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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ____
Commission file number 0-14061
STEEL TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-0712014
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15415 Shelbyville Road, Louisville, KY 40245
(Address of principal executive offices)
Registrant's telephone number, including area code: 502-245-2110
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES [X] NO [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
Aggregate market value of the voting stock (which consists solely of shares of
common stock) held by non-affiliates of the registrant as of December 7, 2001,
computed by reference to the closing price of the registrant's common stock, as
quoted in the Nasdaq National Market System on such date: $90,409,555.
Number of shares of the registrant's Common Stock outstanding at December 7,
2001: 10,158,377.
1
Portions of the registrant's annual report to shareholders for the fiscal year
ended September 30, 2001 are incorporated by reference into Part II. Portions of
the definitive proxy statement furnished to shareholders of the registrant in
connection with the annual meeting of shareholders to be held on January 24,
2002 are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
GENERAL
Steel Technologies Inc. ("the Company") was incorporated under the laws of the
state of Kentucky in 1971 as Southern Strip Steel, Inc. In June 1985, the name
of the corporation was changed to Steel Technologies Inc.
The Company is an intermediate steel processor engaged in the business of
processing flat rolled steel to specified close tolerances in response to orders
from industrial customers who require steel of precise thickness, width, temper,
finish and shape for their manufacturing purposes. The Company purchases
commercial tolerance steel in coils up to 72 inches in width from major steel
mills, processing it to customer specification. The processed steel is
distributed from facilities located in Indiana, Kentucky, Maryland, Michigan,
Missouri, North Carolina, Ohio and South Carolina in the U.S. and three
facilities in Mexico. The Company has customers in 35 states primarily in the
East, Midwest and South, as well as into Mexico and Canada. The Company's
principal processed products are: cold-rolled strip and sheet, cold-rolled
one-pass strip, high carbon and alloy strip and sheet, hot-rolled strip and
sheet, high strength low alloy strip and sheet, hot-rolled pickle and oil and
coated strip and sheet, pickling of hot-rolled black coils, blanking and
cut-to-length processing of coil steel, and fabrication and welding of steel
sheets and plates.
Intermediate steel processors occupy a niche between the primary steel producers
and industrial customers who need processed steel for their end-product
manufacturing purposes. The primary producers have historically emphasized the
sale of commercial tolerance steel to large volume purchasers and have generally
viewed the intermediate steel processor as an integral part of this customer
base. Furthermore, end-product manufacturers have increasingly sought to
purchase steel with closer tolerances, on shorter lead times, and with more
reliable and more frequent delivery than the primary producers can efficiently
provide. Additionally, most manufacturers are not willing to commit to the
investment in technology, equipment and inventory required to further process
the steel for use in their manufacturing operations. These industry forces have
created a market in which the strength of the Company's business is based upon
its capability to process steel to more precise specifications and to service
the steel purchasing and delivery requirements of its customers more
expeditiously than the primary producers.
STEEL PROCESSING
The Company maintains inventory of coiled steel purchased from the primary
producers and mini-mills. This steel, purchased as a continuous sheet, typically
36 to 72 inches wide and between .015 and .625 inches thick is known as
"commercial tolerance" because its ranges of thickness, width and temper are
established by general industry standards which may not be of sufficient quality
for the manufacturing purposes of the Company's customers.
Customer orders are entered in a computerized order entry system, and
appropriate inventory is then selected and scheduled for processing in
accordance with the customer's specified delivery date. The Company attempts to
maximize yield from its inventory by scheduling customer orders to use to the
fullest extent practicable the purchased widths of its coils. One of the first
processing functions involves the pickling of hot rolled black coil steel. This
process is a cleaning process that improves the quality of hot rolled steel by
removing the scale on the surface of the steel and prepares the hot rolled steel
for further processing. The next processing function typically involves slitting
coils to specified widths subject to close tolerances. After slitting, the
processed product is ready for either delivery to the customer or additional
processing.
2
Many of the Company's orders involve an additional process known as "cold
reduction." Cold reduction reduces the thickness of the steel to a customer's
specification by passing the steel through a set of rolls under pressure. This
process significantly increases the value added by the Company to the product.
During the rolling process the edges of the steel may also be conditioned into
square, full round or partially round shapes. After cold reduction, it is
sometimes necessary to subject the rolled steel to high temperatures for long
periods of time in order to "anneal" or soften the steel. This annealing
capability is accomplished in the Company's own furnaces and is particularly
suitable for high carbon and alloy strip orders. After annealing, orders are
then ready for additional slitting and cold reduction and subsequent shipment to
the customer.
The Company has achieved high quality and productivity levels through its
commitment to modern and efficient equipment used to perform the pickling,
slitting, cold reduction, annealing, blanking processes. The Company's pickling
facility is capable of high volume pickling, leveling, coating and slitting of
hot rolled steel to greater than industry standards. The Company's slitting
lines are capable of maintaining width tolerances of +/- .002 inches. The
Company has computerized all of its rolling equipment, which has improved its
capability to deliver flat rolled steel products processed to closer than
standard tolerances. The Company's computerized rolling mills are capable of
maintaining thickness tolerances of +/-.0003 inches. Computers monitor thickness
during the cold reduction process, rapidly adjusting roll position to maintain
the proper tolerance as the steel passes through the rolling mill. The computers
also provide both visual displays and documented records of the thickness
maintained throughout the entire coil. Annealing is accomplished in high
convection bell furnaces. These furnaces feature extraordinary thermal
consistency, rapid water cooling and advanced atmosphere controls for good
surface cleanliness of the rolled steel product. The Company's blanking lines
are capable of producing blanks from coils up to 84 inches in width and maximum
gauge of .25 inches thick. Flatness of the steel is controlled by an automatic
hydraulic leveler and diagnostic equipment that continually monitors the steel
during processing to minimize scrap and provide up-to-the minute production
information.
