or cause to be remitted any Taxes (other than Excluded Taxes) due in respect of such Tax Returns; provided, that not less than 30 days prior to the proposed filing, and in any event, not later than 135 days after Closing, the Company shall cause a copy of such Tax Returns to be delivered to Sellers' Representatives for review and approval on behalf of the Sellers. Buyer shall file or cause to be filed when due (taking into account all extensions properly obtained) all Tax Returns that are required to be filed by or with respect to the Company for taxable years or periods ending after the Closing Date, and Buyer shall remit or cause to be remitted any Taxes due in respect of such Tax Return. (g) Buyer shall promptly notify Sellers in writing upon receipt by Buyer, any of its Affiliates or Company of written notice of any pending or threatened federal, state, local or foreign Tax audits, examinations or assessments which would affect the Tax liabilities for which Sellers may be liable pursuant to this Agreement; provided, that any failure to notify Sellers shall only reduce Sellers' obligations under this Agreement to the extent that such failure or delay actually increases Sellers' liability or impairs Sellers' ability to contest any such liabilities. (h) Subject to Section 9.2(i), Sellers shall, within 30 days of the receipt of any notice provided by Buyer to Sellers, give notice to Buyer that Sellers intend to represent the Company's interest in any Tax audit or administrative or court proceeding arising out of such notice and relating solely to Pre-Closing Periods or otherwise relating solely to Taxes for which Sellers may be liable pursuant to this Agreement, and to employ counsel of their choice at their expense; provided, that in the case of any Tax audit or administrative or court proceeding relating (in whole or in part) to Taxes attributable to the Pre-Closing Period portion of a Straddle Period, Sellers shall be entitled to participate at their expense in such audit or proceeding; and provided, further, that Sellers shall not settle any Tax claim in a manner that increases the Company's or the Buyer's Post-Closing Period Taxes without the prior written consent of the Buyer. None of Buyer, any of its Affiliates or the Company may settle any Tax claim for any Taxes for which Sellers may be liable pursuant to this Agreement without the prior written consent of the Sellers' Representatives, which consent shall not be unreasonably withheld. -56- 62 EXECUTION COPY (i) If Sellers do not give the notice to Buyer specified in Section 9.2(h) within the specified time after Buyer's notification of Sellers: (i) Buyer may choose to represent the Company's interest relating to Pre-Closing Periods (including the Pre-Closing Period portion of a Straddle Period) or otherwise relating to Taxes for which Sellers may be liable pursuant to this Agreement and to employ counsel of Buyer's choice at Sellers' expense and Sellers shall not be entitled to participate in any audit or proceeding; and (ii) Buyer, its Affiliates or the Company may settle any Tax claim arising out of such notice without the consent of Sellers and Sellers shall continue to be liable for any Pre-Closing Period Taxes other than Excluded Taxes. (j) After the Closing Date, each of Sellers and Buyer shall (and shall cause their respective Affiliates to): (i) assist the other party in preparing any Tax Returns which such other party is responsible for preparing and filing in accordance with this Section 9.2; (ii) cooperate fully in preparing for any audits of, or disputes with taxing authorities regarding any Tax Returns of the Company; (iii) make available to the other party and to any taxing authority as reasonably requested all information, records, and documents relating to Taxes of the Company; (iv) provide timely notice to the other party in writing of any pending or threatened Tax audits or assessments of the Company for taxable periods for which the other party may have a liability under this Agreement; (v) furnish the other with copies of all correspondence received from any taxing authority in connection with any Tax audit or information request with respect to any such taxable period; (vi) timely sign and deliver such certificates or forms as may be necessary or appropriate to establish an exemption from (or otherwise reduce), or file Tax Returns or other reports with respect to, Taxes described in this Section 9.2 or Section 11.8; and (vii) timely provide to the other party powers of attorney or similar authorizations necessary to carry out the purposes of this Section 9.2 and Section 11.8. Section 9.3 Employee Benefits Matters. Each of Sellers acknowledges and agrees that as soon as practicable following the Closing Date, the Company shall prepare (or cause to be -57- 63 EXECUTION COPY prepared) such filings and other materials and take (or cause to be taken) all further actions as are necessary to cause the Internal Revenue Service to issue a determination that the Cast Alloys, Inc. Savings and Retirement Plan is qualified under Section 401(a) of the Code and has been so qualified since the effective date of such plan. All costs, fees (including, but not limited to, attorneys' fees but excluding attorney's fees and costs incurred to prepare or file the initial determination letter request), expenses, and penalties incurred as a result of or in connection with the issuance by the Internal Revenue Service of such determination shall be the sole responsibility of Sellers, and Sellers shall indemnify and hold Buyer and the Company harmless from and against any such costs, fees, expenses or penalties. In addition, Sellers shall indemnify and hold Buyer and the Company harmless from and against any Losses that may be incurred by the Company as a result of any failure of the medical benefit plan maintained by the Company to have complied with the provisions of Section 105(h) of the Code prior to or on the Closing Date. Section 9.4 Transition. Neither the Sellers, their respective Affiliates, nor, prior to Closing, any officer, employee of agent of the Company, shall take any action that is designed or intended to have the effect of discouraging any lessor, licensor, customer, supplier, or other business associate of any of the Company from maintaining the same business relationships with the Company after the Closing as it maintained with the Company prior to the Closing. The Sellers and their Affiliates will refer all customer inquiries relating to the businesses of the Company to the Company from and after the Closing. Section 9.5 Confidentiality. Each of the Sellers will treat and hold as such all of the Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to the Buyer or destroy, at the request and option of Buyer, all tangible embodiments (and all copies) of the Confidential Information which are in its possession. In the event that any Seller is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, such Seller will notify Buyer promptly of the request or requirement so that Buyer may seek an appropriate protective order or waive compliance with the provisions of this Section 9.5. If, in the absence of a protective order or the receipt of a waiver hereunder, such Seller is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, such Seller may disclose the Confidential Information to the tribunal; provided, that such Seller shall use its reasonable best efforts to obtain, at the reasonable request of Buyer, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as Buyer shall designate. Section 9.6 Subsidiary Shares. Each of Sellers acknowledges and agrees that following the Closing, the Company will file a formal petition with the appropriate Mexican court in the place of domicile of International Golf for either a judicial proceeding known as "Jurisdiccion Voluntaria" or a judicial proceeding known as "Juicio Ordinario Mescantil" to obtain a resolution declaring the Company and Buyer (or its designee) the legitimate owners of International Golf, (the -58- 64 EXECUTION COPY "Subsidiary Share Proceeding"). Each of the Sellers hereby agrees to assist and cooperate fully with Buyer and the Company in connection with the Subsidiary Share Proceeding and make available to the Company such information, records or documents such Seller has that may be requested in connection with the Subsidiary Share Proceeding. Sellers hereby agree to indemnify, defend, and hold Buyer and the Company harmless from and against (i) any and all reasonable costs, fees (including, but not limited to attorney's fees) and expenses up to $50,000 and one-half of any such costs, fees and expenses in excess of $50,000, and (ii) any and all penalties and other Losses, in each case, incurred as a result of or in connection with the Subsidiary Share Proceeding, and as may be necessary following the Subsidiary Share Proceeding to cause the registered owners (other than the Company) of the Shares of International Golf to endorse and transfer such shares to Buyer (or its designee(s)) at no cost or expense to Buyer or the Company (or any such designee). ARTICLE X INDEMNIFICATION Section 10.1 Survival, Representations and Warranties. The respective representations and warranties of the Company, Sellers and Buyer contained herein or in any certificates or other documents delivered at the Closing shall not be deemed waived or otherwise affected by any investigation, inquiry or examination made by or on behalf of any party hereto, or the knowledge of any party's officers, directors, shareholders, employees or agents or the acceptance by any party of any certificate or opinion hereunder. The representations and warranties provided for in this Agreement shall survive for eighteen months beyond the Closing Date, except that (a) the representations and warranties set forth in Sections 3.2(k) and 3.2(w) shall survive until 90 days after the expiration of the applicable statute of limitations, (b) the representations and warranties set forth in Section 3.2(y) shall survive for a period of four (4) years after the Closing Date and (c) the representations and warranties set forth in Sections 3.1 and 3.2(b), (d) and (f) and Section 4.2 shall survive indefinitely; provided, that any representation or warranty in respect of which indemnity may be sought under this Article X, and the indemnity with respect thereto, shall survive the time at which it would otherwise terminate pursuant to this Section 10.1 if notice of the inaccuracy or breach or potential inaccuracy or breach thereof giving rise to such right or potential right of indemnity shall have been given to the party against whom such indemnity may be sought prior to such time. The provisions of this Section 10.1 shall not limit any covenant or agreement of the parties hereto which, by its terms, contemplates performance after the Closing Date. The indemnification provisions contained in this Article X are in addition to, and not in derogation of, any statutory, equitable, or common law remedy any party hereto may have for any breach of any representation, warranty, or covenant; provided, however, that the indemnification provisions contained in this Article X constitute the sole and exclusive remedy for any claim which might otherwise be properly asserted under Section 10(b) of the Securities Exchange Act of 1934 or Section 17(a) of the Securities Act of 1933, or rules adopted thereunder where such claim is based primarily on a misrepresentation or omission alleged to (i) have been made recklessly by any of the Sellers or (ii) be the result of the gross negligence of any of the Sellers. The covenants and agreements in this Article X shall survive -59- 65 EXECUTION COPY until such time as any claim for indemnification is finally settled in accordance with the terms hereof. Section 10.2 Indemnification Obligation of Sellers. (a) Each of the Sellers agrees to indemnify Buyer and its affiliates, stockholders, officers, directors, employees, agents, representatives and successors and assigns (including, from and after the Closing, the Company) (collectively, the "Buyer Indemnitees") in respect of, and save and hold each Buyer Indemnitee harmless against and pay on behalf of or reimburse each Buyer Indemnitee as and when incurred, such Seller's Allocable Share of any Losses which any Buyer Indemnitee suffers, sustains or becomes subject to as a result of or by virtue of, without duplication: (i) any facts or circumstances which constitute a misrepresentation or breach by the Company or any Seller set forth in this Agreement (including any Schedule), or any certificate delivered by the Company pursuant to this Agreement (provided that the Sellers' Representatives is given written notice of such Loss during the survival period specified in Section 10.1 above); (ii) any nonfulfillment or breach of any covenant of the Company or any Seller set forth in this Agreement; (iii) any Funded Debt (but only to the extent that such Funded Debt has not been deducted from the Purchase Price pursuant to Section 2.3); (iv) any matter set forth in Section 3.2(e), Section 3.2(p)(iii), Section 3.2(p)(v), Section 3.2(s) or Section 3.2(y) of the Disclosure Schedule; (v) any retroactive increase in insurance premiums payable by the Company in respect of any insurance policy in effect in any Pre-Closing Period and properly allocable to such Pre-Closing Period except to the extent reflected as a current liability on the Closing Date Balance Sheet and the Working Capital Statement; (vi) expenses of the Company and the Sellers incident to this Agreement and the transactions contemplated hereby (including, without limitation, the fees and expenses and Taxes described in Section 11.8) except to the extent reflected as a current liability on the Closing Date Balance Sheet and the Working Capital Statement; (vii) obligations of the Company incurred in connection with any severance obligation arising as a result of the Closing of the transactions -60- 66 EXECUTION COPY contemplated by this Agreement (and not by any action of the Company from and after the Closing) except to the extent reflected as a current liability on the Closing Date Balance Sheet and the Working Capital Statement; (viii) any dividend, distribution, redemption, purchase or other payment in respect of the capital stock of the Company to the Sellers or any other payment or transfer by the Company to any Seller from and after the date hereof; and (ix) obligations (including any indemnification obligations) of the Company incurred in connection with the agreements between the Company and Prudential Securities Incorporated dated April 27, 1998 as amended July 20, 1998. (b) Each of the Sellers jointly and severally, agree to indemnify the Buyer Indemnitees in respect of, and save and hold each Buyer Indemnitee harmless and pay on behalf of or reimburse each Buyer Indemnitee as and when incurred, any Losses which any Buyer Indemnitee suffers, sustains or becomes subject to as a result of or by virtue of (i) any obligations of the Company to any former shareholder of the Company or any Affiliate or successor in interest of any such former shareholder in respect of the shares of stock held thereby or other rights in respect of the Company's capital stock or earnings on or prior to the Closing Date, including any rights under the Option Plans; (ii) the Working Capital Rebate Amount, if any (but only to the extent that such Working Capital Rebate Amount has not been paid to Buyer in accordance with Section 2.4 hereof); (iii) the EBITDA Rebate Amount (plus interest), if any (but only to the extent that such EBITDA Rebate Amount has not been paid to Buyer in accordance with Section 2.7 hereof); (iv) Taxes allocable to any Pre-Closing Period, other than Excluded Taxes; (v) its ownership interest in or acquisition of such ownership interest in Monogram; (vi) the exercise of the Options and the subsequent sale to Buyer of the Option Shares by each of the Optionholders as contemplated by this Agreement; and (vii) the actions or proceedings addressed in Section 9.3 and 9.6. (c) Notwithstanding the foregoing, the Sellers shall not be required to indemnify the Buyer Indemnitees in respect of any Losses Buyer suffers, sustains or becomes subject to as a result of or by virtue of any of the occurrences referred to in Section 10.2(a)(i) above (other than losses arising out of any misrepresentation or breach under any of Sections 3.2(b), (d), (e), (f), (h)(x), (h)(xi), (k), (x) and (z)) except to the extent that the aggregate of all such Losses exceeds $250,000; provided, that only such Losses which individually exceed $10,000 shall be included in the calculation of the $250,000 threshold described above. In no event shall the Sellers be obligated to indemnify the Buyer Indemnities hereunder in respect of any Losses any Buyer Indemnitee suffers, sustains, or becomes subject to, as a result of or by virtue of any of the occurrences referred to in Section 10.2(a)(i) above in the aggregate in excess of $12,500,000. (d) To induce Buyer to enter into this Agreement and to consummate the transactions contemplated hereby, the Company and the Sellers have agreed that, subject to -61- 67 EXECUTION COPY the provisions of this Section 10.2 and the other Sections of this Article X, the Escrow Deposit shall be withheld and placed in escrow at Closing for the purpose of securing the indemnification obligations to the Buyer Indemnitees under this Article X and Sections 2.4 and 2.7 of this Agreement. The Escrow Deposit shall be withheld and placed at Closing in an interest bearing escrow account with the Escrow Agent who shall hold and administer the Escrow Deposit in accordance with the terms of the Escrow Agreement. (e) To induce Buyer to enter into this Agreement and to consummate the transactions contemplated hereby each of the Sellers acknowledges and agrees, that in addition to any other remedies of Buyer, any liabilities of the Sellers under this Agreement may be satisfied by exercise by Buyer, in its sole discretion, of a right of offset against any amounts that are or shall be payable to the Sellers, including any such amounts payable in respect of the Earn-Out Amount; provided, that if any Seller fails to pay promptly any amount due pursuant to this Section 10.2 and in order to obtain such amounts Buyer exercises such right of offset, Buyer shall be entitled to exercise such offset in the full amount of all Losses notwithstanding the provisions of subsections (b) and (c) above. (f) Each of the Sellers acknowledges that the agreement contained in this Article X is an integral part of the transactions contemplated by this Agreement and that, without such agreement, Buyer would not enter into this Agreement; accordingly, if any Seller fails to pay promptly the amounts due from such Seller pursuant to this Section 10.2 and in order to obtain such amounts, Buyer commences a suit against one or more of the Sellers to collect the amounts provided for herein, such Seller shall also be liable to pay to Buyer such Seller's Allocable Share of Buyer's reasonable costs and expenses (including attorneys' fees) in connection with the successful prosecution of any such suit. Section 10.3 Indemnification Obligation of Buyer. Buyer will indemnify Sellers and their respective affiliates, stockholders, officers, managers, directors, employees, agents, representatives and successors and assigns (collectively, the "Seller Indemnitees") in respect of, and save and hold each Seller Indemnitee harmless against any Losses which such Seller Indemnitee suffers, sustains or becomes subject to as a result of or by virtue of, without duplication: (a) any facts or circumstances which constitute a misrepresentation or breach by Buyer set forth in this Agreement or any certificate delivered by Buyer pursuant to this Agreement (provided that Buyer is given written notice of such Loss during the applicable survival period specified in Section 10.1 above); or (b) any nonfulfillment or breach of any covenant or agreement of the Buyer set forth in this Agreement. Section 10.4 Indemnification Procedures. (a) Any Person making a claim for indemnification pursuant to Section 10.2 or 10.3 above (each, an "Indemnified Party") must give the party from whom indemnification is sought (an "Indemnifying Party") written notice of such claim promptly -62- 68 EXECUTION COPY after the Indemnified Party receives any written notice of any action, lawsuit, proceeding, investigation or other claim (a "Proceeding") against or involving the Indemnified Party by any Person or otherwise discovers the liability, obligation or facts giving rise to such claim for indemnification; provided, that the failure to notify or delay in notifying an Indemnifying Party will not relieve the Indemnifying Party of its obligations pursuant to Section 10.2 or 10.3 above, as applicable, except to the extent that such failure actually harms the Indemnifying Party. (b) With respect to the defense of any Proceeding brought by a third party against or involving an Indemnified Party in which any Person in question seeks only the recovery of a sum of money (and not for injunctive or equitable relief) for which indemnification is provided in Section 10.2 or 10.3 above (a "Third Party Claim"), at its option an Indemnifying Party may appoint as lead counsel to defend such Third Party Claim any legal counsel selected by the Indemnifying Party reasonably acceptable to the Indemnified Party; provided, that before the Indemnifying Party assumes control of such defense it must first: (i) notify the Indemnified Party within 30 days after the Indemnified Party has been given notice of the Third Party Claim, that the Indemnifying Party assumes responsibility for any and all Losses related to such Proceeding and the facts giving rise to such claim for indemnification and will unconditionally indemnify the Indemnified Party from and against the entirety of any Losses (subject to Section 10.2(b) or 10.3, as applicable) the Indemnified Party may suffer, resulting from, arising out of, relating to, in the nature of or caused by such Third Party Claim (with no reservation of any rights other than the right to be subrogated to the rights of the Indemnified Party); and (ii) in the event and to the extent that the amount of any Loss which may result from the Third Party Claim if successfully asserted, or the facts giving rise to such claim, would be in excess of the lesser of $5,000,000 or the amount of funds then on deposit in the Escrow Account (such lesser amount, the "Available Escrow") furnish the Indemnified Party with commercially reasonable evidence that the Indemnifying Party is and will be able to satisfy any such liability to the extent it exceeds the Available Escrow. (c) Notwithstanding Section 10.4(b) above: (i) the Indemnified Party will be entitled to participate in the defense of such claim and to employ counsel of its choice for such purpose at its own expense (provided that the Indemnifying Party will bear the reasonable fees and expenses of such separate counsel incurred if the Indemnifying Party delays in assuming or does not assume control of such defense); (ii) the Buyer (or its designee) will be entitled to assume control of the defense of such claim, if such claim or Proceeding involves a claim by or against (A) a material customer of the Company or -63- 69 EXECUTION COPY Subsidiary or (B) a material supplier of the Company or the Subsidiary and in the case of this clause (B), the Company or Buyer in its reasonable business judgment believes that an adverse determination of such proceeding would be detrimental to or injure the Buyer or the Company's reputation or future business prospects; provided, that the Indemnified Party will not enter into any compromise or settlement of such claim or proceeding for which the Indemnifying Party would be liable hereunder without the prior written consent of the Indemnifying Party (which the Indemnifying Party will not unreasonably withhold); (iii) the Buyer (or its designee) will be entitled to assume control of the defense of such claim if such claim or Proceeding involves a claim by or against an employee or agent of the Company or its Subsidiary and such claim relates to actions or conditions alleged to have existed both prior to and following the Closing; provided, that the Sellers' Representatives will be entitled to participate in the defense of such claim and to employ counsel of its choice for such purpose at its own expense; and provided, further that neither Buyer nor Sellers' Representatives will enter into any compromise or settlement of such claim or proceeding without the prior written consent of the other (not to be unreasonably withheld), (iv) if one or more Indemnifying Parties are named as defendants in such Proceeding, and if counsel appointed by the Indemnifying Parties in accordance with Section 10.4(b) hereof has advised that, in the opinion of such counsel under applicable principles of legal ethics, there is a conflict of interest that prohibits such counsel from representing the Indemnified Parties in addition to the Indemnifying Parties (or if a court should so determine), then the Indemnified Parties shall be entitled to participate in the defense of such claim using counsel of its choice and at the expense of the Indemnifying Parties; and in such event the provisions of Section 10.4(b) (with respect to the control of the defense of such proceeding) and Section 10.4(d) (with respect to the settlement or compromise of such Proceeding) shall continue to be applicable; (v) the Indemnifying Party will be required to relinquish control of the defense of such claim and will pay the reasonable fees and expenses of legal counsel retained by the Indemnified Party if a court of competent jurisdiction rules that the Indemnifying Party has failed or is failing to prosecute or defend vigorously such claim or if the Indemnifying Party shall have failed to timely provide evidence required by subsection 10.4(b)(ii) above, which evidence shall also be required if the Available Escrow shall at any time after the Indemnifying Party assumes control of any Third Party Claim, become inadequate to satisfy the amount of any Loss which may result from such claim; (d) the Indemnifying Party must obtain the prior written consent of the Indemnified Party (which the Indemnified Party will not unreasonably withhold; provided, that any such compromise or settlement shall provide for the full and final release of all claims against each Indemnified Party in form and substance reasonably satisfactory to such Indemnified Parties) prior to entering into any compromise or settlement of such claim or Proceeding or ceasing to defend such claim or Proceeding. The Indemnifying Party shall not enter into any compromise or settlement of any claim or Proceeding other than for money damages and not for injunctive or equitable relief. -64- 70 EXECUTION COPY Section 10.5 Payment. Upon the determination of the liability under Article X or otherwise between the parties or by judicial proceeding, the appropriate party shall pay to the other, as the case may be, within 10 days after such determination, the amount of any claim for indemnification made hereunder. Anything to the contrary herein notwithstanding, no Seller shall be obligated to make any payment to any Buyer Indemnitee pursuant to Section 10.2 (other than with respect to any claim for breach of Section 9.2 or Section 10.2) until and unless the Escrow Deposit is exhausted. In the event that the Indemnified Party is not paid in full for any such claim pursuant to the foregoing provisions promptly after the other party's obligation to indemnify has been determined in accordance herewith, it shall have the right, notwithstanding any other rights that it may have against any other Person, to setoff the unpaid amount of any such claim against any amounts owed by it under any instrument or agreement entered into pursuant to this Agreement or otherwise. Upon the payment in full of any claim, either by setoff or otherwise, the entity making payment shall be subrogated to the rights of the Indemnified Party against any Person with respect to the subject matter of such claim. Section 10.6 Waiver. Each Seller hereby agrees that he shall not make any claim for indemnification against the Company by reason of the fact that he was a shareholder, director, officer, employee or agent of the Company or was serving at the request of the Company as a partner, trustee, director, officer, employee or agent of another entity (whether such claim is for judgments, damages, penalties, fines, costs, amounts paid in settlement, losses, expenses or otherwise) with respect to any claim, action, suit, proceeding, complaint or demand brought by the Buyer against any Seller (whether such action, suit, proceeding, complaint, claim or demand is pursuant to this Agreement, applicable law or otherwise) or with respect to any Third Party Claim for which any Buyer Indemnitee is entitled to indemnification hereunder. Each Seller hereby acknowledges and agrees that he shall have no claims or right to contribution or indemnity from the Company with respect to any amounts paid by such Seller to any of the Buyer Indemnitees hereunder. ARTICLE XI MISCELLANEOUS Section 11.1 Assignment. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by the Company or any of the Sellers without the prior written consent of Buyer, or by Buyer without the prior written consent of Sellers, except that Buyer may, without such consent, directly or indirectly, all of its rights and obligations under this Agreement to any of its Affiliates, any Person which provides financing to the Buyer or any of its Subsidiaries or any subsequent Buyer of the Buyer or its Affiliates (whether by merger, consolidation, sale of stock, sale of assets or otherwise). Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. This Agreement shall be for the sole benefit of the parties hereto and their respective heirs, successors, permitted assigns and legal representatives -65- 71 EXECUTION COPY and is not intended, nor shall be construed, to give any Person, other than the parties hereto and their respective heirs, successors, assigns and legal representatives, any legal or equitable right, remedy or claim hereunder. Section 11.2 Notices. Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted hereunder shall be in writing. All such notices shall be delivered personally, by telecopier, by certified mail, return receipt requested by reputable overnight courier (costs prepaid), and shall be deemed given or made upon receipt thereof. All such notices are to be given or made to the parties at the following addresses (or to such other address as any party may designate by a notice given in accordance with the provisions of this Section): If to Buyer: Neenah Foundry Company 2121 Brooks Avenue Neenah, Wisconsin 54957 Attention: James K. Hildebrand Telecopy No.: (414) 729-3603 With copies (which shall not constitute notice to Buyer) to: Citicorp Venture Capital, Ltd. 399 Park Avenue, 14th Floor, Zone 4 New York, NY 10043 Attention: John D. Weber Telecopy No.: (212) 888-2940 and Kirkland & Ellis 153 East 53rd Street New York, ANY 10022 Attention: Kirk A. Radke, Esq. Telecopy No.: (212) 446-4900 If to the Company: Niemin Porter & Co., d/b/a Cast Alloys, Inc. 20409 Prairie Street, Suite A Chatsworth, California 91324 Attention: Executive Committee -66- 72 EXECUTION COPY With copies (which shall not constitute notice to the Company or Sellers) to: Sidley & Austin 555 West Fifth Street, 40th Floor Los Angeles, California 90013 Attention: Moshe Kupietzky, Esq. Telecopy No.: (213) 896-6600 If to Sellers: c/o John R.C. Porter 805 St. James Ct. Flatts Harbor, Bermuda Telecopy No.: (441)-________ With copies (which shall not constitute notice to the Sellers) to: Foley, Hoag & Eliot One Post Office Square Boston, Massachusetts Attention: Barry B. White Telecopy No.: (617) 832-7000 SECTION 11.3 CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICTS OF LAW PRINCIPLES, PROVISIONS OR RULES (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR THE UNITED STATES OF AMERICA FOR THE CENTRAL DISTRICT OF CALIFORNIA, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY FORUM NON CONVENIENS, WHICH ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. Section 11.4 Entire Agreement; Amendments and Waivers. This Agreement, together with all Exhibits and Schedules hereto, constitutes the entire agreement among the Parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties. This Agreement may be amended, at any time prior to the Closing Date, by action taken by the Board of Directors of the Company and the Buyer; provided, that after approval of the sale and purchase of the Stock by the -67- 73 EXECUTION COPY Stockholders, no amendment, which under applicable law may not be made without the approval of a majority of the Stockholders, may be made without such approval. This Agreement (including the provisions of this Section 11.4) may not be amended or modified except by an instrument in writing signed on behalf of all of the parties required pursuant to the preceding sentence. No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the Party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. Section 11.5 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be binding upon each of the Sellers signatory hereto from the date first written above notwithstanding the fact that one or more of the other Sellers named on the signature pages hereto have not signed this Agreement. Section 11.6 Invalidity. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument. Section 11.7 Headings. The headings of the Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. Section 11.8 Expenses. Except as otherwise provided herein, Sellers and Buyer will each be liable for their respective costs and expenses (including brokers' fees) incurred in connection with the negotiation, preparation, execution and performance of this Agreement and the consummation of the transactions contemplated hereby; provided, that (i) any such costs and expenses incurred by the Company (including the fees and expenses of the Company's accountant in connection with the preparation and review of the Closing Date Balance Sheet) shall be deemed to have been incurred by Sellers and (ii) Sellers shall pay any and all, stock transfer, real property transfer, transfer gains, stamp and other similar Taxes, if any, assessed in connection with the transactions contemplated by this Agreement and shall have delivered evidence satisfactory to Buyer and the Title Company of the payment of such Taxes. Section 11.9 Specific Performance. Each of the Buyer, the Company and Sellers acknowledges and agrees that the other party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each party agrees that the other party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the -68- 74 EXECUTION COPY United States or any state thereof having jurisdiction over the parties and the matter (subject to Section 11.3), in addition to any other remedy to which they may be entitled, at law or in equity. Section 11.10 Time is of the Essence; Computation of Time. Buyer, Sellers and Company agree that time is of the essence with respect to every covenant, condition to be satisfied, and action to be taken hereunder, and shall proceed accordingly with respect to every action necessary, proper or advisable to make effective the transactions contemplated by this Agreement. Whenever the last day for the exercise of any privilege or the discharge of any duty hereunder shall fall upon any day which is not a business day, the party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding business day. Section 11.11 Waiver of Jury Trial. Each of the parties hereto waives to the fullest extent permitted by law any right it may have to trial by jury in respect of any claim, demand, action or cause of action based on, or arising out of, under or in connection with this Agreement, or any course of conduct, course of dealing, verbal or written statement or action of any party hereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise. The parties to this Agreement each hereby agrees that any such claim, demand, action or cause of action shall be decided by court trial without a jury and that the parties to this Agreement may file an original counterpart of a copy of this Agreement with any court as evidence of the consent of the parties hereto to the waiver of their right to trial by jury. * * * * * -69- 75 EXECUTION COPY IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. NEENAH FOUNDRY COMPANY By: /s/ James K. Hildebrand --------------------------------------------------------- Name: James K. Hildebrand Its: CEO NIEMIN PORTER & CO., d/b/a CAST ALLOYS, INC. By: /s John R.C. Porter --------------------------------------------------------- Name: John R.C. Porter Its: Chairman /s/ John R.C. Porter ------------------------------------------------------------- JOHN R.C. PORTER 76 EXECUTION COPY ADHILL LIMITED PARTNERSHIP By: /s/ Thomas H. Laller --------------------------------------------------------- Name: Thomas H. Laller Its: GP Authorized Signatory ADVENT INTERNATIONAL INVESTORS II LIMITED PARTNERSHIP By: /s/ Thomas H. Laller --------------------------------------------------------- Name: Thomas H. Laller Its: GP Authorized Signatory INTERNATIONAL NETWORK FUND LP By: /s/ Thomas H. Laller --------------------------------------------------------- Name: Thomas H. Laller Its: GP Authorized Signatory ADVENT PERFORMANCE MATERIALS LIMITED PARTNERSHIP By: /s/ Thomas H. Laller --------------------------------------------------------- Name: Thomas H. Laller Its: GP Authorized Signatory /s/ Ajendra Singh ------------------------------------------------------------- AJENDRA SINGH /s/ Randy Kelch ------------------------------------------------------------- RANDY KELCH 77 EXECUTION COPY /s/ John Sheehan ------------------------------------------------------------- JOHN SHEEHAN EX-2.10 3 1ST AMEND. TO STOCK PURCHASE AGREE. DATED 12/30/98 1 EXECUTION COPY FIRST AMENDMENT TO THE STOCK PURCHASE AGREEMENT This FIRST AMENDMENT, is made and entered into as of December 30, 1998 (this "Amendment") to amend the Stock Purchase Agreement dated as of December 3, 1998, by and among Niemin Porter & Co. d/b/a Cast Alloys, Inc., a California corporation, the Sellers (as defined therein) and Neenah Foundry Company, a Wisconsin corporation (the "Stock Purchase Agreement") as set forth herein. The Stock Purchase Agreement as amended by this Amendment is referred to herein as the "Amended Stock Purchase Agreement". All other capitalized terms used and not otherwise defined herein shall have the meaning assigned to such terms in the Stock Purchase Agreement. Unless otherwise specified, all section references herein are to the corresponding sections of the Stock Purchase Agreement. WHEREAS, pursuant to the Stock Purchase Agreement, Buyer has agreed to purchase from Sellers, and Sellers have agreed to sell, transfer and convey to Buyer, the Stock and the Warrants, all subject to the terms and conditions of the Stock Purchase Agreement; WHEREAS, since the date of the signing of the Stock Purchase Agreement, certain events unanticipated by the Parties at the time of signing, have occurred; and WHEREAS, Buyer and Sellers desire to amend the Stock Purchase Agreement to provide for the purchase and sale of the Stock and the Warrants upon and subject to the terms and conditions of the Amended Stock Purchase Agreement; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Amendments. The Stock Purchase Agreement is hereby amended as follows: (a) The Table of Contents to the Stock Purchase Agreement is hereby amended by: (i) deleting the words "Section 2.7 EBITDA Adjustment" from page -i- thereof and replacing them with the following words "Section 2.7 [INTENTIONALLY DELETED PRIOR TO CLOSING]." 2 EXECUTION COPY (ii) deleting the words "Exhibit C EBITDA Calculation" from page -iv- thereof and replacing them with the following words "Exhibit C [INTENTIONALLY DELETED PRIOR TO CLOSING]." (b) Section 1.1 is hereby amended as follows: (i) the definition of "Disclosure Schedule" is hereby amended by adding the following words after the word "Parties" but before the period in the second line thereof:", as amended by the First Amendment to the Disclosure Schedule" a copy of which First Amendment is attached hereto as Exhibit A. (ii) The term and corresponding definition of "Earn-Out Amount" are deleted in their entirety. (iii) The term and corresponding definition of "Earn-Out Statement" are deleted in their entirety. (iv) The definition of "EBITDA" is hereby amended by deleting the words "has the meaning specified in Section 2.7(c)" and replacing them with the following words: "means, for any period, the consolidated net income or loss of the Company, excluding any gains or losses from the sale of assets outside the ordinary course of business and any extraordinary gains or losses, plus, without duplication and to the extent deducted in determining net income of the Company for such period, the sum of (i) interest expense for indebtedness for borrowed money (including capitalized leases) for such period, (ii) Income Tax expense for such period, (iii) non-cash charges or non-cash losses (including non-cash transaction expenses and the amortization of debt discounts), (iv) management fees, director's fees and charge-offs of impaired assets, to the extent incurred after the Closing Date, and (v) the amount of depreciation and amortization in respect of the Company's assets for such period in each case determined in accordance with the accounting principles set forth in Section 1.4 and derived from the Company's consolidated financial statements for such period." (v) The term and corresponding definition of "EBITDA Deficiency" are deleted in their entirety. (vi) The term and corresponding definition of "EBITDA Rebate Amount" are deleted in their entirety. 2 3 EXECUTION COPY (vii) The term and corresponding definition of "Escrow Portion" are deleted in their entirety. (viii) The definition "1998 EBITDA" is hereby amended by deleting the words "has the meaning specified in Section 2.7" and replacing them with the following words "means EBITDA for the Company's 1998 Fiscal Year determined in accordance with the definition of EBITDA set forth herein." (c) Section 1.4 is hereby amended by deleting the words "and the Earn-Out Statement" from the third line thereof and deleting the words "or Exhibit C with respect to the Earn-Out Statement" from the seventh and eighth lines thereof. (d) Section 2.3(a) is hereby amended and restated by deleting it in its entirety and replacing it with the following amended and restated Section 2.3(a): "(a) Upon the terms and subject to the conditions contained in the Amended Stock Purchase Agreement, as consideration for the purchase of the Stock and the Warrants, Buyer shall pay to Sellers an aggregate amount of $42,000,000 (the "Purchase Price"), as the same may be adjusted as described in Section 2.4 below by (i) depositing or causing to be deposited with the Escrow Agent by wire transfer of immediately available funds, $1,000,000 (the "Escrow Deposit") to be held by the Escrow Agent in accordance with Sections 2.4 and 10.2 of this Agreement and in accordance with the Escrow Agreement and (ii) tendering to Sellers, in accordance with Section 2.6, an aggregate amount (the "Cash Purchase Price") equal to $41,000,000 less the sum of (A) the amount of any Funded Debt outstanding as of the close of business on the Closing Date, (B) the aggregate amount of any liability for Taxes shown as a current obligation, liability or reserve on the Estimated Closing Balance Sheet, determined after giving effect to the exercise of the Employee Options and the Executive Options in accordance with Section 2.8, (C) the aggregate amount of any liability for bonuses to employees shown as a current obligation, liability or reserve on the Estimated Closing Balance Sheet, (D) the Option Share Purchase Price, and (E) the Estimated Adjustment, if any. The Cash Purchase Price will be allocated among the Sellers as set forth in Section 2.3(a) of the Disclosure Schedule, as amended as of the Closing Date, taking into account the transfer of the Common Stock, Preferred Stock and Warrants held by each Seller and the exercise or surrender of any Option Shares thereby in accordance with Section 2.8 hereof. Buyer and Sellers have agreed that the portion of the Purchase Price allocable to the transfer of all of the capital stock of International Golf shall be $20,000." 3 4 EXECUTION COPY (e) Section 2.4(d)(ii) is hereby amended and restated by deleting Section 2.4(d)(ii) in its entirety and replacing it with the following amended and restated Section 2.4(d)(ii): "(ii) If the Final Closing Date Working Capital is less than the Estimated Closing Working Capital, then the Purchase Price will be decreased on a dollar-for-dollar basis by the amount of such deficiency plus interest thereon at the Base Rate from the Closing Date (the "Working Capital Rebate Amount"). In such event, each of the Sellers shall be jointly and severally liable to pay to the Buyer the Working Capital Rebate Amount no later than five (5) business days after completion of the Final Closing Date Balance Sheet by wire transfer of immediately available funds to an account or accounts designated by Buyer in writing; provided that at the Buyer's sole discretion, the Buyer may direct the Escrow Agent to pay to the Buyer all or any portion of the Working Capital Rebate Amount from the Escrow Deposit." (f) Section 2.5(a)(vi) is hereby amended by inserting the following words after the semicolon at the end thereof: "provided, however, that the parties acknowledge and agree that with respect to the shares of International Golf to be transferred to Buyer or its designee, such shares will not be transferred until the parties have provided the corresponding concentration notification established in Article 20 of the Mexican Federal Competition Law (Ley Federal de Competencia Economica) to the Mexican Economic Competition Commission ("ECC") in the event said notification is to be applicable to the transaction. Thus, it is understood by both parties that the transaction related to the Subsidiary will legally and economically take place only after the notification of concentration mentioned above has been officially filed with the ECC;" (g) Section 2.7 is hereby amended and restated by deleting Section 2.7 in its entirety and replacing it with the following "Section 2.7. [INTENTIONALLY DELETED PRIOR TO CLOSING]." (h) Section 3.2(c) is hereby amended by deleting the following words from the last nine lines thereof: "The parties acknowledge and agree that with respect to the shares of International Golf to be transferred to Buyer or its designee, such shares will not be transferred until the parties have provided the corresponding concentration notification established in Article 20 of the Mexican Federal Competition Law (Ley Federal de Competencia Economica) to the Mexican Economic Competition Commission ("ECC") in the event said notification is to be applicable to the transaction. Thus, it is understood by both parties that the transaction related to the Subsidiary will legally and 4 5 EXECUTION COPY economically take place only after the notification of concentration mentioned above has been officially filed with the ECC." (i) Section 6.1(b)(ii) is hereby amended by changing "December 31, 1998" to "January 15, 1998". (j) Section 10.2(b) is hereby amended by deleting the following words from the tenth line thereof: "(iii) the EBITDA Rebate Amount (plus) interest, if any (but only to the extent that such EBITDA Rebate Amount has not been paid to Buyer in accordance with Section 2.7 hereof)" and renumbering the remaining clauses of Section 10.2(b) accordingly. (k) Section 10.2(d) is hereby amended by deleting the following words from the sixth line thereof: "and 2.7". (l) Section 10.2(e) is hereby amended by deleting the following words from the fifth and sixth line thereof: ", including any amounts payable in respect of the Earn-Out Amount". (m) Section 10.4(b)(ii) is hereby amended by deleting the words "the lesser of $5,000,000 or" from the third line thereof. Section 2. Effect of Amendment. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect, the rights and remedies of the Parties under the Stock Purchase Agreement, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Stock Purchase Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. This Amendment shall apply and be effective only with respect to the provisions of the Stock Purchase Agreement specifically referred to herein. Section 3. Choice of Law. This Amendment shall be governed by, and construed in accordance with, the internal laws of the State of New York, without giving effect to any choice of law or conflicts of law principles, provisions or rules (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. Section 4. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 5 6 EXECUTION COPY Section 5. Invalidity. In the event that any one or more of the provisions contained in this Amendment or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Amendment or any other such instrument. Section 6. Headings. The headings of the Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Amendment. Section 7. Waiver of Jury Trial. Each of the parties hereto waives to the fullest extent permitted by law any right it may have to trial by jury in respect of any claim, demand, action or cause of action based on, or arising out of, under or in connection with this Amendment, or any course of conduct, course of dealing, verbal or written statement or action of any party hereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise. The parties to this Amendment each hereby agrees that any such claim, demand, action or cause of action shall be decided by court trial without a jury and that the parties to this Amendment may file an original counterpart of a copy of this Amendment with any court as evidence of the consent of the parties hereto to the waiver of their right to trial by jury. * * * * * 6 7 EXECUTION COPY IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date and year first above written. NEENAH FOUNDRY COMPANY By: /s/ James K. Hildebrand ----------------------------------------- Name: James K. Hildebrand Its: CEO NIEMIN PORTER & CO., d/b/a CAST ALLOYS, INC. By: /s/ John R.C. Porter ----------------------------------------- Name: John R.C. Porter Its: Chairman /s/ John R.C. Porter --------------------------------------------- JOHN R.C. PORTER 8 EXECUTION COPY ADHILL LIMITED PARTNERSHIP By: /s/ Thomas H. Laller ----------------------------------------- Name: Thomas H. Laller Its: Authorized Representative ADVENT INTERNATIONAL INVESTORS II LIMITED PARTNERSHIP By: /s/ Thomas H. Laller ----------------------------------------- Name: Thomas H. Laller Its: Authorized Representative INTERNATIONAL NETWORK FUND LP By: /s/ Thomas H. Laller ----------------------------------------- Name: Thomas H. Laller Its: Authorized Representative ADVENT PERFORMANCE MATERIALS LIMITED PARTNERSHIP By: /s/ Thomas H. Laller ---------------------------------------- Name: Thomas H. Laller Its: Authorized Representative /s/ Ajendra Singh --------------------------------------------- AJENDRA SINGH 9 EXECUTION COPY /s/ Randy Kelch --------------------------------------------- RANDY KELCH /s/ John Sheehan --------------------------------------------- JOHN SHEEHAN PERFORMANCE MATERIALS FUND By: /s/ Thomas H. Laller ----------------------------------------- Name: Thomas H. Laller Its: Authorized Representative EX-4.11 4 INDENTURE DATED AS OF NOVEMBER 24, 1998 1 EXECUTION COPY NEENAH FOUNDRY COMPANY 11-1/8% Series E Senior Subordinated Notes due 2007 INDENTURE Dated as of November 24, 1998 Trustee, United States Trust Company of New York 2 TABLE OF CONTENTS
Page ---- ARTICLE I Definitions and Incorporation by Reference SECTION 1.01. Definitions............................................................................................... 1 SECTION 1.02. Other Definitions......................................................................................... 21 SECTION 1.03. Incorporation by Reference of Trust Indenture Act......................................................... 21 SECTION 1.04. Rules of Construction..................................................................................... 22 ARTICLE II The Securities SECTION 2.01. Form and Dating........................................................................................... 22 SECTION 2.02. Execution and Authentication.............................................................................. 23 SECTION 2.03. Registrar and Paying Agent................................................................................ 23 SECTION 2.04. Paying Agent To Hold Money in Trust....................................................................... 24 SECTION 2.05. Securityholder Lists...................................................................................... 24 SECTION 2.06. Transfer and Exchange..................................................................................... 24 SECTION 2.07. Replacement Securities.................................................................................... 25 SECTION 2.08. Outstanding Securities.................................................................................... 25 SECTION 2.09. Temporary Securities...................................................................................... 26 SECTION 2.10. Cancelation............................................................................................... 26 SECTION 2.11. Defaulted Interest........................................................................................ 26 SECTION 2.12. CUSIP Numbers............................................................................................. 26 ARTICLE III Redemption SECTION 3.01. Notices to Trustee........................................................................................ 27 SECTION 3.02. Selection of Securities to be Redeemed.................................................................... 27 SECTION 3.03. Notice of Redemption...................................................................................... 27 SECTION 3.04. Effect of Notice of Redemption............................................................................ 28 SECTION 3.05. Deposit of Redemption Price............................................................................... 28 SECTION 3.06. Securities Redeemed in Part............................................................................... 28 SECTION 3.07. Optional Redemption....................................................................................... 29 ARTICLE IV Covenants SECTION 4.01. Payment of Securities..................................................................................... 30
3 SECTION 4.02. SEC Reports............................................................................................... 30 SECTION 4.03. Limitation on Indebtedness................................................................................ 30 SECTION 4.04. Limitation on Restricted Payments......................................................................... 32 SECTION 4.05. Limitation on Restrictions on Distributions from Restricted Subsidiaries............................................................................................. 36 SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock........................................................ 37 SECTION 4.07. Limitation on Transactions with Affiliates................................................................ 40 SECTION 4.08. Change of Control......................................................................................... 41 SECTION 4.09. Compliance Certificate.................................................................................... 42 SECTION 4.10. Further Instruments and Acts.............................................................................. 42 SECTION 4.11. Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries................................................................................. 42 SECTION 4.12. Limitation on Liens....................................................................................... 42 SECTION 4.13. Limitation on Sale/Leaseback Transactions................................................................. 43 SECTION 4.14. Limitation on Lines of Business........................................................................... 43 SECTION 4.15. Future Guarantor Subsidiaries............................................................................. 43 ARTICLE V Successor Company SECTION 5.01. When Company May Merge or Transfer Assets................................................................. 43 ARTICLE VI Defaults and Remedies SECTION 6.01. Events of Default......................................................................................... 44 SECTION 6.02. Acceleration.............................................................................................. 46 SECTION 6.03. Other Remedies............................................................................................ 47 SECTION 6.04. Waiver of Past Defaults................................................................................... 47 SECTION 6.05. Control by Majority....................................................................................... 47 SECTION 6.06. Limitation on Suits....................................................................................... 47 SECTION 6.07. Rights of Holders to Receive Payment...................................................................... 48 SECTION 6.08. Collection Suit by Trustee................................................................................ 48 SECTION 6.09. Trustee May File Proofs of Claim.......................................................................... 48 SECTION 6.10. Priorities................................................................................................ 48 SECTION 6.11. Undertaking for Costs..................................................................................... 49 SECTION 6.12. Waiver of Stay or Extension Laws.......................................................................... 49 SECTION 6.13. Restoration of Rights and Remedies........................................................................ 49 ARTICLE VII Trustee SECTION 7.01. Duties of Trustee......................................................................................... 49