QUALITY CONTROL
The ability to obtain high quality steel from its suppliers on a consistent
basis is critical to the Company's business. Most of any nonconforming raw
material is diverted to less critical applications. The Company, through its
technical services department, has instituted strict quality control measures to
assure that the quality of purchased raw materials will allow the Company to
meet the specifications of its customers and to reduce the costs of production
interruptions resulting from poor quality steel. Physical, chemical, and
metallographic analyses are performed on selected raw materials to verify that
their mechanical and dimensional properties, cleanliness, surface
characteristics, and chemical content are acceptable. Similar analyses are
conducted on processed steel on a selected basis before delivery to the
customer. The Company also uses statistical process control techniques to
monitor its slitting and cold reduction processes so management can document to
customers that required tolerances have been continuously maintained throughout
processing. This close attention to product quality has enabled the Company to
limit the amount of customer returns and allowances. The Company's technical
services department is located in the research and development engineering and
technology center in Louisville, Kentucky. The Company's metallurgical
laboratory is located in the Eminence, Kentucky plant.
MARKETING
The Company's marketing staff consists of sales personnel located throughout the
United States and Mexico. In addition to cultivating additional business from
existing customers and developing new accounts, these sales personnel are
responsible for identifying market trends in their assigned areas. The marketing
staff consists of one Senior Vice President-Sales, five regional Vice
Presidents-Sales, and by the Company's technical services department, which
develops application engineering ideas. The Company is frequently requested to
recommend the type of steel which can best serve a customer's specific needs.
3
CUSTOMERS AND DISTRIBUTION
The Company produces to customer order rather than for inventory. Although some
blanket orders are taken for periods of up to one year, such blanket orders
represent a projection of anticipated customer requirements and do not become
firm orders until the customer calls for delivery of specified quantities of
particular products at specified times. The Company is therefore required to
maintain a substantial inventory of raw materials to meet the short lead times
and just-in-time delivery requirements of many of its customers. Customers
typically place firm orders for delivery within two to three weeks.
The Company processes steel for sale to a variety of industrial customers,
including those in the automotive, automotive supply, appliance, lawn and
garden, railcar, machinery and office equipment industries. In fiscal 2001, 2000
and 1999 sales to the automotive industry directly accounted for 10% of the
Company's sales, respectively, and sales to the automotive supply industry
accounted for 50%, respectively. The Company believes its long-term
relationships with its major customers are a significant factor in its business.
The Company supplies processed steel to more than approximately 1,000 active
accounts. These customers are generally located within 300 miles of one of the
Company's plants. The location of Company facilities near a great number of
customers permits the efficient distribution of the Company's products by truck.
Independent trucking companies afford a convenient and expeditious means for
shipping approximately two-thirds of the Company's products to its customers.
The Company also maintains a small number of tractor-trailer trucks to provide
flexible delivery service to those customers who do not arrange for their own
shipping needs.
SUPPLIERS
In 2001, the Company obtained its steel for processing from a number of
integrated and mini mill sources close to its facilities and a limited number of
foreign steel companies. The Company obtains its raw material requirements by
ordering steel possessing specified physical qualities and alloy content. The
Company believes that it is not dependent on any one of its suppliers for raw
materials and that its relationships with its suppliers are good.
JOINT VENTURES
In April 1987, the Company formed Mi-Tech Steel, Inc. (Mi-Tech Steel), a 50%
owned corporate joint venture with Mitsui Steel Development Co., Inc. Mi-Tech
Steel was established to own and operate high-volume steel slitting facilities
to serve Japanese and domestic automotive and appliance parts manufacturers
located in the United States. The initial processing facility was opened in
December 1987 in Murfreesboro, Tennessee. In January 1990, a second Mi-Tech
Steel processing facility opened in Greensburg, Indiana. A third processing
facility, the first for Mi-Tech Steel with pickling and slitting capabilities
opened in December 1997 in Decatur, Alabama. During the second quarter of 2001,
Mi-Tech Steel discontinued it Decatur, Alabama operation. Mi-Tech Steel is
pursuing alternatives to sell its assets in Decatur. In accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
Mi-Tech Steel recorded an impairment charge associated with this facility based
on its estimates of fair value. The Company's share of Mi-Tech Steel's
impairment charges recorded during the second quarter of fiscal 2001 was
approximately $6.5 million. Steel Technologies is also providing management
services for the Mi-Tech Steel operations.
In October 1990, Processing Technology, Inc. (Processing Technology), was
established. The Company holds a 5% investment in the common stock of this
corporate joint venture with LTV Steel Company and Mitsui Steel Development Co.,
Inc. Processing Technology operates facilities in Perrysburg, Ohio and Burns
Harbor, Indiana, which process flat rolled steel and provide steel storage
principally for LTV Steel Company. Both facilities began operations in fiscal
1992. During the second quarter of fiscal 2001, the Company determined that
Processing Technology was not able to sustain an earnings capacity which
justified the carrying amount of its investment due to the deteriorating
financial condition of PTI and its principal customer. Accordingly, the Company
wrote off its approximate $1 million investment in PTI in accordance with
Accounting Principles Board Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock."
4
In September 2001, the Company purchased 49% of Ferrolux Metals Co., LLC
(Ferrolux) from Ferragon Corporation. Ferrolux operates a facility in Wayne,
Michigan as a steel processor specializing in exposed automotive products.
COMPETITION
Steel processing is highly competitive. The Company primarily competes with a
number of other intermediate steel processors who are capable of processing
steel to closer than standard tolerance. The primary characteristics of
competition encountered by the Company are quality of product, reliability of
delivery and price.
ENVIRONMENTAL MATTERS
The Company's manufacturing facilities are subject to many existing and proposed
federal, state and foreign regulations designed to protect the environment.
Presently, the Company has no knowledge of any material pending or threatened
litigation or administrative proceeding against the Company involving
environmental matters. Management believes the Company's manufacturing
facilities are in compliance with applicable federal, state and foreign
environmental regulations, and is not presently aware of any fact or
circumstance which would require the expenditure of material amounts for
environmental compliance in the future.
EMPLOYEES
As of September 30, 2001, the Company employed approximately 1,065 full-time
people, of which approximately 106 are represented by collective bargaining
agreements. The Company has never experienced a significant work stoppage and
considers its employee relations to be good.
ITEM 2. PROPERTIES
The Company's principal processing plants and distribution facilities are as
follows:
Square Year Opened/
Plant Location Footage Acquired
- -------------- ------- ------------
Eminence, Kentucky 180,000 sq.ft. 1971
Portage, Indiana 242,000 sq.ft. 1987
Elkton, Maryland 60,000 sq.ft. 1989
Canton, Michigan 230,000 sq.ft. 1991
Monterrey, Mexico 80,000 sq.ft. 1994
Ghent, Kentucky 230,000 sq.ft. 1995
Puebla, Mexico 20,000 sq.ft. 1997
Clinton, No. Carolina 110,000 sq.ft. 1997
Willoughby, Ohio 75,000 sq.ft. 1998
Huger, So. Carolina 84,000 sq.ft. 1999
Kennett, Missouri 94,000 sq.ft. 2000
Wurtland, Kentucky 47,000 sq.ft. 2000
Matamoros, Mexico 80,000 sq.ft. 2000
All of these facilities are owned by the Company except for the Puebla and
Wurtland facilities which are leased. In 1999, the Company purchased the real
property used for processing in North Carolina and Ohio. Prior to that, the
company had lease arrangements with these facilities subsequently purchased.
The engineering division, technical services located in Louisville, Kentucky
occupies an 11,000 square foot building leased by the Company.
The Company's executive offices are located in Louisville, Kentucky in a 30,000
square foot building owned by the Company. The Company's administrative services
offices are also located in 4,400 square feet of space leased in Louisville,
Kentucky.
5
Mi-Tech Steel currently operates two high volume steel slitting operations. The
Murfreesboro, Tennessee plant and Greensburg, Indiana Plant consist of 300,000
and 160,000 square feet respectively. Mi-Tech Steel is pursuing alternatives to
sell its two facilities in Decatur, Alabama which comprise 160,000 square feet.
All operating properties are in good repair and in suitable condition for the
purposes for which they are used. The Company's Elkton, Maryland and Kennett,
Missouri processing plants and the executive office building are subject to
outstanding mortgages covering certain long-term financing arrangements.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names, positions held and ages of all the
executive officers of the Company:
Name Age Title
- ---- --- -----
Merwin J. Ray 72 Chairman of the Board
Bradford T. Ray 43 Vice Chairman of the Board and Chief Executive Officer
Michael J. Carroll 44 President and Chief Operating Officer
Howard F. Bates, Jr. 55 Vice President-Technical Services
Joseph P. Bellino 51 Chief Financial Officer and Treasurer
Officers are elected annually by and serve at the discretion of the Board of
Directors. Messrs. Merwin J. Ray, Bradford T. Ray, Howard F. Bates, Jr. and
Michael J. Carroll are members of the Company's Board of Directors.
Mr. Merwin J. Ray has served as Chairman of the Board of the Company since its
incorporation in 1971. He previously held the positions of Chief Executive
Officer from May 1985 until November 1999 and President of the Company from 1971
until May 1985. Mr. Merwin J. Ray is the father of Bradford T. Ray, Vice
Chairman and Chief Executive Officer of the Company.
Mr. Bradford T. Ray has served as Vice Chairman and Chief Executive Officer
since November 1999. He previously held the positions President and Chief
Operating Officer from November 1994 until November 1999, Executive Vice
President from April 1993 to November 1994 and Vice President-Manufacturing of
the Company from January 1987 to April 1993.
Mr. Michael J. Carroll has served as President and Chief Operating Officer since
November 1999. He previously held the positions of Executive Vice President from
January 1995 until November 1999, Senior Vice President-Sales from April 1993 to
January 1995 and Vice President-Sales from July 1987 to April 1993.
Mr. Howard F. Bates, Jr. has served as Vice President-Technical Services since
November 1981. From August 1977 to November 1981, he held the position of
Manager of Technical Services.
Mr. Joseph P. Bellino has served as Chief Financial Officer and Treasurer of the
Company since October 1997. He previously held the position of President of
Beacon Capital Advisors Company from 1996 to 1997. From 1989 to 1995, Mr.
Bellino served as President of Rhawn Enterprises, Inc.
6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The information required for Item 5 is incorporated by reference herein,
pursuant to General Instruction G(2), from the information provided under the
section entitled "Market Price and Dividend Information" on page 5 of the
Company's annual report to shareholders for the year ended September 30, 2001.