4 SECTION 7.02. Rights of Trustee......................................................................................... 50 SECTION 7.03. Individual Rights of Trustee.............................................................................. 51 SECTION 7.04. Trustee's Disclaimer...................................................................................... 51 SECTION 7.05. Notice of Defaults........................................................................................ 51 SECTION 7.06. Reports by Trustee to Holders............................................................................. 51 SECTION 7.07. Compensation and Indemnity................................................................................ 52 SECTION 7.08. Replacement of Trustee.................................................................................... 53 SECTION 7.09. Successor Trustee by Merger............................................................................... 53 SECTION 7.10. Eligibility; Disqualification............................................................................. 54 SECTION 7.11. Preferential Collection of Claims Against Company ........................................................ 54 ARTICLE VIII Discharge of Indenture; Defeasance SECTION 8.01. Discharge of Liability on Securities; Defeasance.......................................................... 54 SECTION 8.02. Conditions to Defeasance.................................................................................. 55 SECTION 8.03. Application of Trust Money................................................................................ 56 SECTION 8.04. Repayment to Company...................................................................................... 56 SECTION 8.05. Indemnity for Government Obligations...................................................................... 56 SECTION 8.06. Reinstatement............................................................................................. 57 SECTION 8.07. Concurrent Defeasance of Securities and Old Securities.................................................... 57 ARTICLE IX Amendments SECTION 9.01. Without Consent of Holders................................................................................ 57 SECTION 9.02. With Consent of Holders................................................................................... 58 SECTION 9.03. Compliance with Trust Indenture Act....................................................................... 59 SECTION 9.04. Revocation and Effect of Consents and Waivers............................................................. 59 SECTION 9.05. Notation on or Exchange of Securities..................................................................... 60 SECTION 9.06. Trustee to Sign Amendments................................................................................ 60 SECTION 9.07. Payment for Consent....................................................................................... 60 ARTICLE X Subordination of the Securities SECTION 10.01. Agreement to Subordinate.................................................................................. 60 SECTION 10.02. Liquidation, Dissolution, Bankruptcy...................................................................... 60 SECTION 10.03. Default on Senior Indebtedness of the Company............................................................. 61 SECTION 10.04. Acceleration of Payment of Securities..................................................................... 62 SECTION 10.05. When Distribution Must Be Paid Over....................................................................... 62 SECTION 10.06. Subrogation............................................................................................... 62 SECTION 10.07. Relative Rights........................................................................................... 62 SECTION 10.08. Subordination May Not Be Impaired by Company.............................................................. 62 SECTION 10.09. Rights of Trustee and Paying Agent........................................................................ 62
5 SECTION 10.10. Distribution or Notice to Representative................................................................. 62 SECTION 10.11. Article X Not To Prevent Events of Default or Limit Right To Accelerate...................................................................................... 63 SECTION 10.12. Trust Moneys Not Subordinated............................................................................. 63 SECTION 10.13. Trustee Entitled to Rely.................................................................................. 63 SECTION 10.14. Trustee to Effectuate Subordination....................................................................... 64 SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Indebtedness of the Company........................................................................................... 64 SECTION 10.16. Reliance by Holders of Senior Indebtedness of the Company on Subordination Provisions...................................................................... 64 SECTION 10.17. Trustee's Compensation Not Prejudiced.................................................................... 64 ARTICLE XI Subsidiary Guaranties SECTION 11.01. Subsidiary Guaranties..................................................................................... 64 SECTION 11.02. Limitation on Liability................................................................................... 66 SECTION 11.03. Successors and Assigns.................................................................................... 66 SECTION 11.04. No Waiver................................................................................................. 66 SECTION 11.05. Modification.............................................................................................. 67 SECTION 11.06. Guarantor Subsidiaries; Execution of Supplemental Indenture for Future Guarantor Subsidiaries.............................................................. 67 ARTICLE XII Subordination of the Subsidiary Guaranties SECTION 12.01. Agreement to Subordinate.................................................................................. 67 SECTION 12.02. Liquidation, Dissolution, Bankruptcy...................................................................... 67 SECTION 12.03. Default on Senior Indebtedness of a Guarantor Subsidiary.................................................. 68 SECTION 12.04. Demand for Payment........................................................................................ 69 SECTION 12.05. When Distribution Must Be Paid Over....................................................................... 69 SECTION 12.06. Subrogation............................................................................................... 69 SECTION 12.07. Relative Rights........................................................................................... 69 SECTION 12.08. Subordination May Not Be Impaired by a Guarantor Subsidiary............................................................................................... 70 SECTION 12.09. Rights of Trustee and Paying Agent........................................................................ 70 SECTION 12.10. Distribution or Notice to Representative................................................................ 70 SECTION 12.11. Article XII Not To Prevent Events of Default or Limit Right To Accelerate...................................................................................... 70 SECTION 12.12. Trustee Entitled to Rely.................................................................................. 70 SECTION 12.13. Trustee to Effectuate Subordination....................................................................... 71 SECTION 12.14. Trustee Not Fiduciary for Holders of Senior Indebtedness of a Guarantor Subsidiary................................................................................ 71 SECTION 12.15. Reliance by Holders of Senior Indebtedness of a Guarantor Subsidiary on Subordination Provisions................................................................... 71
6 ARTICLE XIII Miscellaneous SECTION 13.01. Trust Indenture Act Controls.............................................................................. 71 SECTION 13.02. Notices................................................................................................... 72 SECTION 13.03. Communication by Holders with Other Holders............................................................... 72 SECTION 13.04. Certificate of Opinion as to Conditions Precedent......................................................... 72 SECTION 13.05. Statements Required in Certificate or Opinion............................................................. 73 SECTION 13.06. When Securities Disregarded............................................................................... 73 SECTION 13.07. Rules by Trustee, Paying Agent and Registrar.............................................................. 73 SECTION 13.08. Legal Holidays............................................................................................ 73 SECTION 13.09. Governing Law............................................................................................. 73 SECTION 13.10. No Recourse Against Others................................................................................ 74 SECTION 13.11. Successors................................................................................................ 74 SECTION 13.12. Multiple Originals........................................................................................ 74 SECTION 13.13. Table of Contents; Headings............................................................................... 74
Appendix A - Provisions Relating to Initial Securities, Private Exchange Securities and Exchange Securities Exhibit A - Form of Face of Initial Security Exhibit B - Form of Face of Exchange Security Exhibit C - Form of Supplemental Indenture Exhibit D - Form of Transferee Letter of Representation 7 INDENTURE dated as of November 24, 1998, among NEENAH FOUNDRY COMPANY, a Wisconsin corporation (the "Company"), NEENAH TRANSPORT, INC., HARTLEY CONTROLS CORPORATION, DEETER FOUNDRY, INC., MERCER FORGE CORPORATION, A&M SPECIALTIES, INC., ADVANCED CAST PRODUCTS, INC., BELCHER CORPORATION, PEERLESS CORPORATION, DALTON CORPORATION, DALTON CORPORATION, WARSAW MANUFACTURING FACILITY, DALTON CORPORATION, ASHLAND MANUFACTURING FACILITY, DALTON CORPORATION, KENDALLVILLE MANUFACTURING FACILITY AND DALTON CORPORATION, STRYKER MANUFACTURING FACILITY (the "Guarantor Subsidiaries"), and UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking corporation (the "Trustee"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of (i) the Company's 11-1/8% Series E Senior Subordinated Notes due 2007 issued on the date hereof (the "Initial Securities"), (ii) if and when issued as provided in the Registration Agreement (as defined in Appendix A hereto (the "Appendix")), the Company's 11-1/8% Series F Senior Subordinated Notes due 2007 issued in the Registered Exchange Offer (as defined in the Appendix) in exchange for any Initial Securities (the "Exchange Securities") and (iii) if and when issued as provided in the Registration Agreement, the Private Exchange Securities (as defined in the Appendix, and together with the Initial Securities and any Exchange Securities issued hereunder, the "Securities") issued in the Private Exchange (as defined in the Appendix). Except as otherwise provided herein, the Securities will be limited to $87,000,000 in aggregate principal amount outstanding. ARTICLE I Definitions and Incorporation by Reference SECTION 1.01. Definitions. "ACP Holdings" means ACP Holding Company, a Delaware corporation. "ACP Products, L.L.C." means ACP Products, L.L.C., a Delaware limited liability company. "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock), including improvements to existing assets, to be used by the Company or a Restricted Subsidiary in a Related Business; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; provided, however, that, in the case of clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a Related Business. 8 2 "Add-on Indenture" means the indenture relating to the Add-on Securities dated July 1, 1997 among Neenah Corporation, the subsidiaries of the Company party thereto and United States Trust Company of New York, as trustee, as amended. "Add-on Securities" means the Company's 11-1/8% Series C Senior Subordinated Notes due 2007 issued under the Add-on Indenture and any of the Company's 11-1/8% Series D Senior Subordinated Notes due 2007 exchanged therefor. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of Section 4.07 only, "Affiliate" shall also mean any beneficial owner of shares representing 5% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Voting Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Applicable Premium" means, with respect to a Security, the greater of (i) 1.0% of the then outstanding principal amount of such Security and (ii) the excess of (A) the present value of all remaining required interest and principal payments due on such Security, computed using a discount rate equal to the Treasury Rate plus 75 basis points, over (B) the then outstanding principal amount of such Security. "Asset Disposition" means any sale, lease, transfer or other disposition of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares), property or assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its Restricted Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction) other than: (i) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Restricted Subsidiary; (ii) a disposition of inventory, in the ordinary course of business consistent with past practices of the Company and its Subsidiaries and (iii) dispositions with a fair market value of less than $500,000 in the aggregate in any fiscal year; (iv) a disposition of properties and assets that is governed by the provisions of Section 5.01(i)-(v); and (v) for purposes of Section 4.06 only, a disposition subject to Section 4.04. "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate assumed in making calculations in accordance with FAS 13) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or scheduled redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. 9 3 "Bank Indebtedness" means any and all amounts payable under or in respect of the Senior Bank Facilities or any refinancing or replacements thereof including principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not a claim for post-filing interest is allowed in such proceeding), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Borrowing Base" means, as of the date of determination, an amount equal to the sum, without duplication, of (i) 80% of the net book value of the Company's accounts receivable at such date and (ii) 50% of the net book value of the Company's inventories at such date. Net book value shall be determined in accordance with GAAP and shall be that reflected on the most recent available balance sheet (it being understood that the accounts receivable and inventories of an acquired business may be included if such acquisition has been completed on or prior to the date of determination). "Business Day" means a day other than a Saturday, Sunday or other day on which banking institutions in New York State are authorized or required by law to close. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Capitalized Lease Obligations" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP. The amount of Indebtedness represented by a Capitalized Lease Obligation shall be the capitalized amount of such obligation determined in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last scheduled payment of rent or any other amount due under the relevant lease. "Change of Control" means the occurrence of any of the following events: (a) prior to the earlier to occur of the first public offering of Voting Stock of ACP Holdings, the Company or Holdings, the Permitted Holders cease to be entitled (by "beneficial ownership" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of Voting Stock, contract or otherwise) to elect or cause the election of directors of the Company having a majority of the total voting power of the Board of Directors of the Company, whether as a result of issuance of securities of the Company, any merger, consolidation, liquidation or dissolution of the Company, any direct or indirect transfer of securities by any Permitted Holder or otherwise (for purposes of this clause (a), the Permitted Holders shall be deemed to beneficially own any Voting Stock of a corporation (the "specified corporation") held by any other corporation (the "parent corporation") so long as one or more of the Permitted Holders beneficially own (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent corporation); 10 4 (b) after the first public offering of Voting Stock of ACP Holdings, the Company or Holdings, any person or group (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more of the Permitted Holders, is or becomes the beneficial owner (as defined in clause (a) above), directly or indirectly, of Voting Stock that represents more than 40% of the aggregate ordinary voting power of all classes of the Voting Stock of ACP Holdings, the Company or Holdings, voting together as a single class, and either (x) the Permitted Holders beneficially own (as defined in clause (a) above), directly or indirectly, in the aggregate Voting Stock that represents a lesser percentage of the aggregate ordinary voting power of all classes of the Voting Stock of ACP Holdings, the Company or Holdings, as the case may be, voting together as a single class, than such other person or group and are not entitled (by voting power, contract or otherwise) to elect directors of ACP Holdings, the Company or Holdings having a majority of the total voting power of the board of directors of ACP Holdings, Holdings or the Company, as the case may be, or (y) such other person or group is entitled to elect directors of ACP Holdings, the Company or Holdings having a majority of the total voting power of the board of directors of ACP Holding, Holdings or the Company; (c) after the first public offering of Voting Stock of ACP Holdings, Holdings or the Company, during any period of not greater than two consecutive years beginning after the Issue Date, individuals who at the beginning of such period constituted the board of directors of ACP Holdings, Holdings or the Company, as the case may be (together with any new directors whose election by such board of directors or whose nomination for election by shareholders was approved by the Permitted Holders or by such board of directors, in each case by a vote of a majority of the directors of ACP Holdings, the Company or Holdings, as the case may be, then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved), cease for any reason to have a majority of the total voting power of the board of directors of ACP Holdings, Holdings or the Company, as the case may be; or (d) any sale, lease, or other transfer (in one transaction or in a series of related transactions) is made by the Company or its Restricted Subsidiaries of all or substantially all of the consolidated assets of the Company and its Restricted Subsidiaries to any Person. "Citicorp" means Citicorp, a Delaware corporation. "Code" means the Internal Revenue Code of 1986, as amended. "Commodity Agreement" means one or more of the following agreements entered into by a Person and one or more financial institutions: commodity future contracts, forward contracts, options or other similar arrangements or agreements designed to protect against fluctuations in the price of, or the shortage of supply of, commodities from time to time. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture and, there- 11 5 after, means the successor and, for purposes of any provision contained herein and required by the TIA, each other obligor on the indenture securities. "Consolidated Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters ending at least 45 days prior to the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters; provided, however, that (1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness and the application of the proceeds thereof as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period (except that in the case of Indebtedness to finance seasonal fluctuations in working capital needs Incurred under a revolving credit or similar arrangement, the amount thereof shall be deemed to be the average daily balance of such Indebtedness during such four quarter period); (2) if since the beginning of such period the Company or any Restricted Subsidiary shall have disposed of any assets constituting all or substantially all of the assets of an operating unit of a business (a "Disposal"), (x) the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Disposal for such period or increased by an amount equal to the EBITDA (if negative) directly attributable thereto for such period and (y) Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Disposal for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale); (3) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of the assets of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness in connection therewith) as if such Investment or acquisition occurred on the first day of such period; and 12 6 (4) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Disposal or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Disposal, Investment or acquisition of assets occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term as at the date of determination in excess of 12 months). If any Indebtedness bears, at the option of the Company or a Restricted Subsidiary, a fixed or floating rate of interest and is being given pro forma effect, then (i) if any interest had accrued on such Indebtedness prior to the date of determination, the interest expense on such Indebtedness shall be computed by applying a fixed or floating rate of interest as selected by the Company or such Restricted Subsidiary for the interest period immediately preceding such determination or (ii) if no interest accrued on such Indebtedness prior to the date of determination, the interest expense on such Indebtedness shall be computed by applying, at the option of the Company or such Restricted Subsidiary, either a fixed or floating rate. If any Indebtedness which is being given pro forma effect was Incurred under a revolving credit facility that was in effect throughout the applicable period, the interest expense on such Indebtedness shall be computed based upon the average daily balance of such Indebtedness during the applicable period. "Consolidated Interest Expense" means, for any period, the total consolidated interest expense of the Company and its Restricted Subsidiaries for such period, plus, to the extent Incurred by the Company and its Restricted Subsidiaries in such period but not included in such interest expense: (i) interest expense attributable to Capitalized Lease Obligations and Attributable Debt; (ii) amortization of debt discount; (iii) capitalized interest; (iv) noncash interest expense; (v) commissions, discounts and other fees and charges with respect to letters of credit and bankers' acceptance financing; (vi) net costs associated with Interest Rate Agreements; (vii) the interest portion of any deferred payment obligation for goods or services; (viii) interest actually paid by the Company or any Restricted Subsidiary on any Indebtedness of any other Person that is Guaranteed by the Company or any Restricted Subsidiary; (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company or a Wholly Owned Subsidiary) in connection with Indebtedness Incurred by such plan or trust; and (x) the earned discount or yield with respect to the sale of receivables (without duplication of amounts included in Consolidated Net Income); but in no event shall include (i) amortization of debt issuance costs; (ii) Preferred Stock dividends in respect of all Preferred Stock of Subsidiaries of the Company and Disqualified Stock of the 13 7 Company held by Persons other than the Company or a Wholly Owned Subsidiary; or (iii) interest Incurred in connection with Investments in discontinued operations. "Consolidated Net Income" means, for any period, the consolidated net income (loss) of the Company and its Subsidiaries for such period; provided, however, that there shall not be included in such Consolidated Net Income: (i) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (A) subject to the limitations contained in clause (iv) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person (other than an Unrestricted Subsidiary) for such period shall be included in determining such Consolidated Net Income; (ii) for purposes of Section 4.04(a)(3)(A) only, any net income (loss) of any person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income (loss) of any Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) subject to the limitations contained in (iv) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend (subject, in the case of a dividend that could have been made to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (iv) any gain (or loss) realized upon the sale or other disposition of any asset of the Company or its Consolidated Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is not sold or otherwise disposed of in the ordinary course of business and any gain (or loss) realized upon the sale or other disposition of any Capital Stock of any Person; (v) any extraordinary gain or loss; and (vi) the cumulative effect of a change in accounting principles after the Original Issue Date. Notwithstanding the foregoing, for the purpose of Section 4.04 only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under Section 4.04(a)(3)(E). Notwithstanding 14 8 anything to the contrary in Section 4.04, all amounts paid to Holdings pursuant to Section 4.04(b)(xi)(B) shall be deducted in computing Consolidated Net Income. "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and the Restricted Subsidiaries, determined on a Consolidated basis, as of the end of the most recent fiscal quarter of the Company ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital Stock of the Company plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock. "Consolidated Non-Cash Charges" of any Person means, for any period, the aggregate depreciation, amortization and other non-cash charges of such Person and its Consolidated Subsidiaries for such period, on a Consolidated basis, as determined in accordance with GAAP (excluding any such other non-cash charge which requires an accrual or reserve for cash charges for any future period). "Consolidation" means the consolidation of the accounts of each of the Restricted Subsidiaries with those of the Company in accordance with GAAP consistently applied; provided, however, that "Consolidation" shall not include consolidation of the accounts of any Unrestricted Subsidiary, but the interest of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary shall be accounted for as an investment. The term "Consolidated" has a correlative meaning. "Currency Agreement" means with respect to any Person any foreign exchange contract, currency swap agreement or other similar agreement or arrangement as to which such Person is a party or a beneficiary. "CVC" means Citicorp Venture Capital, Ltd., a New York corporation. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii) any other Senior Indebtedness of the Company which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend at least $25,000,000 and is specifically designated by the Company in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of this Indenture. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise; (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock; or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to ninety-one days after the Stated Maturity of the Securities. Disqualified Stock shall not include any Capital Stock that is not otherwise Disqualified Stock if by its terms the holders have the right to require the issuer to repurchase such stock upon a Change of Control (or upon events substantially similar to a Change of Control). 15 9 "Domestic Subsidiary" means a Subsidiary that is incorporated or organized under the laws of the United States of America, any state thereof or the District of Columbia. "EBITDA" for any period means the Consolidated Net Income for such period, plus the following to the extent deducted in calculating such Consolidated Net Income: (i) income tax expense; (ii) Consolidated Interest Expense; and (iii) Consolidated Non-Cash Charges, in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization of, a Subsidiary of the Company shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income (loss) of such Subsidiary was included in calculating Consolidated Net Income. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, in statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in this Indenture shall be computed in conformity with GAAP. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person through an agreement enforceable by or for the benefit of the holder of such Indebtedness and any such obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guarantor Subsidiary" means any Person that has issued a Subsidiary Guaranty. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Commodity Agreement, Interest Rate Agreement or Currency Agreement. "Holder" or "Securityholder" means the Person in whose name a Security is registered on the Registrar's books. "Holdings" means NFC Castings, Inc., a Delaware corporation, any Person acceding to its ownership, and successors thereto. 16 10 "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Person at the time it becomes a Restricted Subsidiary; provided further, however, that in the case of a discount security, the accretion of original issue discount on such security shall not be considered an Incurrence of Indebtedness if (but only if) the Company elects to treat the whole face amount of such security as Incurred at such time (and such Incurrence is then permitted in accordance with the terms of this Indenture). "Indebtedness" means, with respect to any Person on any date of determination (without duplication): (i) the principal of indebtedness of such Person for borrowed money; (ii) the principal of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto) other than letters of credit or similar instruments supporting Trade Payables entered into in the ordinary course of business of such Person to the extent that such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed not later than the third business day following such drawing; (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services (except Trade Payables), which purchase price is due more than twelve months after the date of placing such property in service or taking delivery and title thereto or the completion of such services; (v) all Capitalized Lease Obligations and all Attributable Debt of such Person; (vi) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of the Company, any Preferred Stock (but excluding, in each case, any accrued dividends); (vii) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of Indebtedness of such Person shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness of such other Persons; (viii) all Indebtedness of other Persons to the extent Guaranteed by such Person; and (ix) to the extent not otherwise included in this definition, Hedging Obligations of such Person. 17 11 The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. "Indenture" means this Indenture as amended or supplemented from time to time. "Interest Rate Agreement" means, with respect to any Person, any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary. "Investment" in any Person means any direct or indirect advance loan (other than advances or loans to customers or suppliers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the Person making such loan or advance) or other extension of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary" and Section 4.04 only, (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Issue Date" means the date on which the Initial Securities are originally issued. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Management Investors" means the officers and employees of ACP Products, L.L.C., ACP Holdings, Holdings, the Company or a Subsidiary of the Company who acquire Voting Stock of ACP Products, L.L.C., ACP Holdings, Holdings or the Company on or after the Issue Date. "Moody's" means Moody's Investors Service, Inc., and its successors. "NC Merger" means NC Merger Company. 18 12 "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable, or from an escrow account or otherwise, in each case only as and when received, but excluding any other consideration received in the form of assumption by the acquiring person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other non-cash form) therefrom, in each case net of: (i) all legal, title and recording expenses, commissions and other expenses (including fees and expenses of counsel and investment bankers) incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition; (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition; (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition; and (iv) appropriate amounts to be provided by the party or parties making such Asset Disposition as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Disposition. "Net Cash Proceeds," with respect to any issuance or sale of Capital Stock, means the proceeds of such issuance or sale in the form of cash, including payments in respect of deferred payment obligations when received in form of, or stock or other assets when disposed for, cash, net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, filing and registration fees, trustee's fees, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Officer" means the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, the President, any Vice President, the Treasurer or the Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers, one of whom shall be the principal executive, financial or accounting officer of the Company. "Old Securities" means the Original Securities and the Add-on Securities. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Original Indenture" means the Indenture, dated as of April 30, 1997, as amended, between the Company (formally NC Merger) and United States Trust Company of New York as trustee, as in effect on the date of this Indenture. "Original Issue Date" means the date of issuance of the Original Securities, April 30, 1997. 19 13 "Original Securities" means the Company's 11-1/8% Senior Subordinated Notes due 2007 issued under the Original Indenture and any of the Company's Series B 11-1/8% Senior Subordinated Notes due 2007 exchanged therefor. "Permitted Holders" means (i) CVC and its Affiliates and Permitted Transferees and (ii) the Management Investors and their Permitted Transferees. "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in: (i) the Company; (ii) a Restricted Subsidiary or a Person which shall, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Related Business; (iii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that such Person's primary business is a Related Business; (iv) Temporary Cash Investments; (v) receivables owing to the Company or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms, provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (vi) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (vii) loans or advances to employees made in the ordinary course of business and not exceeding $1,000,000 in the aggregate outstanding at any one time; (viii) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; (ix) securities received as consideration in sales of assets made in compliance with Section 4.06; (x) other Investments, of any type, provided that the amount of such Investments made after the Original Issue Date in reliance on this clause (x) and outstanding at any time does not exceed 7.5% of Total Assets; or (xi) Guarantees relating to Indebtedness which is permitted to be Incurred under Section 4.03. "Permitted Liens" means with respect to any Person, (a) Liens to secure Indebtedness permitted under the provisions described under clause (b)(i) or (ii) under Section 4.03; (b) pledges or deposits made or other Liens granted by (1) such Person under workmen's compensation laws, unemployment insurance laws or similar legislation, (2) in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or (3) to secure public or statutory obligations of such Person or deposits of cash or United States government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business, (c) Liens imposed by law, such as carriers', warehousemen's, mechanics', employees' and other like Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings or other Liens arising out of judgments, awards, decrees or orders of any court or other governmental authority against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review; (d) Liens for property taxes not yet due or payable or subject to penalties for non-payment or which are being contested in good faith and by appropriate proceedings; (e) Liens in favor of issuers of surety, performance, judgment, appeal and other like bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business; (f) minor survey 20 14 exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning provisions, carveouts, conditional waivers or other restrictions as to the use of real properties or minor irregularities of title (and with respect to leasehold interests, mortgages, obligations, Liens and other encumbrances incurred, created, assumed or permitted to exist and arising by, through or under a landlord or owner of the leased property, with or without consent of the lessee) or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not Incurred in connection with Indebtedness and which do not in the aggregate materially impair the use of such properties in the operation of the business of such Person; (g) Liens existing or provided for under written arrangements existing on the Original Issue Date; (h) Liens securing Indebtedness or other obligations of a Subsidiary of such Person owing to such Person or a wholly owned Subsidiary of such Person; (i) Liens securing Hedging Obligations so long as the related Indebtedness is, and is permitted to be under the Indenture, secured by a Lien on the same property securing such Hedging Obligations; (j) Liens to secure any refinancing, refunding, replacement, renewal, repayment or extension (or successive refinancings, refundings, replacements, renewals, repayments or extensions) as a whole, or in part, of any Indebtedness secured by any Lien referred to in clause (g), (i), (l), (m) or (n); provided, however, that (x) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements on such property) and (y) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clauses (g), (i), (l), (m) or (n) at the time the original Lien became a Permitted Lien and (B) an amount necessary to pay any fees and expenses, including premiums, related to such refinancing, refunding, replacement, renewal, repayment or extension; (k)(i) mortgages, liens, security interests, restrictions or encumbrances that have been placed by any developer, landlord or other third party on property over which the Company or any Restricted Subsidiary or the Company has easement rights or on any real property leased by the Company and subordination or similar agreements relating thereto and (ii) any condemnation or eminent domain proceedings affecting any real property; (l) Liens on property, assets or shares of stock of a Person at the time such Person becomes a Subsidiary; provided, however, such Liens are not created, Incurred or assumed by such Person in connection with, or in contemplation of, such other Person becoming such a Subsidiary; provided further, however, that such Liens may not extend to any other property owned by the Company or any Restricted Subsidiary; (m) Liens on property or assets at the time the Company or a Restricted Subsidiary acquired the property or assets, including any acquisition by means of a merger or consolidation with or into the Company or a Restricted Subsidiary; provided, however, that such Liens are not created in connection with, or in contemplation of, such acquisition; provided further, however, that the Liens may not extend to any other property owned by the Company or any Restricted Subsidiary; and (n) any Lien on stock or other securities of an Unrestricted Subsidiary that secures Indebtedness of such Unrestricted Subsidiary. "Permitted Transferee" means (a) with respect to CVC (i) Citicorp, any direct or indirect wholly owned subsidiary of Citicorp, and any officer, director or employee of CVC, Citicorp or any wholly owned subsidiary of Citicorp; (ii) any spouse or lineal descendant (including by adoption and stepchildren) of the officers, directors and employees in clause (a)(i) above or (iii) any trust, corporation or partnership 100% in interest of the beneficiaries, stockholders or partners of which consists of one or more of the persons described in clause (a)(i) or (ii) above and (b) with respect to any officer or 21 15 employee of ACP Products, L.L.C., ACP Holdings, Holdings, the Company or a Subsidiary of the Company (i) any spouse or lineal descendant (including by adoption and stepchildren) of such officer or employee and (ii) any trust, corporation or partnership 100% in interest of the beneficiaries, stockholders or partners of which consists of such officer or employee, any of the persons described in clause (b)(i) above or any combination thereof. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock," as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "principal" of a Security means the principal of the Security plus the premium, if any, payable on the Security that is due or overdue or is to become due at the relevant time. "Public Equity Offering" means an underwritten primary public offering of common stock of ACP Holdings, Company or Holdings (or, for purposes of Section 4.11, any Restricted Subsidiary) pursuant to an effective registration statement (other than a registration statement on Form S-4, S-8 or any successor or similar forms) under the Securities Act (whether alone or in conjunction with any secondary public offering); provided, however, that if any such offering is an offering of the common stock of ACP Holdings, only the net proceeds thereof that are contributed to the Company shall be taken into consideration for purposes of this definition. "Public Market" means any time after (x) a Public Equity Offering has been consummated and (y) at least 15% of the total issued and outstanding common stock of ACP Holdings, the Company or Holdings (or, for purposes of Section 4.11, any Restricted Subsidiary) has been distributed by means of an effective registration statement under the Securities Act. "Purchase Money Indebtedness" means Indebtedness (i) consisting of the deferred purchase price of an asset or assets (including Capital Stock and the assets of an ongoing business) including additions and improvements, any conditional sale obligation, any obligation under any title retention agreement or any other purchase money obligation or (ii) incurred to finance the acquisition by the Company or a Restricted Subsidiary of an asset or assets (including Capital Stock and the assets of a Related Business), including additions and improvements; provided that in the case of clause (i) the Average Life of such Indebtedness is less than the anticipated useful life of assets having an aggregate fair market value representing more than 50% of the aggregate fair market value of all assets so acquired and that in the case of clauses (i) and (ii) such Indebtedness is incurred within 180 days after the acquisition by the Company or Restricted Subsidiary of such asset or assets, or is in existence with respect to any asset or other property at the time such asset or property is acquired. 22 16 "Redemption Date" means the date on which the Securities are optionally redeemed pursuant to Section 3.07. "Refinancing Indebtedness" means Indebtedness that is Incurred to refund, refinance, replace, renew, repay or extend (including pursuant to any defeasance or discharge mechanism) (collectively, "refinances" and "refinanced" shall have a correlative meaning) any Indebtedness existing on the Original Issue Date or Incurred in compliance with or which is permitted by this Indenture and the Original Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary (to the extent permitted in this Indenture and the Original Indenture) and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of that or another Restricted Subsidiary of the Company), including Indebtedness that refinances Refinancing Indebtedness; provided, however, that (i) the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced; (ii) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced; (iii) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or, if issued with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or, if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced plus the amount of any premium reasonably determined by the Company or such Restricted Subsidiary, as applicable, as necessary at the time of such refinancing to accomplish such refinancing or required pursuant to the terms thereof, plus the amount of expenses of the Company or such Restricted Subsidiary, as applicable, Incurred in connection with such refinancing; and (iv) if the Indebtedness being refinanced is subordinated in right of payment to the Securities, such Refinancing Indebtedness is subordinated in right of payment to the Securities to the extent of the Indebtedness being refinanced; provided further, however, that Refinancing Indebtedness shall not include Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary. "Related Business" means any business of the Company and the Restricted Subsidiaries as conducted on the Original Issue Date and any business related, ancillary or complementary thereto. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill, Inc., and its successors. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired by the Company or a Restricted Subsidiary whereby the Company or such Restricted Subsidiary transfers such property to a Person and the Company or such Restricted Subsidiary leases it from such Person, other than leases between the Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries. "SEC" means the Securities and Exchange Commission. 23 17 "Secured Indebtedness" of the Company means any Indebtedness of the Company secured by a Lien. "Secured Indebtedness" of any Guarantor Subsidiary has a correlative meaning. "Securities" means the Securities issued under this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Senior Bank Facilities" means the credit agreement dated as of the Original Issue Date, as amended, waived or otherwise modified from time to time, among Holdings, the Company, the lenders party thereto from time to time, and The Chase Manhattan Bank, a New York banking corporation, as agent (except to the extent that any such amendment, waiver or other modification thereto would be prohibited by the terms of this Indenture. "Senior Indebtedness" of the Company means all principal of, premium (if any), accrued interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and other amounts owing with respect to all Indebtedness of the Company, and including all Bank Indebtedness, whether outstanding on the Issue Date or thereafter incurred, unless in the instrument creating or evidencing the same or pursuant to which the same is outstanding it is expressly provided that such obligations are not superior in right of payment to the Securities; provided, however, that Senior Indebtedness shall not include (1) any obligation of the Company to any Subsidiary, (2) any liability for federal, foreign, state, local or other taxes owed or owing by the Company, (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including Guarantees thereof or instruments evidencing such liabilities), (4) any Indebtedness or obligation of the Company which is subordinate or junior in any respect (other than as a result of the Indebtedness being unsecured) to any other Indebtedness or obligation of the Company, including any Senior Subordinated Indebtedness and any Subordinated Obligations, (5) any obligations with respect to any Capital Stock or (6) any Indebtedness Incurred in violation of this Indenture. "Senior Indebtedness" of any Guarantor Subsidiary has a correlative meaning. "Senior Subordinated Indebtedness" means the Securities and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank pari passu with the Securities and is not subordinated by its terms to any Indebtedness or other obligation of the Company which is not Senior Indebtedness. "Senior Subordinated Indebtedness" of any Guarantor Subsidiary has a correlative meaning. "Significant Subsidiary" means any Restricted Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of clause (w)(1) or (2) of Rule 1-02 under Regulation S-X promulgated by the SEC. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the purchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred). 24 18 "Subordinated Obligation" of the Company means any Indebtedness of the Company (whether outstanding on the Original Issue Date or thereafter Incurred) which is expressly subordinate in right of payment to the Securities pursuant to a written agreement. "Subordinated Obligation" of any Guarantor Subsidiary shall have a correlative meaning. "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, trustees or members of any other governing body thereof is at the time owned or controlled, directly or indirectly, by (i) such Person or (ii) one or more Subsidiaries of such Person. "Subsidiary Guaranty" means any Guarantee of the Securities which may from time to time be executed and delivered pursuant to the terms of this Indenture. Each such Subsidiary Guaranty shall be in the form prescribed in this Indenture. "Temporary Cash Investments" means any of the following: (i) any investment in direct obligations (x) of the United States of America or any agency thereof or obligations Guaranteed by the United States of America or any agency thereof or (y) of any foreign country recognized by the United States of America rated at least "A" by S&P or "A-1" by Moody's; (ii) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 365 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America having capital and surplus in excess of $250,000,000 (or the foreign currency equivalent thereof) and whose long-term debt is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act); (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above; (iv) investments in commercial paper, maturing not more than 365 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P; (v) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's; (vi) any money market deposit accounts issued or offered by a domestic commercial bank or a commercial bank organized and located in a country recognized by the United States of America, in each case, having capital and surplus in excess of $250,000,000 (or the foreign currency equivalent thereof), or investments in money market funds complying with the risk limiting conditions of Rule 2a-7 (or any successor rule) of the Commission under the Investment Company Act of 1940, as amended; and (vii) similar investments approved by the Board of Directors in the ordinary course of business. 25 19 "Total Assets" means, at any date of determination, the total consolidated assets of the Company and its Restricted Subsidiaries, as set forth on the Company's then most recent consolidated balance sheet. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa- 77bbbb) as in effect on the date of this Indenture. "Trade Payables" means, with respect to any Person, any accounts payable or any indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person arising in the ordinary course of business in connection with the acquisition of goods or services. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled by, and published in, the most recent Federal Reserve Statistical Release H.15(519) which has become publicly available at least two Business Days prior to the date fixed for redemption of the Securities following a Change of Control (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the then remaining Average Life to Stated Maturity of the Securities; provided, however, that if the Average Life to Stated Maturity of the Securities is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the Average Life to Stated Maturity of the Securities is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "Trustee" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor. "Trust Officer" means the Chairman of the Board, the President, or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Uniform Commercial Code" means the New York Uniform Commercial Code as in effect from time to time. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any property of, the Company or any other Restricted Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (A) the Subsidiary to be so designated has total Consolidated assets of $1,000 or less or (B) if such Subsidiary has Consolidated assets greater than $1,000, then such designation would be permitted under the Section 4.04. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional 26 20 Indebtedness under paragraph (a) of Section 4.03 and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares and, to the extent required by local ownership laws in foreign countries, shares owned by foreign shareholders) is owned by the Company or another Wholly Owned Subsidiary (including shares held of record by a nominee for the benefit of the Company or another Wholly Owned Subsidiary). 27 21 SECTION 1.02. Other Definitions. Term Defined in Section ------- "Affiliate Transaction"............................................ 4.07 "Bankruptcy Law"................................................... 6.01 "Blockage Notice" ................................................. 10.03 "covenant defeasance option"....................................... 8.01(b) "Custodian"........................................................ 6.01 "Event of Default"................................................. 6.01 "Guarantor Subsidiary Blockage Notice ............................. 12.03 "Guarantor Subsidiary Payment Blockage Period ..................... 12.03 "Initial Lien" .................................................... 4.12 "legal defeasance option".......................................... 8.01(b) "Legal Holiday".................................................... 13.08 "Obligations"...................................................... 11.01 "Offer"............................................................ 4.06(b) "Offer Amount"..................................................... 4.06(c) "Offer Period"..................................................... 4.06(c) "pay the Securities" .............................................. 10.03 "pay its Guarantee"................................................ 12.03 "Payment Blockage Period" ......................................... 10.03 "protected purchaser".............................................. 2.07 "Paying Agent"..................................................... 2.03 "Purchase Date".................................................... 4.06(c) "Registrar"........................................................ 2.03 "Restricted Payment"............................................... 4.04 "Successor Company"................................................ 5.01 SECTION 1.03. Incorporation by Reference of Trust Indenture Act. This Indenture is subject to the mandatory provisions of the TIA which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture Securityholder" means a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company and any other obligor on the indenture securities. 