ITEM 6. SELECTED FINANCIAL DATA
The information required for Item 6 is incorporated by reference herein,
pursuant to General Instruction G(2), from the information provided under the
section entitled "Selected Financial Data" on page 4 of the Company's annual
report to shareholders for the year ended September 30, 2001.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required for Item 7 is incorporated by reference herein,
pursuant to General Instruction G(2), from the information provided under the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on pages 6 through 10 of the Company's annual report
to shareholders for the year ended September 30, 2001.
7
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks related to changes in interest rates. To
manage interest rate exposures, the Company uses fixed and variable debt and
interest rate swap contracts. The Company does not enter into derivative
financial instrument transactions for speculative purposes.
In order to mitigate a portion of the market risk on its variable rate debt, the
Company entered into interest rate swap contracts with major financial
institutions on August 30, 2001. Under terms of these separate contracts the
Company receives a LIBOR based variable interest rate and pay a fixed interest
rate of 4.24% and 4.48% on notional amounts of $15 million each which mature in
August 2003 and February 2004, respectively. The variable interest rate paid on
the contracts is determined based on LIBOR on the last day of the applicable
month, which is consistent with the variable rate determination on the
underlying debt.
The following table summarizes principal cash flows and related interest rates
of the Company's long-term debt and interest rate swaps at September 30, 2001 by
expected maturity dates. The weighted average interest rate of the fixed-rate
debt is based on the actual average rates at September 30, 2001. The
variable-rate debt is based on actual rates at September 30, 2001. The
variable-rate debt consists primarily of the line of credit of which $66,000,000
is outstanding at September 30, 2001.
(In thousands except for interest rates) September 30, 2001
Fair
2002 2003 2004 2005 2006 Thereafter Total Value
-------------------------------------------------------------
Long-term debt
(fixed) $6,183 $ 5,915 $5,900 $5,870 $ 205 $1,320 $25,393 $25,818
Weighted average
interest rates 8.47% 8.45% 8.42% 8.31% 7.93%
Long-term debt
(variable) $ 100 $ 100 $66,100 $ 100 $ 100 $3,500 $70,000 $70,000
Weighted average
interest rates 5.27% 5.27% 5.27% 2.45% 2.45%
Interest rate
swaps, net $ 258 $ 258 $ 74 $ - $ - $ - $ 590 $ 591
Foreign currency exposures arise from transactions denominated in a currency
other than the Company's functional currency and from foreign denominated
revenues and profits translated into U.S. dollars. The primary currency to which
the company is exposed to is the peso.
8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Steel Technologies Inc. and
Subsidiaries on pages 11 through 24 and Report of Independent Accountants on
page 25 are included in the Company's annual report to shareholders for the year
ended September 30, 2001, and the sections entitled "Quarterly Financial Data"
and "Market Price and Dividend Information" on page 5 thereof are incorporated
herein by reference.
Consolidated Balance Sheets - September 30, 2001 and 2000
Consolidated Statements of Income - Years ended September 30, 2001, 2000
and 1999
Consolidated Statements of Comprehensive Income - Years ended September 30,
2001, 2000 and 1999 Consolidated Statements of Shareholders' Equity -
Years ended September 30, 2001, 2000 and 1999
Consolidated Statements of Cash Flows -Years ended September 30, 2001, 2000
and 1999
Notes to Consolidated Financial Statements
Report of Independent Accountants
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3), the information required by Item 10 is
incorporated by reference herein from the material under the section entitled
"Election of Directors" contained on pages 4 through 9, and "Election of
Directors Section 16(a) Beneficial Ownership Reporting Compliance" on page 9 in
the Company's definitive proxy statement filed with the Securities and Exchange
Commission related to the annual meeting of shareholders of Steel Technologies
Inc. to be held on January 24, 2002. The information regarding Executive
Officers required by Item 401 of Regulation S-K is included in Part I hereof
under the section entitled "Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3), the information required by Item 11 is
incorporated by reference herein from the material under the sections entitled
"Election of Directors - Compensation of Directors" contained on page 9 and
"Executive Compensation" contained on pages 10 through 13 in the Company's
definitive proxy statement filed with the Securities and Exchange Commission
related to the Company's annual meeting of shareholders to be held on January
24, 2002.
Information appearing in the sections entitled "Compensation Committee Report on
Executive Compensation" contained on pages 14 through 16 and "Performance Graph"
contained on page 18 in the Company's definitive proxy statement filed with the
Securities and Exchange Commission related to the Company's annual meeting of
shareholders to be held on January 24, 2002 shall not be deemed to be
incorporated by reference in this report, notwithstanding any general statement
contained herein incorporating portions of such proxy statement by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3), the information required by Item 12 is
incorporated by reference herein from the material under the sections entitled
"Voting Securities" contained on pages 3 through 4 and "Election of Directors"
contained on pages 4 through 9 in the Company's definitive proxy statement filed
with the Securities and Exchange Commission related to the Company's annual
meeting of shareholders to be held on January 24, 2002.
9
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), the information required by Item 13 is
incorporated by reference herein from the material under the sections entitled
"Certain Transactions" contained on page 13 and "Election of Directors"
contained on pages 4 through 9 in the Company's definitive proxy statement filed
with the Securities and Exchange Commission related to the Company's annual
meeting of shareholders to be held on January 24, 2002.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The response to this portion of Item 14 is submitted as a separate
section of this report--See List of Financial Statements under Item 8.