28 22 All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.04. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) "including" means including without limitation; (5) words in the singular include the plural and words in the plural include the singular; (6) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured Indebtedness of the Company or a Guarantor Subsidiary, as the case may be, merely by virtue of its nature as unsecured Indebtedness; (7) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP and accretion of principal on such security shall be deemed to be the Incurrence of Indebtedness; and (8) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater. ARTICLE II The Securities SECTION 2.01. Form and Dating. Provisions relating to the Initial Securities, the Private Exchange Securities and the Exchange Securities are set forth in the Appendix, which is hereby incorporated in and expressly made a part of this Indenture. The (i) Initial Securities and the Trustee's certificate of authentication and (ii) Private Exchange Securities and the Trustee's certificate of authentication shall each be substantially in the form of Exhibit A hereto, which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities and the Trustee's certificate of authentication shall each be substantially in the form of Exhibit B hereto, which is hereby incorporated in and expressly made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company or any Guarantor Subsidiary is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to 29 23 the Company). Each Security shall be dated the date of its authentication. The Securities shall be issuable only in registered form without interest coupons and only in denominations of $1,000 and integral multiples thereof. SECTION 2.02. Execution and Authentication. One or more Officers shall sign the Securities for the Company by manual or facsimile signature. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate and make available for delivery Securities as set forth in the Appendix. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate the Securities. Any such appointment shall be evidenced by an instrument signed by a Trust Officer, a copy of which shall be furnished to the Company. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as any Registrar, Paying Agent or agent for service of notices and demands. SECTION 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar") and an office or agency where Securities may be presented for payment (the "Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent, and the term "Registrar" includes any co-registrars. The Company initially appoints the Trustee as (i) Registrar and Paying Agent in connection with the Securities and (ii) the Securities Custodian (as defined in the Appendix) with respect to the Global Securities (as defined in the Appendix). The Company shall enter into an appropriate agency agreement with any Registrar or Paying Agent not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07. The Company or any of its domestically organized Wholly Owned Subsidiaries may act as Paying Agent or Registrar. The Company may remove any Registrar or Paying Agent upon written notice to such Registrar or Paying Agent and to the Trustee; provided, however, that no such removal shall become effective until (1) acceptance of an appointment by a successor as evidenced by an appropriate agreement entered into by the Company and such successor Registrar or Paying Agent, as the case may be, and delivered to the 30 24 Trustee or (2) notification to the Trustee that the Trustee shall serve as Registrar or Paying Agent until the appointment of a successor in accordance with clause (1) above. The Registrar or Paying Agent may resign at any time upon written notice; provided, however, that the Trustee may resign as Paying Agent or Registrar only if the Trustee also resigns as Trustee in accordance with Section 7.08. SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to each due date of the principal and interest on any Security, the Company shall deposit with the Paying Agent (or if the Company or a Subsidiary is acting as Paying Agent, segregate and hold in trust for the benefit of the Persons entitled thereto) a sum sufficient to pay such principal and interest when so becoming due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Securities and shall notify the Trustee of any default by the Company in making any such payment. If the Company or a Subsidiary of the Company acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by the Paying Agent. Upon complying with this Section, the Paying Agent shall have no further liability for the money delivered to the Trustee. SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall furnish, or cause the Registrar to furnish, to the Trustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION 2.06. Transfer and Exchange. The Securities shall be issued in registered form and shall be transferable only upon the surrender of a Security for registration of transfer and in compliance with the Appendix. When a Security is presented to the Registrar with a request to register a transfer, the Registrar shall register the transfer as requested if the requirements of Section 8-401(a)(l) of the Uniform Commercial Code are met. When Securities are presented to the Registrar with a request to exchange them for an equal principal amount of Securities of other denominations, the Registrar shall make the exchange as requested if the same requirements are met. To permit registration of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's request. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any transfer or exchange pursuant to this Section. The Company shall not be required to make and the Registrar need not register transfers or exchanges of Securities selected for redemption (except, in the case of Securities to be redeemed in part, the portion thereof not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed. Prior to the due presentation for registration of transfer of any Security, the Company, the Guarantor Subsidiaries, the Trustee, the Paying Agent, and the Registrar may deem and treat the Person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest, if any, on such Security and for all other purposes whatsoever, whether or not such 31 25 Security is overdue, and none of the Company, any Guarantor Subsidiary, the Trustee, the Paying Agent, or the Registrar shall be affected by notice to the contrary. Any Holder of a Global Security shall, by acceptance of such Global Security, agree that transfers of beneficial interest in such Global Security may be effected only through a book-entry system maintained by (i) the Holder of such Global Security (or its agent) or (ii) any Holder of a beneficial interest in such Global Security, and that ownership of a beneficial interest in such Global Security shall be required to be reflected in a book entry. All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture will evidence the same debt and will be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. SECTION 2.07. Replacement Securities. If a mutilated Security is surrendered to the Registrar or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the requirements of Section 8-405 of the Uniform Commercial Code are met, such that the Holder (i) satisfies the Company or the Trustee within a reasonable time after he has notice of such loss, destruction or wrongful taking and the Registrar does not register a transfer prior to receiving such notification, (ii) makes such request to the Company or the Trustee prior to the Security being acquired by a protected purchaser as defined in Section 8-303 of the Uniform Commercial Code (a "protected purchaser") and (iii) satisfies any other reasonable requirements of the Trustee. If required by the Trustee or the Company, such Holder shall furnish an indemnity bond sufficient in the judgment of the Trustee to protect the Company, the Trustee, the Paying Agent and the Registrar from any loss that any of them may suffer if a Security is replaced. The Company and the Trustee may charge the Holder for their expenses in replacing a Security. In the event any such mutilated, lost, destroyed or wrongfully taken Security has become or is about to become due and payable, the Company in its discretion may pay such Security instead of issuing a new Security in replacement thereof. Every replacement Security is an additional obligation of the Company. The provisions of this Section 2.07 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, lost, destroyed or wrongfully taken Securities. SECTION 2.08. Outstanding Securities. Securities outstanding at any time are all Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Subject to Section 13.06, a Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a protected purchaser. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal and 32 26 interest payable on that date with respect to the Securities (or portions thereof) to be redeemed or maturing, as the case may be, and the Paying Agent is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture, then on and after that date such Securities (or portions thereof) cease to be outstanding and interest on them ceases to accrue. SECTION 2.09. Temporary Securities. In the event that Definitive Securities (as defined in the Appendix) are to be issued under the terms of this Indenture, until such Definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of Definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Definitive Securities and deliver them in exchange for temporary Securities upon surrender of such temporary Securities at the office or agency of the Company, without charge to the Holder. SECTION 2.10. Cancelation. The Company at any time may deliver Securities to the Trustee for cancelation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Securities surrendered for registration of transfer, exchange, payment or cancelation and deliver canceled Securities to the Company pursuant to written direction by an Officer. The Company may not issue new Securities to replace Securities it has redeemed, paid or delivered to the Trustee for cancelation. The Trustee shall not authenticate Securities in place of canceled Securities other than pursuant to the terms of this Indenture. SECTION 2.11. Defaulted Interest. If the Company defaults in a payment of interest on the Securities, the Company shall pay the defaulted interest (plus interest on such defaulted interest to the extent lawful) in any lawful manner. The Company may pay the defaulted interest to the Persons who are Securityholders on a subsequent special record date. The Company shall fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Trustee and shall promptly mail or cause to be mailed to each Securityholder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. ARTICLE III Redemption SECTION 3.01. Notices to Trustee. If the Company elects to redeem Securities pursuant to Section 3.07, it shall notify the Trustee in writing of the redemption date and the principal amount of Securities to be redeemed. 33 27 The Company shall give each notice to the Trustee provided for in this Section at least 60 days before the redemption date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate and an Opinion of Counsel from the Company to the effect that such redemption will comply with the conditions herein; provided, however, that an Opinion of Counsel shall not be required in connection with a redemption pursuant to Section 3.07. If fewer than all the Securities are to be redeemed, the record date relating to such redemption shall be selected by the Company and given to the Trustee, which record date shall be not less than 15 days after the date of notice to the Trustee (unless a shorter period shall be acceptable to the Trustee). Any such notice may be canceled by notice in writing to the Trustee at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. SECTION 3.02. Selection of Securities to be Redeemed. If fewer than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata or by lot or by a method that complies with applicable legal and securities exchange requirements, if any, and that the Trustee considers fair and appropriate and in accordance with methods generally used at the time of selection by fiduciaries in similar circumstances. The Trustee shall make the selection from outstanding Securities not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be redeemed. SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60 days before a date for redemption of Securities, the Company shall mail a notice of redemption by first-class mail to each Holder of Securities to be redeemed. The notice shall identify the Securities to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (5) if fewer than all the outstanding Securities are to be redeemed, the certificate numbers and principal amounts of the particular Securities to be redeemed; (6) that, unless the Company defaults in making such redemption payment or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest on Securities (or portion thereof) called for redemption ceases to accrue on and after the redemption date; (7) the CUSIP number, if any, printed on the Securities being redeemed; 34 28 (8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities; and (9) that if a Security is to be redeemed in part, only the portion of the principal amount (equal to $1,000 or an integral multiple thereof) of such Security to be redeemed and that a new Security in the aggregate principal amount equal to the unredeemed portion thereof will be issued without charge to the holder. At the Company's request (which may be revoked at any time in writing prior to the time at which the Trustee shall have given such notice to the Holders), the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. In such event, the Company shall provide the Trustee with the information required by this Section. SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date and at the redemption price stated in the notice. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price stated in the notice, plus accrued interest, if any, to the redemption date; provided that if the redemption date is after a regular record date and on or prior to the interest payment date, the accrued interest shall be payable to the Securityholder of the redeemed Securities registered on the relevant record date. If mailed in the manner provided herein, the notice shall be conclusively presumed to have been given whether or not the Holder receives such notice. Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. SECTION 3.05. Deposit of Redemption Price. At least one Business Day prior to the redemption date, the Company shall deposit with the Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which have been delivered by the Company to the Trustee for cancelation. SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder (at the Company's expense) a new Security equal in principal amount to the unredeemed portion of the Security surrendered. SECTION 3.07. Optional Redemption. (a) Except as set forth in the next two paragraphs, the Securities may not be redeemed prior to May 1, 2002. On and after that date, the Company may redeem the Securities in whole or in part, at any time at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of 35 29 record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption), if redeemed during the 12-month period beginning on or after May 1 of the years set forth below:
Redemption Period Price - ------ ----- 2002.............................................................. 105.5625% 2003.............................................................. 103.7083% 2004.............................................................. 101.8542% 2005 and thereafter............................................... 100.0000%
(b) Notwithstanding the foregoing, at any time on or prior to May 1, 2000, the Company may redeem in the aggregate up to 40% of the original aggregate principal amount of Securities with the proceeds of one or more Public Equity Offerings following which there is a Public Market, at a redemption price (expressed as a percentage of principal amount thereof) of 111.125% plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption); provided, however, that at least 60% of the original aggregate principal amount of the Securities must remain outstanding after each such redemption. (c) Notwithstanding paragraphs (a) and (b) above, the Company shall not redeem any Old Securities unless, substantially concurrently with such redemption, the Company redeems an aggregate principal amount of Securities (rounded to the nearest integral multiple of $1000) equal to the product of: (1) a fraction, the numerator of which is the aggregate principal amount of Old Securities to be so redeemed and the denominator of which is the aggregate principal amount of Old Securities outstanding immediately prior to such proposed redemption, and (2) the aggregate principal amount of Securities outstanding immediately prior to such proposed redemption. The Company shall not redeem the Securities unless, substantially concurrently with such redemption, the Company redeems an aggregate principal amount of each series of Old Securities (rounded to the nearest integral multiple of $1000) equal to the product of: (1) a fraction, the numerator of which is the aggregate principal amount of Securities to be so redeemed and the denominator of which is the aggregate principal amount of Securities outstanding immediately prior to such proposed redemption, and (2) the aggregate principal amount of such series of Old Securities outstanding immediately prior to such proposed redemption. (d) At any time prior to May 1, 2002, the Securities may be redeemed, in whole or in part, at any time within 180 days after a Change of Control, at a redemption price equal to the sum of (i) the principal amount thereof plus (ii) accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption) plus (iii) the Applicable Premium. 36 30 ARTICLE IV Covenants SECTION 4.01. Payment of Securities. The Company shall promptly pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal and interest then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture. The Company shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. SECTION 4.02. SEC Reports. Notwithstanding that the Company may not be required to be or remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the SEC and provide the Trustee and Securityholders and prospective Securityholders (upon request) with, the annual reports and the information, documents and other reports which are specified in Section 13 or 15(d) of the Exchange Act. The Company also shall comply with the other provisions of TIA Section 314(a). SECTION 4.03. Limitation on Indebtedness. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, Incur any Indebtedness (other than pursuant to the following paragraph (b)) unless on the date of such Incurrence the Consolidated Coverage Ratio exceeds 2.00 to 1. (b) Notwithstanding Section 4.03(a), the Company and its Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness consisting of revolving credit, working capital or letters of credit financing in an aggregate principal amount at any time outstanding not in excess of the greater of $35,000,000 and the Borrowing Base in effect from time to time (in each case less the aggregate amount of all repayments of principal actually made thereunder since the Original Issue Date with Net Available Cash from Asset Dispositions pursuant to Section 4.06(a)(iii)(A)); (ii) Indebtedness of the Company owing to and held by any Wholly Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by the Company or any Wholly Owned Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of any such Indebtedness (except to the Company or a Wholly Owned Subsidiary) will be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (iii) Indebtedness of the Company represented by the Securities and the Old Securities; 37 31 (iv) any Indebtedness of the Company and its Restricted Subsidiaries (other than the Indebtedness described in clauses (i) or (ii) above) outstanding on the Original Issue Date and Indebtedness Incurred under Section 4.03(a) of the Original Indenture prior to the Issue Date; (v) Indebtedness of the Company and its Restricted Subsidiaries, (A) in respect of judgment, appeal, surety, performance and other like bonds, bankers' acceptances and letters of credit provided by the Company and its Restricted Subsidiaries in the ordinary course of their business and which do not secure other Indebtedness and (B) under Commodity Agreements, Currency Agreements and Interest Rate Agreements that are designed to protect the Company and its Restricted Subsidiaries against fluctuations in commodity prices (for raw materials used by them), interest rates or currency exchange rates and not for the purposes of speculation; (vi) Indebtedness represented by Guarantees by the Company of Indebtedness of a Restricted Subsidiary, or in respect of letters of credit provided by the Company to support such Indebtedness, or Guarantees by a Restricted Subsidiary of Indebtedness of the Company or a Restricted Subsidiary, or in respect of letters of credit provided by a Restricted Subsidiary to support such Indebtedness; provided, however, that only Indebtedness that is incurred in compliance with this covenant may be guaranteed pursuant to this clause (vi); (vii) Purchase Money Indebtedness, industrial revenue bonds or similar Indebtedness and Capitalized Lease Obligations of the Company and its Restricted Subsidiaries in an aggregate principal amount at any time outstanding not in excess of 10% of Total Assets; (viii) Indebtedness of the Company or any Restricted Subsidiary consisting of guarantees, indemnities or obligations in respect of purchase price adjustments, in connection with the acquisition or disposition of any business, assets or Subsidiary of the Company permitted under this Indenture; (ix) Indebtedness of the Company and its Restricted Subsidiaries, to the extent the proceeds thereof are immediately used after the Incurrence thereof to purchase Old Securities or Securities, tendered in an offer to purchase made as a result of a Change of Control; (x) Indebtedness of the Company or a Restricted Subsidiary owed to (including obligations in respect of letters of credit for the benefit of) any Person in connection with liability insurance provided by such Person to the Company or such Restricted Subsidiary, pursuant to reimbursement or indemnification obligations to such Person, in each case Incurred in the ordinary course of business; (xi) Indebtedness of the Company consisting of guarantees of up to an aggregate principal amount of $2,000,000 of borrowings by Management Investors in connection with purchases of Voting Stock of Holdings on or after the Original Issue Date and in accordance with Section 4.04; 38 32 (xii) Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount at any time outstanding not in excess of $15,000,000 million which Indebtedness may be incurred pursuant to clause (i) above; and (xiii) any Refinancing Indebtedness Incurred in respect of any Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (ii), (iv), (vii), (ix) or (xiii) of this paragraph (b). Notwithstanding the foregoing, the Company shall not Incur any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness of the Company unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness of the Company. In addition, the Company shall not Incur any Secured Indebtedness which is not Senior Indebtedness of the Company unless contemporaneously therewith effective provision is made to secure the Securities equally and ratably with (or on a senior basis to, in the case of Indebtedness subordinated in right of payment to the Securities) such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. A Guarantor Subsidiary shall not incur any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness of the Subsidiary Guarantor unless such Indebtedness is Senior Subordinated Indebtedness of such Subsidiary Guarantor or is expressly subordinated in right of payment to Senior Subordinated Indebtedness of such Subsidiary Guarantor. In addition, a Guarantor Subsidiary shall not incur any Secured Indebtedness which is not Senior Indebtedness of such Guarantor Subsidiary unless contemporaneously therewith effective provision is made to secure the Subsidiary Guaranty equally and ratably with (or on a senior basis to, in the case of Indebtedness subordinated in right of payment to such Subsidiary Guaranty) such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. (d) For purposes of determining the outstanding principal amount of any particular Indebtedness Incurred pursuant to this section 4.03, (i) Indebtedness permitted by this section need not be permitted solely by reference to one provision permitting such Indebtedness but may be permitted in part by one such provision and in part by one or more other provisions of this provision permitting such Indebtedness and (ii) in the event that Indebtedness or any portion thereof meets the criteria of more than one of the types of Indebtedness described in this section, the Company, in its sole discretion, shall classify such Indebtedness and only be required to include the amount of such Indebtedness in one of such clauses. SECTION 4.04. Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving the Company) except dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and except dividends or distributions payable to the Company or another Restricted Subsidiary (and, if such Restricted Subsidiary has shareholders other than the Company or other Restricted Subsidiaries, to its other shareholders on a pro rata basis or on a basis that results in the receipt by the Company or a Restricted Subsidiary of dividends or distributions of equal or greater value); (ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company or any Restricted Subsidiary held by Persons other than the Company or another 39 33 Restricted Subsidiary; (iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition); or (iv) make any Investment (other than a Permitted Investment) in any Person (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement, Investment or payment being herein referred to as a "Restricted Payment") if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); (2) the Company could not Incur at least $1.00 of additional Indebtedness under Section 4.03(a); or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments (the amount so expended, if other than in cash, to be determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors) declared or made subsequent to the Original Issue Date would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the Original Issue Date to the end of the most recent fiscal quarter ending at least 45 days prior to the date of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) 100% of the aggregate net proceeds received by the Company (including the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors) of property received by the Company; provided, however, that such property is related, ancillary or complementary to any business of the Company and the Restricted Subsidiaries conducted on the Issue Date) as a capital contribution or from the issue or sale of its Capital Stock (other than Disqualified Stock) of the Company or Holdings subsequent to the Original Issue Date (other than an issuance or sale to a Subsidiary of the Company or an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries to the extent the purchase by such plan or trust is financed by Indebtedness of such plan or trust and for which the Company or a Subsidiary is liable, directly or indirectly, as a guarantor or otherwise (including by the making of cash contributions to such plan or trust which are used to pay interest or principal on such Indebtedness)); (C) the amount by which Indebtedness of the Company or its Restricted Subsidiaries is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary) of any Indebtedness of the Company or its Restricted Subsidiaries issued subsequent to the Original Issue Date and convertible or exchangeable for 40 34 Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash or other property (other than such Capital Stock) distributed by the Company or any Restricted Subsidiary upon such conversion or exchange) (including any such exchange pursuant to the exercise of a conversion right or privilege in connection with which cash is paid in lieu of the issuance of fractional shares or scrip); (D) the aggregate Net Cash Proceeds received subsequent to the Original Issue Date by the Company or Holdings (other than from any Restricted Subsidiary) upon the exercise of any options or warrants to purchase Capital Stock (other than Disqualified Stock) of the Company or Holdings; and (E) the amount equal to the net reduction in Investments in Unrestricted Subsidiaries resulting from (i) payments of dividends, repayments of the principal of loans, return of capital or advances or other transfers of assets to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries or (ii) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investment") or the receipt of proceeds from the sale or other disposition of any portion of any Investment in an Unrestricted Subsidiary not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount was included in the calculation of the amount of Restricted Payments. (b) The provisions of Section 4.04(a) shall not prohibit: (i) any purchase, redemption, retirement or other acquisition of Capital Stock or Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries to the extent the purchase by such plan or trust is financed by Indebtedness of such plan or trust and for which the Company or a Subsidiary is liable, directly or indirectly, as a guarantor or otherwise (including by the making of cash contributions to such plan or trust which are used to pay interest or principal on such Indebtedness)); provided, however, that (A) such purchase, redemption, retirement or other acquisition shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale to the extent so used shall be excluded from Section 4.04(a)(iv)(B); (ii) any purchase, defeasance, retirement, redemption or other acquisition of (A) Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be Incurred pursuant to Section 4.03(b) or (B) Subordinated Obligations of a Restricted Subsidiary made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of any Restricted Subsidiary or the Company which is permitted to be Incurred pursuant to Section 4.03(b); provided, however, that such purchase, defeasance, retirement, 41 35 redemption or other acquisition shall be excluded in the calculation of the amount of Restricted Payments; (iii) any purchase, retirement, redemption or other acquisition of Disqualified Stock made by exchange for, or out of the proceeds of the substantially concurrent sale of, Disqualified Stock; provided, however, that such purchase, retirement, redemption or other acquisition shall be excluded in the calculation of the amount of Restricted Payments; (iv) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted by Section 4.06; provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (v) upon the occurrence of a Change of Control and within 60 days after the completion of the offer to repurchase the Securities pursuant to Section 4.08 (including the purchase of all Securities tendered), any purchase, defeasance, retirement, redemption or other acquisition of Subordinated Obligations required pursuant to the terms thereof as a result of such Change of Control; provided, however, that such purchase, defeasance, retirement, redemption or other acquisition shall be included in the calculation of the amount of Restricted Payments; (vi) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with this covenant; provided, however, that such dividend shall be included in the calculation of the amount of Restricted Payments; (vii) the repurchase, for cash or notes, of shares of, or options or warrants to purchase shares of, or payments to Holdings to enable Holdings to repurchase shares of, or options or warrants to purchase shares of, Capital Stock of Holdings, the Company or any of the Subsidiaries of the Company from present or former Management Investors in an amount not in excess of $2,000,000 in any one year and $5,000,000 in the aggregate since the Original Issue Date; provided, however, that the amount of such repurchase shall be included in the calculation of the amount of Restricted Payments; (viii) payments in lieu of fractional shares in amount not in excess of $250,000 in the aggregate since the Original Issue Date; (ix) payments by the Company to Holdings to pay Federal, state and local taxes to the extent such taxes are attributable to the Company and its Restricted Subsidiaries; provided, however, that such payments shall be excluded from the calculation of the amount of Restricted Payments; (x) loans, advances, dividends or distributions by the Company to Holdings to pay dividends on the common stock of Holdings following a Public Equity Offering of such stock; but only to the extent that such loans, advances, dividends or distributions do not exceed 6% per annum of the net proceeds received by the Company in such Public Equity Offering; provided, however, that 42 36 the amount of such loans, advances, dividends or distributions shall be included in the amount of Restricted Payments; or (xi) in each case to the extent such payments by Holdings are attributable to the Company and its Restricted Subsidiaries, payments by the Company to Holdings not to exceed an amount necessary to permit Holdings to (A) make payments in respect to its indemnification obligations owing to directors, officers or other Persons under Holding's charter or by-laws or pursuant to written agreements with any such Person, (B) make payments in respect of its other operational expenses (other than taxes) incurred in the ordinary course of business, or (C) make payments in respect of indemnification obligations and costs and expenses incurred by Holdings in connection with any offering of common stock of Holdings; provided, however, that all such payments shall be included in the calculation of the amount of Restricted Payments. SECTION 4.05. Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness owed to the Company, (ii) make any loans or advances to the Company or (iii) transfer any of its property or assets to the Company, except: (1) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Original Issue Date; (2) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness entered into prior to the date on which such Restricted Subsidiary was acquired or designated as a Restricted Subsidiary by the Company (other than as consideration in, in contemplation of, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was otherwise acquired by the Company); (3) any encumbrance or restriction pursuant to (x) an agreement constituting Refinancing Indebtedness of Indebtedness Incurred pursuant to an agreement referred to in clause (1) or (2) of this Section or contained in any amendment to an agreement referred to in clause (1) or (2) of this Section 4.05 or this clause (3) or (y) Indebtedness Incurred pursuant to clause (i) of paragraph (b) of Section 4.03; provided, however, that the encumbrances and restrictions contained in (A) any such refinancing agreement or amendment referred to in clause (x) above are, collectively, no more restrictive in any material respect, than the encumbrances and restrictions contained in such agreements (as determined in good faith by the Company) and (B) any instrument relating to any Indebtedness referred to in clause (y) above, are, collectively, no more restrictive in any material respect than the encumbrances and restrictions contained in the Senior Bank Facilities as in effect on the Original Issue Date (as determined in good faith by the Company); 43 37 (4) in the case of clause (iii) of this Section 4.05, any encumbrance or restriction contained in security agreements or mortgages securing Indebtedness of a Restricted Subsidiary which are not prohibited by Section 4.12 to the extent such encumbrances or restrictions restrict the transfer of the property or assets subject to such security agreements or mortgages; (5) any encumbrance or restriction existing under or by reason of applicable law; (6) customary non-assignment provisions of any licensing agreement or of any lease; (7) any encumbrance or restriction contained in contracts for sales of assets otherwise permitted by this Indenture; (8) with respect to a Restricted Subsidiary, any encumbrance or restriction imposed pursuant to an agreement that has been entered into for the sale of all or substantially all of the Capital Stock of such Restricted Subsidiary; and (9) Purchase Money Obligations for property acquired in the ordinary course of business that impose restrictions of the type referred to in clause (iii) of this Section 4.05. SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Disposition unless (i) the Company or such Restricted Subsidiary receives consideration (including by way of relief from, or by any other Person assuming sole responsibility for, any liabilities, contingent or otherwise) at the time of such Asset Disposition at least equal to the fair market value, as may be determined (and shall be determined, to the extent an Asset Disposition (or a series of related Asset Dispositions) involves a fair market value greater than $1,000,000) in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors (including as to the value of all non-cash consideration), of the shares and assets subject to such Asset Disposition, (ii) in the case of an Asset Disposition (or a series of related Asset Dispositions) having a fair market value of $1,000,000 or more at least 80% (or 100% in the case of lease payments) of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or cash equivalents and (iii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) (A) first, to the extent the Company or such Restricted Subsidiary elects (or is required by the terms of any Senior Indebtedness), to prepay, repay or purchase Senior Indebtedness of the Company or a Wholly Owned Subsidiary or, in the case of a sale by a Restricted Subsidiary which is not a Wholly Owned Subsidiary, to prepay, repay or purchase Senior Indebtedness of such Restricted Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within 365 days after the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) second, to the extent of the balance of Net Available Cash after application in accordance with clause (A), to the extent the Company or such Restricted Subsidiary elects, to reinvest (or enter into a binding contract to do so) in Additional Assets (including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by the Company or another Restricted Subsidiary), within 365 days from the 44 38 later of such Asset Disposition or the receipt of such Net Available Cash; (C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to offer to purchase Original Securities to the extent required by the Original Indenture; (D) fourth, to the extent of the balance of Net Available Cash after application in accordance with clauses (A), (B) and (C), to offer to purchase the Add-on Securities to the extent required by the Add-on Indenture; (E) fifth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B), (C) and (D), to make an Offer (as defined below) to purchase Securities pursuant to and subject to the conditions of Section 4.06(b) and (F) sixth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B), (C), (D) and (E), to fund (to the extent consistent with any other applicable provision of this Indenture) any corporate purpose; provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) above, the Company or such Restricted Subsidiary shall retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this covenant, the Company and its Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with this covenant except to the extent that the aggregate Net Available Cash from all Asset Dispositions in any year which are not applied in accordance with this covenant exceed $5,000,000 in such year. For the purposes of Section 4.06(a)(ii), the following are deemed to be cash: (w) the assumption of Indebtedness of the Company (other than Disqualified Stock of the Company) or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition, (x) securities received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash, (y) Indebtedness of any Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of such Asset Disposition, to the extent that the Company and each other Restricted Subsidiary is released from any Guarantee of such Indebtedness in connection with such Asset Disposition, and (z) consideration consisting of Indebtedness of the Company or any Restricted Subsidiary. (b) In the event of an Asset Disposition that requires the purchase of Securities pursuant to Section 4.06(a)(iii)(E), the Company shall be required to purchase Securities, tendered pursuant to an offer, commenced within 30 days following the expiration of the 365 day period referred to in Section 4.06(a)(iii)(B) (or, if the Company so elects, at any time within such 365 day period), by the Company for the Securities (the "Offer") at a purchase price of 100% of their principal amount plus accrued and unpaid interest, if any, to the date of purchase in accordance with the procedures (including prorationing in the event of oversubscription) set forth in Section 4.06(c) below. If the aggregate purchase price of Securities tendered pursuant to the Offer is less than the Net Available Cash allotted to the purchase of the Securities, the Company shall apply the remaining Net Available Cash in accordance with Section 4.06(a)(iii)(F) and upon completion of the purchase of the Securities tendered pursuant to the Offer, the remaining amount of Net Available Cash, if any, will be reset at zero. The Company shall not be required to make an Offer for Securities pursuant to this Section if the Net Available Cash available therefor (after application of the proceeds as provided in clauses (A) and (B) of Section 4.06(a)(iii)) is less than $5,000,000 (which lesser amount shall be carried forward for purposes of determining whether an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). 45 39 (c)(1) Promptly, and in any event within 10 days after the Company becomes obligated to make an Offer, the Company shall deliver to the Trustee and send, by first-class mail to each Holder, a written notice stating that the Holder may elect to have his Securities purchased by the Company either in whole or in part (subject to prorationing as hereinafter described in the event the Offer is oversubscribed) in integral multiples of $1,000 of principal amount, at the applicable purchase price. The notice shall specify a purchase date not less than 30 days nor more than 60 days after the date of such notice (the "Purchase Date") and shall contain such information concerning the business of the Company which the Company in good faith believes will enable such Holders to make an informed decision (which at a minimum will include (i) the most recently filed Annual Report on Form 10-K (including audited consolidated financial statements) of the Company, the most recent subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form 8-K of the Company filed subsequent to such Quarterly Report, other than Current Reports describing Asset Dispositions otherwise described in the offering materials (or corresponding successor reports), (ii) a description of material developments in the Company's business subsequent to the date of the latest of such Reports, and (iii) if material, appropriate pro forma financial information) and all instructions and materials necessary to tender Securities pursuant to the Offer, together with the information contained in clause (3). (2) Not later than the date upon which written notice of an Offer is delivered to the Trustee as provided below, the Company shall deliver to the Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer Amount"), (ii) the allocation of the Net Available Cash from the Asset Dispositions pursuant to which such Offer is being made and (iii) the compliance of such allocation with the provisions of Section 4.06(a). On such date, the Company shall also irrevocably deposit with the Trustee or with a paying agent (or, if the Company is acting as its own paying agent, segregate and hold in trust) in Temporary Cash Investments an amount equal to the Offer Amount to be held for payment in accordance with the provisions of this Section. Upon the expiration of the period for which the Offer remains open (the "Offer Period"), the Company shall deliver to the Trustee for cancelation the Securities or portions thereof which have been properly tendered to and are to be accepted by the Company. The Trustee (or paying agent) shall, on the Purchase Date, mail or deliver payment to each tendering Holder in the amount of the purchase price. In the event that the aggregate purchase price of the Securities delivered by the Company to the Trustee is less than the Offer Amount, the Trustee (or paying agent) shall deliver the excess to the Company (or if the Company is acting as paying agent, the Company may release such amount from trust) promptly after the expiration of the Offer Period for application in accordance with this Section. (3) Holders electing to have a Security purchased will be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least three Business Days prior to the Purchase Date. Holders will be entitled to withdraw their election if the Trustee or the Company receives not later than 5:00 PM Eastern Standard Time one Business Day prior to the Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. If at the expiration of the Offer Period the aggregate principal amount of Securities surrendered by Holders exceeds the Offer Amount, the Company shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be 46 40 deemed appropriate by the Company so that only Securities in denominations of $1,000, or integral multiples thereof, shall be purchased). Holders whose Securities are purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. (4) At the time the Company delivers Securities to the Trustee which are to be accepted for purchase, the Company shall also deliver an Officers' Certificate and an Opinion of Counsel stating that such Securities are to be accepted by the Company pursuant to and in accordance with the terms of this Section. A Security shall be deemed to have been accepted for purchase at the time the Trustee, directly or through an agent, mails or delivers payment therefor to the surrendering Holder. (d) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof. SECTION 4.07. Limitation on Transactions with Affiliates. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into or conduct any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") on terms (i) that are less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate and (ii) that, in the event such Affiliate Transaction involves an aggregate amount in excess of $1,000,000, are not in writing and have not been approved by a majority of the members of the Board of Directors having no material direct or indirect financial interest in or with respect to such Affiliate Transaction. In addition, if such Affiliate Transaction involves an amount in excess of $5,000,000, a fairness opinion must be obtained from a nationally recognized appraisal or investment banking firm. (b) The provisions of Section 4.07(a) shall not prohibit (i) any Restricted Payment or Permitted Investment permitted to be made pursuant to Section 4.04, (ii) fees, compensation or employee benefit arrangements paid to, and any indemnity provided for the benefit of directors, officers or employees of the Company, Holdings or any Subsidiary of the Company in the ordinary course of business or any Indebtedness permitted to be Incurred pursuant to Section 4.03(b)(xii), or any payments in respect thereof, (iii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (iv) transactions pursuant to agreements entered into or in effect on the Original Issue Date, including amendments thereto entered into after the Original Issue Date, provided that the terms of any such amendment are not, in the aggregate, less favorable to the Company or such Restricted Subsidiary than the terms of such agreement prior to such amendment and provided further that such agreements are set forth on Schedule 4.07 hereto, (v) loans or advances to employees that are Affiliates of the Company in the ordinary course of business, but in any event not to exceed $2,000,000 in the aggregate outstanding at any one time, (vi) any transaction between the Company and a Restricted Subsidiary or 47 41 between Restricted Subsidiaries (so long as the other stockholders of any participating Restricted Subsidiaries which are not Wholly Owned Subsidiaries are not themselves Affiliates of the Company) or (vii) payments with respect to Indebtedness Incurred pursuant to Section 4.03(b)(viii). SECTION 4.08. Change of Control. (a) Upon a Change of Control, each Holder shall have the right to require that the Company repurchase all or any part of such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date, in accordance with the terms contemplated in Section 4.08(b); provided, however, that notwithstanding the occurrence of a Change of Control, the Company shall not be obligated to purchase the Securities pursuant to this Section 4.08 in the event that it has mailed notice of its election to redeem all the Securities under Section 3.07. (b) Subject to the proviso to Section 4.08(a), within 30 days following any Change of Control, the Company shall mail a notice to each Holder with a copy to the Trustee stating, among other things: (1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase all or any portion in integral multiples of $1,000 of such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on a record date to receive interest due on the relevant interest payment date that is on or prior to the date of purchase); (2) the circumstances and relevant facts and financial information regarding such Change of Control; (3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (4) the instructions determined by the Company, consistent with this Section, that a Holder must follow in order to have its Securities or any portion thereof purchased. (c) Holders electing to have a Security purchased shall be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least three Business Days prior to the purchase date. Holders shall be entitled to withdraw their election if the Trustee or the Company receives not later than 5:00 PM Eastern Standard Time one Business Day prior to the purchase date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. (d) On the purchase date, all Securities purchased by the Company under this Section shall be delivered to the Trustee for cancelation, and the Company shall pay 48 42 the purchase price plus accrued and unpaid interest to the purchase date, if any, to the Holders entitled thereto. (e) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof. SECTION 4.09. Compliance Certificate. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year and within 60 days of the end of the first three fiscal quarters of the Company an Officers' Certificate complying with Section 314(a)(4) of the TIA and stating that in the course of the performance by the signers of their duties as Officers of the Company they would normally have knowledge of any Default or Event of Default and, if such signer does know of such a Default or Event of Default, the certificate shall describe such Default or Event of Default with particularity and describe what actions, if any, the Company proposes to take with respect to such Default or Event of Default. SECTION 4.10. Further Instruments and Acts. Upon request of the Trustee, the Company shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. SECTION 4.11. Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries. The Company shall not sell any shares of Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue or sell any shares of its Capital Stock, except (i) to the Company or a Wholly Owned Subsidiary, (ii) if, immediately after giving effect to such issuance or sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary, (iii) directors' qualifying shares or (iv) in a Public Equity Offering as a result of or after which a Public Market exists. The proceeds of any sale of such Capital Stock permitted by clause (ii) shall be treated as Net Available Cash from an Asset Disposition and must be applied in accordance with the terms of Section 4.06. SECTION 4.12. Limitation on Liens. (a) The Company shall not, and shall not permit any Guarantor Subsidiary to, directly or indirectly, create or permit to exist any Lien (the "Initial Lien") on any of its property or assets (including Capital Stock), whether owned on the Original Issue Date or thereafter acquired, securing any Indebtedness other than Senior Indebtedness of the Company in the case of the Company, or Senior Indebtedness of a Guarantor Subsidiary, in the case of a Guarantor Subsidiary, unless contemporaneously therewith effective provision is made to secure the Securities and, in respect of Liens on any Guarantor Subsidiary's property or assets, the Subsidiary Guaranty of such Guarantor Subsidiary equally and ratably with (or on a senior basis to, in the case of Indebtedness subordinated in right of payment to the Securities and such Subsidiary Guaranty) such obligation for so long as such obligation is so secured. The preceding sentence shall not require the Company or any Restricted Subsidiary to equally ratably secure the Securities if the Initial Lien consists of Permitted Liens. 49 43 (b) Any Lien created for the benefit of the Holders of the Securities pursuant to the foregoing paragraph (a) shall provide by its terms that such Lien shall be automatically and unconditionally released and discharged upon the release and discharge of the Initial Lien. SECTION 4.13. Limitation on Sale/Leaseback Transactions. The Company shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with respect to any property unless (i) the Company or such Restricted Subsidiary would be entitled to Incur Indebtedness in an amount equal to the Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to Section 4.03 and (ii) the net cash proceeds received by the Company or any Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at least equal to the fair market value (in the case of Sale/Leaseback Transactions involving amounts in excess of $1,000,000, as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors) of such property and (iii) the transfer of such property is permitted by, and the Company applies the proceeds of such transaction in compliance with, Section 4.06. SECTION 4.14. Limitation on Lines of Business. The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any business other than (i) a Related Business and (ii) the making of Permitted Investments and the operations of any business that is part of a Permitted Investment. Holdings will not engage in any business other than managing its investment in the Company. SECTION 4.15. Future Guarantor Subsidiaries. The Company shall cause (a) each Restricted Subsidiary that is a Domestic Subsidiary which Incurs Indebtedness and (b) each Restricted Subsidiary that is not a Domestic Subsidiary and that after the Original Issue Date enters into a Guarantee of any of the obligations of the Company, Holdings or any of the Company's Subsidiaries pursuant to the Senior Bank Facilities to execute and deliver to the Trustee a supplemental indenture in the form of Exhibit C hereto pursuant to which such Subsidiary shall Guarantee payment of the Securities as provided in Section 10.06; provided, however, that such Subsidiary shall not be required to execute and deliver a supplemental indenture pursuant to this Section in the event that such Subsidiary is a party to this Indenture at the time of such Incurrence of Indebtedness. ARTICLE V Successor Company SECTION 5.01. When Company May Merge or Transfer Assets. The Company shall not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to any Person unless: (i) the resulting, surviving or transferee Person (the "Successor Company") shall be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the 50 44 Trustee, all the obligations of the Company under the Securities and this Indenture; (ii) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (iii) except in the case of a merger the sole purpose of which is to change the Company's jurisdiction of incorporation, immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness under Section 4.03(a); (iv) immediately after giving effect to such transaction, the Successor Company shall have Consolidated Net Worth in an amount which is not less than the Consolidated Net Worth of the Company immediately prior to such transaction; and (v) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture. Notwithstanding the foregoing clauses (ii), (iii) and (iv), any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company. The Successor Company shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture, but the predecessor Company in the case of a conveyance, transfer or lease of all or substantially all its assets shall not be released from the obligation to pay the principal of and interest on the Securities. ARTICLE VI Defaults and Remedies SECTION 6.01. Events of Default. An "Event of Default" occurs if: (1) a default occurs in any payment of interest on any Security when the same becomes due and payable, whether or not such payment shall be prohibited by Article X, and such default continues for a period of 30 days; (2) a default occurs in the payment of the principal of any Security when the same becomes due and payable at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise, whether or not such payment shall be prohibited by Article X; (3) the Company fails to comply with Section 5.01; 51 45 (4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.11, 4.12, 4.13, 4.14 or 4.15 (other than a failure to purchase Securities when required under Section 4.06 or 4.08) and such failure continues for 30 days after the notice specified in the penultimate paragraph of this Section 6.01; (5) the Company or any Guarantor Subsidiary fails to comply with any of its agreements in the Securities or this Indenture (other than those referred to in (1), (2), (3) or (4) above) and such failure continues for 60 days after the notice specified in the penultimate paragraph of this Section 6.01; (6) Indebtedness of the Company or any Significant Subsidiary is not paid within any applicable grace period after final maturity or the acceleration of any such Indebtedness by the holders of such Indebtedness because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $5,000,000 or its foreign currency equivalent at the time; (7) the Company or any Restricted Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it or for any substantial part of its property; (D) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Restricted Subsidiary in an involuntary case; (B) appoints a Custodian of the Company or any Restricted Subsidiary or for any substantial part of its property; or (C) orders the winding up or liquidation of the Company or any Restricted Subsidiary; or any similar relief is granted under any foreign laws and the order or decree remains unstayed and in effect for 60 days; (9) the rendering of any judgment or decree for the payment of money in excess of $5,000,000 or its foreign currency equivalent (net of amounts paid within 30 days of such judgment or decree under any insurance, indemnity, bond, surety or similar instrument) against the Company or any Restricted Subsidiary 52 46 and is not discharged, waived or stayed and either (A) an enforcement proceeding is commenced with respect to such judgment or decree or (B) such judgment or decree remains outstanding the later of (i) the day which is the sixtieth day after the judgment is rendered and (ii) the day on which any right to appeal expires; or (10) any Subsidiary Guaranty ceases to be in full force and effect (except as contemplated by the terms thereof) or any Guarantor Subsidiary shall deny or disaffirm its obligations under this Indenture or any Subsidiary Guaranty and such Default continues for 10 days. The foregoing shall constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, United States Code, or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. A Default under clause (4) or (5) is not an Event of Default until the Trustee or the Holders of at least 25% in principal amount of the outstanding Securities notify the Company of the Default and the Company does not cure such Default within the time specified in clauses (4) or (5) hereof after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default." The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of any Event of Default under clause (3), (6), (7) or (10) and any event which with the giving of notice or the lapse of time would become an Event of Default under clause (4), (5), (8) or (9), its status and what action the Company is taking or proposes to take with respect thereto. SECTION 6.02. Acceleration. If an Event of Default (other than an Event of Default specified in Section 6.01(7) or 6.01(8) with respect to the Company) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the outstanding Securities by notice to the Company and the Trustee, may declare the principal of and accrued but unpaid interest on all the Securities to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default specified in Section 6.01(7) or 6.01(8) with respect to the Company occurs and is continuing, the principal of and interest on all the Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholders. The Holders of a majority in principal amount of the Securities by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of 53 47 principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in principal amount of the Securities by notice to the Trustee may waive an existing Default and its consequences except (i) a Default in the payment of the principal of or interest on a Security or (ii) a Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each Securityholder affected. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION 6.05. Control by Majority. The Holders of a majority in principal amount of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to Section 7.01, that the Trustee determines is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. SECTION 6.06. Limitation on Suits. A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders of at least 25% in principal amount of the Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (5) the Holders of a majority in principal amount of the Securities do not give the Trustee a direction inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. 54 48 SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(1) or 6.01(2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount then due and owing (together with interest on any unpaid interest to the extent lawful) and the amounts provided for in Section 7.07. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents and take such other actions, including participating as a member, voting or otherwise, of any committee of creditors appointed in the matter, as may be necessary or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Company, any Subsidiary, their respective creditors or their property and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.07. Nothing herein shall be deemed to empower the Trustee to authorize or consent to, or accept or adopt on behalf of any Securityholder, any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Securityholder, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding. SECTION 6.10. Priorities. If the Trustee collects any money or property from the Company pursuant to this Article VI, it shall pay out the money or property in the following order: FIRST: to the Trustee for amounts due under Section 7.07; SECOND: to Securityholders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and THIRD: to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section. At least 15 days before such record date, the Trustee shall mail to each Securityholder and the Company a notice that states the record date, the payment date and amount to be paid. 55 49 SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Company, a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in principal amount of the Securities. SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the extent it may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. SECTION 6.13. Restoration of Rights and Remedies. If the Trustee or any Securityholder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Securityholder, then, and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Securityholders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Company, Trustee and Securityholders shall continue as though no such proceeding had been instituted. ARTICLE VII Trustee SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the 56 50 certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section and Section 7.02(e); (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a written direction received by it pursuant to Section 6.05. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. (f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA. SECTION 7.02. Rights of Trustee. Subject to Section 7.01: (a) The Trustee may conclusively rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. 57 51 (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided, however, that the Trustee's conduct does not constitute wilful misconduct or negligence. (e) The Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) The Trustee shall be under no obligation to exercise any of the rights or powers created in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. (g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, it will not be responsible for the use or application of any monies received by a Paying Agent other than the Trustee, and it shall not be responsible for any statement of the Company in this Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee's certificate of authentication. SECTION 7.05. Notice of Defaults. If a Default occurs and is continuing and if it is known to a Trust Officer of the Trustee, the Trustee shall mail to each Securityholder notice of the Default within the earlier of 90 days after it occurs or 30 days after it is known to a Trust Officer or written notice of it is received by the Trustee. Except in the case of a Default in payment of principal of, premium (if any) or interest on any Security (including payments pursuant to the mandatory redemption provisions of such Security, if any), the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Securityholders. SECTION 7.06. Reports by Trustee to Holders. As promptly as practicable after each May 15 beginning with May 15, 1998, and in any event prior to July 15 in each year, the Trustee shall mail to each Securityholder a brief report dated as of May 15 that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has 58 52 occurred within the twelve months preceding the reporting date, no report shall be transmitted). The Trustee will also comply with TIA Section 313(b) and TIA Section 313(c). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 7.07. Compensation and Indemnity. The Company shall pay to the Trustee, Paying Agent and Registrar from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and other professionals. Any costs and expenses associated with the Exchange Securities or the Private Exchange Securities shall be paid by the Company. The Company shall indemnify the Trustee, Paying Agent, Registrar, and each of their officers, directors and employees (each in their respective capacities), for and hold each of them harmless against any and all loss, liability or expense (including attorneys' fees) incurred by them without negligence or bad faith on their part in connection with the administration of this trust and the performance of their duties hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the acceptance, exercise or performance of any of its powers or duties hereunder. The Trustee, Paying Agent and Registrar shall notify the Company of any claim for which they may seek indemnity promptly upon obtaining actual knowledge thereof; provided that any failure so to notify the Company shall not relieve the Company of its indemnity obligations hereunder except to the extent the Company shall have been adversely affected thereby. The Company shall defend the claim and the indemnified party shall provide reasonable cooperation at the Company's expense in the defense. Such indemnified parties may have separate counsel and the Company shall pay the fees and expenses of such counsel; provided that the Company shall not be required to pay such fees and expenses if it assumes such indemnified parties' defense and, in such indemnified parties' reasonable judgment, there is no conflict of interest between the Company and such parties in connection with such defense. The Company need not pay for any settlement made without its written consent. The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by an indemnified party through such party's own wilful misconduct, negligence or bad faith. To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest on particular Securities. The Company's payment obligations pursuant to this Section shall survive the discharge of this Indenture. When the Trustee, Paying Agent or Registrar incurs expenses after the occurrence of a Default specified in Section 6.01(7) or 6.01(8) with respect to the Company, the expenses are intended to constitute expenses of administration under the Bankruptcy Law. 59 53 SECTION 7.08. Replacement of Trustee. The Trustee may resign at any time by so notifying the Company in writing. The Holders of a majority in principal amount of the Securities may remove the Trustee by so notifying the Company and the Trustee and may appoint a successor Trustee with the consent of the Company, which shall not be unreasonably withheld. The Company shall remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns, is removed by the Company or by the Holders of a majority in principal amount of the Securities and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver 60 54 such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of TIA Section 310(a). The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA Section 310(b); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. SECTION 7.11. Preferential Collection of Claims Against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated. ARTICLE VIII Discharge of Indenture; Defeasance SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a) When (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.07) for cancelation or (ii) all outstanding Securities have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to Article III hereof and the Company irrevocably deposits with the Trustee funds or U.S. Government Obligations on which payment of principal and interest when due will be sufficient to pay at maturity or upon redemption all outstanding Securities, including interest thereon to maturity or such redemption date (other than Securities replaced pursuant to Section 2.07), and if in either case the Company pays all other sums payable hereunder by the Company including, but not limited to fees and expenses of the Trustee and its counsel, then this Indenture shall, subject to Section 8.01(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of the Company. (b) Subject to Sections 8.01(c), 8.02 and 8.06, the Company at any time may terminate (i) all its obligations under the Securities and this Indenture ("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.11, 4.12, 4.13, 4.14, 4.15, 5.01(iii) and 5.01(iv) and the operation of Sections 6.01(4), 6.01(6), 6.01(7) (with respect to Restricted Subsidiaries only), 6.01(8) (with respect to Restricted Subsidiaries only), 6.01(9) and 6.01(10) ("covenant defeasance option"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. 61 55 If the Company exercises its legal defeasance option, payment of the Securities may not be accelerated because of an Event of Default. If the Company exercises its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Sections 6.01(4), 6.01(6), 6.01(7) (with respect to Restricted Subsidiaries only), 6.01(8) (with respect to Restricted Subsidiaries only), 6.01(9) and 6.01(10) or because of the failure of the Company to comply with Sections 5.01(iii) and 5.01(iv). Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding clauses (a) and (b) above, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the Securities have been paid in full. Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall survive. SECTION 8.02. Conditions to Defeasance. The Company may exercise its legal defeasance option or its covenant defeasance option only if: (1) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations for the payment of principal, premium (if any) and interest on the Securities to maturity or redemption, as the case may be; (2) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Securities to maturity or redemption, as the case may be; (3) 123 days pass after the deposit is made and during the 123-day period no Default specified in Section 6.01(7) or 6.01(8) with respect to the Company occurs which is continuing at the end of the period; (4) the deposit does not constitute a default under any other agreement binding on the Company and is not prohibited by Article X; (5) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (6) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Securityholders will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the 62 56 same manner and at the same times as would have been the case if such defeasance had not occurred; (7) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Securityholders will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and (8) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities as contemplated by this Article VIII have been complied with. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to this Section 8.02 or the principal, premium, if any, and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. Anything in this Section 8.02 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request, in writing, by the Company any cash in dollars or U.S. Government Obligations held by it as provided in paragraph (d) above which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent legal defeasance or covenant defeasance. Before or after a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date in accordance with Article III. SECTION 8.03. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article VIII. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Securities. SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent shall promptly turn over to the Company upon request any excess money or securities held by them at any time. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors. SECTION 8.05. Indemnity for Government Obligations. The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on 63 57 or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations other than any tax, fee or other charge which by law is for the account of the Securityholders. SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article VIII by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article VIII until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article VIII; provided, however, that, if the Company has made any payment of interest on or principal of any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. SECTION 8.07. Concurrent Defeasance Of Securities and Old Securities. The Company shall not exercise either of the defeasance options described in this Article with respect to the Securities unless it deceases each series of Old Securities equivalently and substantially simultaneously. Similarly, the Company shall not defease such series of Old Securities unless it deceases the Securities equivalently and substantially simultaneously. ARTICLE IX Amendments SECTION 9.01. Without Consent of Holders. The Company, the Guarantor Subsidiaries and the Trustee may amend this Indenture or the Securities without notice to or consent of any Securityholder: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to comply with Section 4.15 or Article V; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code; (4) to make any change in Article X or Article XII that would limit or terminate the benefits available to any holder of Senior Indebtedness (or Representative therefor) under Article X or Article XII; (5) to add further Subsidiary Guarantees with respect to the Securities or to release Guarantor Subsidiaries when permitted by the terms hereof, or to secure the Securities; 64 58 (6) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; (7) to comply with any requirements of the SEC in connection with qualifying this Indenture under the TIA; (8) to make any change that does not adversely affect the rights of any Securityholder; or (9) to provide for the issuance and authorization of the Exchange Securities or Private Exchange Securities, which shall have terms substantially identical in all material respects to the Initial Securities (except that the transfer restrictions contained in the Initial Securities shall be modified or eliminated, as appropriate), and which shall be treated, together with any outstanding Initial Securities, as a single issue of securities. An amendment under this Section may not make any change that adversely affects the rights under Article X or Article XII of any holder of Senior Indebtedness of the Company or any Guarantor Subsidiary then outstanding unless the holders of such Senior Indebtedness (or any group or representative thereof authorized to give a consent) consent to such change. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.02. With Consent of Holders. The Company, the Guarantor Subsidiaries and the Trustee may amend this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in principal amount of the Securities. The Holders of at least a majority in principal amount of the Securities may waive compliance by the Company or any Guarantor Subsidiary with any provision or covenant of this Indenture or the Securities. However, without the consent of each Securityholder affected, an amendment or waiver may not: (1) reduce the amount of Securities whose Holders must consent to an amendment or waiver; (2) reduce the rate of or extend the time for payment of interest on any Security; (3) reduce the principal of or extend the Stated Maturity of any Security; (4) reduce the premium payable upon the redemption of any Security or change the time at which any Security may be redeemed in accordance with Article III; (5) make any Security payable in money other than that stated in the Security; 65 59 (6) make any change in Article X or Article XII that adversely affects the rights of any Securityholder under Article X or Article XII; (7) impair the right of any Holder to receive payment of principal of and interest on such Holder's Securities on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder's Securities. (8) modify the Subsidiary Guarantees (except as contemplated by the terms thereof or of this Indenture) in any manner adverse to the Holders; or (9) make any change in Section 6.04, Section 6.07 or the third sentence of this Section. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. An amendment under this Section may not make any change that adversely affects the rights under Article X or Article XII of any holder of Senior Indebtedness of the Company or a Guarantor Subsidiary then outstanding unless the holders of such Senior Indebtedness (or any group or representative thereof authorized to give a consent) consent to such change. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04. Revocation and Effect of Consents and Waivers. A consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Securityholder. An amendment or waiver becomes effective once the consents from the Holders of the requisite percentage in principal amount of outstanding Securities are received by the Company or the Trustee. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be 66 60 Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date. SECTION 9.05. Notation on or Exchange of Securities. If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any amendment authorized pursuant to this Article IX if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 7.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture and complies with the provisions hereof (including Section 9.03). SECTION 9.07. Payment for Consent. Neither the Company nor any Affiliate of the Company shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid to all Holders that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. ARTICLE X Subordination of the Securities SECTION 10.01. Agreement To Subordinate. The Company agrees, and each Securityholder by accepting a Security agrees, that the Indebtedness evidenced by the Securities is subordinated in right of payment, to the extent and in the manner provided in this Article X, to the prior payment in full of all Senior Indebtedness of the Company and that the subordination is for the benefit of and enforceable by the holders of Senior Indebtedness of the Company. The Securities shall in all respects rank pari passu with all other Senior Subordinated Indebtedness of the Company, including, without limitation, the Old Securities, and only Indebtedness of the Company that is Senior Indebtedness of the Company shall rank senior to the Securities in accordance with the provisions set forth herein. For purposes of these subordination provisions, the Indebtedness evidenced by the Securities is deemed to include the liquidated damages payable pursuant to the provisions set forth in the Securities and the Registration Agreement (as defined in the Appendix). All provisions of this Article X shall be subject to Section 10.12. SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any payment or distribution of the assets of the Company to creditors upon a total or partial 67 61 liquidation or a total or partial dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company and its properties: (1) holders of Senior Indebtedness of the Company shall be entitled to receive payment in full of such Senior Indebtedness before Securityholders shall be entitled to receive any payment of principal of or interest on the Securities; and (2) until the Senior Indebtedness of the Company is paid in full, any payment or distribution to which Securityholders would be entitled but for this Article X shall be made to holders of such Senior Indebtedness as their respective interests may appear. SECTION 10.03. Default on Senior Indebtedness of the Company. The Company may not pay the principal of, premium (if any) or interest on the Securities or make any deposit pursuant to Section 8.01 and may not otherwise purchase, redeem or otherwise retire any Securities (collectively, "pay the Securities") if (i) any Senior Indebtedness of the Company is not paid when due or (ii) any other default on Senior Indebtedness of the Company occurs and the maturity of such Senior Indebtedness is accelerated in accordance with its terms unless, in either case, (x) the default has been cured or waived and any such acceleration has been rescinded or (y) such Senior Indebtedness has been paid in full; provided, however, that the Company may pay the Securities without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from the Representative of the holders of such Senior Indebtedness with respect to which either of the events in clause (i) or (ii) of this sentence has occurred and is continuing. During the continuance of any default (other than a default described in clause (i) or (ii) of the preceding sentence) with respect to any Designated Senior Indebtedness of the Company pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Company may not pay the Securities for a period (a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to the Company) of written notice (a "Blockage Notice") of such default from the Representative of the holders of the Designated Senior Indebtedness of the Company specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Trustee (with a copy to the Company) from the Person or Persons who gave such Blockage Notice, (ii) because such Designated Senior Indebtedness has been repaid in full or (iii) because the default giving rise to such Blockage Notice is no longer continuing). Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this Section), unless the holders of such Designated Senior Indebtedness or the Representative of such holders shall have accelerated the maturity of such Designated Senior Indebtedness, the Company may resume payments on the Securities after such Payment Blockage Period, including any missed payments. Not more than one Blockage Notice may be given in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness of the Company during such period; provided, however, that if any Blockage Notice within such 360-day period is given by or on behalf of any holders of Designated Senior Indebtedness of the Company (other than the Bank Indebtedness), the Representative of the Bank Indebtedness may give another Blockage Notice within such period; provided further, however, that in no event may the total number of days during which any Payment 68 62 Blockage Period or Periods is in effect exceed 179 days in the aggregate during any 360 consecutive day period. SECTION 10.04. Acceleration of Payment of Securities. If payment of the Securities is accelerated because of an Event of Default, the Company or the Trustee shall promptly notify the holders of the Designated Senior Indebtedness of the Company (or the Representative of such holders) of the acceleration. If any Designated Senior Indebtedness of the Company is outstanding, the Company may not pay the Securities until five Business Days after such holders or the Representative of the holders of the Designated Senior Indebtedness of the Company receive notice of such acceleration and, thereafter, may pay the Securities only if this Article X otherwise permits payment at that time. SECTION 10.05. When Distribution Must Be Paid Over. If a payment or distribution is made to Securityholders that because of this Article X should not have been made to them, the Securityholders who receive the payment or distribution shall hold such payment or distribution in trust for holders of the Senior Indebtedness of the Company and pay it over to them as their respective interests may appear. SECTION 10.06. Subrogation. After all Senior Indebtedness of the Company is paid in full and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of Senior Indebtedness of the Company to receive distributions applicable to Senior Indebtedness of the Company. A distribution made under this Article X to holders of Senior Indebtedness of the Company which otherwise would have been made to Securityholders is not, as between the Company and Securityholders, a payment by the Company on Senior Indebtedness of the Company. SECTION 10.07. Relative Rights. This Article X defines the relative rights of Securityholders and holders of Senior Indebtedness of the Company. Nothing in this Indenture shall: (1) impair, as between the Company and Securityholders, the obligation of the Company which is absolute and unconditional, to pay principal of and interest on the Securities in accordance with their terms; or (2) prevent the Trustee or any Securityholder from exercising its available remedies upon a Default, subject to the rights of holders of Senior Indebtedness of the Company to receive distributions otherwise payable to Securityholders. SECTION 10.08. Subordination May Not Be Impaired by Company. No right of any holder of Senior Indebtedness of the Company to enforce the subordination of the Indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Company or by its failure to comply with this Indenture. SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding Section 10.03, the Trustee or Paying Agent may continue to make payments on the Securities and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless, not less than two Business Days prior to the date of such payment, a Trust Officer of the Trustee receives written notice satisfactory to it that payments may not be made under this Article X. The Company, the Registrar or co-registrar, the Paying Agent, a Representative or a holder of Senior 69 63 Indebtedness of the Company may give the notice; provided, however, that, if an issue of Senior Indebtedness of the Company has a Representative, only the Representative may give the notice. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of any Senior Indebtedness of the Company (or a Representative of such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or Representative thereof. The Trustee in its individual or any other capacity may hold Senior Indebtedness of the Company with the same rights it would have if it were not Trustee. The Registrar and co-registrar and the Paying Agent may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article X with respect to any Senior Indebtedness of the Company which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness of the Company; and nothing in Article VII shall deprive the Trustee of any of its rights as such holder. Nothing in this Article X shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. SECTION 10.10. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness of the Company, the distribution may be made and the notice given to their Representative (if any). SECTION 10.11. Article X Not To Prevent Events of Default or Limit Right To Accelerate. The failure to make a payment pursuant to the Securities by reason of any provision in this Article X shall not be construed as preventing the occurrence of a Default. Nothing in this Article X shall have any effect on the right of the Securityholders or the Trustee to accelerate the maturity of the Securities. SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding anything contained herein to the contrary, payments from money or the proceeds of U.S. Government Obligations held in trust under Article VIII by the Trustee for the payment of principal of and interest on the Securities shall not be subordinated to the prior payment of any Senior Indebtedness of the Company or subject to the restrictions set forth in this Article X, and none of the Securityholders shall be obligated to pay over any such amount to the Company or any holder of Senior Indebtedness of the Company or any other creditor of the Company. SECTION 10.13. Trustee Entitled To Rely. Upon any payment or distribution pursuant to this Article X, the Trustee and the Securityholders shall be entitled to rely (i) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 10.02 are pending, (ii) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Securityholders or (iii) upon the Representatives for the holders of Senior Indebtedness of the Company for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness of the Company and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article X. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any Person as a holder of Senior Indebtedness of the Company to participate in any payment or distribution pursuant to this Article X, the Trustee may request such Person to furnish evidence to the 70 64 reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness of the Company held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article X, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all actions or omissions of actions by the Trustee pursuant to this Article X. SECTION 10.14. Trustee To Effectuate Subordination. Each Securityholder by accepting a Security authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Securityholders and the holders of Senior Indebtedness of the Company as provided in this Article X and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Indebtedness of the Company. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness of the Company and shall not be liable to any such holders if it shall mistakenly pay over or distribute to Securityholders or the Company or any other Person, money or assets to which any holders of Senior Indebtedness of the Company shall be entitled by virtue of this Article X or otherwise. SECTION 10.16. Reliance by Holders of Senior Indebtedness of the Company on Subordination Provisions. Each Securityholder by accepting a Security acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness of the Company, whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of such Senior Indebtedness of the Company shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. SECTION 10.17. Trustee's Compensation Not Prejudiced. Nothing in this Article shall apply to amounts due to the Trustee pursuant to other sections of this Indenture. ARTICLE XI Subsidiary Guarantees SECTION 11.01. Subsidiary Guarantees. Each Guarantor Subsidiary hereby jointly and severally unconditionally and irrevocably guarantees, as a primary obligor and not merely as a surety, to each Holder and to the Trustee and its successors and assigns (a) the full and punctual payment of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under this Indenture (including obligations to the Trustee) and the Securities and (b) the full and punctual performance within applicable grace periods of all other obligations of the Company whether for expenses, indemnification or otherwise under this Indenture and the Securities (all the foregoing 71 65 being hereinafter collectively called the "Obligations"). Each Guarantor Subsidiary further agrees that the Obligations may be extended or renewed, in whole or in part, without notice or further assent from each such Guarantor Subsidiary, and that each such Guarantor Subsidiary shall remain bound under this Article XI notwithstanding any extension or renewal of any Obligation. Each Guarantor Subsidiary waives presentation to, demand of, payment from and protest to the Company of any of the Obligations and also waives notice of protest for nonpayment. Each Guarantor Subsidiary waives notice of any default under the Securities or the Obligations. The obligations of each Guarantor Subsidiary hereunder shall not be affected by (a) the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Company or any other Person under this Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Securities or any other agreement; (d) the release of any security held by any Holder or the Trustee for the Obligations or any of them; (e) the failure of any Holder or Trustee to exercise any right or remedy against any other guarantor of the Obligations; or (f) any change in the ownership of such Guarantor Subsidiary, except as provided in Section 11.02(b). Each Guarantor Subsidiary further agrees that its Subsidiary Guaranty herein constitutes a guarantee of payment, performance and compliance when due (and not a guarantee of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Obligations. The obligations of each Guarantor Subsidiary hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Guarantor Subsidiary herein shall not be discharged or impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce any remedy under this Indenture, the Securities or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of any Guarantor Subsidiary or would otherwise operate as a discharge of any Guarantor Subsidiary as a matter of law or equity. Each Guarantor Subsidiary further agrees that its Subsidiary Guaranty herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Obligation is rescinded or must otherwise be restored by any Holder or the Trustee upon the bankruptcy or reorganization of the Company or otherwise. In furtherance of the foregoing and not in limitation of any other right which any Holder or the Trustee has at law or in equity against any Guarantor Subsidiary by virtue hereof, upon the failure of the Company to pay the principal of or interest on any Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, or to perform or comply with any other 72 66 Obligation, each Guarantor Subsidiary hereby promises to and shall, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of (i) the unpaid principal amount of such Obligations, (ii) accrued and unpaid interest on such Obligations (but only to the extent not prohibited by law) and (iii) all other monetary Obligations of the Company to the Holders and the Trustee. Each Guarantor Subsidiary agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any Obligations guaranteed hereby until payment in full of all Obligations. Each Guarantor Subsidiary further agrees that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article VI for the purposes of any Subsidiary Guaranty herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such Obligations as provided in Article VI, such Obligations (whether or not due and payable) shall forthwith become due and payable by such Guarantor Subsidiary for the purposes of this Section. Each Guarantor Subsidiary also agrees to pay any and all costs and expenses (including reasonable attorneys' fees and expenses) incurred by the Trustee or any Holder in enforcing any rights under this Section. SECTION 11.02. Limitation on Liability. (a) Any term or provision of this Indenture to the contrary notwithstanding, the maximum, aggregate amount of the obligations guaranteed hereunder by any Guarantor Subsidiary shall not exceed the maximum amount that can be hereby guaranteed without rendering this Indenture, as it relates to any Guarantor Subsidiary, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. (b) This Subsidiary Guaranty as to any Guarantor Subsidiary shall terminate and be of no further force or effect upon the sale or other transfer (i) by such Guarantor Subsidiary of all or substantially all of its assets or (ii) by the Company of all of its stock or other equity interests in such Guarantor Subsidiary, to a Person that is not an Affiliate of the Company; provided, however, that such sale or transfer shall be deemed to constitute an Asset Disposition and the Company shall comply with its obligations under Section 4.06. SECTION 11.03. Successors and Assigns. This Article XI shall be binding upon each Guarantor Subsidiary and its successors and assigns and shall enure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Securities shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture. SECTION 11.04. No Waiver. Neither a failure nor a delay on the part of either the Trustee or the Holders in exercising any right, power or privilege under this Article XI shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, 73 67 remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article XI at law, in equity, by statute or otherwise. SECTION 11.05. Modification. No modification, amendment or waiver of any provision of this Article XI, nor the consent to any departure by any Guarantor Subsidiary therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any Guarantor Subsidiary in any case shall entitle such Guarantor Subsidiary to any other or further notice or demand in the same, similar or other circumstances. SECTION 11.06. Guarantor Subsidiaries; Execution of Supplemental Indenture for Future Guarantor Subsidiaries. (a) Upon their execution and delivery of this Indenture, the Guarantor Subsidiaries will each become Guarantors under this Indenture. (b) Each Subsidiary which is required to become a Guarantor Subsidiary pursuant to Section 4.15 shall promptly execute and deliver to the Trustee a supplemental indenture in the form of Exhibit C hereto pursuant to which such Subsidiary shall become a Guarantor Subsidiary under this Article XI and shall guarantee the Obligations. Concurrently with the execution and delivery of such supplemental indenture, the Company shall deliver to the Trustee an Opinion of Counsel and an Officers' Certificate to the effect that such supplemental indenture has been duly authorized, executed and delivered by such Subsidiary and that, subject to the application of bankruptcy, insolvency, moratorium, fraudulent conveyance or transfer and other similar laws relating to creditors' rights generally and to the principles of equity, whether considered in a proceeding at law or in equity, the Subsidiary Guaranty of such Guarantor Subsidiary is a legal, valid and binding obligation of such Guarantor Subsidiary, enforceable against such Guarantor Subsidiary in accordance with its terms. ARTICLE XII Subordination of the Subsidiary Guaranties SECTION 12.01. Agreement To Subordinate. Each Guarantor Subsidiary agrees, and each Securityholder by accepting a Security agrees, that the Obligations of a Guarantor Subsidiary are subordinated in right of payment, to the extent and in the manner provided in this Article XII, to the prior payment in full of all Senior Indebtedness of such Guarantor Subsidiary and that the subordination is for the benefit of and enforceable by the holders of Senior Indebtedness of such Guarantor Subsidiary. The Obligations with respect to a Guarantor Subsidiary shall in all respects rank pari passu with all other Senior Subordinated Indebtedness of such Guarantor Subsidiary, and only Indebtedness of such Guarantor Subsidiary that is Senior Indebtedness of such Guarantor Subsidiary shall rank senior to the Obligations of such Guarantor Subsidiary in accordance with the provisions set forth herein. SECTION 12.02. Liquidation, Dissolution, Bankruptcy. Upon any payment or distribution of the assets of a Guarantor Subsidiary to creditors upon a total or 74 68 partial liquidation or a total or partial dissolution of such Guarantor Subsidiary or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to such Guarantor Subsidiary and its properties: (1) holders of Senior Indebtedness of such Guarantor Subsidiary shall be entitled to receive payment in full of such Senior Indebtedness before Securityholders shall be entitled to receive any payment of any Obligations from such Guarantor Subsidiary; and (2) until the Senior Indebtedness of such Guarantor Subsidiary is paid in full, any payment or distribution to which Securityholders would be entitled but for this Article XII shall be made to holders of such Senior Indebtedness as their respective interests may appear. SECTION 12.03. Default on Senior Indebtedness of a Guarantor Subsidiary. A Guarantor Subsidiary may not make any payment pursuant to any of the Obligations or repurchase, redeem or otherwise retire any Securities (collectively, "pay its Guaranty") if (i) any Senior Indebtedness of such Guarantor Subsidiary is not paid when due or (ii) any other default on Senior Indebtedness of such Guarantor Subsidiary occurs and the maturity of such Senior Indebtedness is accelerated in accordance with its terms unless, in either case, (x) the default has been cured or waived and any such acceleration has been rescinded or (y) such Senior Indebtedness has been paid in full; provided, however, that such Guarantor Subsidiary may pay its Guaranty without regard to the foregoing if such Guarantor Subsidiary and the Trustee receive written notice approving such payment from the Representative of the holders of such Senior Indebtedness with respect to which either of the events in clause (i) or (ii) of this sentence has occurred and is continuing. During the continuance of any default (other than a default described in clause (i) or (ii) of the preceding sentence) with respect to any Designated Senior Indebtedness of a Guarantor Subsidiary pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, such Subsidiary Guarantor may not pay its Guaranty for a period (a "Guarantor Subsidiary Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to such Guarantor Subsidiary and the Company) of written notice (a "Guarantor Subsidiary Blockage Notice") of such default from the Representative of the holders of the Designated Senior Indebtedness of such Guarantor Subsidiary specifying an election to effect a Guarantor Subsidiary Payment Blockage Period and ending 179 days thereafter (or earlier if such Guarantor Subsidiary Payment Blockage Period is terminated (i) by written notice to the Trustee (with a copy to such Guarantor Subsidiary and the Company) from the Person or Persons who gave such Guarantor Subsidiary Blockage Notice, (ii) because such Designated Senior Indebtedness has been repaid in full or (iii) because the default giving rise to such Guarantor Subsidiary Blockage Notice is no longer continuing). Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this Section), unless the holders of such Designated Senior Indebtedness or the Representative of such holders shall have accelerated the maturity of such Designated Senior Indebtedness, such Guarantor Subsidiary may resume to pay its Guaranty after such Guarantor Subsidiary Payment Blockage Period, including any missed payments. Not more than one Guarantor Subsidiary Blockage Notice may be given with respect to a Guarantor Subsidiary in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness of such Guarantor Subsidiary 75 69 during such period; provided, however, that if any Guarantor Subsidiary Blockage Notice within such 360-day period is given by or on behalf of any holders of Designated Senior Indebtedness of such Guarantor Subsidiary (other than the Bank Indebtedness), the Representative of the Bank Indebtedness may give another Guarantor Subsidiary Blockage Notice within such period; provided further, however, that in no event may the total number of days during which any Guarantor Subsidiary Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate during any 360 consecutive day period. SECTION 12.04. Demand for Payment. If payment of the Securities is accelerated because of an Event of Default and a demand for payment is made on a Guarantor Subsidiary pursuant to Article XI the Trustee shall promptly notify the holders of the Designated Senior Indebtedness of such Guarantor Subsidiary (or the Representative of such holders) of such demand. If any Designated Senior Indebtedness of such Guarantor Subsidiary is outstanding, such Guarantor Subsidiary may not pay its Guaranty until five Business Days after such holders or the Representative of the holders of the Designated Senior Indebtedness of such Guarantor Subsidiary receive notice of such demand and, thereafter, may pay its Guaranty only if this Article XII otherwise permits payment at that time. SECTION 12.05. When Distribution Must Be Paid Over. If a payment or distribution is made to Securityholders that because of this Article XII should not have been made to them, the Securityholders who receive the payment or distribution shall hold such payment or distribution in trust for holders of the Senior Indebtedness of the relevant Guarantor Subsidiary and pay it over to them as their respective interests may appear. SECTION 12.06. Subrogation. After all Senior Indebtedness of a Guarantor Subsidiary is paid in full and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of Senior Indebtedness of such Guarantor Subsidiary to receive distributions applicable to Senior Indebtedness of such Guarantor Subsidiary. A distribution made under this Article XII to holders of Senior Indebtedness of such Guarantor Subsidiary which otherwise would have been made to Securityholders is not, as between such Guarantor Subsidiary and Securityholders, a payment by such Guarantor Subsidiary on Senior Indebtedness of such Guarantor Subsidiary. SECTION 12.07. Relative Rights. This Article XII defines the relative rights of Securityholders and holders of Senior Indebtedness of a Guarantor Subsidiary. Nothing in this Indenture shall: (1) impair, as between a Guarantor Subsidiary and Securityholders, the obligation of a Guarantor Subsidiary which is absolute and unconditional, to pay its Obligations to the extent set forth in Article XI; or (2) prevent the Trustee or any Securityholder from exercising its available remedies upon a default by a Guarantor Subsidiary under its Obligations, subject to the rights of holders of Senior Indebtedness of such Guarantor Subsidiary to receive distributions otherwise payable to Securityholders. 76 70 SECTION 12.08. Subordination May Not Be Impaired by a Guarantor Subsidiary. No right of any holder of Senior Indebtedness of a Guarantor Subsidiary to enforce the subordination of the Obligations of such Guarantor Subsidiary shall be impaired by any act or failure to act by such Guarantor Subsidiary or by its failure to comply with this Indenture. SECTION 12.09. Rights of Trustee and Paying Agent. Notwithstanding Section 12.03, the Trustee or Paying Agent may continue to make payments on the Securities and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless, not less than two Business Days prior to the date of such payment, a Trust Officer of the Trustee receives notice satisfactory to it that payments may not be made under this Article XII. A Guarantor Subsidiary, the Registrar or co-registrar, the Paying Agent, a Representative or a holder of Senior Indebtedness of a Guarantor Subsidiary may give the notice; provided, however, that, if an issue of Senior Indebtedness of a Guarantor Subsidiary has a Representative, only the Representative may give the notice. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of any Senior Indebtedness of a Guarantor Subsidiary (or a Representative of such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or Representative thereof. The Trustee in its individual or any other capacity may hold Senior Indebtedness of a Guarantor Subsidiary with the same rights it would have if it were not Trustee. The Registrar and co-registrar and the Paying Agent may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article XII with respect to any Senior Indebtedness of a Guarantor Subsidiary which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness of such Guarantor Subsidiary; and nothing in Article VII shall deprive the Trustee of any of its rights as such holder. Nothing in this Article XII shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. SECTION 12.10. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness of a Guarantor Subsidiary, the distribution may be made and the notice given to their Representative (if any). SECTION 12.11. Article XII Not To Prevent Events of Default or Limit Right To Accelerate. The failure of a Guarantor Subsidiary to make a payment on any of its Obligations by reason of any provision in this Article XII shall not be construed as preventing the occurrence of a default by such Guarantor Subsidiary under its Obligations. Nothing in this Article XII shall have any effect on the right of the Securityholders or the Trustee to make a demand for payment on a Guarantor Subsidiary pursuant to Article XI. SECTION 12.12. Trustee Entitled To Rely. Upon any payment or distribution pursuant to this Article XII, the Trustee and the Securityholders shall be entitled to rely (i) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 12.02 are pending, (ii) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Securityholders or (iii) upon the Representatives for the holders of Senior Indebtedness of a Guarantor Subsidiary for the purpose of 77 71 ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness of a Guarantor Subsidiary and other Indebtedness of a Guarantor Subsidiary, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XII. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any Person as a holder of Senior Indebtedness of a Guarantor Subsidiary to participate in any payment or distribution pursuant to this Article XII, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness of such Guarantor Subsidiary held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article XII, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all actions or omissions of actions by the Trustee pursuant to this Article XII. SECTION 12.13. Trustee To Effectuate Subordination. Each Securityholder by accepting a Security authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Securityholders and the holders of Senior Indebtedness of each of the Guarantor Subsidiaries as provided in this Article XII and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 12.14. Trustee Not Fiduciary for Holders of Senior Indebtedness of a Guarantor Subsidiary. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness of a Guarantor Subsidiary and shall not be liable to any such holders if it shall mistakenly pay over or distribute to Securityholders or the relevant Guarantor Subsidiary or any other Person, money or assets to which any holders of Senior Indebtedness of such Guarantor Subsidiary shall be entitled by virtue of this Article XII or otherwise. SECTION 12.15. Reliance by Holders of Senior Indebtedness of a Guarantor Subsidiary on Subordination Provisions. Each Securityholder by accepting a Security acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness of a Guarantor Subsidiary, whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. ARTICLE XIII Miscellaneous SECTION 13.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. 78 72 SECTION 13.02. Notices. Any notice or communication shall be in writing and delivered in person or mailed by first-class mail or by national overnight courier service addressed as follows: if to the Company or any Guarantor Subsidiary: 2121 Brooks Avenue Neenah, WI 54957 Attention of: Vice President - Finance if to the Trustee: United States Trust Company of New York 114 West 47th Street, 25th Floor New York, New York 10036 Attention: Corporate Trust Division The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed by first class mail within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it, except that any such notice to the Trustee must be received by a Trust Officer to be duly given. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. SECTION 13.03. Communication by Holders with Other Holders. Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 13.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee and complying with Section 11.05 stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and 79 73 (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee and complying with Section 11.05 stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 13.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that the individual making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. SECTION 13.06. When Securities Disregarded. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination. SECTION 13.07. Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 13.08. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or a day on which commercial banking institutions (including, without limitation, the Federal Reserve System) are authorized or required by law to close in New York City. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected. SECTION 13.09. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 80 74 SECTION 13.10. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company of any Guarantor Subsidiary shall not have any liability for any obligations of the Company or any Guarantor Subsidiary under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 13.11. Successors. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 13.12. Multiple Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION 13.13. Table of Contents; Headings. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. 81 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. NEENAH FOUNDRY COMPANY, By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO HARTLEY CONTROLS CORPORATION, By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO NEENAH TRANSPORT, INC., By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO DEETER FOUNDRY, INC., By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO MERCER FORGE CORPORATION, By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO A&M SPECIALTIES, INC., By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO 82 ADVANCED CAST PRODUCTS, INC., By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO BELCHER CORPORATION, By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO PEERLESS CORPORATION, By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO DALTON CORPORATION, By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO DALTON CORPORATION, WARSAW MANUFACTURING FACILITY, By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO DALTON CORPORATION, ASHLAND MANUFACTURING FACILITY, By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO 83 DALTON CORPORATION, KENDALLVILLE MANUFACTURING FACILITY, By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO DALTON CORPORATION, STRYKER MANUFACTURING FACILITY, By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO 84 UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee, by /s/ Patricia Stermer ------------------------- Name: Patricia Stermer Title: Assistant Vice President 85 APPENDIX A PROVISIONS RELATING TO INITIAL SECURITIES, PRIVATE EXCHANGE SECURITIES AND EXCHANGE SECURITIES 1. Definitions 1.1 Definitions For the purposes of this Appendix A the following terms shall have the meanings indicated below: "Applicable Procedures" means, with respect to any transfer or transaction involving a Regulation S Global Security or beneficial interest therein, the rules and procedures of the Depositary for such Global Security, Euroclear and Cedel, in each case to the extent applicable to such transaction and as in effect from time to time. "Cedel" means Cedel Bank, S.A., or any successor securities clearing agency. "Definitive Security" means a certificated Initial Security or Exchange Security (bearing the Restricted Securities Legend if the transfer of such Security is restricted by applicable law) that does not include the Global Securities Legend. "Depositary" means The Depository Trust Company, its nominees and their respective successors. "Euroclear" means the Euroclear Clearance System or any successor securities clearing agency. "Global Securities Legend" means the legend set forth under that caption in Exhibit A to this Indenture. "IAI" means an institutional "accredited investor" as described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Initial Purchaser" means Chase Securities Inc. "Private Exchange" means an offer by the Company, pursuant to the Registration Agreement, to issue and deliver to certain purchasers, in exchange for the Initial Securities held by such purchasers as part of their initial distribution, a like aggregate principal amount of Private Exchange Securities. "Private Exchange Securities" means the Securities of the Company issued in exchange for Initial Securities pursuant to this Indenture in connection with the Private Exchange pursuant to the Registration Agreement. "Purchase Agreement" means the Purchase Agreement dated November 19, 1998 among the Company, the Guarantor Subsidiaries and the Initial Purchaser. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. 86 2 "Registered Exchange Offer" means the offer by the Company, pursuant to the Registration Agreement, to certain Holders of Initial Securities, to issue and deliver to such Holders, in exchange for their Initial Securities, a like aggregate principal amount of Exchange Securities registered under the Securities Act. "Registration Agreement" means the Exchange and Registration Rights Agreement dated November 24, 1998, among the Company, the Guarantor Subsidiaries and the Initial Purchaser. "Regulation S" means Regulation S under the Securities Act. "Regulation S Securities" means all Initial Securities offered and sold outside the United States in reliance on Regulation S. "Restricted Period", with respect to any Securities, means the period of 40 consecutive days beginning on and including the later of (i) the day on which such Securities are first offered to persons other than distributors (as defined in Regulation S under the Securities Act) in reliance on Regulation S and (ii) the Issue Date with respect to such Securities. "Restricted Securities Legend" means the legend set forth in Section 2.3(e)(i) herein. "Rule 501" means Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Rule 144A" means Rule 144A under the Securities Act. "Rule 144A Securities" means all Initial Securities offered and sold to QIBs in reliance on Rule 144A. "Securities Act" means the Securities Act of 1933, as amended. "Securities Custodian" means the custodian with respect to a Global Security (as appointed by the Depositary) or any successor person thereto, who shall initially be the Trustee. "Shelf Registration Statement" means a registration statement filed by the Company in connection with the offer and sale of Initial Securities pursuant to the Registration Agreement. "Transfer Restricted Securities" means Definitive Securities and any other Securities that bear or are required to bear the Restricted Securities Legend. 1.2 Other Definitions Term: Defined in Section: ----- ------------------- "Agent Members"............................................2.1(b) "IAI Global Security"......................................2.1(a) "Global Security"..........................................2.1(a) "Regulation S Global Security".............................2.1(a) "Rule 144A Global Security"................................2.1(a) 87 3 2. The Securities 2.1 Form and Dating The Initial Securities issued on the date hereof will be (i) offered and sold by the Company pursuant to the Purchase Agreement and (ii) resold, initially only to (A) QIBs in reliance on Rule 144A and (B) Persons other than U.S. Persons (as defined in Regulation S) in reliance on Regulation S. Such Initial Securities may thereafter be transferred to, among others, QIBs, purchasers in reliance on Regulation S and, except as set forth below, IAIs in accordance with Rule 501. (a) Global Securities. Rule 144A Securities shall be issued initially in the form of one or more permanent global Securities in definitive, fully registered form (collectively, the "Rule 144A Global Security") and Regulation S Securities shall be issued initially in the form of one or more global Securities (collectively, the "Regulation S Global Security"), in each case without interest coupons and bearing the Global Securities Legend and Restricted Securities Legend, which shall be deposited on behalf of the purchasers of the Securities represented thereby with the Securities Custodian, and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as provided in this Indenture. One or more global securities in definitive, fully registered form without interest coupons and bearing the Global Securities Legend and the Restricted Securities Legend (collectively, the "IAI Global Security") shall also be issued on the Closing Date, deposited with the Securities Custodian, and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as provided in this Indenture to accommodate transfers of beneficial interests in the Securities to IAIs subsequent to the initial distribution. Beneficial ownership interests in the Regulation S Global Security shall not be exchangeable for interests in the Rule 144A Global Security, the IAI Global Security or any other Security without a Restricted Securities Legend until the expiration of the Restricted Period. The Rule 144A Global Security, the IAI Global Security and the Regulation S Global Security are each referred to herein as a "Global Security" and are collectively referred to herein as "Global Securities." The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee as hereinafter provided. (b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a Global Security deposited with or on behalf of the Depositary. The Company shall execute and the Trustee shall, in accordance with this Section 2.1(b) and pursuant to an order of the Company, authenticate and deliver initially one or more Global Securities that (a) shall be registered in the name of the Depositary for such Global Security or Global Securities or the nominee of such Depositary and (b) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary's instructions or held by the Trustee as Securities Custodian. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary or by the Trustee as Securities Custodian or under such Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwith- standing the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of 88 4 the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Security. (c) Definitive Securities. Except as provided in Section 2.3 or 2.4, owners of beneficial interests in Global Securities will not be entitled to receive physical delivery of certificated Securities. 2.2 Authentication. The Trustee shall authenticate and make available for delivery upon a written order of the Company signed by an Officer (1) Initial Securities for original issue on the date hereof in an aggregate principal amount of $87,000,000 and (2) the (A) Exchange Securities for issue only in a Registered Exchange Offer and (B) Private Exchange Securities for issue only in the Private Exchange, in the case of each of (A) and (B) pursuant to the Registration Agreement and for a like principal amount of Initial Securities exchanged pursuant thereto. Such order shall specify the amount of the Securities to be authenticated, the date on which the original issue of Securities is to be authenticated and whether the Securities are to be Initial Securities, Exchange Securities or Private Exchange Securities. The aggregate principal amount of Securities outstanding at any time may not exceed $87,000,000 except as provided in Section 2.08 of this Indenture. 2.3 Transfer and Exchange. (a) Transfer and Exchange of Definitive Securities. When Definitive Securities are presented to the Registrar with a request: (x) to register the transfer of such Definitive Securities; or (y) to exchange such Definitive Securities for an equal principal amount of Definitive Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Definitive Securities surrendered for transfer or exchange: (i) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (ii) are accompanied by the following additional information and documents, as applicable: (A) if such Definitive Securities are being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect (in the form set forth on the reverse side of the Initial Security); or (B) if such Definitive Securities are being transferred to the Company, a certification to that effect (in the form set forth on the reverse side of the Initial Security); or (C) if such Definitive Securities are being transferred pursuant to an exemption from registration in accordance with Rule 144 under the Securities Act or in reliance upon another exemption from the registration requirements 89 5 of the Securities Act, (i) a certification to that effect (in the form set forth on the reverse side of the Initial Security) and (ii) if the Company so requests, an opinion of counsel or other evidence reasonably satisfactory to it as to the compliance with the restrictions set forth in the legend set forth in Section 2.3(e)(i). (b) Restrictions on Transfer of a Definitive Security for a Beneficial Interest in a Global Security. A Definitive Security may not be exchanged for a beneficial interest in a Global Security except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Definitive Security, duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Registrar, together with: (i) certification (in the form set forth on the reverse side of the Initial Security) that such Definitive Security is being transferred (A) to a QIB in accordance with Rule 144A, (B) to an IAI that has furnished to the Trustee a signed letter substantially in the form of Exhibit D or (C) outside the United States in an offshore transaction within the meaning of Regulation S and in compliance with Rule 904 under the Securities Act; and (ii) written instructions directing the Trustee to make, or to direct the Securities Custodian to make, an adjustment on its books and records with respect to such Global Security to reflect an increase in the aggregate principal amount of the Securities represented by the Global Security, such instructions to contain information regarding the Depositary account to be credited with such increase, then the Trustee shall cancel such Definitive Security and cause, or direct the Securities Custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Securities Custodian, the aggregate principal amount of Securities represented by the Global Security to be increased by the aggregate principal amount of the Definitive Security to be exchanged and shall credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Global Security equal to the principal amount of the Definitive Security so canceled. If no Global Securities are then outstanding and the Global Security has not been previously exchanged for certificated securities pursuant to Section 2.4, the Company shall issue and the Trustee shall authenticate, upon written order of the Company in the form of an Officers' Certificate, a new Global Security in the appropriate principal amount. (c) Transfer and Exchange of Global Securities. (i) The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the Depositary, in accordance with this Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depositary therefor. A transferor of a beneficial interest in a Global Security shall deliver a written order given in accordance with the Depositary's procedures containing information regarding the participant account of the Depositary to be credited with a beneficial interest in such Global Security or another Global Security and such account shall be credited in accordance with such order with a beneficial interest in the applicable Global Security and the account of the Person making the transfer shall be debited by an amount equal to the beneficial interest in the Global Security being transferred. Transfers by an owner of a beneficial interest in the Rule 144A Global Security or the IAI Global Security to a transferee who takes delivery of such interest through the Regulation S Global Security, whether before or after the expiration of the Restricted Period, shall be made only upon receipt by the Trustee of a certification from the transferor to the 90 6 effect that such transfer is being made in accordance with Regulation S or (if available) Rule 144 under the Securities Act and that, if such transfer is being made prior to the expiration of the Restricted Period, the interest transferred shall be held immediately thereafter through Euroclear or Cedel. In the case of a transfer of a beneficial interest in either the Regulation S Global Security or the Rule 144A Global Security for an interest in the IAI Global Security, the transferee must furnish a signed letter substantially in the form of Exhibit D to the Trustee. (ii) If the proposed transfer is a transfer of a beneficial interest in one Global Security to a beneficial interest in another Global Security, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Security to which such interest is being transferred in an amount equal to the principal amount of the interest to be so transferred, and the Registrar shall reflect on its books and records the date and a corresponding decrease in the principal amount of Global Security from which such interest is being transferred. (iii) Notwithstanding any other provisions of this Appendix (other than the provisions set forth in Section 2.4), a Global Security may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (iv) In the event that a Global Security is exchanged for Definitive Securities pursuant to Section 2.4 prior to the consummation of the Registered Exchange Offer or the effectiveness of the Shelf Registration Statement with respect to such Securities, such Securities may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this Section 2.3 (including the certification requirements set forth on the reverse of the Initial Securities intended to ensure that such transfers comply with Rule 144A, Regulation S or such other applicable exemption from registration under the Securities Act, as the case may be) and such other procedures as may from time to time be adopted by the Company. (d) Restrictions on Transfer of Regulation S Global Security. (i) Prior to the expiration of the Restricted Period, interests in the Regulation S Global Security may only be held through Euroclear or Cedel. During the Restricted Period, beneficial ownership interests in the Regulation S Global Security may only be sold, pledged or transferred through Euroclear or Cedel in accordance with the Applicable Procedures and only (A) to the Company, (B) so long as such security is eligible for resale pursuant to Rule 144A, to a person whom the selling holder reasonably believes is a QIB that purchases for its own account or for the account of a QIB to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, (C) in an offshore transaction in accordance with Regulation S, (D) pursuant to an exemption from registration under the Securities Act provided by Rule 144 (if applicable) under the Securities Act, (E) to an IAI purchasing for its own account, or for the account of such an IAI, in a minimum principal amount of Securities of $250,000 or (F) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. Prior to the expiration of the Restricted Period, transfers by an owner of a beneficial interest in the Regulation S Global Security to a transferee who takes delivery of such interest through the Rule 144A Global Security or the IAI Global Security shall be made only in accordance with Applicable Procedures and upon receipt by the Trustee of a written 91 7 certification from the transferor of the beneficial interest in the form provided on the reverse of the Initial Security to the effect that such transfer is being made to (i) a person whom the transferor reasonably believes is a QIB within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A or (ii) an IAI purchasing for its own account, or for the account of such an IAI, in a minimum principal amount of the Securities of $250,000. Such written certification shall no longer be required after the expiration of the Restricted Period. In the case of a transfer of a beneficial interest in the Regulation S Global Security for an interest in the IAI Global Security, the transferee must furnish a signed letter substantially in the form of Exhibit D to the Trustee. (ii) Upon the expiration of the Restricted Period, beneficial ownership interests in the Regulation S Global Security shall be transferable in accordance with applicable law and the other terms of this Indenture. (e) Legend. (i) Except as permitted by the following paragraphs (ii), (iii) or (iv), each Security certificate evidencing the Global Securities and the Definitive Securities (and all Securities issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form (each defined term in the legend being defined as such for purposes of the legend only): "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS AN 92 8 INSTITUTIONAL ACCREDITED INVESTOR ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. Each Definitive Security shall bear the following additional legend: "IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS." (ii) Upon any sale or transfer of a Transfer Restricted Security that is a Definitive Security, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Definitive Security that does not bear the legends set forth above and rescind any restriction on the transfer of such Transfer Restricted Security if the Holder certifies in writing to the Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Initial Security). (iii) After a transfer of any Initial Securities or Private Exchange Securities during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Securities or Private Exchange Securities, as the case may be, all requirements pertaining to the Restricted Securities Legend on such Initial Securities or such Private Exchange Securities shall cease to apply and the requirements that any such Initial Securities or such Private Exchange Securities be issued in global form shall continue to apply. (iv) Upon the consummation of a Registered Exchange Offer with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Exchange Securities in exchange for their Initial Securities, all requirements pertaining to Initial Securities that Initial Securities be issued in global form shall continue to apply, and Exchange Securities in global form without the Restricted Securities Legend shall be available to Holders that exchange such Initial Securities in such Registered Exchange Offer. (v) Upon the consummation of a Private Exchange with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Private Exchange Securities in exchange for their Initial Securities, all requirements pertaining to such Initial Securities that Initial Securities be issued in global form 93 9 shall continue to apply, and Private Exchange Securities in global form with the Restricted Securities Legend shall be available to Holders that exchange such Initial Securities in such Private Exchange. (vi) Upon a sale or transfer after the expiration of the Restricted Period of any Initial Security acquired pursuant to Regulation S, all requirements that such Initial Security bear the Restricted Securities Legend shall cease to apply and the requirements requiring any such Initial Security be issued in global form shall continue to apply. (f) Cancelation or Adjustment of Global Security. At such time as all beneficial interests in a Global Security have either been exchanged for Definitive Securities, transferred, redeemed, repurchased or canceled, such Global Security shall be returned by the Depositary to the Trustee for cancelation or retained and canceled by the Trustee. At any time prior to such cancelation, if any beneficial interest in a Global Security is exchanged for Definitive Securities, transferred in exchange for an interest in another Global Security, redeemed, repurchased or canceled, the principal amount of Securities represented by such Global Security shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Securities Custodian for such Global Security) with respect to such Global Security, by the Trustee or the Securities Custodian, to reflect such reduction. (g) Obligations with Respect to Transfers and Exchanges of Securities. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate, Definitive Securities and Global Securities at the Registrar's request. (ii) No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchange or transfer pursuant to Sections 3.06, 4.06, 4.08 and 9.05 of this Indenture). (iii) Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent or the Registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent or the Registrar shall be affected by notice to the contrary. (iv) All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. (h) No Obligation of the Trustee. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security, a member of, or a participant in the Depositary or any 94 10 other Person with respect to the accuracy of the records of the Depositary or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depositary) of any notice (including any notice of redemption or repurchase) or the payment of any amount, under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders under the Securities shall be given or made only to the registered Holders (which shall be the Depositary or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through the Depositary subject to the applicable rules and procedures of the Depositary. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depositary with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depositary participants, members or beneficial owners in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. 2.4 Definitive Securities (a) A Global Security deposited with the Depositary or with the Trustee as Securities Custodian pursuant to Section 2.1 shall be transferred to the beneficial owners thereof in the form of Definitive Securities in an aggregate principal amount equal to the principal amount of such Global Security, in exchange for such Global Security, only if such transfer complies with Section 2.3 and (i) the Depositary notifies the Company that it is unwilling or unable to continue as a Depositary for such Global Security or if at any time the Depositary ceases to be a "clearing agency" registered under the Exchange Act, and a successor depositary is not appointed by the Company within 90 days of such notice, or (ii) an Event of Default has occurred and is continuing or (iii) the Company, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of certificated Securities under this Indenture. (b) Any Global Security that is transferable to the beneficial owners thereof pursuant to this Section 2.4 shall be surrendered by the Depositary to the Trustee, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Security, an equal aggregate principal amount of Definitive Securities of authorized denominations. Any portion of a Global Security transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 and any integral multiple thereof and registered in such names as the Depositary shall direct. Any certificated Initial Security in the form of a Definitive Security delivered in exchange for an interest in the Global Security shall, except as otherwise provided by Section 2.3(e), bear the Restricted Securities Legend. (c) Subject to the provisions of Section 2.4(b), the registered Holder of a Global Security may grant proxies and otherwise authorize any Person, including Agent 95 11 Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. (d) In the event of the occurrence of any of the events specified in Section 2.4(a)(i), (ii) or (iii), the Company will promptly make available to the Trustee a reasonable supply of Definitive Securities in fully registered form without interest coupons. 96 12 [FORM OF FACE OF INITIAL SECURITY] [Global Securities Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. [Restricted Securities Legend] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN 97 13 RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL ACCREDITED INVESTOR ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. Each Definitive Security shall bear the following additional legend: "IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS." 98 No. $__________ 11-1/8% Series E Senior Subordinated Note due 2007 CUSIP No. NEENAH FOUNDRY COMPANY, a Wisconsin corporation, promises to pay to Cede & Co., or registered assigns, the principal sum [of Dollars] [listed on the Schedule of Increases or Decreases in Global Security attached hereto] 1/ on May 1, 2007. Interest Payment Dates: May 1 and November 1. Record Dates: April 15 and October 15. - -------- 1/ Use the Schedule of Increases and Decreases language if Note is in Global Form. 99 Additional provisions of this Security are set forth on the other side of this Security. IN WITNESS WHEREOF, the parties have caused this instrument to be duly executed. NEENAH FOUNDRY COMPANY, by ------------------------------- Name: Title: Dated:_________________________ TRUSTEE'S CERTIFICATE OF AUTHENTICATION UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee, certifies that this is one of the Securities referred to in the Indenture. by:_________________________ Authorized Signatory 100 [FORM OF REVERSE SIDE OF INITIAL SECURITY] 11-1/8% Series E Senior Subordinated Note due 2007 1. Interest Neenah Foundry Company, a Wisconsin corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company and the Guarantor Subsidiaries will use their best efforts to have the Exchange Offer Registration Statement or, if applicable, the Shelf Registration Statement (each a "Registration Statement") declared effective by the Commission as promptly as practicable after the filing thereof. If (i) the Shelf Registration Statement or Exchange Offer Registration Statement, as applicable under the Exchange and Registration Rights Agreement is not filed with the Commission on or prior to 90 days after the Issue Date, (ii) the Exchange Offer Registration Statement or, as the case may be, the Shelf Registration Statement, is not declared effective within 150 days after the Issue Date, (iii) the Exchange Offer is not consummated on or prior to 180 days after the Issue Date, or (iv) the Shelf Registration Statement is filed and declared effective within 150 days after the Issue Date but shall thereafter cease to be effective (at any time that the Company is obligated to maintain the effectiveness thereof) without being succeeded within 30 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default"), the Company will pay liquidated damages to each holder of Transfer Restricted Securities, during the period of such Registration Default, in an amount equal to $0.192 per week per $1,000 principal amount of the Securities constituting Transfer Restricted Securities held by such holder until the applicable Registration Statement is filed or declared effective, the Exchange Offer is consummated or the Shelf Registration Statement again becomes effective, as the case may be. All accrued liquidated damages shall be paid to holders in the same manner as interest payments on the Securities on semi-annual payment dates which correspond to interest payment dates for the Securities. Following the cure of all Registration Defaults, the accrual of liquidated damages will cease. The Trustee shall have no responsibility with respect to the determination of the amount of any such liquidated damages. For purposes of the foregoing, "Transfer Restricted Securities" means (i) each Initial Security until the date on which such Initial Security has been exchanged for a freely transferable Exchange Security in the Exchange Offer, (ii) each Initial Security or Private Exchange Security until the date on which such Initial Security or Private Exchange Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iii) each Initial Security or Private Exchange Security until the date on which such Initial Security or Private Exchange Security is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. The Company will pay interest and liquidated damages, if any, semiannually on May 1 and November 1 of each year. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from November 24, 1998. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate borne by the Securities plus 1% per annum, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. 2. Method of Payment The Company will pay interest (except defaulted interest) on and liquidated damages, if any, in respect of the Securities to the Persons who are registered holders of Securities at the close of business on the April 15 or October 15 next preceding the interest 101 payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money or by wire transfer of federal funds. 3. Paying Agent and Registrar Initially, UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking corporation ("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice to the Holders. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. Indenture The Company issued the Securities under an Indenture dated as of November 24, 1998 ("Indenture"), between the Company, the Guarantor Subsidiaries and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are unsecured senior subordinated obligations of the Company limited to $87,000,000 aggregate principal amount at any one time outstanding (subject to Section 2.07 of the Indenture). This Security is one of the Initial Securities referred to in the Indenture. The Securities include the Initial Securities and any Exchange Securities and Private Exchange Securities issued in exchange for the Initial Securities pursuant to the Indenture. The Initial Securities, the Exchange Securities and the Private Exchange Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the Incurrence of Indebtedness by the Company and its Restricted Subsidiaries; the payment of dividends on, and redemption of, Capital Stock of the Company and its Restricted Subsidiaries and the redemption of certain Subordinated Obligations of the Company and its Restricted Subsidiaries; Investments; sales of assets and Restricted Subsidiary Capital Stock; certain transactions with Affiliates of the Company; the sale or issuance of Capital Stock of the Restricted Subsidiaries; the creation of Liens; the lines of business in which the Company and its Restricted Subsidiaries may operate; Sale/Leaseback Transactions and consolidations, mergers and transfers of all or substantially all of the Company's assets. In addition, the Indenture prohibits certain restrictions on distributions and dividends from Restricted Subsidiaries. To guarantee the due and punctual payment of the principal and interest, if any, on the Securities and all other amounts payable by the Company under the Indenture and the Securities when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Securities and the Indenture, the Guarantor Subsidiaries have guaranteed the Company's obligations under the Indenture on a senior subordinated basis pursuant to the terms of the Indenture. 102 5. Optional Redemption 103 (a) Except as set forth in the next two paragraphs, the Securities may not be redeemed prior to May 1, 2002. On and after that date, the Company may redeem the Securities in whole or in part, at any time at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption), if redeemed during the 12-month period beginning on or after May 1 of the years set forth below:
Redemption Period Price - ------ ----- 2002...................................................... 105.5625% 2003...................................................... 103.7083% 2004...................................................... 101.8542% 2005 and thereafter....................................... 100.0000%
(b) Notwithstanding the foregoing, at any time on or prior to May 1, 2000, the Company may redeem in the aggregate up to 40% of the original aggregate principal amount of Securities with the proceeds of one or more Public Equity Offerings following which there is a Public Market, at a redemption price (expressed as a percentage of principal amount thereof) of 111.125% plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption); provided, however, that at least 60% of the original aggregate principal amount of the Securities must remain outstanding after each such redemption. (c) Notwithstanding paragraphs (a) and (b) above, the Company shall not redeem any Old Securities unless, substantially concurrently with such redemption, the Company redeems an aggregate principal amount of Securities (rounded to the nearest integral multiple of $1000) equal to the product of: (1) a fraction, the numerator of which is the aggregate principal amount of Old Securities to be so redeemed and the denominator of which is the aggregate principal amount of Old Securities outstanding immediately prior to such proposed redemption, and (2) the aggregate principal amount of Securities outstanding immediately prior to such proposed redemption. The Company shall not redeem the Securities unless, substantially concurrently with such redemption, the Company redeems an aggregate principal amount of each series of Old Securities (rounded to the nearest integral multiple of $1000) equal to the product of: (1) a fraction, the numerator of which is the aggregate principal amount of Securities to be so redeemed and the denominator of which is the aggregate principal amount of Securities outstanding immediately prior to such proposed redemption, and (2) the aggregate principal amount of such series of Old Securities outstanding immediately prior to such proposed redemption. (d) At any time prior to May 1, 2002, the Securities may be redeemed, in whole or in part, at any time within 180 days after a Change of Control, at a redemption price equal to the sum of (i) the principal amount thereof plus (ii) accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption) plus (iii) the Applicable Premium. 6. Notice of Redemption Notice of redemption will be mailed by first-class mail at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in 104 part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. Put Provisions Upon a Change of Control, unless the Company has elected to redeem the Securities pursuant to paragraph 5, any Holder of Securities will have the right, subject to certain conditions specified in the Indenture, to cause the Company to repurchase all or any part of the Securities of such Holder at a purchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of purchase) as provided in, and subject to the terms of, the Indenture. 8. Subordination The Securities are subordinated to Senior Indebtedness of the Company, as defined in the Indenture. To the extent provided in the Indenture, Senior Indebtedness of the Company must be paid before the Securities may be paid. In addition, each Subsidiary Guaranty is subordinated to Senior Indebtedness of the relevant Guarantor Subsidiary, as defined in the Indenture. The Company and each Guarantor Subsidiary agrees, and each Securityholder by accepting a Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give it effect and appoints the Trustee as attorney-in-fact for such purpose. 9. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. Upon any transfer or exchange, the Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or to transfer or exchange any Securities for a period of 15 days prior to a selection of Securities to be redeemed or 15 days before an interest payment date. 10. Persons Deemed Owners The registered Holder of this Security may be treated as the owner of it for all purposes. 11. Unclaimed Money If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its written request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 105 12. Discharge and Defeasance Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. The Company shall not exercise its option to defease the Securities unless it defeases the Original Securities equivalently and substantially simultaneously, and the Company shall not exercise its option to defease the Original Securities unless it defeases the Securities equivalently and substantially simultaneously. 13. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Securities and (ii) any past default or noncompliance with any provision may be waived with the consent of the Holders of a majority in principal amount then outstanding of the Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article V of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to release Guarantor Subsidiaries when permitted by the Indenture, or to add additional covenants or surrender rights and powers conferred on the Company, or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make any other change that does not adversely affect the rights of any Securityholder, or to provide for the issuance and authorization of the Exchange Securities or Private Exchange Securities. 14. Defaults and Remedies Under the Indenture, Events of Default include (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of principal on the Securities at maturity, upon redemption pursuant to paragraph 5 of the Securities, or failure by the Company to redeem or purchase, upon declaration or otherwise (whether or not such payment is prohibited by Article X), Securities when required; (iii) failure by the Company or any Guarantor Subsidiary to comply with other agreements in the Indenture or the Securities, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds $5,000,000 or its foreign currency equivalent; (v) certain events of bankruptcy, insolvency or reorganization with respect to the Company and its Restricted Subsidiaries; (vi) certain judgments or decrees not covered by insurance for the payment of money in excess of $5,000,000 or its foreign currency equivalent against the Company or a Restricted Subsidiary; and (vii) a Subsidiary Guaranty ceasing to be in full force and effect (other than in accordance with its terms) or any Guarantor Subsidiary denies or disaffirms its obligations under the Indenture or any Subsidiary Guaranty and such Default continues for 10 days. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities 106 unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal, premium, if any, or interest) if and so long as a committee of its Trust Officers in good faith determines that withholding notice is in the interest of the Holders. 15. Trustee Dealings with the Company Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 16. No Recourse Against Others A director, officer, employee or stockholder, as such, of the Company or any Guarantor Subsidiary shall not have any liability for any obligations of the Company or a Guarantor Subsidiary under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 17. Governing Law THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 18. Authentication This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 19. Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 20. CUSIP Numbers Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such 107 numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO: NEENAH FOUNDRY COMPANY 2121 BROOKS AVENUE NEENAH, WI 54957 ATTENTION OF VICE PRESIDENT-FINANCE 108 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. - ------------------------------------------------------------ Date: --------------- Your Signature: ---------------------- - ------------------------------------------------------------ Sign exactly as your name appears on the other side of this Security. 109 CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER RESTRICTED SECURITIES This certificate relates to $_________ principal amount of Securities held in (check applicable space) ____ book-entry or _____ definitive form by the undersigned. The undersigned (check one box below): / / has requested the Trustee by written order to deliver in exchange for its beneficial interest in the Global Security held by the Depositary a Security or Securities in definitive, registered form of authorized denominations and an aggregate principal amount equal to its beneficial interest in such Global Security (or the portion thereof indicated above); / / has requested the Trustee by written order to exchange or register the transfer of a Security or Securities. In connection with any transfer of any of the Securities evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that such Securities are being transferred in accordance with its terms: CHECK ONE BOX BELOW (1) / / to the Company; or (2) / / pursuant to an effective registration statement under the Securities Act of 1933; or (3) / / inside the United States to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (4) / / outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 904 under the Securities Act of 1933; or (5) / / to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933) that has furnished to the Trustee a signed letter containing certain representations and agreements; or (6) / / pursuant to another available exemption from registration provided by Rule 144 under the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any Person other than the registered holder thereof; provided, however, that if box (4), (5) or (6) is checked, the Trustee may require, prior to registering any such transfer of the Securities, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, 110 or in a transaction not subject to, the registration requirements of the Securities Act of 1933. __________________________ Your Signature Signature Guarantee: Date: ___________________ __________________________ Signature must be guaranteed Signature of Signature by a participant in a Guarantee recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee ____________________________________________________________ TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ________________ ______________________________ NOTICE: To be executed by an executive officer 111 [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The initial principal amount of this Global Security is $[ ]. The following increases or decreases in this Global Security have been made:
Date of Amount of decrease in Amount of increase in Principal amount of this Signature of authorized Exchange Principal Amount of this Principal Amount of this Global Security following signatory of Trustee or Global Security Global Security such decrease or increase Securities Custodian
112 OPTION OF HOLDER TO ELECT PURCHASE IF YOU WANT TO ELECT TO HAVE THIS SECURITY PURCHASED BY THE COMPANY PURSUANT TO SECTION 4.06 (ASSET SALE) OR 4.08 (CHANGE OF CONTROL) OF THE INDENTURE, CHECK THE BOX: ASSET SALE / / CHANGE OF CONTROL / / IF YOU WANT TO ELECT TO HAVE ONLY PART OF THIS SECURITY PURCHASED BY THE COMPANY PURSUANT TO SECTION 4.06 OR 4.08 OF THE INDENTURE, STATE THE AMOUNT: $ DATE: __________________ YOUR SIGNATURE: __________________ (SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE OF THE SECURITY) SIGNATURE GUARANTEE:_______________________________________ SIGNATURE MUST BE GUARANTEED BY A PARTICIPANT IN A RECOGNIZED SIGNATURE GUARANTY MEDALLION PROGRAM OR OTHER SIGNATURE GUARANTOR ACCEPTABLE TO THE TRUSTEE 113 EXHIBIT B [FORM OF FACE OF EXCHANGE SECURITY] No. $__________ 11-1/8% Series F Senior Subordinated Note due 2007 CUSIP No. ______ NEENAH FOUNDRY COMPANY, a Wisconsin corporation, promises to pay to Cede & Co., or registered assigns, the principal sum [of Dollars] [listed on the Schedule of Increases or Decreases in Global Security attached hereto] (2) on May 1, 2007. Interest Payment Dates: May 1 and November 1. Record Dates: April 15 and October 15. (2) Use the Schedule of Increases and Decreases language if Note is in Global Form. 114 Additional provisions of this Security are set forth on the other side of this Security. IN WITNESS WHEREOF, the parties have caused this instrument to be duly executed. NEENAH FOUNDRY COMPANY, by ____________________________________ Name: Title: Dated:_____________ TRUSTEE'S CERTIFICATE OF AUTHENTICATION UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee, certifies that this is one of the Securities referred to in the Indenture. by:_________________________ Authorized Signatory */ If the Security is to be issued in global form, add the Global Securities Legend and the attachment from Exhibit A captioned "TO BE ATTACHED TO GLOBAL SECURITIES SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY". 115 [FORM OF REVERSE SIDE OF EXCHANGE SECURITY] 11-1/8% Series F Senior Subordinated Note due 2007 1. Interest. NEENAH FOUNDRY COMPANY, a Wisconsin corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company shall pay interest semiannually on May 1 and November 1 of each year. Interest on the Securities shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from November 24, 1998. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate borne by the Securities plus 1% per annum, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. 2. Method of Payment The Company will pay interest (except defaulted interest) on and liquidated damages, if any, in respect of the Securities to the Persons who are registered holders of Securities at the close of business on the April 15 or October 15 next preceding the interest payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money or by wire transfer of federal funds. 3. Paying Agent and Registrar Initially, UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking corporation ("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice to the Holders. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. Indenture The Company issued the Securities under an Indenture dated as of November 24, 1998 ("Indenture"), between the Company, the Guarantor Subsidiaries and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are unsecured senior subordinated obligations of the Company limited to $87,000,000 aggregate principal amount at any one time outstanding (subject to Section 2.07 of the Indenture). This Security is one of the Initial Securities referred to in the Indenture. The Securities include the Initial Securities and any Exchange Securities and Private Exchange Securities issued in exchange for the Initial Securities pursuant to the Indenture. The Initial Securities, the Exchange Securities and the Private Exchange 116 Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the Incurrence of Indebtedness by the Company and its Restricted Subsidiaries; the payment of dividends on, and redemption of, Capital Stock of the Company and its Restricted Subsidiaries and the redemption of certain Subordinated Obligations of the Company and its Restricted Subsidiaries; Investments; sales of assets and Restricted Subsidiary Capital Stock; certain transactions with Affiliates of the Company; the sale or issuance of Capital Stock of the Restricted Subsidiaries; the creation of Liens; the lines of business in which the Company and its Restricted Subsidiaries may operate; Sale/Leaseback Transactions and consolidations, mergers and transfers of all or substantially all of the Company's assets. In addition, the Indenture prohibits certain restrictions on distributions and dividends from Restricted Subsidiaries. To guarantee the due and punctual payment of the principal and interest, if any, on the Securities and all other amounts payable by the Company under the Indenture and the Securities when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Securities and the Indenture, the Guarantor Subsidiaries have guaranteed the Company's obligations under the Indenture on a senior subordinated basis pursuant to the terms of the Indenture. 5. Optional Redemption (a) Except as set forth in the next two paragraphs, the Securities may not be redeemed prior to May 1, 2002. On and after that date, the Company may redeem the Securities in whole or in part, at any time at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption), if redeemed during the 12-month period beginning on or after May 1 of the years set forth below:
Redemption Period Price - ------ ----- 2002................................................... 105.5625% 2003................................................... 103.7083% 2004................................................... 101.8542% 2005 and thereafter.................................... 100.0000%