(a) (2) The following consolidated financial statement schedule of Steel
Technologies Inc. and Subsidiaries is included in a separate section of
this report, following the index to exhibits on page E-1:
Valuation and Qualifying Accounts - Schedule II
Report of Independent Accountants
The following is a list of financial statements of Mi-Tech Steel,
Inc., which are included as Exhibit 99 pursuant to Rule 3.09 of
Regulation S-X.
Report of Independent Accountants
Consolidated Balance Sheets - September 30, 2001 and 2000
Consolidated Statements of Operations - Years ended September 30,
2001, 2000 and 1999
Consolidated Statements of Shareholders' Equity -Years ended
September 30, 2001, 2000 and 1999
Consolidated Statements of Cash Flows -Years ended September 30,
2001, 2000 and 1999
Notes to Consolidated Financial Statements
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
(a) (3) Listing of Exhibits--See Index to Exhibits contained herein on page E-1
of this report. The index to exhibits specifically identifies each
management contract or compensatory plan required to be filed as an
Exhibit to this Form 10-K.
(b) No report on Form 8-K was filed for the quarter ended September 30,
2001.
(c) Exhibits filed with this report are attached hereto.
10
Page E-1
STEEL TECHNOLOGIES INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 2001
Ref. Exhibit
# # Description
- --- ------- -------------------------------------------------------
(i) 3.1 Second Restated Articles of Incorporation of the
Registrant
(i) 3.2 Second Amended By-Laws of the Registrant
10.1 Loan Agreement dated as of August 31, 2001, between the
Registrant and PNC Bank, National Association, National
City Bank of Kentucky, SunTrust Bank, Firstar Bank, N.A.
and Bank One, Kentucky N.A.
(e) 10.2(a) Note Agreement dated as of March 1, 1995, between the
Registrant and Principal Mutual Life Insurance
Company, Lincoln National Investment Management
Company, Jefferson-Pilot Life Insurance Company and
Northern Life Insurance Company
(e) 10.2(b) Request for Consent to Amendment of Note Agreement
(e) 10.2(c) Request for Consent to Second Amendment of Note
Agreement
10.2(d) Third Amendment of Note Agreement
10.2(e) Waiver and Fourth Amendment to Note Agreement
(b) 10.3(a) Incentive Stock Option Plan of the Registrant *
(a) 10.3(b) Amendment #1, dated April 7, 1987 to the Incentive
Stock Option Plan of the Registrant *
(e) 10.3(c) Registrant's 1995 Stock Option Plan *
(i) 10.3(d) Registrant's 2000 Stock Option Plan *
(f) 10.4 Stock Purchase Agreement between Registrant and
Shareholders of Atlantic Coil Processing, Inc.
effective April 1, 1997.
(c) 10.5(a) Revised Employee Bonus Plan of the Registrant *
(i) 10.5(b) Employment Agreement between Registrant and Vice
Chairman and Chief Executive Officer effective as of
March 16, 2000 and Promissory Note*
(a) 10.6(a) Joint Venture Agreement dated March 30, 1987 between
Mitsui & Co., LTD., Mitsui & Co. (U.S.A.), Inc.,
Mitsui Steel Development Co., Inc., and the Registrant
(c) 10.6(b) Amendment #1, dated February 28, 1989 to the Joint
Venture Agreement dated March 30, 1987 between Mitsui
& Co., LTD., Mitsui & Co. (U.S.A.), Inc., Mitsui Steel
Development Co., Inc., and the Registrant
(c) 10.7(a) Loan Agreement dated as of November 1, 1989 between
the County Commissioners of Cecil County, Maryland and
the Registrant relating to Economic Development
Revenue Bonds
(c) 10.7(b) Reimbursement, Credit and Security Agreement dated as
of November 1, 1989 between Citizens Fidelity Bank and
Trust Company and the Registrant relating to Economic
Development Revenue Bonds
(d) 10.8 Joint Venture Agreement dated October 16, 1990 among
Mitsui Steel Development Co., Inc. and LTV Steel
Company, Inc. and the Registrant
(d) 10.9 Form of Indemnification Agreement between the
Registrant and its Directors *
(i) 10.10(a)Steel Technologies Inc. Restated Retirement Savings
Plan
(i) 10.10(b)Amendment No. 1 to the Steel Technologies Inc.
Retirement Savings Plan
(h) 10.12 Amended and restated Nonemployee Directors Stock Plan *
(g) 10.13 Confirmation of Interest Rate Swap Transaction dated
July 31, 1998 between the Registrant and SunTrust
Bank, Atlanta.
(g) 10.14 Stock Purchase Agreement between Registrant and
Stockholders of Roberts Steel Company effective July
1, 1998.
11
Page E-1 (continued)
STEEL TECHNOLOGIES INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 2001
Ref. Exhibit
# # Description
- --- ------- -------------------------------------------------------
13 2001 Annual Report to Shareholders, filed herewith.
The annual report shall not be deemed to be filed with
the Commission except to the extent that information
is specifically incorporated by reference herein
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Accountants
99 Financial statements of M-Tech Steel, Inc.
Alphabetic filed exhibit reference:
(a) Incorporated herein by reference to exhibits filed with the Company's
Annual Report on Form 10-K (file # 0-14061) for the fiscal year ended
September 30, 1987.
(b) Incorporated herein by reference to exhibits filed with the Company's Form
S-1 Registration Statement under the Securities Act of 1933 (No. 2-98617),
which became effective August 27, 1985.
(c) Incorporated herein by reference to exhibits filed with the Company's
Annual Report on Form 10-K (file # 0-14061) for the fiscal year ended
September 30, 1989.