(b) Notwithstanding the foregoing, at any time on or prior to May 1, 2000, the Company may redeem in the aggregate up to 40% of the original aggregate principal amount of Securities with the proceeds of one or more Public Equity Offerings following which there is a Public Market, at a redemption price (expressed as a percentage of principal amount thereof) of 111.125% plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption); provided, however, that at least 60% of the original aggregate principal amount of the Securities must remain outstanding after each such redemption. (c) Notwithstanding paragraphs (a) and (b) above, the Company shall not redeem any Old Securities unless, substantially concurrently with such redemption, the Company redeems an aggregate principal amount of Securities (rounded to the nearest integral multiple of $1000) equal to the product of: (1) a fraction, the numerator of which is the aggregate principal amount of Old Securities to be so redeemed and the denominator of which is the aggregate principal amount of Old Securities outstanding immediately prior to such proposed redemption, and (2) the aggregate principal amount of Securities outstanding 117 immediately prior to such proposed redemption. The Company shall not redeem the Securities unless, substantially concurrently with such redemption, the Company redeems an aggregate principal amount of each series of Old Securities (rounded to the nearest integral multiple of $1000) equal to the product of: (1) a fraction, the numerator of which is the aggregate principal amount of Securities to be so redeemed and the denominator of which is the aggregate principal amount of Securities outstanding immediately prior to such proposed redemption, and (2) the aggregate principal amount of such series of Old Securities outstanding immediately prior to such proposed redemption. (d) At any time prior to May 1, 2002, the Securities may be redeemed, in whole or in part, at any time within 180 days after a Change of Control, at a redemption price equal to the sum of (i) the principal amount thereof plus (ii) accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption) plus (iii) the Applicable Premium. 6. Notice of Redemption Notice of redemption will be mailed by first-class mail at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. Put Provisions Upon a Change of Control, unless the Company has elected to redeem the Securities pursuant to paragraph 5, any Holder of Securities will have the right, subject to certain conditions specified in the Indenture, to cause the Company to repurchase all or any part of the Securities of such Holder at a purchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of purchase) as provided in, and subject to the terms of, the Indenture. 8. Subordination The Securities are subordinated to Senior Indebtedness of the Company, as defined in the Indenture. To the extent provided in the Indenture, Senior Indebtedness of the Company must be paid before the Securities may be paid. In addition, each Subsidiary Guaranty is subordinated to Senior Indebtedness of the relevant Guarantor Subsidiary, as defined in the Indenture. The Company and each Guarantor Subsidiary agrees, and each Securityholder by accepting a Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give it effect and appoints the Trustee as attorney-in-fact for such purpose. 118 9. Denominations; Transfer; Exchange 119 The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. Upon any transfer or exchange, the Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or to transfer or exchange any Securities for a period of 15 days prior to a selection of Securities to be redeemed or 15 days before an interest payment date. 10. Persons Deemed Owners The registered Holder of this Security may be treated as the owner of it for all purposes. 11. Unclaimed Money If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its written request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 12. Discharge and Defeasance Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. The Company shall not exercise its option to defease the Securities unless it defeases the Original Securities equivalently and substantially simultaneously, and the Company shall not exercise its option to defease the Original Securities unless it defeases the Securities equivalently and substantially simultaneously. 13. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Securities and (ii) any past default or noncompliance with any provision may be waived with the consent of the Holders of a majority in principal amount then outstanding of the Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article V of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to release Guarantor Subsidiaries when permitted by the Indenture, or to add additional covenants or surrender rights and powers conferred on the Company, or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make any other change that does not adversely affect the rights of any Securityholder, or to provide for the issuance and authorization of the Exchange Securities or Private Exchange Securities. 120 14. Defaults and Remedies Under the Indenture, Events of Default include (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of principal on the Securities at maturity, upon redemption pursuant to paragraph 5 of the Securities, or failure by the Company to redeem or purchase, upon declaration or otherwise (whether or not such payment is prohibited by Article X), Securities when required; (iii) failure by the Company or any Guarantor Subsidiary to comply with other agreements in the Indenture or the Securities, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds $5,000,000 or its foreign currency equivalent; (v) certain events of bankruptcy, insolvency or reorganization with respect to the Company and its Restricted Subsidiaries; (vi) certain judgments or decrees not covered by insurance for the payment of money in excess of $5,000,000 or its foreign currency equivalent against the Company or a Restricted Subsidiary; and (vii) a Subsidiary Guaranty ceasing to be in full force and effect (other than in accordance with its terms) or any Guarantor Subsidiary denies or disaffirms its obligations under the Indenture or any Subsidiary Guaranty and such Default continues for 10 days. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal, premium, if any, or interest) if and so long as a committee of its Trust Officers in good faith determines that withholding notice is in the interest of the Holders. 15. Trustee Dealings with the Company Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 16. No Recourse Against Others A director, officer, employee or stockholder, as such, of the Company or any Guarantor Subsidiary shall not have any liability for any obligations of the Company or a Guarantor Subsidiary under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 17. Governing Law 121 THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 18. Authentication This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 19. Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 20. CUSIP Numbers Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO: NEENAH FOUNDRY COMPANY 2121 BROOKS AVENUE NEENAH, WI 54957 ATTENTION OF VICE PRESIDENT-FINANCE 122 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. __________________________________________________________________ Date: ________________ Your Signature: _____________________ __________________________________________________________________ Sign exactly as your name appears on the other side of this Security. Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee. 123 OPTION OF HOLDER TO ELECT PURCHASE IF YOU WANT TO ELECT TO HAVE THIS SECURITY PURCHASED BY THE COMPANY PURSUANT TO SECTION 4.06 (ASSET SALE) OR 4.08 (CHANGE OF CONTROL) OF THE INDENTURE, CHECK THE BOX: ASSET SALE / / CHANGE OF CONTROL / / IF YOU WANT TO ELECT TO HAVE ONLY PART OF THIS SECURITY PURCHASED BY THE COMPANY PURSUANT TO SECTION 4.06 OR 4.08 OF THE INDENTURE, STATE THE AMOUNT: $ DATE: __________________ YOUR SIGNATURE: __________________ (SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE OF THE SECURITY) SIGNATURE GUARANTEE:_______________________________________ SIGNATURE MUST BE GUARANTEED BY A PARTICIPANT IN A RECOGNIZED SIGNATURE GUARANTY MEDALLION PROGRAM OR OTHER SIGNATURE GUARANTOR ACCEPTABLE TO THE TRUSTEE. 124 EXHIBIT C FORM OF SUPPLEMENTAL INDENTURE SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated as of , among [GUARANTOR] (the "New Guarantor"), a subsidiary of NEENAH FOUNDRY COMPANY (or its successor), a Wisconsin corporation (the "Company"), [EXISTING GUARANTOR SUBSIDIARIES] and UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking association, as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H : WHEREAS the Company and [OLD GUARANTORS] (the "Existing Guarantors") has heretofore executed and delivered to the Trustee an Indenture (the "Indenture") dated as of November 24, 1998, providing for the issuance of an aggregate principal amount of up to $87,000,000 of 11-1/8% Senior Notes due 2007 (the "Securities"); WHEREAS Section 4.15 of the Indenture provides that under certain circumstances the Company is required to cause the New Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which the New Guarantor shall unconditionally guarantee all the Company's obligations under the Securities pursuant to a Subsidiary Guarantee on the terms and conditions set forth herein; and WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee, the Company and the Existing Guarantors are authorized to execute and deliver this Supplemental Indenture; NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Guarantor, the Company, the Existing Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Securities as follows: 1. Agreement to Guarantee. The New Guarantor hereby agrees, jointly and severally with all the Existing Guarantors, to unconditionally guarantee the Company's obligations under the Securities on the terms and subject to the conditions set forth in Article 10 of the Indenture and to be bound by all other applicable provisions of the Indenture and the Securities. 2. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby. 125 3. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 4. Trustee Makes No Representation. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture. 5. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 6. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction thereof. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written. [NEW GUARANTOR], by -------------------------------------- Name: Title: NEENAH FOUNDRY COMPANY, by -------------------------------------- Name: Title: [EXISTING SUBSIDIARY GUARANTORS], by -------------------------------------- Name: Title: UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee, by -------------------------------------- Name: Title: 126 EXHIBIT D Form of Transferee Letter of Representation NEENAH FOUNDRY COMPANY In care of United Stated Trust Company of New York 114 West 47th Street New York, NY 10036 Ladies and Gentlemen: This certificate is delivered to request a transfer of $[ ] principal amount of the 11-1/8% Series E Senior Subordinated Notes due 2007 (the "Securities") of Neenah Foundry Company (the "Company"). Upon transfer, the Securities would be registered in the name of the new beneficial owner as follows: Name:________________________ Address:_____________________ Taxpayer ID Number:__________ The undersigned represents and warrants to you that: 1. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the "Securities Act")), purchasing for our own account or for the account of such an institutional "accredited investor" at least $250,000 principal amount of the Securities, and we are acquiring the Securities not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Securities, and we invest in or purchase securities similar to the Securities in the normal course of our business. We, and any accounts for which we are acting, are each able to bear the economic risk of our or its investment. 2. We understand that the Securities have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Securities to offer, sell or otherwise transfer such Securities prior to the date that is two years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Securities (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement that has been declared effective under the Securities Act, (c) in a transaction complying with the requirements of Rule 144A under the Securities Act ("Rule 144A"), to a person we reasonably believe is a qualified 127 institutional buyer under Rule 144A (a "QIB") that is purchasing for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing for its own account or for the account of such an institutional "accredited investor," in each case in a minimum principal amount of Securities of $250,000, or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and in compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Securities is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Company and the Trustee, which shall provide, among other things, that the transferee is an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring such Securities for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Company and the Trustee reserve the right prior to the offer, sale or other transfer prior to the Resale Restriction Termination Date of the Securities pursuant to clause (d), (e) or (f) above to require the delivery of an opinion of counsel, certifications or other information satisfactory to the Company and the Trustee. TRANSFEREE:_________________, by:___________________________ EX-5.1 5 OPINION AND CONSENT OF KIRKLAND & ELLIS 1 EXHIBIT 5.1 [LETTERHEAD OF KIRKLAND & ELLIS] To Call Writer Direct: 212 446-4800 August 12, 1997 Neenah Foundry Company Hartley Controls Corporation Neenah Transport, Inc. 2121 Brooks Avenue, Box 729 Neenah, Wisconsin 54927 Re: Series B 11-1/8% Senior Subordinated Notes due 2007 Ladies and Gentlemen: We are acting as special counsel to Neenah Foundry Company, a Wisconsin corporation (the "Company"), Hartley Controls Corporation, a Wisconsin corporation ("Hartley") and Neenah Transport, Inc., a Wisconsin corporation ("Transport", and together with the Company and Hartley, the "Registrants") in connection with the proposed registration by the Company of up to $150,000,000 in aggregate principal amount of the Company's Series B 11-1/8% Senior Subordinated Notes due 2007 (the "Exchange Notes"), pursuant to a Registration Statement on Form S-4 filed with the Securities and Exchange Commission (the "Commission") on July 25, 1997 under the Securities Act of 1933, as amended (the "Securities Act") (such Registration Statement, as amended or supplemented, is hereinafter referred to as the "Registration Statement"), for the purpose of effecting an exchange offer (the "Exchange Offer") for the Company's 111/8% Senior Subordinated Notes due 2007 (the "Old Notes"). The Exchange Notes are to be issued pursuant to the Indenture (the "Indenture"), dated as of April 30, 1997, among the Registrants and United States Trust Company of New York, as Trustee, in exchange for and in replacement of the Company's outstanding Old Notes, of which $150,000,000 in aggregate principal amount is outstanding. In that connection, we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary for the purposes of this opinion, including (i) the corporate and organizational documents of each of the Registrants, (ii) minutes and records of the corporate proceedings of each of the 2 Neenah Foundry Company July 25, 1997 Page 2 Registrants with respect to the issuance of the Exchange Notes, (iii) the Registration Statement and exhibits thereto and (iv) the Exchange and Registration Rights Agreement, dated as of April 30, 1997, among the Registrants, Chase Securities, Inc. and Morgan Stanley & Co. Incorporated. For purposes of this opinion, we have assumed the authenticity of all documents submitted to us as originals, the conformity to the originals of all documents submitted to us as copies and the authenticity of the originals of all documents submitted to us as copies. We have also assumed the genuineness of the signatures of persons signing all documents in connection with which this opinion is rendered, the authority of such persons signing on behalf of the parties thereto other than the Registrants, and the due authorization, execution and delivery of all documents by the parties thereto other than the Registrants. As to any facts material to the opinions expressed herein which we have not independently established or verified, we have relied upon statements and representations of officers and other representatives of the Registrants and others. Based upon and subject to the foregoing qualifications, assumptions and limitations and the further limitations set forth below, we are of the opinion that: (1) Each of the Registrants is a corporation existing and in good standing under the Wisconsin Business Corporation Law. (2) The sale and issuance of the Exchange Notes has been validly authorized by the Company. (3) When the Exchange Notes are issued pursuant to the Exchange Offer, the Exchange Notes will constitute valid and binding obligations of the Registrants and the Indenture will be enforceable in accordance with its terms. 3 Neenah Foundry Company July 25, 1997 Page 3 Our opinions expressed above are subject to the qualifications that we express no opinion as to the applicability of, compliance with, or effect of (i) any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent conveyance, moratorium or other similar law affecting the enforcement of creditors' rights generally, (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), (iii) public policy considerations which may limit the rights of parties to obtain certain remedies and (iv) any laws except the laws of the State of New York. We advise you that issues addressed by this letter may be governed in whole or in part by other laws, but we express no opinion as to whether any relevant difference exists between the laws upon which our opinions are based and any other laws which may actually govern. For purposes of the opinion in paragraph 1, we have relied exclusively upon recent certificates issued by the Wisconsin Secretary of State and such opinion is not intended to provide any conclusion or assurance beyond that conveyed by such certificates. We have assumed without investigation that there has been no relevant change or development between the respective dates of such certificates and the date of this letter. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement. We also consent to the reference to our firm under the heading "Legal Matters" in the Registration Statement. In giving this consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of the rules and regulations of the Commission. We do not find it necessary for the purposes of this opinion, and accordingly we do not purport to cover herein, the application of the securities or "Blue Sky" laws of the various states to the issuance of the Exchange Notes. This opinion is limited to the specific issues addressed herein, and no opinion may be inferred or implied beyond that expressly stated herein. We assume no obligation to revise or supplement this opinion should the present laws of the State of New York be changed by legislative action, judicial decision or otherwise. 4 Neenah Foundry Company July 25, 1997 Page 4 This opinion is furnished to you in connection with the filing of the Registration Statement, and is not to be used, circulated, quoted or otherwise relied upon for any other purposes. Yours very truly, KIRKLAND & ELLIS EX-8.1 6 OPINION OF KIRKLAND & ELLIS 1 EXHIBIT 8.1 July 25, 1997 Neenah Foundry Company 2121 Brooks Avenue -- Box 729 Neenah, Wisconsin 54927 Re: Offer for all outstanding 11 1/8% Series A Senior Subordinated Notes due 2007 in exchange for 11 1/8% Series B Senior Subordinated Notes due 2007 of Neenah Foundry Company Ladies and Gentlemen: We have acted as counsel to Neenah Foundry Company (the "Company") in connection with the proposed offer (the "Exchange Offer") to exchange an aggregate principal amount of up to $150,000,000 of its 11 1/8% Series B Senior Subordinated Notes due 2007 (the "New Notes") for a like principal amount of its 11 1/8% Series A Senior Subordinated Notes due 2007 (the "Old Notes"). On the basis of the foregoing, it is our opinion that the statements regarding the Exchange Offer described in the section titled "Certain Federal Income Tax Considerations" in the Company's Amendment No. 1 Registration Statement on Form S-4 (File No. 333-28751), filed with the Securities and Exchange Commission on July 25, 1997 (the "Registration Statement"), are correct in all material respects. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this firm in the Registration Statement. Very truly yours, /s/ KIRKLAND & ELLIS -------------------------------------- Kirkland & Ellis EX-10.20 7 PURCHASE AGREEMENT DATED NOVEMBER 19, 1998 1 EXECUTION COPY NEENAH FOUNDRY COMPANY $87,000,000 11-1/8 % SERIES E SENIOR SUBORDINATED NOTES DUE 2007 PURCHASE AGREEMENT November 19, 1998 CHASE SECURITIES INC. 270 Park Avenue, 4th floor New York, New York 10017 Ladies and Gentlemen: Neenah Foundry Company (formerly known as Neenah Corporation), a Wisconsin corporation (the "Company"), proposes to issue and sell $87,000,000 aggregate principal amount of its 11-1/8% Series E Senior Subordinated Notes due 2007 (the "Notes"). The Notes will be issued pursuant to an Indenture to be dated as of November 24, 1998 (the "Indenture") among the Company, the Guarantors (as defined) and United States Trust Company of New York, as trustee (the "Trustee") and will be guaranteed on an unsecured senior subordinated basis (the "Guarantees", and together with the Notes, the "Securities") by the principal operating subsidiaries of the Company (collectively, the "Guarantors"). The Company confirms its agreement with Chase Securities Inc. (the "Initial Purchaser") concerning the purchase of the Securities from the Company by the Initial Purchaser. The Securities will be offered and sold to the Initial Purchaser without being registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon an exemption therefrom. The Company has prepared an offering memorandum dated the date hereof setting forth and incorporating by reference information concerning the Company, the Guarantors and the Securities (including the information incorporated by reference therein, the "Offering Memorandum"). Copies of the Offering Memorandum will be delivered by the Company to the Initial Purchaser pursuant to the terms of this Agreement. Any references herein to the Offering Memorandum shall be deemed to include all amendments and supplements thereto, unless otherwise noted. The Company hereby confirms that it has authorized the use of the Offering Memorandum in connection with the offering and resale of the Securities by the Initial Purchaser in accordance with Section 2. Holders of the Securities (including the Initial Purchaser and its direct and indirect transferees) will be entitled to the benefits of an Exchange and Registration Rights Agreement, substantially in the form attached hereto as Annex A (the "Registration Rights Agreement"), pursuant to which the Company and the Guarantors will agree to file with the Securities and Exchange Commission (the "Commission") (i) a registration statement under the Securities Act (the "Exchange Offer Registration Statement") registering an issue of senior subordinated notes of the Company (the "Exchange Securities") which are identical in all material respects to the Securities 2 2 (except that the Exchange Securities will not contain terms with respect to transfer restrictions) and (ii) under certain circumstances, a shelf registration statement pursuant to Rule 415 under the Securities Act (the "Shelf Registration Statement"). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Offering Memorandum. 1. Representations, Warranties and Agreements of the Company and the Guarantors. The Company and each of the Guarantors represent and warrant to, and agree with, the Initial Purchaser on and as of the date hereof and the Closing Date that: (a) The Offering Memorandum, as of the date hereof does not, and on the Closing Date will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company and the Guarantors make no representation or warranty as to information contained in or omitted from the Offering Memorandum in reliance upon and in conformity with written information relating to the Initial Purchaser furnished to the Company by or on behalf of the Initial Purchaser specifically for use therein (the "Initial Purchaser's Information"). (b) The Offering Memorandum, as of the date hereof, contains all of the information that, if requested by a prospective purchaser of the Securities, would be required to be provided to such prospective purchaser pursuant to Rule 144A(d)(4) under the Securities Act. (c) Assuming the accuracy of the representations and warranties of the Initial Purchaser contained in Section 2 and its compliance with the agreements set forth therein, it is not necessary, in connection with the issuance and sale of the Securities to the Initial Purchaser and the offer, resale and delivery of the Securities by the Initial Purchaser in the manner contemplated by this Agreement and the Offering Memorandum, to register the Securities under the Securities Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). (d) NFC Castings, Inc., a Delaware corporation ("Holdings") has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware and the Company and each of the Company's subsidiaries have been duly incorporated and are validly existing as corporations under the laws of the state of their respective organization, and each of the Company, Holdings, and each of the Company's subsidiaries are duly qualified to do business and are in good standing as foreign corporations in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged and to take the actions necessary to consummate each of the transactions contemplated by this Agreement and the Offering Memorandum (the "Transactions"), except where the failure to so qualify or have such power or authority would not, singularly or in the aggregate, have a material adverse effect on the condition (financial or otherwise), results of operations, 3 3 business or prospects of the Company and its subsidiaries taken as a whole (a "Material Adverse Effect"). (e) The Company has a capitalization as set forth in the Offering Memorandum under the heading "Capitalization"; all of the outstanding shares of capital stock of Holdings, the Company, and each of the Company's subsidiaries have been duly and validly authorized and issued and are fully paid and non-assessable, except as set forth in Section 180.0622(2)(b) of the Wisconsin statutes, as judicially interpreted; and conform in all material respects to the description thereof contained in the Offering Memorandum. All the outstanding shares of capital stock of the Company and its subsidiaries will be owned directly or indirectly by Holdings, free and clear of any lien, charge, encumbrance, security interest, restriction upon voting or transfer or any other claim of any third party, other than liens arising under the Senior Bank Facilities. As of the date hereof, the Company does not have any subsidiaries that are not listed on the signature pages hereto. (f) Each of the Company and the Guarantors have full right, power and authority to execute and deliver any of this Agreement, the Indenture, the Registration Rights Agreement and the Securities (collectively, the "Transaction Documents") to which it is or will be a party and to perform its respective obligations hereunder and thereunder; and all corporate action required to be taken for the due and proper authorization, execution and delivery of each of the Transaction Documents and the consummation of the transactions contemplated thereby have been duly and validly taken. (g) This Agreement has been duly authorized, executed and delivered by the Company and each of the Guarantors and constitutes a valid and legally binding agreement of the Company and each of the Guarantors. (h) The Registration Rights Agreement has been duly authorized by the Company and each of the Guarantors and, when duly executed and delivered in accordance with its terms by the Company, the Guarantors and the Initial Purchaser, will constitute a valid and legally binding agreement of the Company and each of the Guarantors, enforceable against the Company and each of the Guarantors in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). (i) The Indenture has been duly authorized by the Company and each of the Guarantors and, when duly executed and delivered in accordance with its terms by the Company, the Guarantors and the Trustee, will constitute a valid and legally binding agreement of the Company and each of the Guarantors enforceable against the Company and each of the Guarantors in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). On the Closing Date, the Indenture will conform in all material respects to the 4 4 requirements of the Trust Indenture Act and the rules and regulations of the Commission applicable to an indenture which is qualified thereunder. (j) The Securities have been duly authorized by the Company and each of the Guarantors and, when duly executed, authenticated, issued and delivered as provided in the Indenture and paid for as provided herein, will be duly and validly issued and outstanding and will constitute valid and legally binding obligations of the Company, as primary obligor, and of each of the Guarantors, as note guarantors, entitled to the benefits of the Indenture and enforceable against the Company and each of the Guarantors, in accordance with their terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). (k) Each Transaction Document conforms in all material respects to the description thereof contained in the Offering Memorandum. (l) The execution, delivery and performance by the Company and each of the Guarantors of each of the Transaction Documents to which it is or will be a party, the issuance, authentication, sale and delivery of the Securities and compliance by the Company and each of the Guarantors with the terms thereof and the consummation of the transactions contemplated by the Transaction Documents (i) will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Company's subsidiaries pursuant to, any material indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which any of them is a party or by which any of them is bound or to which any of their respective properties or assets are subject, except where such conflict, breach, violation or default would not (A) result in a Material Adverse Effect on the Company or any of the Company's subsidiaries, or (B) have a material adverse effect on the Company's or any Guarantor's ability to perform its obligations under any of the Transaction Documents to which it is a party, and (ii) such actions will not result in any violation of (A) the provisions of the charter or by-laws of the Company or any of the Company's subsidiaries or (B) to the Company's best knowledge, any statute or any judgment, order, decree, rule or regulation of any court or arbitrator or governmental agency or body having jurisdiction over the Company or any of the Company's subsidiaries or any of their properties or assets; and no consent, approval, authorization or order of, or filing or registration with, any such court or arbitrator or governmental agency or body under any such statute, judgment, order, decree, rule or regulation is required for the execution, delivery and performance by the Company and each of the Guarantors of each of the Transaction Documents to which it is or will be a party, the issuance, authentication, sale and delivery of the Securities and compliance by the Company and each of the Guarantors (as applicable) with the terms thereof and the consummation of the transactions contemplated by the Transaction Documents, except for such consents, approvals, authorizations, filings, registrations or qualifications (i) which shall have been obtained or made prior to the Closing Date and (ii) as may be required to be obtained or made under 5 5 the Securities Act and applicable state securities laws as provided in the Registration Rights Agreement. (m) Ernst & Young LLP are independent certified public accountants with respect to the Company and its subsidiaries within the meaning of Rule 101 of the Code of Professional Conduct of the American Institute of Certified Public Accountants ("AICPA") and its interpretations and rulings thereunder. PricewaterhouseCoopers LLP are independent certified public accountants with respect to Dalton Corporation and its subsidiaries within the meaning of Rule 101 of the Code of Professional Conduct of the AICPA and its interpretations and rulings thereunder. KPMG Peat Marwick LLP are independent certified public accountants with respect to Mercer Forge Corporation and its subsidiaries within the meaning of Rule 101 of the Code of Professional Conduct of the AICPA and its interpretations and rulings thereunder. The historical financial statements (including the related notes) contained or incorporated by reference in the Offering Memorandum comply in all material respects with the requirements applicable to a registration statement on Form S-1 under the Securities Act (except that certain consolidated financial statement schedules and net income per common share data are omitted); such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods covered thereby and fairly present the financial position of the entities purported to be covered thereby at the respective dates indicated and the results of their operations and their cash flows for the respective periods indicated; and the financial information contained in the Offering Memorandum under the headings "Summary--Summary Financial and Other Data", "Capitalization", "Selected Consolidated Financial and Other Data", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Management--Compensation of Executive Officers", as applicable, are derived from the accounting records of the Company and its subsidiaries and fairly present the information purported to be shown thereby. The pro forma financial information contained or incorporated by reference in the Offering Memorandum has been prepared on a basis consistent with the historical financial statements contained or incorporated by reference in the Offering Memorandum (except for the pro forma adjustments specified therein), includes all material adjustments to the historical financial information required by Rule 11-02 of Regulation S-X under the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to reflect the transactions described in the Offering Memorandum, gives effect to assumptions made on a reasonable basis and fairly presents the historical and proposed transactions contemplated by the Offering Memorandum and the Transaction Documents. The other historical financial and statistical information and data included in the Offering Memorandum are, in all material respects, fairly presented. The historical financial information of Advanced Cast Products, Inc. included in the Offering Memorandum has been derived from the audited financial statements of Advanced Cast Products, Inc. and is correct in all material respects. (n) There are no legal or governmental proceedings pending to which the Company or any of the Company's subsidiaries is a party or of which any of their respective properties or assets is the subject which, (A) singularly or in the aggregate, if determined adversely to the Company or any of the Company's 6 6 subsidiaries, could reasonably be expected to have a Material Adverse Effect or (B) question the validity or enforceability of any of the Transaction Documents or any action taken or to be taken pursuant thereto; and to the best knowledge of the Company, no such proceedings are threatened or contemplated by governmental authorities or threatened by others. (o) To the best knowledge of the Company, no action has been taken and no statute, rule, regulation or order has been enacted, adopted or issued by any governmental agency or body which prevents the issuance of the Securities or suspends the sale of the Securities in any jurisdiction; to the best knowledge of the Company, no injunction, restraining order or order of any nature by any federal or state court of competent jurisdiction has been issued with respect to the Company or any of the Company's subsidiaries which would prevent or suspend the issuance or sale of the Securities or the use of the Offering Memorandum in any jurisdiction; no action, suit or proceeding is pending against or, to the best knowledge of the Company, threatened against or affecting the Company or any of the Company's subsidiaries before any court or arbitrator or any governmental agency, body or official, domestic or foreign, which could reasonably be expected to interfere with or adversely affect the issuance of the Securities or in any manner draw into question the validity or enforceability of any of the Transaction Documents or any action taken or to be taken pursuant thereto; and the Company has complied with any and all requests by any securities authority in any jurisdiction for additional information to be included in the Offering Memorandum. (p) None of the Company, Holdings or any of the Company's subsidiaries is (i) in violation of its charter or by-laws, (ii) in default in any material respect, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets are subject or (iii) in violation in any material respect of any law, ordinance, governmental rule, regulation or court decree to which it or its properties or assets may be subject, except for any violation or default under clauses (ii) or (iii) that would not have a Material Adverse Effect. (q) The Company and each of its subsidiaries possess all material licenses, certificates, authorizations and permits issued by, and have made all declarations and filings with, the appropriate federal, state or foreign regulatory agencies or bodies which are necessary or desirable for the ownership of their respective properties or the conduct of their respective businesses as described in the Offering Memorandum, except where the failure to possess or make the same would not, singularly or in the aggregate, have a Material Adverse Effect, and none of the Company or any of its subsidiaries has received notification of any revocation or modification of any such license, certificate, authorization or permit or has any reason to believe that any such license, certificate, authorization or permit will not be renewed in the ordinary course. (r) The Company and each of its subsidiaries have filed all federal, state, local and foreign income and franchise tax returns required to be filed through the 7 7 date hereof and have paid all taxes due thereon, and no tax deficiency has been determined adversely to the Company or any of its subsidiaries which has had (nor does the Company have any knowledge of any tax deficiency which, if determined adversely to the Company or any of its subsidiaries, could reasonably be expected to have) a Material Adverse Effect. (s) Neither the Company nor any of its subsidiaries is (i) an "investment company" or a company "controlled by" an investment company within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"), and the rules and regulations of the Commission thereunder or (ii) a "holding company" or a "subsidiary company" of a holding company or an "affiliate" thereof within the meaning of the Public Utility Holding Company Act of 1935, as amended. (t) The Company and each of its subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (u) The Company and each of its subsidiaries have insurance covering their respective properties, operations, personnel and businesses, which insurance is in amounts and insures against such losses and risks as are adequate to protect the Company and its subsidiaries and their respective businesses. Neither the Company nor any of its subsidiaries has received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance. (v) The Company and each of its subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses and know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) necessary for the conduct of their respective businesses; and the Company has no reason to believe that the conduct of their respective businesses will conflict in any material respect with, and the Company and its subsidiaries have not received any notice of any claim of conflict with, any such rights of others. (w) The Company and each of its subsidiaries have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real and personal property which are material to the business of the Company and its subsidiaries, in each case free and clear of all liens (other than liens arising under the Senior Bank Facilities), encumbrances, claims and defects and imperfections of title except such as (i) do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries or (ii) could not reasonably be expected to have a Material Adverse Effect. 8 8 (x) No material labor disturbance by or dispute with the employees of the Company or any of its subsidiaries exists or, to the best knowledge of the Company, is contemplated or threatened. (y) No "prohibited transaction" (as defined in Section 406 of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time (the "Code")) or "accumulated funding deficiency" (as defined in Section 302 of ERISA) or any of the events set forth in Section 4043(b) of ERISA (other than events with respect to which the 30-day notice requirement under Section 4043 of ERISA has been waived) has occurred with respect to any employee benefit plan of the Company or any of its subsidiaries which could reasonably be expected to have a Material Adverse Effect; each such employee benefit plan is in compliance in all material respects with applicable law, including ERISA and the Code; the Company and each of its subsidiaries have not incurred and do not expect to incur liability under Title IV of ERISA with respect to the termination of, or withdrawal from, any pension plan for which the Company or any of its subsidiaries would have any liability; and each such pension plan that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which could reasonably be expected to cause the loss of such qualification. (z) There has been no storage, generation, transportation, handling, treatment, disposal, discharge, emission or other release of any kind of toxic or other wastes or other hazardous substances by, due to or caused by the Company or any of its subsidiaries (or, to the best knowledge of the Company, any other entity (including any predecessor) for whose acts or omissions the Company or any of the Company's subsidiaries is or could reasonably be expected to be liable) upon any of the property now or previously owned or leased by the Company or any of its subsidiaries, or upon any other property, in violation of any statute or any ordinance, rule, regulation, order, judgment, decree or permit or which would, under any statute or any ordinance, rule (including rule of common law), regulation, order, judgment, decree or permit, give rise to any liability, except for any violation or liability could not reasonably be expected to have, singularly or in the aggregate with all such violations and liabilities, a Material Adverse Effect; and there has been no disposal, discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or other wastes or other hazardous substances with respect to which the Company has knowledge, except for any such disposal, discharge, emission or other release of any kind which could not reasonably be expected to have, singularly or in the aggregate with all such discharges and other releases, a Material Adverse Effect. (aa) Neither the Company nor, to the best knowledge of the Company, any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any of its subsidiaries has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices 9 9 Act of 1977; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (bb) On and immediately after the Closing Date, the Company (on a consolidated basis, after giving effect to the issuance of the Securities and to the other transactions as described in the Offering Memorandum) will be Solvent. As used in this paragraph, the term "Solvent" means, with respect to a particular date, that on such date (i) the present fair market value (or present fair saleable value) of the assets of the Company is not less than the total amount required to pay the probable liabilities of the Company on its total existing debts and liabilities (including contingent liabilities) as they become absolute and matured, (ii) the Company is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and commitments as they mature and become due in the normal course of business, (iii) assuming the sale of the Securities as contemplated by this Agreement and the Offering Memorandum, the Company is not incurring debts or liabilities beyond its ability to pay as such debts and liabilities mature and (iv) the Company is not engaged in any business or transaction, and is not about to engage in any business or transaction, for which its property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which the Company is engaged. In computing the amount of such contingent liabilities at any time, it is intended that such liabilities will be computed at 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. (cc) Except as described in the Offering Memorandum, there are no outstanding subscriptions, rights, warrants, calls or options to acquire, or instruments convertible into or exchangeable for, or agreements or understandings with respect to the sale or issuance of, any shares of capital stock of or other equity or other ownership interest in Holdings, the Company, or any of the Company's subsidiaries. (dd) Neither the Company nor any of its subsidiaries owns any "margin securities" as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), and none of the proceeds of the sale of the Securities will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Securities to be considered a "purpose credit" within the meanings of Regulation T, U or X of the Federal Reserve Board. (ee) None of the Company or any of the Company's subsidiaries is a party to any contract, agreement or understanding with any person that would give rise to a valid claim against the Company or the Initial Purchaser for a brokerage com mission, finder's fee or like payment in connection with the offering and sale of the Securities. (ff) The Securities satisfy the eligibility requirements of Rule 144A(d)(3) under the Securities Act. 10 10 (gg) None of the Company or any of its affiliates or any person acting on behalf of any of them has engaged or will engage in any directed selling efforts (as such term is defined in Regulation S under the Securities Act ("Regulation S")), and all such persons have complied and will comply with the offering restrictions requirement of Regulation S to the extent applicable. (hh) None of the Company or any of its affiliates has, directly or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as such term is defined in the Securities Act), which is or will be integrated with the sale of the Securities in a manner that would require registration of the Securities under the Securities Act. (ii) None of the Company or any of its affiliates or any other person acting on behalf of any of them has engaged, in connection with the offering of the Securities, in any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act. (jj) Other than the Old Notes, there are no securities of the Company registered under the Exchange Act or listed on a national securities exchange or quoted in a U.S. automated inter-dealer quotation system. (kk) None of the Company or any of the Guarantors has taken or will take, directly or indirectly, any action prohibited by Regulation M under the Exchange Act in connection with the offering of the Securities. (ll) No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Offering Memorandum has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith. (mm) None of the Company or any of its subsidiaries does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Florida Statutes Section 517.075. (nn) The Company and its subsidiaries have implemented a comprehensive, detailed program to analyze and address the risk that the computer hardware and software used by them may be unable to recognize and properly execute date-sensitive functions involving certain dates prior to and any dates after December 31, 1999 (the "Year 2000 Problem"), and have determined that such risk will be remedied on a timely basis without material expense and will not have a Material Adverse Effect; and the Company believes, after due inquiry, that each supplier, vendor, customer or financial service organization used or serviced by the Company and its subsidiaries has remedied or will remedy on a timely basis the Year 2000 Problem, except to the extent that a failure to remedy by any such supplier, vendor, customer or financial service organization would not have a Material Adverse Effect. (oo) Since the most recent date as of which information is given in the Offering Memorandum, except as otherwise stated therein, (i) there has been no material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or in the earnings, 11 11 business affairs, management or business prospects of the Company or any of its subsidiaries, whether or not arising in the ordinary course of business, (ii) neither the Company nor any of its subsidiaries have incurred any material liability or obligation, direct or contingent, other than in the ordinary course of business, (iii) neither the Company nor any of its subsidiaries have entered into any material transaction other than in the ordinary course of business and (iv) there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries, or any dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. 2. Purchase and Resale of the Securities. (a) On the basis of the representations, warranties and agreements contained herein, and subject to the terms and conditions set forth herein, the Company agrees to issue and sell to the Initial Purchaser, and the Initial Purchaser agrees to purchase from the Company, $87,000,000 principal amount of Securities at a purchase price equal to 100.65375% of the principal amount thereof. The Company shall not be obligated to deliver any of the Securities except upon payment for all of the Securities to be purchased as provided herein. (b) The Initial Purchaser has advised the Company that it proposes to offer the Securities for resale upon the terms and subject to the conditions set forth herein and in the Offering Memorandum. The Initial Purchaser represents, warrants and agrees that (i) it is purchasing the Securities pursuant to a private sale exempt from registration under the Securities Act, (ii) it has not solicited offers for, or offered or sold, and will not solicit offers for, or offer or sell, the Securities by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D under the Securities Act ("Regulation D") or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act and (iii) it has solicited and will solicit offers for the Securities only from, and has offered or sold and will offer, sell or deliver the Securities, as part of its initial offering, only (A) within the United States to persons whom it reasonably believes to be qualified institutional buyers ("Qualified Institutional Buyers"), as defined in Rule 144A under the Securities Act ("Rule 144A"), or if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to it that each such account is a Qualified Institutional Buyer to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A and in each case, in transactions in accordance with Rule 144A and (B) outside the United States to persons other than U.S. persons in reliance on Regulation S under the Securities Act ("Regulation S"). (c) In connection with the offer and sale of Securities in reliance on Regulation S, the Initial Purchaser represents, warrants and agrees that: (i) the Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in transactions not subject to, the registration requirements of the Securities Act; (ii) the Initial Purchaser has offered and sold the Securities, and will offer and sell the Securities, (A) as part of their distribution at any time and (B) otherwise until 40 days after the later of the commencement of the offering of the 12 12 Securities and the Closing Date, only in accordance with Regulation S or Rule 144A or any other available exemption from registration under the Securities Act; (iii) none of the Initial Purchaser or any of its affiliates or any other person acting on its or their behalf has engaged or will engage in any directed selling efforts with respect to the Securities, and all such persons have complied and will comply with the offering restriction requirements of Regulation S; (iv) at or prior to the confirmation of sale of any Securities sold in reliance on Regulation S, it will have sent to each distributor, dealer or other person receiving a selling concession, fee or other remuneration that purchase Securities from it during the restricted period a confirmation or notice to substantially the following effect; "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering of the Securities and the date of original issuance of the Securities, except in accordance with Regulation S or Rule 144A or any other available exemption from registration under the Securities Act. Terms used above have the meanings given to them by Regulation S."; and (v) it has not and will not enter into any contractual arrangement with any distributor with respect to the distribution of the Securities, except with its affiliates or with the prior written consent of the Company. Terms used in this Section 2(c) have the meanings given to them by Regulation S. (d) The Initial Purchaser represents, warrants and agrees that (i) it has not offered or sold and prior to the date six months after the Closing Date will not offer or sell any Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 and the Public Offers of Securities Regulations 1995 with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. (e) The Initial Purchaser agrees that, prior to or simultaneously with the confirmation of sale by the Initial Purchaser to any purchaser of any of the Securities purchased by the Initial Purchaser from the Company pursuant hereto, the Initial Purchaser shall furnish to that purchaser a copy of the Offering Memorandum (and any amendment or supplement thereto that the Company shall have furnished to the Initial 13 13 Purchaser prior to the date of such confirmation of sale). In addition to the foregoing, the Initial Purchaser acknowledges and agrees that the Company and, for purposes of the opinions to be delivered to the Initial Purchaser pursuant to Sections 5(d) and (e), counsel for the Company, the Guarantors and for the Initial Purchaser, respectively, may rely upon the accuracy of the representations and warranties of the Initial Purchaser and its compliance with its agreements contained in this Section 2, and the Initial Purchaser hereby consents to such reliance. (f) The Company and each of the Guarantors acknowledge and agree that the Initial Purchaser may sell Securities to any affiliate of the Initial Purchaser and that any such affiliate may sell Securities purchased by it to the Initial Purchaser. 3. Delivery of and Payment for the Securities. (a) Delivery of and payment for the Securities shall be made at the offices of Cravath, Swaine & Moore ("CS&M"), New York, New York, or at such other place as shall be agreed upon by the Initial Purchaser and the Company, at 10:00 A.M., New York City time, on November 24, 1998, or at such other time or date, not later than seven full business days thereafter, as shall be agreed upon by the Initial Purchaser and the Company (such date and time of payment and delivery being referred to herein as the "Closing Date"). (b) On the Closing Date, payment of the purchase price for the Securities shall be made to the Company by wire or book-entry transfer of same-day funds to such account or accounts as the Company shall specify prior to the Closing Date or by such other means as the parties hereto shall agree prior to the Closing Date against delivery to the Initial Purchaser of the certificates evidencing the Notes. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligations of the Initial Purchaser hereunder. Upon delivery, the Notes shall be in global form, registered in such names and in such denominations as the Initial Purchaser shall have requested in writing not less than two full business days prior to the Closing Date. The Company agrees to make one or more global certificates evidencing the Notes available for inspection by the Initial Purchaser in New York, New York at least 24 hours prior to the Closing Date. 4. Further Agreements of the Company and the Guarantors. The Company and each of the Guarantors agrees with the Initial Purchaser: (a) to advise the Initial Purchaser promptly and, if requested, confirm such advice in writing, of the happening of any event which makes any statement of a material fact made in the Offering Memorandum untrue or which requires the making of any additions to or changes in the Offering Memorandum (as amended or supplemented from time to time) in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; to advise the Initial Purchaser promptly of any order preventing or suspending the use of the Offering Memorandum, of any suspension of the qualification of the Securities for offering or sale in any jurisdiction and of the initiation or threatening of any proceeding for any such purpose; and to use its best efforts to prevent the issuance of any such order preventing or suspending the use of the Offering Memorandum or suspending any such qualification and, if any such suspension is issued, to obtain the lifting thereof at the earliest possible time; 14 14 (b) to furnish promptly to the Initial Purchaser and counsel for the Initial Purchaser, without charge, as many copies of the Offering Memorandum and any amendments or supplements thereto as may be reasonably requested; (c) prior to making any amendment or supplement to the Offering Memorandum, to furnish a copy thereof to the Initial Purchaser and counsel for the Initial Purchaser and not to effect any such amendment or supplement to which the Initial Purchaser shall reasonably object by notice to the Company after a reasonable period to review; (d) if, at any time prior to completion of the resale of the Securities by the Initial Purchaser, any event shall occur or condition exist as a result of which it is necessary, in the opinion of counsel for the Initial Purchaser or counsel for the Company, to amend or supplement the Offering Memorandum in order that the Offering Memorandum will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time it is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Offering Memorandum to comply with applicable law, to promptly prepare such amendment or supplement as may be necessary to correct such untrue statement or omission or so that the Offering Memorandum, as so amended or supplemented, will comply with applicable law; (e) for so long as the Securities are outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act and are not saleable pursuant to Rule 144(k) under the Securities Act, to furnish to holders of the Securities and prospective purchasers of the Securities designated by such holders, upon request of such holders or such prospective purchasers, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act, unless the Company is then subject to and in compliance with Section 13 or 15(d) of the Exchange Act (the foregoing agreement being for the benefit of the holders from time to time of the Securities and prospective purchasers of the Securities designated by such holders); (f) for so long as the Securities are outstanding, to furnish to the Initial Purchaser copies of any annual reports, quarterly reports and current reports filed by the Company with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated by the Commission, and such other documents, reports and information as shall be furnished by the Company to the Trustee or to the holders of the Securities pursuant to the Indenture or the Exchange Act or any rule or regulation of the Commission thereunder; (g) to promptly take from time to time such actions as the Initial Purchaser may reasonably request to qualify the Securities for offering and sale under the securities or Blue Sky laws of such jurisdictions as the Initial Purchaser may designate and to continue such qualifications in effect for so long as required for the resale of the Securities; and to arrange for the determination of the eligibility for investment of the Securities under the laws of such jurisdictions as the Initial Purchaser may reasonably request; provided that the Company and the Company's subsidiaries shall not be obligated to qualify as foreign corporations in 15 15 any jurisdiction in which they are not so qualified or to file a general consent to service of process in any jurisdiction; (h) to assist the Initial Purchaser in arranging for the Securities to be designated Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") Market securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. ("NASD") relating to trading in the PORTAL Market and for the Securities to be eligible for clearance and settlement through the Depository Trust Company ("DTC"); (i) not to, and to cause their affiliates not to, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as such term is defined in the Securities Act) which could be integrated with the sale of the Securities in a manner which would require registration of the Securities under the Securities Act; (j) except following the effectiveness of the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, not to, and to cause their affiliates not to, and not to authorize or knowingly permit any person acting on their behalf to, solicit any offer to buy or offer to sell the Securities by means of any form of general solicitation or general advertising within the meaning of Regulation D or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act; and not to offer, sell, contract to sell or otherwise dispose of, directly or indirectly, any securities under circumstances where such offer, sale, contract or disposition would cause the exemption afforded by Section 4(2) of the Securities Act to cease to be applicable to the offering and sale of the Securities as contemplated by this Agreement and the Offering Memorandum; (k) for a period of 180 days from the date of the Offering Memorandum, not to offer for sale, sell, contract to sell or otherwise dispose of, directly or indirectly, or file a registration statement for, or announce any offer, sale, contract for sale of or other disposition of any debt securities issued or guaranteed by the Company or any of its subsidiaries (other than the Securities or the Exchange Securities) without the prior written consent of the Initial Purchaser; (l) during the period from the Closing Date until two years after the Closing Date, without the prior written consent of the Initial Purchaser, not to, and not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Securities that have been reacquired by them, except for Securities purchased by the Company or any of its affiliates and resold in a transaction registered under the Securities Act; (m) not to, for so long as the Securities are outstanding, be or become, or be or become owned by, an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act, and to not be or become, or be or become owned by, a closed-end investment company required to be registered, but not registered thereunder; 16 16 (n) in connection with the offering of the Securities, until the Initial Purchaser has notified the Company of the completion of the resale of the Securities, not to, and to use its reasonable best efforts to cause its affiliated purchasers (as defined in Rule 100 of Regulation M under the Exchange Act) not to, directly or indirectly, either alone or with one or more other persons, bid for, purchase, or attempt to induce any person to bid for or purchase, a covered security during the applicable restricted period; and not to, and to use its reasonable best efforts to cause its affiliated purchasers not to, make bids or purchase for the purpose of creating actual, or apparent, active trading in or of raising the price of the Securities; (o) in connection with the offering of the Securities, to make the officers, employees, independent accountants and legal counsel of the Company, Holdings and the Company's subsidiaries reasonably available upon request by the Initial Purchaser; (p) to furnish to the Initial Purchaser on the date hereof a copy of each of the independent accountants' report included in the Offering Memorandum signed by the accountants rendering such report; (q) to do and perform all things required to be done and performed by it under this Agreement that are within its control prior to or after the Closing Date, and to use its best efforts to satisfy all conditions precedent to the delivery of the Securities; (r) to not take, and to use best efforts to cause Holdings, the Company and each of the Company's subsidiaries to not take, any action prior to the execution and delivery of the Indenture which, if taken after such execution and delivery, would have violated any of the covenants contained in the Indenture; (s) to not take, and to use best efforts to cause Holdings, the Company and each of the Company's subsidiaries to not take, any action prior to the Closing Date which would require the Offering Memorandum to be amended or supplemented pursuant to Section 4(d); (t) prior to the Closing Date, not to issue, and to use best efforts to cause Holdings, the Company and each of the Company's subsidiaries not to issue, any press release or other communication directly or indirectly or hold any press conference with respect to the Company or the Company's subsidiaries, their respective conditions, financial or otherwise, or earnings, business affairs or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past practices of the Company and of which the Initial Purchaser is notified), without the prior written consent of the Initial Purchaser, unless in the judgment of the Company and its counsel, and after notification to the Initial Purchaser, such press release or communication is required by law; and (u) to apply the net proceeds from the sale of the Securities as set forth in the Offering Memorandum under the heading "Use of Proceeds". 