(d) Incorporated herein by reference to exhibits filed with the Company's
Annual Report on Form 10-K (file # 0-14061) for the fiscal year ended
September 30, 1990.
(e) Incorporated herein by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q (file # 0-14061) for the quarter ended March
31, 1995.
(f) Incorporated herein by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q (file # 0-14061) for the quarter ended March
31, 1997.
(g) Incorporated herein by reference to exhibits filed with the Company's
Annual Report of Form 10K (file #0-14061) for the fiscal year ended
September 30, 1998.
(h) Incorporated herein by reference to exhibits filed with the Company's
Annual Report of Form 10K (file #0-14061) for the fiscal year ended
September 30, 1999.
(i) Incorporated herein by reference to exhibits filed with the Company's
Annual Report of Form 10K (file #0-14061) for the fiscal year ended
September 30, 2000.
* Indicates management contract or compensatory plan and arrangement
12
STEEL TECHNOLOGIES INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Additions Charged to Balance at
Beginning Costs and Charged to Other End of
of Period Expenses Other Deductions Period
---------- ---------- ----------- ----------- ----------
Year Ended September 30, 2001:
(A) $1,327,400 $1,789,676 $ - $445,689(C) $2,671,387
Year Ended September 30, 2000:
(A) $1,046,558 $ 329,000 $ 85,108(B)$133,266(C) $1,327,400
Year Ended September 30, 1999:
(A) $ 938,837 $ 265,700 $ - $157,979(C) $1,046,558
(A) Allowance for doubtful accounts
(B) Related to acquired business.
(C) Uncollectible accounts charged off, less recoveries.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
Board of Directors
Steel Technologies Inc.:
Our audits of the consolidated financial statements referred to in our report
dated October 29, 2001 appearing on page 25 of the 2001 Annual Report to
Shareholders of Steel Technologies Inc. and subsidiaries (which report and
consolidated financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the consolidated financial
statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion,
this consolidated financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PricewaterhouseCoopers LLP
Louisville, Kentucky
October 29, 2001
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934 the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
STEEL TECHNOLOGIES INC.
Dated: December 21, 2001 By:/S/Joseph P. Bellino
________________________
Joseph P. Bellino
Chief Financial Officer,
and Treasurer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Date Title
- --------- -------- -----
/s/ Merwin J. Ray 12/21/01 Chairman of the Board of Directors
___________________ (Principal Executive Officer)
Merwin J. Ray
/s/ Bradford T. Ray 12/21/01 Director, Vice Chairman and
____________________ Chief Executive Officer
Bradford T. Ray
/s/ Michael J. Carroll 12/21/01 Director, President and Chief
Operating Officer
___________________
Michael J. Carroll
/s/ Howard F. Bates, Jr. 12/21/01 Director and Vice President-
___________________ Technical Services
Howard F. Bates, Jr.
/s/ Ralph W. McIntyre 12/21/01 Director
___________________
Ralph W. McIntyre
/s/ William E. Hellmann 12/21/01 Director
___________________
William E. Hellman
/s/ Jimmy Dan Conner 12/21/01 Director
___________________
Jimmy Dan Conner
/s/ Andrew J. Payton 12/21/01 Director
___________________
Andrew J. Payton
/s/ Doug A. Bawel 12/21/01 Director
___________________
Doug A. Bawel
14
Exhibit 10.1
Loan Agreement dated as of August 31, 2001, between the Registrant and PNC Bank,
National Association, National City Bank of Kentucky, SunTrust Bank, Firstar
Ban, N.A. and Bank One, Kentucky, N.A.
CREDIT AGREEMENT
by and among
STEEL TECHNOLOGIES INC.
and
THE GUARANTORS PARTY HERETO
and
THE BANKS PARTY HERETO
and
PNC BANK, NATIONAL ASSOCIATION, As Agent
and
SUNTRUST BANK, As Syndication Agent
Dated as of August 31, 2001
1
LIST OF SCHEDULES AND EXHIBITS
SCHEDULES
SCHEDULE 1.1(A) - PRICING GRID
SCHEDULE 1.1(B) - COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
SCHEDULE 1.1(P) - PERMITTED LIENS
SCHEDULE 5.1.1 - QUALIFICATIONS TO DO BUSINESS
SCHEDULE 5.1.3 - SUBSIDIARIES
SCHEDULE 5.1.8 - OWNED AND LEASED REAL PROPERTY
SCHEDULE 5.1.13 - CONSENTS AND APPROVALS
SCHEDULE 5.1.16 - INSURANCE POLICIES
SCHEDULE 5.1.18 - MATERIAL CONTRACTS
SCHEDULE 5.1.20 - EMPLOYEE BENEFIT PLAN DISCLOSURES
SCHEDULE 5.1.22 - ENVIRONMENTAL DISCLOSURES
SCHEDULE 7.2.1 - PERMITTED EXISTING INDEBTEDNESS
SCHEDULE 7.2.4(vi) - EXISTING INVESTMENTS IN MI-TECH STEEL, INC.
SCHEDULE 7.2.4(viii) - EXISTING INVESTMENTS IN JOINT VENTURES
EXHIBITS
EXHIBIT 1.1(A) - ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(G)(1) - GUARANTOR JOINDER
EXHIBIT 1.1(G)(2) - GUARANTY AGREEMENT
EXHIBIT 1.1(I)(1) - INTERCOMPANY SUBORDINATION AGREEMENT
EXHIBIT 1.1(I)(2) - INTERCREDITOR AGREEMENT
EXHIBIT 1.1(R) - REVOLVING CREDIT NOTE
EXHIBIT 2.5.1 - REVOLVING CREDIT LOAN REQUEST
EXHIBIT 2.5.2 - SWING LOAN REQUEST
EXHIBIT 2.8(S) - SWING LOAN NOTE
EXHIBIT 6.1.4 - OPINION OF COUNSEL
EXHIBIT 7.2.6 - ACQUISITION COMPLIANCE CERTIFICATE
EXHIBIT 7.3.3 - QUARTERLY COMPLIANCE CERTIFICATE
2
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of August 31, 2001 and is made by and
among STEEL TECHNOLOGIES INC., a Kentucky corporation (the "Borrower"), each of
the Guarantors (as hereinafter defined), the BANKS (as hereinafter defined), PNC
BANK, NATIONAL ASSOCIATION, in its capacity as agent for the Banks under this
Agreement (hereinafter referred to in such capacity as the "Agent"), and
SUNTRUST BANK, in its capacity as the Syndication Agent (the "Syndication
Agent").
WITNESSETH:
WHEREAS, the Borrower has requested the Banks to provide a revolving credit
facility to the Borrower in an aggregate principal amount not to exceed
$125,000,000; and
WHEREAS, the revolving credit facility shall be used for general purposes,
to refinance the Senior Notes (as hereinafter defined) and to make permitted
acquisitions; and
WHEREAS, the Banks are willing to provide such credit upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
1. CERTAIN DEFINITIONS
1.1 Certain Definitions.
In addition to words and terms defined elsewhere in this Agreement, the
following words and terms shall have the following meanings, respectively,
unless the context hereof clearly requires otherwise:
Acquisition Compliance Certificate shall mean a certificate in the form of
Exhibit 7.2.6 to be delivered in connection with a Permitted Acquisition.
Affiliate as to any Person shall mean any other Person (i) which directly or
indirectly controls, is controlled by, or is under common control with such
Person, (ii) which beneficially owns or holds 5% (10% if such Person is the
Borrower) or more of any class of the voting or other equity interests of such
Person, or (iii) 5% or more of any class of voting interests or other equity
interests of which is beneficially owned or held, directly or indirectly, by
such Person. Control, as used in this definition, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise, including the power to elect
3
a majority of the directors or trustees of a corporation or trust, as the case
may be, except that Merwin Ray, Julie Ray and Bradford Ray each shall not be
treated as an "Affiliate" of any of the Loan Parties.
Agent shall mean PNC Bank, National Association, and its successors and assigns.
Agent's Fee shall have the meaning assigned to that term in Section 9.15.
Agent's Letter shall have the meaning assigned to that term in Section 9.15.
Agreement shall mean this Credit Agreement, as the same may be supplemented or
amended from time to time, including all schedules and exhibits.
Annual Statements shall have the meaning assigned to that term in
Section 5.1.9((i)).
Applicable Commitment Fee Rate shall mean the percentage rate per annum based on
the Leverage Ratio then in effect according to the pricing grid on Schedule
1.1(A) below the heading "Commitment Fee." The Applicable Commitment Fee Rate
shall be computed in accordance with the parameters set forth on Schedule
1.1(A).
Applicable Margin shall mean, as applicable:
(A) the percentage spread to be added to Base Rate under the Base Rate
Option based on the Leverage Ratio then in effect according to the pricing
grid on Schedule 1.1(A) below the heading "Base Rate Spread",
(B) the percentage spread to be added to Euro-Rate under the Euro-Rate
Option based on the Leverage Ratio then in effect according to the pricing
grid on Schedule 1.1(A) below the heading "Euro-Rate Spread", or
The Applicable Margin shall be computed in accordance with the parameters
set forth on Schedule 1.1(A).
Assignment and Assumption Agreement shall mean an Assignment and Assumption
Agreement by and among a Purchasing Bank, a Transferor Bank and the Agent, as
Agent and on behalf of the remaining Banks, substantially in the form of Exhibit
1.1(A).
Authorized Officer shall mean those individuals, designated by written notice to
the Agent from the Borrower, authorized to execute notices, reports and other
documents on behalf of the Loan Parties required hereunder. The Borrower may
amend such list of individuals from time to time by giving written notice of
such amendment to the Agent.
4
Banks shall mean the financial institutions named on Schedule 1.1(B) and their
respective successors and assigns as permitted hereunder, each of which is
referred to herein as a Bank.
Banks' Pro Rata Share shall mean, as of any date of determination, (A) if no
Event of Default or Potential Default which has resulted in the termination of
the Commitments under this Agreement exists no such date, the fraction obtained
by dividing (1) the Commitments, by (2) the sum of the Commitments, plus the
principal amount outstanding under the Senior Notes (the "Outstanding Note
Balance"), or (B) if an Event of Default or Potential Default exists on such
date which has resulted in the termination of the Commitments, the fraction
obtained by dividing (1) the Facility Usage, by (2) the sum of the Facility
Usage plus the Outstanding Note Balance.
Base Tangible Net Worth shall mean the sum of $95,000,000 plus the sum of (i)
50% of consolidated net income of the Borrower and its Subsidiaries for each
fiscal quarter in which net income was earned (as opposed to a net loss) during
the period from March 31, 2001 through the date of determination, and (ii) 100%
of the net cash proceeds received by the Borrower from any issuance of its
capital stock after the Closing Date.