17 17 5. Conditions of Initial Purchaser's Obligation. The obligations of the Initial Purchaser hereunder are subject to (i) the accuracy, on and as of the date hereof and the Closing Date, of the representations and warranties of the Company and each of the Guarantors contained herein, (ii) the accuracy of the statements of the Company and the Guarantors and their respective officers made in any certificates delivered pursuant hereto, (iii) the performance by the Company and each of the Guarantors of their respective obligations hereunder, and to each of the following additional terms and conditions: (a) The Offering Memorandum (and any amendments or supplements thereto) shall have been printed and copies distributed to the Initial Purchaser as promptly as practicable on or following the date of this Agreement or at such other date and time as to which the Initial Purchaser and the Company may agree; and no stop order suspending the sale of the Securities in any jurisdiction shall have been issued and no proceeding for that purpose shall have been commenced or shall be pending or threatened. (b) The Initial Purchaser shall not have discovered and disclosed to the Company on or prior to the Closing Date that the Offering Memorandum or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of counsel for the Initial Purchaser, is material or omits to state any fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading. (c) All corporate proceedings and other legal matters incident to the authorization, form and validity of each of the Transaction Documents and the Offering Memorandum, and all other legal matters relating to the Transaction Documents and the transactions contemplated thereby, shall be satisfactory in all material respects to the Initial Purchaser, and the Company, Holdings and the Guarantors shall have furnished to the Initial Purchaser all documents and information that they or their counsel may reasonably request to enable them to pass upon such matters. (d) Kirkland & Ellis as counsel to the Company, Quarles & Brady, as counsel to the Company and the Guarantors, and Indiana and Ohio counsel reasonably satisfactory to the Initial Purchaser, as counsel to certain of the Guarantors, shall have furnished to the Initial Purchaser their written opinions, addressed to the Initial Purchaser and dated the Closing Date, each in form and substance reasonably satisfactory to the Initial Purchaser. (e) The Initial Purchaser shall have received from CS&M, such opinion or opinions, dated the Closing Date, with respect to such matters as the Initial Purchaser may reasonably require, and the Company, Holdings and the Guarantors shall have furnished to such counsel such documents and information as CS&M requests for the purpose of enabling them to pass upon such matters. (f) The Company shall have furnished to the Initial Purchaser a letter (the "E&Y Comfort Letter") of Ernst & Young LLP, the independent certified public accountants with respect to the Company, addressed to the Initial Purchaser and dated the date hereof, in form and substance satisfactory to the Initial Purchaser. The Company shall have furnished to the Initial Purchaser a letter (the "PW 18 18 Comfort Letter") of PricewaterhouseCoopers LLP, the independent certified public accountants with respect to Dalton Corporation, addressed to the Initial Purchaser and dated the date hereof, in form and substance satisfactory to the Initial Purchaser. The Company shall have furnished to the Initial Purchaser a letter (the "KPMG Comfort Letter") of KPMG Peat Marwick LLP, the independent certified public accountants with respect to Mercer Forge Corporation, addressed to the Initial Purchaser and dated the date hereof, in form and substance satisfactory to the Initial Purchaser. In addition, the Company shall have received letters from such accountants consenting to the use, in connection with the offering of the Securities, of the audited financial statements of the Company, Dalton Corporation and Mercer Forge Corporation, as the case may be, prepared by such accountants and included in the Offering Memorandum. (g) The Company shall have furnished to the Initial Purchaser a letter (the "Bring-Down Letter") of Ernst & Young LLP, addressed to the Initial Purchaser and dated the Closing Date, (i) confirming that they are independent public accountants with respect to the Company and its subsidiaries within the meaning of Rule 101 of the Code of Professional Conduct of the AICPA and its interpretations and rulings thereunder, (ii) stating, as of the date of the Bring-Down Letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Offering Memorandum, as of a date not more than three business days prior to the date of the Bring-Down Letter), the conclusions and findings of such accountants with respect to the financial information and other matters covered by the E&Y Comfort Letter are accurate and (iii) confirming in all material respects the conclusions and findings set forth in the E&Y Comfort Letter. (h) Each of the Company and the Guarantors shall have furnished to the Initial Purchaser a certificate, dated the Closing Date, of its chief executive officer or president and its chief financial officer stating that (A) such officers have carefully examined the Offering Memorandum, (B) in their opinion, the Offering Memorandum, as of its date, did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and since the date of the Offering Memorandum, no event has occurred which should have been set forth in a supplement or amendment to the Offering Memorandum so that the Offering Memorandum (as so amended or supplemented) would not include any untrue statement of a material fact and would not omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading and (C) as of the Closing Date, the representations and warranties of the Company and each of the Guarantors in this Agreement are true and correct in all material respects, the Company and each of the Guarantors have complied with all agreements and satisfied all conditions on their part to be performed or satisfied hereunder on or prior to the Closing Date, and subsequent to the date of the most recent financial statements contained in the Offering Memorandum, there has been no material adverse change in the financial position or results of operation of the Company or any of its subsidiaries, or any change, or any development including a prospective change, in or affecting the condition (financial or otherwise), results of operations, business or prospects of the Company and its subsidiaries taken as a whole. 19 19 (i) The Indenture shall have been duly executed and delivered by the Company, each of the Guarantors and the Trustee, and the Notes shall have been duly executed and delivered by the Company and duly authenticated by the Trustee. (j) The Securities shall have been approved by the NASD for trading in the PORTAL Market. (k) If any event shall have occurred that requires the Company under Section 4(d) to prepare an amendment or supplement to the Offering Memorandum, such amendment or supplement shall have been prepared, the Initial Purchaser shall have been given a reasonable opportunity to comment thereon, and copies thereof shall have been delivered to the Initial Purchaser reasonably in advance of the Closing Date. (l) There shall not have occurred any invalidation of Rule 144A under the Securities Act by any court or any withdrawal or proposed withdrawal of any rule or regulation under the Securities Act or the Exchange Act by the Commission or any amendment or proposed amendment thereof by the Commission which in the judgment of the Initial Purchaser would materially impair the ability of the Initial Purchaser to purchase, hold or effect resales of the Securities as contemplated hereby. (m) Subsequent to the execution and delivery of this Agreement or, if earlier, the dates as of which information is given in the Offering Memorandum (exclusive of any amendment or supplement thereto), there shall not have been any change in the capital stock or long-term debt or any change, or any development involving a prospective change, in or affecting the condition (financial or otherwise), results of operations, business or prospects of the Company and its subsidiaries taken as a whole, the effect of which, in any such case described above, is, in the judgment of the Initial Purchaser, so material and adverse as to make it impracticable or inadvisable to proceed with the sale or delivery of the Securities on the terms and in the manner contemplated by this Agreement and the Offering Memorandum (exclusive of any amendment or supplement thereto). (n) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency or body which would, as of the Closing Date, prevent the issuance or sale of the Securities; and no injunction, restraining order or order of any other nature by any federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance or sale of the Securities. (o) Subsequent to the execution and delivery of this Agreement (i) no downgrading shall have occurred in the rating accorded the Securities or any of the Company's other debt securities or preferred stock by any "nationally recognized statistical rating organization", as such term is defined by the Commission for purposes of Rule 436(g)(2) of the rules and regulations of the Commission under the Securities Act and (ii) no such organization shall have publicly announced that it has under surveillance or review (other than an 20 20 announcement with positive implications of a possible upgrading), its rating of the Securities or any of the Company's other debt securities or preferred stock. (p) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange, the American Stock Exchange, the NASDAQ market or the over-the-counter market shall have been suspended or limited, or minimum prices shall have been established on any such exchange or market by the Commission, by any such exchange or by any other regulatory body or governmental authority having jurisdiction, or trading in any securities of the Company on any exchange or in the over-the counter market shall have been suspended or (ii) any moratorium on commercial banking activities shall have been declared by federal or New York state authorities or (iii) an outbreak or escalation of hostilities or a declaration by the United States of a national emergency or war or (iv) a material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets in the United States shall be such) the effect of which, in the case of this clause (iv), is, in the judgment of the Initial Purchaser, so material and adverse as to make it impracticable or inadvisable to proceed with the sale or the delivery of the Securities on the terms and in the manner contemplated by this Agreement and in the Offering Memorandum (exclusive of any amendment or supplement thereto). (q) The Initial Purchaser shall have received a counterpart of the Registration Rights Agreement which shall have been executed and delivered by a duly authorized officer of the Company and each of the Guarantors. (r) Each Guarantor shall have taken all steps required or necessary, including execution of a supplemental indenture, to become a guarantor of the Old Notes. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Initial Purchaser. 6. Termination. The obligations of the Initial Purchaser hereunder may be terminated by the Initial Purchaser, in its absolute discretion, by notice given to and received by the Company prior to delivery of and payment for the Securities if, prior to that time, any of the events described in Section 5(l), (m), (n), (o) or (p) shall have occurred and be continuing. 7. Reimbursement of Initial Purchaser's Expenses. If (a) this Agreement shall have been terminated pursuant to Section 6, (b) the Company shall fail to tender the Securities for delivery to the Initial Purchaser for any reason permitted under this Agreement or (c) the Initial Purchaser shall decline to purchase the Securities for any reason permitted under this Agreement, the Company and the Guarantors shall reimburse the Initial Purchaser for such out-of-pocket expenses (including reasonable fees and disbursements of counsel) as shall have been reasonably incurred by the Initial Purchaser in connection with this Agreement and the proposed purchase and resale of the Securities. 21 21 8. Indemnification. (a) The Company and each of the Guarantors shall jointly and severally indemnify and hold harmless the Initial Purchaser, its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls the Initial Purchaser within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 8(a) and Section 9 as the Initial Purchaser), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, without limitation, any loss, claim, damage, liability or action relating to purchases and sales of the Securities), to which the Initial Purchaser may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Offering Memorandum or in any amendment or supplement thereto or in any information provided by the Company pursuant to Section 4(e) or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse the Initial Purchaser promptly upon demand for any legal or other expenses reasonably incurred by the Initial Purchaser in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company and the Guarantors shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with the Initial Purchaser's Information. (b) The Initial Purchaser shall indemnify and hold harmless the Company, its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 8(b) and Section 9 as the Company), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Offering Memorandum or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with the Initial Purchaser's Information, and shall reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 8(a) or 8(b), notify the indemnifying party in writing of the claim or the 22 22 commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 8 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and, provided, further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 8. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 8 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that an indemnified party shall have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel for the indemnified party will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based upon advice of counsel to the indemnified party) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based upon advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm of attorneys (in addition to any local counsel) at any one time for all such indemnified party or parties. Each indemnified party, as a condition of the indemnity agreements contained in Sections 8(a) and 8(b), shall use all reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. The obligations of the Company and the Initial Purchaser in this Section 8 and in Section 9 are in addition to any other liability that the Company or the Initial 23 23 Purchaser, as the case may be, may otherwise have, including in respect of any breaches of representations, warranties and agreements made herein by any such party. 9. Contribution. If the indemnification provided for in Section 8 is unavailable or insufficient to hold harmless an indemnified party under Section 8(a) or 8(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchaser on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Initial Purchaser on the other with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchaser on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities purchased under this Agreement (before deducting expenses) received by or on behalf of the Company, on the one hand, and the total discounts and commissions received by the Initial Purchaser with respect to the Securities purchased under this Agreement, on the other, bear to the total gross proceeds from the sale of the Securities under this Agreement. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to the Company or information supplied by the Company on the one hand or to the Initial Purchaser's Information on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Initial Purchaser agree that it would not be just and equitable if contributions pursuant to this Section 9 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 9 shall be deemed to include, for purposes of this Section 9, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 9, the Initial Purchaser shall not be required to contribute any amount in excess of the amount by which the total discounts and commissions received by the Initial Purchaser with respect to the Securities purchased by it under this Agreement exceeds the amount of any damages which the Initial Purchaser has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 10. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the Initial Purchaser, the Company and their respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except as provided in Sections 8 and 9 with respect to affiliates, officers, directors, employees, representatives, agents and controlling persons of the Company and the Initial Purchaser and in Section 4(e) with respect to holders and 24 24 prospective purchasers of the Securities. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 10, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 11. Expenses. The Company and the Guarantors agree with the Initial Purchaser to pay (a) the costs incident to the authorization, issuance, sale, preparation and delivery of the Securities and any taxes payable in that connection; (b) the costs incident to the preparation, printing and distribution of the Offering Memorandum and any amendments or supplements thereto; (c) the costs of reproducing and distributing each of the Transaction Documents; (d) the costs incident to the preparation, printing and delivery of the certificates evidencing the Securities, including stamp duties and transfer taxes, if any, payable upon issuance of the Securities; (e) the fees and expenses of the Company's counsel and independent accountants; (f) the fees and expenses of qualifying the Securities under the securities laws of the several jurisdictions as provided in Section 4(g) and of preparing, printing and distributing Blue Sky Memoranda (including related fees and expenses of counsel for the Initial Purchaser); (g) any fees charged by rating agencies for rating the Securities; (h) the fees and expenses of the Trustee and any paying agent (including related fees and expenses of any counsel to such parties); (i) all expenses and application fees incurred in connection with the application for the inclusion of the Securities on the PORTAL Market and the approval of the Securities for book-entry transfer by DTC; and (j) all other costs and expenses incident to the performance of the obligations of the Company under this Agreement which are not otherwise specifically provided for in this Section 11; provided, however, that except as provided in this Section 11 and Section 7, the Initial Purchaser shall pay its own costs and expenses. 12. Survival. The respective indemnities, rights of contribution, representations, warranties and agreements of the Company, the Guarantors and the Initial Purchaser contained in this Agreement or made by or on behalf of the Company, the Guarantors or the Initial Purchaser pursuant to this Agreement or any certificate delivered pursuant hereto shall survive the delivery of and payment for the Securities and shall remain in full force and effect, regardless of any termination or cancelation of this Agreement or any investigation made by or on behalf of any of them or any of their respective affiliates, officers, directors, employees, representatives, agents or controlling persons. 13. Notices, etc.. All statements, requests, notices and agreements hereunder shall be in writing, and: (a) if to the Initial Purchaser, shall be delivered or sent by mail or telecopy transmission to Chase Securities Inc., 270 Park Avenue, New York, New York 10017, Attention: Gerard J. Murray (telecopier no.: (212) 270-0994); or (b) if to the Company, shall be delivered or sent by mail or telecopy transmission to the address of the Company set forth in the Offering Memorandum, Attention: James K. Hildebrand (telecopier no.: 614-889-8308); provided that any notice to the Initial Purchaser pursuant to Section 8(c) shall also be delivered or sent by mail to the Initial Purchaser at its address set forth on the signature 25 25 page hereof. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. 14. Definition of Terms. For purposes of this Agreement, (a) the term "business day" means any day on which the New York Stock Exchange, Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405 under the Securities Act and (c) except where otherwise expressly provided, the term "affiliate" has the meaning set forth in Rule 405 under the Securities Act. 15. Initial Purchaser's Information. The parties hereto acknowledge and agree that the Initial Purchaser's Information consists solely of the following information in the Offering Memorandum: (i) the last paragraph on the front cover page concerning the terms of the offering by the Initial Purchaser; (ii) the first paragraph on the inside front cover page concerning over-allotment and trading activities by the Initial Purchaser; and (iii) the statements concerning the Initial Purchaser contained in the third, fourth, fifth, sixth, seventh, eighth, ninth, twelfth and thirteenth paragraphs under the heading "Plan of Distribution". 16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 17. Counterparts. This Agreement may be executed in one or more counterparts (which may include counterparts delivered by telecopier) and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 18. Amendments. No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto. 19. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. 26 26 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us a counterpart hereof, whereupon this instrument will become a binding agreement between the Company, the Guarantors and the Initial Purchaser in accordance with its terms. Very truly yours, NEENAH FOUNDRY COMPANY By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO HARTLEY CONTROLS CORPORATION By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO NEENAH TRANSPORT, INC. By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO 27 27 DEETER FOUNDRY, INC. By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO MERCER FORGE CORPORATION By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO A&M SPECIALTIES, INC. By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO ADVANCED CAST PRODUCTS, INC. By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO BELCHER CORPORATION By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO PEERLESS CORPORATION By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO 28 28 DALTON CORPORATION By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO DALTON CORPORATION, WARSAW MANUFACTURING FACILITY By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO DALTON CORPORATION, ASHLAND MANUFACTURING FACILITY By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO DALTON CORPORATION, KENDALLVILLE MANUFACTURING FACILITY By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO DALTON CORPORATION, STRYKER MANUFACTURING FACILITY By /s/ James Hildebrand ______________________________ Name: James Hildebrand Title: CEO 29 29 Accepted: CHASE SECURITIES INC. By /s/ Gerard J. Murray ------------------------ Authorized Signatory Address for notices pursuant to Section 8(c): 1 Chase Plaza, 25th floor New York, New York 10081 Attention: Legal Department EX-10.21 8 EXCHANGE AND REGISTRATION RIGHTS AGREE.: 11/24/98 1 NEENAH FOUNDRY COMPANY $87,000,000 11-1/8 % SERIES E SENIOR SUBORDINATED NOTES DUE 2007 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT November 24, 1998 CHASE SECURITIES INC. 270 Park Avenue, 4th floor New York, New York 10017 Ladies and Gentlemen: Neenah Foundry Company (formerly known as Neenah Corporation), a Wisconsin corporation (the "Company"), proposes to issue and sell to you (the "Initial Purchaser"), upon the terms and subject to the conditions set forth in a purchase agreement dated November 19, 1998 (the "Purchase Agreement"), $87,000,000 aggregate principal amount of its 11 1/8 % Series E Senior Subordinated Notes due 2007 (the "Notes"). The Notes will be issued pursuant to an Indenture to be dated as of November 24, 1998 (the "Indenture") between the Company, the Guarantors (as defined) and United States Trust Company of New York, as Trustee (the "Trustee") and will be fully guaranteed (the "Guarantees", and collectively with the Notes, the "Securities") on an unsecured senior subordinated basis as to payment, premium, if any, and interest by each of the Company's subsidiaries a party to the Indenture (collectively, the "Guarantors"). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Purchase Agreement. Pursuant to the Purchase Agreement, substantially simultaneously with the sale of the Notes to the Initial Purchaser, the Company and the Guarantors are required to enter into an exchange and registration rights agreement in the form hereof. Accordingly, the Company and the Guarantors hereby agree with you, for the benefit of the holders of the Securities (including the Initial Purchaser) (the "Holders"), as follows: 1. Registered Exchange Offer. The Company and the Guarantors shall (i) prepare and, not later than 90 days following the date of original issuance of the Securities (the "Issue Date"), file with the Commission a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act with respect to a proposed offer to the Holders (the "Registered Exchange Offer") to issue and deliver to such Holders, in exchange for the Securities, a like aggregate principal amount of debt securities of the Company (the "Exchange Securities") identical in all material respects to the Securities, except for the transfer restrictions relating to the Securities, (ii) use their reasonable best efforts to cause the Exchange Offer Registration Statement to become effective under the Securities Act no later than 150 days after the Issue Date and the Registered Exchange Offer to be consummated no later than 180 days after the Issue Date, and (iii) keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer, if required by applicable law) after the date that notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "Exchange Offer Registration 2 2 Period"). The Exchange Securities will be issued under the Indenture or an indenture (the "Exchange Securities Indenture") between the Company, the Guarantors and the Trustee or such other bank or trust company reasonably satisfactory to you, as trustee (the "Exchange Securities Trustee"), such indenture to be identical in all material respects to the Indenture except for the transfer restrictions relating to the Securities (as described above). Upon the effectiveness of the Exchange Offer Registration Statement, the Company and the Guarantors shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder to elect to exchange Securities for Exchange Securities (assuming that such Holder (a) is not an affiliate of the Company, a Guarantor or an Exchanging Dealer (as defined below) not complying with the requirements of the next sentence, (b) acquires the Exchange Securities in the ordinary course of such Holder's business and (c) has no arrangements or understandings with any person to participate in the distribution of the Exchange Securities) and to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company, the Guarantors, the Initial Purchaser and each Exchanging Dealer acknowledge that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, each Holder which is a broker-dealer electing to exchange Securities, acquired for its own account as a result of market making activities or other trading activities, for Exchange Securities (an "Exchanging Dealer"), is required to deliver a prospectus containing the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer. If, prior to the consummation of the Registered Exchange Offer, any Holder holds any Securities acquired by it that have, or that are reasonably likely to be determined to have, the status of an unsold allotment in an initial distribution, or any Holder is not entitled to participate in the Registered Exchange Offer, the Company shall, upon the request of any such Holder, simultaneously with the delivery of the Exchange Securities in the Registered Exchange Offer, issue and deliver to any such Holder, in exchange for the Securities held by such Holder (the "Private Exchange"), a like aggregate principal amount of debt securities of the Company (the "Private Exchange Securities") that are identical in all material respects to the Exchange Securities, except for the transfer restrictions relating to such Private Exchange Securities. The Private Exchange Securities will be issued under the same indenture as the Exchange Securities, and the Company shall use its reasonable best efforts to cause the Private Exchange Securities to bear the same CUSIP number as the Exchange Securities. In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 20 business days after the date that notice of the Registered Exchange Offer is mailed to the Holders (or longer if required by applicable law); 3 3 (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York City time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply in all respects with all laws applicable to the Registered Exchange Offer. As soon as practicable after the close of the Registered Exchange Offer and any Private Exchange, the Company shall: (a) accept for exchange all Securities validly tendered and not validly withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (b) deliver to the Trustee for cancelation all Securities so accepted for exchange; and (c) cause the Trustee or the Exchange Securities Trustee, as the case may be, promptly to authenticate and deliver to each Holder of Securities, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Securities of such Holder so accepted for exchange. The Company shall use its reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein in order to permit such prospectus to be used by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers have sold all Exchange Securities held by them and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 180 days after the consummation of the Registered Exchange Offer. The Indenture or the Exchange Securities Indenture, as the case may be, shall provide that the Securities, the Exchange Securities and the Private Exchange Securities shall vote and consent together on all matters as one class and that none of the Securities, the Exchange Securities or the Private Exchange Securities will have the right to vote or consent as a separate class on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Securities surrendered in exchange therefor or, if no interest has been paid on the Securities, from the Issue Date. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the 4 4 ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act and (iii) such Holder is not an affiliate of the Company or any of the Guarantors, or, if it is such an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. Notwithstanding any other provisions hereof, the Company and the Guarantors will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not include, as of the consummation of the Registered Exchange Offer, an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. Shelf Registration. If (i) because of any change in law or applicable interpretations of the Commission's staff the Company is not permitted to effect the Registered Exchange Offer as contemplated by Section 1 hereof, or (ii) for any other reason the Registered Exchange Offer is not consummated within 180 days after the Issue Date, or (iii) the Initial Purchaser so requests with respect to Securities or Private Exchange Securities not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by the Initial Purchaser following the consummation of the Registered Exchange Offer, or (iv) any applicable law or interpretations do not permit any Holder to participate in the Registered Exchange Offer, or (v) any Holder that participates in the Registered Exchange Offer does not receive freely transferable Exchange Securities in exchange for tendered Securities, or (vi) the Company so elects, then the following provisions shall apply: (a) The Company and the Guarantors shall use their reasonable best efforts to file as promptly as practicable with the Commission, and thereafter shall use their reasonable best efforts to cause to be declared effective, a shelf registration statement on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities (as defined below) by the Holders from time to time in accordance with the methods of distribution set forth in such registration statement (hereafter, a "Shelf Registration Statement" and, together with any Exchange Offer Registration Statement, a "Registration Statement"). (b) The Company and the Guarantors shall use their reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus forming part thereof to be used by Holders for a period of two years from the Issue Date or such shorter period that will terminate when all the Transfer Restricted Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement (in any such case, such period being called the "Shelf Registration Period"). The Company and the Guarantors shall be deemed not to have used their reasonable best efforts to keep the Shelf Registration Statement effective during the requisite period if any one of them voluntarily takes any action that would result in Holders of 5 5 Transfer Restricted Securities covered thereby not being able to offer and sell such Transfer Restricted Securities during that period, unless such action is required by applicable law. (c) Notwithstanding any other provisions hereof, the Company and the Guarantors will ensure that (i) any Shelf Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Shelf Registration Statement and any amendment thereto (in either case, other than with respect to information included therein in reliance upon or in conformity with written information furnished to the Company by or on behalf of any Holder specifically for use therein (the "Holders' Information")) does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Shelf Registration Statement, and any supplement to such prospectus (in either case, other than with respect to Holders' Information), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 3. Liquidated Damages. (a) The parties hereto agree that the Holders of Transfer Restricted Securities will suffer damages if the Company and the Guarantors fail to fulfill their obligations under Section 1 or Section 2, as applicable, and that it would not be feasible to ascertain the extent of such damages. Accordingly, if (i) the applicable Registration Statement is not filed with the Commission on or prior to 90 days after the Issue Date, (ii) the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is not declared effective within 150 days after the Issue Date (or in the case of a Shelf Registration Statement required to be filed in response to a change in law or the applicable interpretations of Commission's staff, if later, within 45 days after publication of the change in law or interpretation), (iii) the Registered Exchange Offer is not consummated on or prior to 180 days after the Issue Date, or (iv) the Shelf Registration Statement is filed and declared effective within 150 days after the Issue Date (or in the case of a Shelf Registration Statement required to be filed in response to a change in law or the applicable interpretations of Commission's staff, if later, within 45 days after publication of the change in law or interpretation) but shall thereafter cease to be effective (at any time that the Company is obligated to maintain the effectiveness thereof) without being succeeded within 30 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default"), the Company and the Guarantors will be jointly and severally obligated to pay liquidated damages to each Holder of Transfer Restricted Securities, during the period of one or more such Registration Defaults, in an amount equal to $ 0.192 per week per $1,000 principal amount of the Transfer Restricted Securities held by such Holder until (i) the applicable Registration Statement is filed, (ii) the Exchange Offer Registration Statement is declared effective and the Registered Exchange Offer is consummated, (iii) the Shelf Registration Statement is declared effective or (iv) the Shelf Registration Statement again becomes effective, as the case may be. Following the cure of all Registration Defaults, the accrual of liquidated damages will cease. As used herein, the term "Transfer Restricted Securities" means (i) each Security until the date on which such Security has been exchanged for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) each Security or Private Exchange Security until the date on which it has been effectively registered under the Securities Act and disposed of in 6 6 accordance with the Shelf Registration Statement or (iii) each Security or Private Exchange Security until the date on which it is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary in this Section 3(a), the Company and the Guarantors shall not be required to pay liquidated damages to the Holder of Transfer Restricted Securities if such Holder failed to comply with its obligations to make the representations set forth in the second to last paragraph of Section 1 or failed to provide the information required to be provided by it, if any, pursuant to Section 4(n). (b) The Company shall notify the Trustee and the Paying Agent under the Indenture immediately upon the happening of each and every Registration Default. The Company and the Guarantors shall pay the liquidated damages due on the Transfer Restricted Securities by depositing with the Paying Agent (which may not be the Company for these purposes), in trust, for the benefit of the Holders thereof, prior to 10:00 a.m., New York City time, on the next interest payment date specified by the Indenture and the Securities, sums sufficient to pay the liquidated damages then due. The liquidated damages due shall be payable on each interest payment date specified by the Indenture and the Securities to the record holder entitled to receive the interest payment to be made on such date. Each obligation to pay liquidated damages shall be deemed to accrue from and including the date of the applicable Registration Default. (c) The parties hereto agree that the liquidated damages provided for in this Section 3 constitute a reasonable estimate of and are intended to constitute the sole damages that will be suffered by Holders of Transfer Restricted Securities by reason of the failure of (i) the Shelf Registration Statement or the Exchange Offer Registration Statement to be filed, (ii) the Shelf Registration Statement to remain effective or (iii) the Exchange Offer Registration Statement to be declared effective and the Registered Exchange Offer to be consummated, in each case to the extent required by this Agreement. 4. Registration Procedures. In connection with any Registration Statement, the following provisions shall apply: (a) The Company shall (i) furnish to you, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and shall use its reasonable best efforts to reflect in each such document, when so filed with the Commission, such comments as you reasonably (as determined by the Company) may propose; (ii) if applicable, include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement, and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; and (iii) if requested by the Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement. 7 7 (b) The Company shall advise you, each Exchanging Dealer and the Holders (if applicable) and, if requested by any such person, confirm such advice in writing (which advice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when any Registration Statement and any amendment thereto has been filed with the Commission and when such Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to any Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities, the Exchange Securities or the Private Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the making of any changes in any Registration Statement or the prospectus included therein so that, as of such date, the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (c) The Company and the Guarantors will make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of any Registration Statement at the earliest possible time. (d) The Company will furnish to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, at least one copy of such Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if the Holder so requests in writing, all exhibits (including those incorporated by reference). (e) The Company will, during the Shelf Registration Period, promptly deliver to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, as many copies of the prospectus (including each preliminary prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request; and the Company consents to the use of such prospectus or any amendment or supplement thereto by each of the selling Holders of Transfer Restricted Securities in connection with the offer and sale of the Transfer Restricted Securities covered by such prospectus or any amendment or supplement thereto. 8 8 (f) The Company will furnish to each Exchanging Dealer and to the Initial Purchaser, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if the Exchanging Dealer or the Initial Purchaser, or any such other Holder, so requests in writing, all exhibits (including those incorporated by reference). (g) The Company will, during the Exchange Offer Registration Period or the Shelf Registration Period, as applicable, promptly deliver to each Exchanging Dealer, the Initial Purchaser and such other persons that are required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the prospectus included in the Exchange Offer Registration Statement or the Shelf Registration Statement and any amendment or supplement thereto as such Exchanging Dealer, Initial Purchaser or other persons may reasonably request; and the Company consents to the use of such prospectus or any amendment or supplement thereto by any such Exchanging Dealer, Initial Purchaser or other persons, as aforesaid. (h) Prior to the effective date of any Registration Statement, the Company and the Guarantors will use their reasonable best efforts to register or qualify, or cooperate with the Holders of Securities, Exchange Securities or Private Exchange Securities included therein and their respective counsel in connection with the registration or qualification of, such Securities, Exchange Securities or Private Exchange Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any such Holder reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities, Exchange Securities or Private Exchange Securities covered by such Registration Statement; provided that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. (i) The Company and the Guarantors will cooperate with the Holders of Securities, Exchange Securities or Private Exchange Securities to facilitate the timely preparation and delivery of certificates representing Securities, Exchange Securities or Private Exchange Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as Holders may request in writing prior to sales of Securities, Exchange Securities or Private Exchange Securities pursuant to such Registration Statement. (j) If any event contemplated by paragraphs 4(b)(ii) through (v) above occurs during the period for which the Company is required to maintain an effective Registration Statement, the Company and the Guarantors will promptly prepare and file with the Commission a post-effective amendment to the Registration Statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to purchasers of the Securities, Exchange Securities or Private Exchange Securities from a Holder, the prospectus will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 9 9 (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Securities, the Exchange Securities and the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Securities, the Exchange Securities and the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company and the Guarantors will comply with all applicable rules and regulations of the Commission and will make generally available to its security holders as soon as practicable after the effective date of the applicable Registration Statement an earnings statement satisfying the provisions of Section 11(a) of the Securities Act; provided that in no event shall such earnings statement be delivered later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the applicable Registration Statement, which statement shall cover such 12-month period. (m) The Company and the Guarantors will cause the Indenture or the Exchange Securities Indenture, as the case may be, to be qualified under the Trust Indenture Act as required by applicable law in a timely manner. (n) The Company may require each Holder of Transfer Restricted Securities to be registered pursuant to any Shelf Registration Statement to furnish to the Company such information concerning the Holder and the distribution of such Transfer Restricted Securities as the Company may from time to time reasonably require for inclusion in such Shelf Registration Statement, and the Company may exclude from such registration the Transfer Restricted Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request. (o) In the case of a Shelf Registration Statement, each Holder of Transfer Restricted Securities to be registered pursuant thereto agrees by acquisition of such Transfer Restricted Securities that, upon receipt of any notice from the Company pursuant to Section 4(b)(ii) through (v) hereof, such Holder will discontinue disposition of such Transfer Restricted Securities until such Holder's receipt of copies of the supplemental or amended prospectus contemplated by Section 4(j) hereof or until advised in writing (the "Advice") by the Company that the use of the applicable prospectus may be resumed. If the Company shall give any notice under Section 4(b)(ii) through (v) during the period that the Company is required to maintain an effective Registration Statement (the "Effectiveness Period"), such Effectiveness Period shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each seller of Transfer Restricted Securities covered by such Registration Statement shall have received (x) the copies of the supplemental or amended prospectus contemplated by Section 4(j) (if an amended or supplemental prospectus is required) or (y) the Advice (if no amended or supplemental prospectus is required). (p) In the case of a Shelf Registration Statement, the Company and the Guarantors shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold or the managing underwriters (if any) shall 10 10 reasonably request in order to facilitate any disposition of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement. (q) In the case of a Shelf Registration Statement, each of the Company and the Guarantors shall (i) make reasonably available for inspection by a representative of, and Special Counsel (as defined in Section 5 below) acting for, Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold and any underwriter participating in any disposition of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement, all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries and (ii) use its reasonable best efforts to have its officers, directors, employees, accountants and counsel supply all relevant information reasonably requested by such representative, Special Counsel or any such underwriter (an "Inspector") in connection with such Shelf Registration Statement. (r) In the case of a Shelf Registration Statement, the Company and the Guarantors shall, if requested by Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold, their Special Counsel or the managing underwriters (if any) in connection with such Shelf Registration Statement, use their reasonable best efforts to cause (i) their counsel to deliver an opinion relating to the Shelf Registration Statement and the Securities, Exchange Securities or Private Exchange Securities, as applicable, in customary form, (ii) their officers to execute and deliver all customary documents and certificates requested by Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold, their Special Counsel or the managing underwriters (if any) and (iii) their independent public accountants to provide a comfort letter or letters in customary form, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. 5. Registration Expenses. The Company and the Guarantors will jointly and severally bear all expenses incurred in connection with the performance of their obligations under Sections 1, 2, 3 and 4 and the Company and the Guarantors will reimburse the Initial Purchaser and the Holders for the reasonable fees and disbursements of one firm of attorneys (in addition to any local counsel) chosen by the Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities to be sold pursuant to each Registration Statement (the "Special Counsel") acting for the Initial Purchaser or Holders in connection therewith. 6. Indemnification. (a) In the event of a Shelf Registration Statement or in connection with any prospectus delivery pursuant to an Exchange Offer Registration Statement by an Exchanging Dealer or the Initial Purchaser, as applicable, the Company and the Guarantors shall jointly and severally indemnify and hold harmless each Holder (including, without limitation, any such Exchanging Dealer or Initial Purchaser), its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls such Holder within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6 and Section 7 as a Holder) from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, without limitation, any loss, claim, damage, liability or action relating to 11 11 purchases and sales of Securities, Exchange Securities or Private Exchange Securities), to which that Holder may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse each Holder promptly upon demand for any legal or other expenses reasonably incurred by that Holder in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company and the Guarantors shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with any Holders' Information; and provided, further, that with respect to any such untrue statement in or omission from any related preliminary prospectus, the indemnity agreement contained in this Section 6(a) shall not inure to the benefit of any Holder from whom the person asserting any such loss, claim, damage, liability or action received Securities, Exchange Securities or Private Exchange Securities to the extent that such loss, claim, damage, liability or action of or with respect to such Holder results from the fact that both (A) to the extent required by applicable law, a copy of the final prospectus was not sent or given to such person at or prior to the written confirmation of the sale of such Securities, Exchange Securities or Private Exchange Securities to such person and (B) the untrue statement in or omission from the related preliminary prospectus was corrected in the final prospectus unless, in either case, such failure to deliver the final prospectus was a result of non-compliance by the Company with Section 4(d), 4(e), 4(f) or 4(g). (b) In the event of a Shelf Registration Statement, each Holder shall indemnify and hold harmless the Company, the Guarantors, their affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls the Company or the Guarantors within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6(b) and Section 7 as the Company), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with any Holders' Information furnished to the Company by such Holder, and shall reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses 12 12 are incurred; provided, however, that no such Holder shall be liable for any indemnity claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement (c) Promptly after receipt by an indemnified party under this Section 6 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 6 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 6. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than the reasonable costs of investigation; provided, however, that an indemnified party shall have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel for the indemnified party will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based upon advice of counsel to the indemnified party) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based upon advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm of attorneys (in addition to any local counsel) at any one time for all such indemnified party or parties. Each indemnified party, as a condition of the indemnity agreements contained in Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or 13 13 threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. 7. Contribution. If the indemnification provided for in Section 6 is unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company from the offering and sale of the Securities, on the one hand, and a Holder with respect to the sale by such Holder of Securities, Exchange Securities or Private Exchange Securities, on the other, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and such Holder, on the other, with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and a Holder, on the other, with respect to such offering and such sale shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities (before deducting expenses) received by or on behalf of the Company as set forth in the table on the cover of the Offering Memorandum, on the one hand, bear to the total proceeds received by such Holder with respect to its sale of Securities, Exchange Securities or Private Exchange Securities, on the other. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to the Company or information supplied by the Company, on the one hand, or to any Holders' Information supplied by such Holder, on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 7 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7 shall be deemed to include, for purposes of this Section 7, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 7, an indemnifying party that is a Holder of Securities, Exchange Securities or Private Exchange Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Securities, Exchange Securities or Private Exchange Securities sold by such indemnifying party to any purchaser exceeds the amount of any damages which such indemnifying party has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 8. Rules 144 and 144A. The Company and the Guarantors shall use their reasonable best efforts to file the reports required to be filed by them under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company or 14 14 the Guarantors are not required to file such reports, they will, upon the written request of any Holder of Transfer Restricted Securities, make publicly available other information so long as necessary to permit sales of their securities pursuant to Rules 144 and 144A. The Company and the Guarantors covenant that they will take such further action as any Holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including, without limitation, the requirements of Rule 144A(d)(4)). Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 9. Underwritten Registrations. If any of the Transfer Restricted Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities included in such offering, subject to the consent of the Company (which shall not be unreasonably withheld or delayed), and such Holders shall be responsible for all underwriting commissions and discounts in connection therewith. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, lock-up letters, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 10. Miscellaneous. (a) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities, taken as a single class. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of the Holders of Securities, Exchange Securities or Private Exchange Securities whose Securities, Exchange Securities or Private Exchange Securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities being sold by such Holders pursuant to such Registration Statement. (b) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail, telecopier or air courier guaranteeing next-day delivery: (1) if to a Holder, at the most current address given by such Holder to the Company in accordance with the provisions of this Section 10(b), which address initially is, with respect to each Holder, the address of such Holder maintained by the Registrar under the Indenture, with a copy in like manner to the Initial Purchaser; 15 15 (2) if to the Initial Purchaser, initially at its address set forth in the Purchase Agreement; and (3) if to the Company or a Guarantor, initially at the address of the Company set forth in the Purchase Agreement. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being delivered to a next-day air courier; five business days after being deposited in the mail; and when receipt is acknowledged by the recipient's telecopier machine, if sent by telecopier. (c) Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns. (d) Counterparts. This Agreement may be executed in any number of counterparts (which may be delivered in original form or by telecopier) and by the 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. (e) Definition of Terms. For purposes of this Agreement, (a) the term "business day" means any day on which the New York Stock Exchange, Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405 under the Securities Act and (c) except where otherwise expressly provided, the term "affiliate" has the meaning set forth in Rule 405 under the Securities Act. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (h) Remedies. In the event of a breach by the Company or the Guarantors, or by any Holder of Transfer Restricted Securities, of any of their obligations under this Agreement, each Holder of Transfer Restricted Securities or the Company and each Guarantor, as the case may be, in addition to being entitled to exercise all rights granted by law, including recovery of damages (other than the recovery of damages for a breach by the Company or any of the Guarantors of any of their obligations under Sections 1 or 2 hereof for which liquidated damages have been paid pursuant to Section 3 hereof), will be entitled to specific performance of its rights under this Agreement. The Company, the Guarantors and each Holder of Transfer Restricted Securities agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agree that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (i) No Inconsistent Agreements. The Company and each of the Guarantors represents, warrants and agrees that (i) it has not entered into and shall not, on or after the date of this Agreement, enter into any agreement that is inconsistent with the rights granted to the Holders of Transfer Restricted Securities in this Agreement or otherwise 16 16 conflicts with the provisions hereof, (ii) it has not previously entered into any agreement which remains in effect granting any registration rights with respect to any of its debt securities to any person and (iii) without limiting the generality of the foregoing, without the written consent of the Holders of a majority in aggregate principal amount of the then outstanding Transfer Restricted Securities, it shall not grant to any person the right to request the Company to register any debt securities of the Company under the Securities Act unless the rights so granted are not in conflict or inconsistent with the provisions of this Agreement. (j) No Piggyback on Registrations. Neither the Company nor any of its security holders (other than the Holders of Transfer Restricted Securities in such capacity) shall have the right to include any securities of the Company in any Shelf Registration or Registered Exchange Offer other than Transfer Restricted Securities. (k) Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 17 Please confirm that the foregoing correctly sets forth the agreement among the Company, the Guarantors and you. Very truly yours, NEENAH FOUNDRY COMPANY, By /s/ James Hildebrand ------------------------ Name: James Hildebrand Title: CEO HARTLEY CONTROLS CORPORATION, By /s/ James Hildebrand ------------------------ Name: James Hildebrand Title: CEO NEENAH TRANSPORT, INC., By /s/ James Hildebrand ------------------------ Name: James Hildebrand Title: CEO DEETER FOUNDRY, INC., By /s/ James Hildebrand ------------------------ Name: James Hildebrand Title: CEO MERCER FORGE CORPORATION, By /s/ James Hildebrand ------------------------ Name: James Hildebrand Title: CEO A&M SPECIALTIES, INC., By /s/ James Hildebrand ------------------------ Name: James Hildebrand Title: CEO ADVANCED CAST PRODUCTS, INC., By /s/ James Hildebrand ------------------------ Name: James Hildebrand Title: CEO 18 BELCHER CORPORATION, By /s/ James Hildebrand ------------------------ Name: James Hildebrand Title: CEO PEERLESS CORPORATION, By /s/ James Hildebrand ------------------------ Name: James Hildebrand Title: CEO DALTON CORPORATION, By /s/ James Hildebrand ------------------------ Name: James Hildebrand Title: CEO DALTON CORPORATION, WARSAW MANUFACTURING FACILITY, By /s/ James Hildebrand ------------------------ Name: James Hildebrand Title: CEO DALTON CORPORATION, ASHLAND MANUFACTURING FACILITY, By /s/ James Hildebrand ------------------------ Name: James Hildebrand Title: CEO DALTON CORPORATION, KENDALLVILLE MANUFACTURING FACILITY, By /s/ James Hildebrand ------------------------ Name: James Hildebrand Title: CEO DALTON CORPORATION, STRYKER MANUFACTURING FACILITY, By /s/ James Hildebrand ------------------------ Name: James Hildebrand Title: CEO 19 19 Accepted: CHASE SECURITIES INC., By /s/ Gerard J. Murray ------------------------------ Authorized Signatory 20 ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company and the Guarantors have agreed that, for a period of 180 days after the Expiration Date (as defined herein), they will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." 21 ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Securities, where such Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." 22 ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired as a result of market-making activities or other trading activities. The Company and the Guarantors have agreed that, for a period of 180 days after the Expiration Date, they will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until _______________, 1999, all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus. (1) Neither the Company nor the Guarantors will receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Registered Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Registered Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date, the Company and the Guarantors will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company and the Guarantors have agreed to pay all expenses incident to the Registered Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any broker-dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. (1) In addition, the legend required by Item 502(e) of Regulation S-K will appear on the back cover page of the Registered Exchange Offer prospectus. 23 ANNEX D [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: __________________________________________________ Address: __________________________________________________ __________________________________________________ If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. EX-12.1 9 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 Exhibit 12.1 NEENAH FOUNDRY COMPANY, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Predecessor Company --------------------------------------------- One Month Five Months Year Three Three Fiscal Year Ended March 31, Ended Ended Ended Months Ended Months Ended ------------------------------- April 30, September 30, September 30, December 31, December 31, 1994 1995 1996 1997 1997 1997 1998 1997 1998 ----------------------------------------------------------------------------------------------------- (Dollars in Thousands) Income before income taxes and extraordinary item $10,794 $22,570 $28,818 $32,305 $4,294 $ 8,366 $22,803 $3,125 $ 190 Fixed Charges 1,278 907 416 402 2,947 10,530 28,591 5,940 10,066 ----------------------------------------------------------------------------------------------------- Earnings 12,072 23,477 29,234 32,707 7,241 18,896 51,394 9,065 10,256 ===================================================================================================== Interest expense 1,049 624 84 39 2,919 10,358 28,096 5,840 9,907 Interest portion of rent expense 229 283 332 363 28 172 495 100 174 ----------------------------------------------------------------------------------------------------- Fixed charges 1,278 907 416 402 2,947 10,530 28,591 5,940 10,081 ===================================================================================================== Ratio of earnings to fixed charges 9.4x 25.9x 70.3x 81.4x 2.5x 1.8x 1.8x 1.5x 1.0x =====================================================================================================
EX-21.1 10 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 21.1 Subsidiaries of the Registrant 1. Neenah Foundry Company Hartley Controls Corporation - wholly owned. Neenah Transport, Inc. - wholly owned. Deeter Foundry, Inc. - wholly owned. Mercer Forge Corporation - wholly owned. Dalton Corporation - wholly owned. Advanced Cast Products, Inc. - wholly owned. Niemin Porter & Co. - wholly owned. 90 EX-23.1 11 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the references to our Firm under the captions "Experts", "Summary Consolidated Financial and Other Data" and "Selected Consolidated Financial and Other Data" and to the use of our reports dated November 6, 1998, except for Note 10, as to which the date is November 24, 1998 and June 4, 1997, except for Notes 1 and 10, as to which the date is July 1, 1997 to the Registration Statement (Form S-4, No. 333- ) and related Prospectus of Neenah Foundry Company for the registration of $87,000,000 11-1/8% Series F Senior Subordinated Notes. ERNST & YOUNG LLP Milwaukee, Wisconsin February 16, 1999 EX-23.2 12 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-4 of Neenah Foundry Company of our report dated March 6, 1998, except as to Note 13, which is as of September 8, 1998, relating to the consolidated financial statements of Dalton Corporation (formerly known as The Dalton Foundries, Inc.), which appears in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP Indianapolis, Indiana February 12, 1999 EX-23.3 13 CONSENT OF KPMG LLP 1 Exhibit 23.3 INDEPENDENT AUDITORS' CONSENT The Board of Directors Mercer Forge Corporation: We consent to the use of our report incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. KPMG LLP Pittsburgh, Pennsylvania February 16, 1999 EX-25.1 14 FORM T-1 1 FORM T-1 ============================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ================== CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) _______ ================= UNITED STATES TRUST COMPANY OF NEW YORK (Exact name of trustee as specified in its charter) NEW YORK 13-3818954 (Jurisdiction of incorporation (I.R.S. employer if not a U.S. national bank) identification No.) 114 WEST 47TH STREET 10036-1532 NEW YORK, NY (Zip Code) (Address of principal executive offices) ================== NEENAH FOUNDRY COMPANY (Exact name of Obligor as specified in its charter) WISCONSIN 39-1580331 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 2121 BROOKS AVENUE BOX 729 NEENAH, WISCONSIN 54927 (Address of principal executive offices) (Zip Code) ------------------ 11 1/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES F 2 (Title of the indenture securities) ============================================== HARTLEY CONTROLS CORPORATION (Exact name of Obligor as specified in charter) WISCONSIN 39-0842568 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) ================== NEENAH TRANSPORT, INC. (Exact name of Obligor as specified in charter) WISCONSIN 39-1378433 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) ================== DEETER FOUNDRY, INC. (Exact name of Obligor as specified in charter) NEBRASKA 47-0355148 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) ================== MERCER FORGE CORPORATION (Exact name of Obligor as specified in charter) DELAWARE 25-1511711 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) ================== A & M SPECIALTIES, INC. (Exact name of Obligor as specified in charter) PENNSYLVANIA 25-1741756 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) ================== ADVANCED CAST PRODUCTS, INC. (Exact name of Obligor as specified in charter) DELAWARE 25-1607691 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) ================== BELCHER CORPORATION (Exact name of Obligor as specified in charter) DELAWARE 52-1643193 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) ================== 3 PEERLESS CORPORATION (Exact name of Obligor as specified in charter) OHIO 52-1644462 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) ================== DALTON CORPORATION (Exact name of Obligor as specified in charter) INDIANA 35-0259770 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) ================== DALTON CORPORATION, WARSAW MANUFACTURING FACILITY (Exact name of Obligor as specified in charter) INDIANA 35-2054775 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) ================== DALTON CORPORATION, ASHLAND MANUFACTURING FACILITY (Exact name of Obligor as specified in charter) OHIO 34-1873079 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) ================== DALTON CORPORATION, KENDALLVILLE MANUFACTURING FACILITY (Exact name of Obligor as specified in charter) INDIANA 35-2054777 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) ================== STRYKER MACHINING FACILITY CO. (Exact name of Obligor as specified in charter) OHIO 34-1873080 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) ================== NIEMIN PORTER & CO. (Exact name of Obligor as specified in charter) CALIFORNIA 33-0071223 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 4 - 2 - GENERAL 1. GENERAL INFORMATION Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Reserve Bank of New York (2nd District), New York, New York (Board of Governors of the Federal Reserve System) Federal Deposit Insurance Corporation, Washington, D.C. New York State Banking Department, Albany, New York (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. 2. AFFILIATIONS WITH THE OBLIGOR If the obligor is an affiliate of the trustee, describe each such affiliation. None 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15: Neenah Foundry Company Inc. currently is not in default under any of its outstanding securities for which United States Trust Company of New York is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form T-1 are not required under General Instruction B. 16. LIST OF EXHIBITS T-1.1 -- Organization Certificate, as amended, issued by the State of New York Banking Department to transact business as a Trust Company, is incorporated by reference to Exhibit T-1.1 to Form T-1 filed on September 15, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (Registration No. 33-97056). T-1.2 -- Included in Exhibit T-1.1. T-1.3 -- Included in Exhibit T-1.1. 5 - 3 - 16. LIST OF EXHIBITS (cont'd) T-1.4 -- The By-Laws of United States Trust Company of New York, as amended, is incorporated by reference to Exhibit T-1.4 to Form T-1 filed on September 15, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (Registration No. 33-97056). T-1.6 -- The consent of the trustee required by Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990. T-1.7 -- A copy of the latest report of condition of the trustee pursuant to law or the requirements of its supervising or examining authority. NOTE As of January 15, 1999, the trustee had 2,999,020 shares of Common Stock outstanding, all of which are owned by its parent company, U.S. Trust Corporation. The term "trustee" in Item 2, refers to each of United States Trust Company of New York and its parent company, U. S. Trust Corporation. In answering Item 2 in this statement of eligibility as to matters peculiarly within the knowledge of the obligor or its directors, the trustee has relied upon information furnished to it by the obligor and will rely on information to be furnished by the obligor and the trustee disclaims responsibility for the accuracy or completeness of such information. ------------------ Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, United States Trust Company of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 15th day of January, 1999. UNITED STATES TRUST COMPANY OF NEW YORK, Trustee By: /s/ John Guiliano John Guiliano Vice President 6 EXHIBIT T-1.6 The consent of the trustee required by Section 321(b) of the Act. United States Trust Company of New York 114 West 47th Street New York, NY 10036 September 1, 1995 Securities and Exchange Commission 450 5th Street, N.W. Washington, DC 20549 Gentlemen: Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the limitations set forth therein, United States Trust Company of New York ("U.S. Trust") hereby consents that reports of examinations of U.S. Trust by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. Very truly yours, UNITED STATES TRUST COMPANY OF NEW YORK By: /s/ Gerard F. Ganey Gerard F. Ganey Senior Vice President 7 EXHIBIT T-1.7 UNITED STATES TRUST COMPANY OF NEW YORK CONSOLIDATED STATEMENT OF CONDITION September 30, 1998 ($ IN THOUSANDS) ASSETS Cash and Due from Banks $ 339,287 Short-Term Investments 161,493 Securities, Available for Sale 563,176 Loans 1,954,456 Less: Allowance for Credit Losses 16,860 ---------- Net Loans 1,937,596 Premises and Equipment 58,809 Other Assets 120,308 ---------- TOTAL ASSETS $3,180,669 ========== LIABILITIES Deposits: Non-Interest Bearing $ 646,593 Interest Bearing 1,838,108 ---------- Total Deposits 2,484,701 Short-Term Credit Facilities 375,849 Accounts Payable and Accrued Liabilities 142,513 ---------- TOTAL LIABILITIES $3,003,063 ========== STOCKHOLDER'S EQUITY Common Stock 14,995 Capital Surplus 49,541 Retained Earnings 109,648 Unrealized Gains (Losses) on Securities Available for Sale, Net of Taxes 3,422 ---------- TOTAL STOCKHOLDER'S EQUITY 177,606 ---------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $3,180,669 ==========
I, Richard E. Brinkmann, Managing Director & Comptroller of the named bank do hereby declare that this Statement of Condition has been prepared in conformance with the instructions issued by the appropriate regulatory authority and is true to the best of my knowledge and belief. Richard E. Brinkmann, Managing Director & Comptroller November 2, 1998 EX-99.1 15 FORM OF LETTER OF TRANSMITTAL 1 EXHIBIT 99.1 LETTER OF TRANSMITTAL TO TENDER FOR EXCHANGE 11 1/8% SERIES E SENIOR SUBORDINATED NOTES DUE 2007 OF NEENAH FOUNDRY COMPANY PURSUANT TO THE PROSPECTUS DATED [ ] THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999 UNLESS EXTENDED (THE "EXPIRATION DATE"). PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS If you desire to accept the Exchange Offer, this Letter of Transmittal should be completed, signed, and submitted to the Exchange Agent: By Overnight Courier and by Hand after 4:30 p.m. By Hand on the Expiration Date: before 4:30 p.m.: By Registered or Certified Mail: United States Trust Company United States Trust Company United States Trust Company of New York of New York of New York 770 Broadway, 13th Floor 111 Broadway P.O. Box 844 New York, New York 10003 Lower Level Cooper Station Attn: Corporate Trust Services New York, New York 10006 New York, New York 10276-0844 Attn: Corporate Trust Services Attn: Corporate Trust Services
By Facsimile: 212-780-0592 Attn: Corporate Trust Services Confirm by phone: (800) 548-6565 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT 800-548-6565 OR BY FACSIMILE AT 212-780-0592. The undersigned hereby acknowledges receipt of the Prospectus dated [ ] (the "Prospectus") of Neenah Foundry Company, a Wisconsin corporation (the "Issuer"), and this Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Issuer's offer (the "Exchange Offer") to exchange $1,000 in principal amount of its 11 1/8% Series E Senior Subordinated Notes due 2007 (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement, for each $1,000 in principal amount of its outstanding 11 1/8% Series E Senior Subordinated Notes due 2007 (the "Notes"), of which $87,000,000 aggregate principal amount is outstanding. Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. The undersigned hereby tenders the Notes described in Box 1 below (the "Tendered Notes") pursuant to the terms and conditions described in the Prospectus and this Letter of Transmittal. The undersigned is the registered owner of all the Tendered Notes and the undersigned represents that it has received from each beneficial owner of the Tendered Notes ("Beneficial Owners") a duly completed and executed form of "Instruction to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" accompanying this Letter of Transmittal, instructing the undersigned to take the action described in this Letter of Transmittal. 2 Subject to, and effective upon, the acceptance for exchange of the Tendered Notes, the undersigned hereby exchanges, assigns, and transfers to, or upon the order of, the Issuer, all right, title, and interest in, to, and under the Tendered Notes. Please issue the Exchange Notes exchanged for Tendered Notes in the name(s) of the undersigned. Similarly, unless otherwise indicated under "Special Delivery Instructions" below (Box 3), please send or cause to be sent the certificates for the Exchange Notes (and accompanying documents, as appropriate) to the undersigned at the address shown below in Box 1. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the true and lawful agent and attorney in fact of the undersigned with respect to the Tendered Notes, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver the Tendered Notes to the Issuer or cause ownership of the Tendered Notes to be transferred to, or upon the order of, the Issuer, on the books of the registrar for the Notes and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, the Issuer upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the undersigned is entitled upon acceptance by the Issuer of the Tendered Notes pursuant to the Exchange Offer, and (ii) receive all benefits and otherwise exercise all rights of beneficial ownership of the Tendered Notes, all in accordance with the terms of the Exchange Offer. The undersigned understands that tenders of Notes pursuant to the procedures described under the caption "The Exchange Offer" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Issuer upon the terms and subject to the conditions of the Exchange Offer, subject only to withdrawal of such tenders on the terms set forth in the Prospectus under the caption "The Exchange Offer-Withdrawal of Tenders." All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and any Beneficial Owner(s), and every obligation of the undersigned or any Beneficial Owners hereunder shall be binding upon the heirs, representatives, successors, and assigns of the undersigned and such Beneficial Owner(s). The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, exchange, assign, and transfer the Tendered Notes and that the Issuer will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, and adverse claims when the Tendered Notes are acquired by the Issuer as contemplated herein. The undersigned and each Beneficial Owner will, upon request, execute and deliver any additional documents reasonably requested by the Issuer or the Exchange Agent as necessary or desirable to complete and give effect to the transactions contemplated hereby. The undersigned hereby represents and warrants that the information set forth in Box 2 is true and correct. By accepting the Exchange Offer, the undersigned hereby represents and warrants that (i) the Exchange Notes to be acquired by the undersigned and any Beneficial Owner(s) in connection with the Exchange Offer are being acquired by the undersigned and any Beneficial Owner(s) in the ordinary course of business of the undersigned and any Beneficial Owner(s), (ii) the undersigned and each Beneficial Owner are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes, (iii) except as otherwise disclosed in writing herewith, neither the undersigned nor any Beneficial Owner is an "affiliate," as defined in Rule 405 under the Securities Act, of the Issuer, and (iv) the undersigned and each Beneficial Owner acknowledge and agree that any person participating in the Exchange Offer with the intention or for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (together with the rules and regulations promulgated thereunder, the "Securities Act"), in connection with a secondary resale of the Exchange Notes acquired by such person and cannot rely on the position of the Staff of the Securities and Exchange Commission (the "Commission") set forth in the no-action letters that are discussed in the section of the Prospectus entitled "The Exchange Offer." In addition, by accepting the Exchange Offer, the undersigned hereby (i) represents and warrants that, if the undersigned or any Beneficial Owner of the Notes is a Participating Broker-Dealer, such Participating Broker-Dealer acquired the Notes for 2 3 its own account as a result of market-making activities or other trading activities and has not entered into any arrangement or understanding with the Company or any affiliate of the Company (within the meaning of Rule 405 under the Securities Act) to distribute the New Notes to be received in the Exchange Offer, and (ii) acknowledges that, by receiving New Notes for its own account in exchange for Notes, where such Notes were acquired as a result of market-making activities or other trading activities, such Participating Broker-Dealer will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. [ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED HEREWITH. [ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE "Use of Guaranteed Delivery" BELOW (Box 4). [ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE "Use of Book-Entry Transfer" BELOW (Box 5). PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING THE BOXES - ------------------------------------------------------------------------------------------------------------------------ BOX 1 DESCRIPTION OF NOTES TENDERED (ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY) - ------------------------------------------------------------------------------------------------------------------------ AGGREGATE NAME(S) AND ADDRESS(ES) OF REGISTERED NOTE HOLDER(S), CERTIFICATE PRINCIPAL AMOUNT AGGREGATE EXACTLY AS NAME(S) APPEAR(S) ON NOTE CERTIFICATE(S) NUMBER(S) OF REPRESENTED BY PRINCIPAL AMOUNT (PLEASE FILL IN, IF BLANK) NOTES* CERTIFICATE(S) TENDERED** - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ TOTAL - ------------------------------------------------------------------------------------------------------------------------
* Need not be completed by persons tendering by book-entry transfer. ** The minimum permitted tender is $1,000 in principal amount of Notes. All other tenders must be in integral multiples of $1,000 of principal amount. Unless otherwise indicated in this column, the principal amount of all Note Certificates identified in this Box 1 or delivered to the Exchange Agent herewith shall be deemed tendered. See Instruction 4. - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- BOX 2 BENEFICIAL OWNER(S) - ------------------------------------------------------------------------------------------------------------------------- STATE OF PRINCIPAL RESIDENCE OF EACH PRINCIPAL AMOUNT OF TENDERED NOTES BENEFICIAL OWNER OF TENDERED NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------
3 4 BOX 3 SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 5, 6 AND 7) TO BE COMPLETED ONLY IF EXCHANGE NOTES EXCHANGED FOR NOTES AND UNTENDERED NOTES ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE. Mail Exchange Note(s) and any untendered Notes to: Name(s): - -------------------------------------------------------------------------------- (PLEASE PRINT) Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Tax Identification or Social Security No.: BOX 4 USE OF GUARANTEED DELIVERY (SEE INSTRUCTION 2) TO BE COMPLETED ONLY IF NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF GUARANTEED DELIVERY. Name(s) of Registered Holder(s): - -------------------------------------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery: Name of Institution which Guaranteed Delivery: BOX 5 USE OF BOOK-ENTRY TRANSFER (SEE INSTRUCTION 1) TO BE COMPLETED ONLY IF DELIVERY OF TENDERED NOTES IS TO BE MADE BY BOOK-ENTRY TRANSFER. Name of Tendering Institution: Account Number: Transaction Code Number: 4 5 BOX 6 TENDERING HOLDER SIGNATURE (SEE INSTRUCTIONS 1 AND 5) IN ADDITION, COMPLETE SUBSTITUTE FORM W-9 - -------------------------------------------------------------------------------- X Signature Guarantee - ----------------------------------------------- (If required by Instruction 5) X - ----------------------------------------------- Authorized Signature (SIGNATURE OF REGISTERED X HOLDER(S) OR AUTHORIZED SIGNATORY) ----------------------------------------------- Note: The above lines must be signed by the registered holder(s) of Notes as their name(s) Name: appear(s) on the Notes or by persons(s) ----------------------------------------------- authorized to become registered holder(s) (PLEASE PRINT) (evidence of which authorization must be transmitted with this Letter of Transmittal). Title: If signature is by a trustee, executor, ----------------------------------------------- administrator, guardian, attorney-in-fact, officer, or other person acting in a fiduciary Name of Firm: or representative capacity, such person must ---------------------------------------- set forth his or her full title below. See (MUST BE AN ELIGIBLE INSTITUTION AS DEFINED IN Instruction 5. INSTRUCTION 2) Name(s): Address: - --------------------------------------------- ---------------------------------------------- - ----------------------------------------------- ----------------------------------------------- ----------------------------------------------- Capacity: (INCLUDE ZIP CODE) - ---------------------------------------------- - ----------------------------------------------- Area Code and Telephone Number: ----------------------------------------------- Street Address: - --------------------------------------- Dated: - ----------------------------------------------- ----------------------------------------------- - ----------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number: - ----------------------------------------------- Tax Identification or Social Security Number: - -----------------------------------------------
BOX 7 BROKER-DEALER STATUS - -------------------------------------------------------------------------------- [ ] Check this box if the Beneficial Owner of the Notes is a Participating Broker-Dealer and such Participating Broker-Dealer acquired the Notes for its own account as a result of market-making activities or other trading activities. 5 6 - ---------------------------------------------------------------------------------------------------------------------------- PAYOR'S NAME: NEENAH FOUNDRY COMPANY - ---------------------------------------------------------------------------------------------------------------------------- Name (if joint names, list first and circle the name of the person or entity whose number you enter in Part 1 below. See instructions if your name has changed.) ----------------------------------------------------------------------------------------- Address ----------------------------------------------------------------------------------------- SUBSTITUTE City, State and ZIP Code ----------------------------------------------------------------------------------------- FORM W-9 List account number(s) here (optional) ----------------------------------------------------------------------------------------- DEPARTMENT OF THE PART 1 -- PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION Social Security TREASURY NUMBER ("TIN") IN THE BOX AT RIGHT AND CERTIFY BY Number or TIN SIGNING AND DATING BELOW INTERNAL REVENUE SERVICE ----------------------------------------------------------------------------------------- PART 2 -- Check the box if you are NOT subject to backup withholding under the provisions of section 3406(a)(1)(C) of the Internal Revenue Code because (1) you have not been notified that you are subject to backup withholding as a result of failure to report all interest or dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to backup withholding. [ ] - ---------------------------------------------------------------------------------------------------------------------------- CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I PART 3 -- CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE. Awaiting TIN [ ] SIGNATURE ------------------------ DATE-------------- - ----------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 6 7 INSTRUCTIONS TO LETTER OF TRANSMITTAL FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES. A properly completed and duly executed copy of this Letter of Transmittal, including Substitute Form W-9, and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at its address set forth herein, and either certificates for Tendered Notes must be received by the Exchange Agent at its address set forth herein or such Tendered Notes must be transferred pursuant to the procedures for book-entry transfer described in the Prospectus under the caption "Exchange Offer -- Book-Entry Transfer" (and a confirmation of such transfer received by the Exchange Agent), in each case prior to 5:00 p.m., New York City time, on the Expiration Date. The method of delivery of certificates for Tendered Notes, this Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the tendering holder and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. Instead of delivery by mail, it is recommended that the Holder use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. No Letter of Transmittal or Notes should be sent to the Company. Neither the Issuer nor the registrar is under any obligation to notify any tendering holder of the Issuer's acceptance of Tendered Notes prior to the closing of the Exchange Offer. 2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Notes but whose Notes are not immediately available, and who cannot deliver their Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date must tender their Notes according to the guaranteed delivery procedures set forth below, including completion of Box 4. Pursuant to such procedures: (i) such tender must be made by or through a firm which is a member of a recognized Medallion Program approved by the Securities Transfer Association Inc. (an "Eligible Institution") and the Notice of Guaranteed Delivery must be signed by the holder; (ii) prior to the Expiration Date, the Exchange Agent must have received from the holder and the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by mail or hand delivery) setting forth the name and address of the holder, the certificate number(s) of the Tendered Notes and the principal amount of Tendered Notes, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, this Letter of Transmittal together with the certificate(s) representing the Notes and any other required documents will be deposited by the Eligible Institution with the Exchange Agent; and (iii) such properly completed and executed Letter of Transmittal, as well as all other documents required by this Letter of Transmittal and the certificate(s) representing all Tendered Notes in proper form for transfer, must be received by the Exchange Agent within five New York Stock Exchange trading days after the Expiration Date. Any holder who wishes to tender Notes pursuant to the guaranteed delivery procedures described above must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery relating to such Notes prior to 5:00 p.m., New York City time, on the Expiration Date. Failure to complete the guaranteed delivery procedures outlined above will not, of itself, affect the validity or effect a revocation of any Letter of Transmittal form properly completed and executed by an Eligible Holder who attempted to use the guaranteed delivery process. 3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder in whose name Tendered Notes are registered on the books of the registrar (or the legal representative or attorney-in-fact of such registered holder) may execute and deliver this Letter of Transmittal. Any Beneficial Owner of Tendered Notes who is not the registered holder must arrange promptly with the registered holder to execute and deliver this Letter of Transmittal on his or her behalf through the execution and delivery to the registered holder of the Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner form accompanying this Letter of Transmittal. 4. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral multiples of $1,000 in principal amount. If less than the entire principal amount of Notes held by the holder is tendered, the tendering holder should fill in the principal amount tendered in the column labeled "Aggregate Principal Amount Tendered" of the box entitled "Description of Notes Tendered" (Box 1) above. The entire principal amount of Notes 7 8 delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of all Notes held by the holder is not tendered, then Notes for the principal amount of Notes not tendered and Exchange Notes issued in exchange for any Notes tendered and accepted will be sent to the Holder at his or her registered address, unless a different address is provided in the appropriate box on this Letter of Transmittal, as soon as practicable following the Expiration Date. 5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the registered holder(s) of the Tendered Notes, the signature must correspond with the name(s) as written on the face of the Tendered Notes without alteration, enlargement or any change whatsoever. If any of the Tendered Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any Tendered Notes are held in different names, it will be necessary to complete, sign and submit as many separate copies of the Letter of Transmittal as there are different names in which Tendered Notes are held. If this Letter of Transmittal is signed by the registered holder(s) of Tendered Notes, and Exchange Notes issued in exchange therefor are to be issued (and any untendered principal amount of Notes is to be reissued) in the name of the registered holder(s), then such registered holder(s) need not and should not endorse any Tendered Notes, nor provide a separate bond power. In any other case, such registered holder(s) must either properly endorse the Tendered Notes or transmit a properly completed separate bond power with this Letter of Transmittal, with the signature(s) on the endorsement or bond power guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of any Tendered Notes, such Tendered Notes must be endorsed or accompanied by appropriate bond powers, in each case, signed as the name(s) of the registered holder(s) appear(s) on the Tendered Notes, with the signature(s) on the endorsement or bond power guaranteed by an Eligible Institution. If this Letter of Transmittal or any Tendered Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and, unless waived by the Issuer, evidence satisfactory to the Issuer of their authority to so act must be submitted with this Letter of Transmittal. Endorsements on Tendered Notes or signatures on bond powers required by this Instruction 5 must be guaranteed by an Eligible Institution. Signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution unless the Tendered Notes are tendered (i) by a registered holder who has not completed the box set forth herein entitled "Special Delivery Instructions" (Box 3) or (ii) by an Eligible Institution. 6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders should indicate, in the applicable box (Box 3), the name and address to which the Exchange Notes and/or substitute Notes for principal amounts not tendered or not accepted for exchange are to be sent, if different from the name and address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. 7. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any, applicable to the exchange of Tendered Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the transfer and exchange of Tendered Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or on any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 7, it will not be necessary for transfer tax stamps to be affixed to the Tendered Notes listed in this Letter of Transmittal. 8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the holder(s) of any Tendered Notes which are accepted for exchange must provide the Issuer (as payor) with its correct taxpayer 8 9 identification number ("TIN"), which, in the case of a holder who is an individual, is his or her social security number. If the Issuer is not provided with the correct TIN, the Holder may be subject to backup withholding and a $50 penalty imposed by the Internal Revenue Service. (If withholding results in an over-payment of taxes, a refund may be obtained.) Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. To prevent backup withholding, each holder of Tendered Notes must provide such holder's correct TIN by completing the Substitute Form W-9 set forth herein, certifying that the TIN provided is correct (or that such holder is awaiting a TIN), and that (i) the holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the Tendered Notes are registered in more than one name or are not in the name of the actual owner, consult the "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for information on which TIN to report. The Issuer reserves the right in its sole discretion to take whatever steps are necessary to comply with the Issuer's obligation regarding backup withholding. 9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of Tendered Notes will be determined by the Issuer in its sole discretion, which determination will be final and binding. The Issuer reserves the right to reject any and all Notes not validly tendered or any Notes the Issuer's acceptance of which would, in the opinion of the Issuer or their counsel, be unlawful. The Issuer also reserves the right to waive any conditions of the Exchange Offer or defects or irregularities in tenders of Notes as to any ineligibility of any holder who seeks to tender Notes in the Exchange Offer. The interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) by the Issuer shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Notes must be cured within such time as the Issuer shall determine. Neither the Issuer, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in this Letter of Transmittal, as soon as practicable following the Expiration Date. 10. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend, waive or modify any of the conditions in the Exchange Offer in the case of any Tendered Notes. 11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or contingent tender of Notes or transmittal of this Letter of Transmittal will be accepted. 12. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any tendering Holder whose Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated herein for further instructions. 13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance and requests for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address indicated herein. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. 14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF NOTES; RETURN OF NOTES. Subject to the terms and conditions of the Exchange Offer, the Issuer will accept for exchange all validly tendered Notes as soon as practicable after the Expiration Date and will issue Exchange Notes therefor as soon as practicable thereafter. For purposes of the Exchange Offer, the Issuer shall be deemed to have accepted tendered Notes when, as and if the Issuer has given written or oral notice (immediately followed in writing) thereof to the Exchange 9 10 Agent. If any Tendered Notes are not exchanged pursuant to the Exchange Offer for any reason, such unexchanged Notes will be returned, without expense, to the undersigned at the address shown in Box 1 or at a different address as may be indicated herein under "Special Delivery Instructions" (Box 3). 15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures set forth in the Prospectus under the caption "The Exchange Offer." 10 EX-99.2 16 FORM OF NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY WITH RESPECT TO 11 1/8% SERIES E SENIOR SUBORDINATED NOTES DUE 2007 OF NEENAH FOUNDRY COMPANY PURSUANT TO THE PROSPECTUS DATED [ ] This form must be used by a holder of 11 1/8% Series E Senior Subordinated Notes due 2007 (the "Notes") of Neenah Foundry Company, a Wisconsin corporation (the "Company"), who wishes to tender Notes to the Exchange Agent pursuant to the guaranteed delivery procedures described in "The Exchange Offer -- Guaranteed Delivery Procedures" of the Company's Prospectus, dated [ ] (the "Prospectus") and in Instruction 2 to the related Letter of Transmittal. Any holder who wishes to tender Notes pursuant to such guaranteed delivery procedures must ensure that the Exchange Agent receives this Notice of Guaranteed Delivery prior to the Expiration Date of the Exchange Offer. Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus or the Letter of Transmittal. THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ] UNLESS EXTENDED (THE "EXPIRATION DATE"). United States Trust Company (the "Exchange Agent") By Overnight Courier and by Hand By Hand before 4:30 pm: By Registered or Certified Mail: after 4:30 pm on the Expiration United States Trust Company United States Trust Company Date: of New York of New York United States Trust Company 111 Broadway P.O. Box 844 of New York Lower Level Cooper Station 770 Broadway, 13th Floor New York, New York 10006 New York, New York 10276-0844 New York, New York 10003 Attn: Corporate Trust Services Attn: Corporate Trust Services Attn: Corporate Trust Services
By Facsimile: 212-780-0592 Attn: Corporate Trust Services Confirm by phone: (800) 548-6565 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. FOR ANY QUESTIONS REGARDING THIS NOTICE OF GUARANTEED DELIVERY OR FOR ANY ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT 800-548-6565, OR BY FACSIMILE AT 212-780-0592. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. 2 Ladies and Gentlemen: The undersigned hereby tenders to the Company, upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal, receipt of which is hereby acknowledged, the principal amount of Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus and in Instruction 2 of the Letter of Transmittal. The undersigned hereby tenders the Notes listed below: CERTIFICATE NUMBER(S) (IF KNOWN) OF NOTES OR AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------
PLEASE SIGN AND COMPLETE - -------------------------------------------------------------------------------- Signatures of Registered Holder(s) or Date: Authorized Signatory: ----------------------------------------------, - ---------------------------------- 1999 - ------------------------------------------------- - ------------------------------------------------- Address: Name(s) of Registered Holder(s): ------------------------------------------------- - ------------------------------------------------- ------------------------------------------------- - ------------------------------------------------- - ------------------------------------------------- Area Code and Telephone No.: --------------------------
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly as their name(s) appear on certificates for Notes or on a security position listing as the owner of Notes, or by person(s) authorized to become Holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information. PLEASE PRINT NAME(S) AND ADDRESS(ES) Name(s): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Capacity: - -------------------------------------------------------------------------------- Address(es): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 3 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or is a commercial bank or trust company having an office or correspondent in the United States, or is otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal (or facsimile thereof), together with the Notes tendered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Notes into the Exchange Agent's account at the Book-Entry Transfer Facility described in the prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures" and in the Letter of Transmittal) and any other required documents, all by 5:00 p.m., New York City time, on the fifth New York Stock Exchange trading day following the Expiration Date. Name of firm: ----------------------------------------- ----------------------------------------------- (AUTHORIZED SIGNATURE) Address: Name: - ----------------------------------------------- ----------------------------------------------- (PLEASE PRINT) Title: - ----------------------------------------------- ----------------------------------------------- (INCLUDE ZIP CODE) Area Code and Tel. No.: Dated: , 1999 - -----------------------------------------------
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL. 3 4 INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY 1. Delivery of this Notice of Guaranteed Delivery. A properly completed and duly executed copy of this Notice of Guaranteed Delivery and any other documents required by this Notice of Guaranteed Delivery must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. The method of delivery of this Notice of Guaranteed Delivery and any other required documents to the Exchange Agent is at the election and sole risk of the holder, and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. As an alternative to delivery by mail, the holders may wish to consider using an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. For a description of the guaranteed delivery procedures, see Instruction 2 of the Letter of Transmittal. 2. Signatures on this Notice of Guaranteed Delivery. If this Notice of Guaranteed Delivery is signed by the registered holder(s) of the Notes referred to herein, the signature must correspond with the name(s) written on the face of the Notes without alteration, enlargement, or any change whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of the Notes, the signature must correspond with the name shown on the security position listing as the owner of the Notes. If this Notice of Guaranteed Delivery is signed by a person other than the registered holder(s) of any Notes listed or a participant of the Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by appropriate bond powers, signed as the name of the registered holder(s) appears on the Notes or signed as the name of the participant shown on the Book-Entry Transfer Facility's security position listing. If this Notice of Guaranteed Delivery is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, such person should so indicate when signing and submit with the Letter of Transmittal evidence satisfactory to the Company of such person's authority to so act. 3. Requests for Assistance or Additional Copies. Questions and requests for assistance and requests for additional copies of the Prospectus may be directed to the Exchange Agent at the address specified in the Prospectus. Holders may also contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer. 4 EX-99.3 17 FORM OF TENDER INSTRUCTIONS 1 EXHIBIT 99.3 INSTRUCTIONS TO REGISTERED HOLDER AND/OR BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER OF NEENAH FOUNDRY COMPANY 11 1/8 SERIES E SENIOR SUBORDINATED NOTES DUE 2007 To Registered Holder and/or Participant of the Book-Entry Transfer Facility: The undersigned hereby acknowledges receipt of the Prospectus, dated [ ] (the "Prospectus") of Neenah Foundry Company, a Wisconsin corporation (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer (the "Exchange Offer"). Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. This will instruct you, the registered holder and/or book-entry transfer facility participant, as to action to be taken by you relating to the Exchange Offer with respect to the 11 1/8 Series E Senior Subordinated Notes due 2007 (the "Notes") held by you for the account of the undersigned. The aggregate face amount of the Notes held by you for the account of the undersigned is (FILL IN AMOUNT): $ of the 11 1/8 Series E Senior Subordinated Notes due 2007 With respect to the Exchange Offer, the undersigned hereby instructs you (CHECK APPROPRIATE BOX): [ ] TO TENDER the following Notes held by you for the account of the undersigned (INSERT PRINCIPAL AMOUNT OF NOTES TO BE TENDERED, IF ANY): $ [ ] NOT TO TENDER any Notes held by you for the account of the undersigned. If the undersigned instruct you to tender the Notes held by you for the account of the undersigned, it is understood that you are authorized (a) to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representation and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations that (i) the undersigned's principal residence is in the state of (FILL IN STATE) , (ii) the undersigned is acquiring the Exchange Notes in the ordinary course of business of the undersigned, (iii) the undersigned is not participating, does not participate, and has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes, (iv) the undersigned acknowledges that any person participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the "Act"), in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the Staff of the Securities and Exchange Commission set forth in no-action letters that are discussed in the section of the Prospectus entitled "The Exchange Offer -- Resales of the Exchange Notes," and (v) the undersigned is not an "affiliate," as defined in Rule 405 under the Act, of the Company; (b) to agree, on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c) to take such other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of such Notes. 2 SIGN HERE Name of beneficial owner(s): - -------------------------------------------------------------------------------- Signature(s): - -------------------------------------------------------------------------------- Name (please print): - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Telephone number: - -------------------------------------------------------------------------------- Taxpayer Identification or Social Security Number: - ------------------------------------------------------------ Date: - -------------------------------------------------------------------------------- 2 -----END PRIVACY-ENHANCED MESSAGE-----