Base Rate shall mean the greater of (i) the interest rate per annum announced
from time to time by the Agent at its Principal Office as its then prime rate,
which rate may not be the lowest rate then being charged commercial borrowers by
the Agent, or (ii) the Federal Funds Effective Rate plus one half of one percent
(1/2%) per annum.
Base Rate Option shall mean the option of the Borrower to have Revolving Credit
Loans bear interest at the rate and under the terms and conditions set forth in
Section 3.1.1((i)).
Benefit Arrangement shall mean at any time an "employee benefit plan," within
the meaning of Section 3(3) of ERISA, which is neither a Plan nor a
Multiemployer Plan and which is maintained, sponsored or otherwise contributed
to by any member of the ERISA Group.
Borrower shall mean Steel Technologies Inc., a Kentucky corporation.
Borrowing Date shall mean, with respect to any Loan, the date for the making
thereof or the renewal or conversion thereof at or to the same or a different
Interest Rate Option, which shall be a Business Day.
Borrowing Tranche shall mean specified portions of Loans outstanding as follows:
(i) any Revolving Credit Loans to which a Euro-Rate Option applies which become
subject to the same Interest Rate Option under the same Revolving Credit Loan
Request by the Borrower and which have the same Interest Period shall constitute
one Borrowing Tranche, and (ii) all Revolving Credit Loans to which a Base Rate
Option applies shall constitute one Borrowing Tranche.
5
Business Day shall mean any day other than a Saturday or Sunday or a legal
holiday on which commercial banks are authorized or required to be closed for
business in Pittsburgh, Pennsylvania and if the applicable Business Day relates
to any Loan to which the Euro-Rate Option applies, such day must also be a day
on which dealings are carried on in the London interbank market.
Change in Control shall mean (i) the acquisition by any Person or "group" (as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended)
of more than 50% of the Voting Stock of the Borrower, including any such
acquisition by merger or consolidation, or (ii) the acquisition by any Person or
"group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended) of more than 20% of the Voting Stock of the Borrower, including any
such acquisition by merger or consolidation, and, at any time following an
acquisition described in this clause (ii), the Continuing Directors shall not
constitute a majority of the Board of Directors of the Borrower."
Closing Date shall mean the Business Day on which the first Loan shall be made,
which shall be August 31, 2001.
Commercial Letter of Credit shall mean any Letter of Credit which is a
commercial letter of credit issued in respect of the purchase of goods or
services by one or more of the Loan Parties in the ordinary course of their
business.
Commitment shall mean as to any Bank the aggregate of its Revolving Credit
Commitment and, in the case of the Agent, its Swing Loan Commitment, and
Commitments shall mean the Revolving Credit Commitments and Swing Loan
Commitment of all of the Banks.
Commitment Fee shall have the meaning assigned to that term in Section 2.3.
Compliance Certificate shall have the meaning assigned to such term in Section
7.3.3.
Consideration shall mean with respect to any Permitted Acquisition, the
aggregate of (i) the cash paid by any of the Loan Parties, directly or
indirectly, to the seller in connection therewith, (ii) the Indebtedness
incurred or assumed by any of the Loan Parties, whether in favor of the seller
or otherwise and whether fixed or contingent, (iii) any Guaranty given or
incurred by any Loan Party in connection therewith, and (iv) any other
consideration given or obligation incurred by any of the Loan Parties in
connection therewith.
6
Consolidated Tangible Net Worth shall mean as of any date of determination total
stockholders' equity less intangible assets of the Borrower and its Subsidiaries
as of such date determined and consolidated in accordance with GAAP.
Contamination shall mean the presence or release or threat of release of
Regulated Substances in, on, under or emanating to or from the Property, which
pursuant to Environmental Laws requires notification or reporting to an Official
Body, or which pursuant to Environmental Laws requires the investigation,
cleanup, removal, remediation, containment, abatement of or other response
action or which otherwise constitutes a violation of Environmental Laws.
Continuing Director shall mean any member of the Board of Directors of the
Borrower who is a member of such Board on the Closing Date and any Person who is
a member of such Board and whose nomination as a director was approved by a
majority of the Continuing Directors then on the Board of Directors of the
Borrower.
Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful money of the
United States of America.
Drawing Date shall have the meaning assigned to that term in Section 2.11.3.2.
EBITDA for any period of determination shall mean the sum of net income,
depreciation, amortization, interest expense, income tax expense and the Second
Quarter Joint Venture Investment Charge, in each case of the Borrower and its
Subsidiaries for such period determined and consolidated in accordance with
GAAP.
EBITR for any period of determination shall mean (i) the sum of net income,
interest expense, income tax expense, rental expense and the Second Quarter
Joint Venture Investment Charge, in each case of the Borrower and its
Subsidiaries for such period determined and consolidated in accordance with
GAAP.
Environmental Complaint shall mean any written complaint by any Person or
Official Body setting forth a cause of action for personal injury or property
damage, natural resource damage, contribution or indemnity for response costs,
civil or administrative penalties, criminal fines or penalties, or declaratory
or equitable relief arising under any Environmental Laws or any order, notice of
violation, citation, subpoena, request for information or other written notice
or demand of any type issued by an Official Body pursuant to any Environmental
Laws.
Environmental Laws shall mean all federal, state, local and foreign Laws and any
consent decrees, settlement agreements, judgments, orders, directives, policies
or programs issued by or entered into with an Official Body pertaining or
relating to: (i) pollution or pollution control; (ii) protection of human health
or the environment; (iii) employee safety in the workplace; (iv) the presence,
use, management, generation, manufacture, processing, extraction, treatment,
recycling, refining, reclamation, labeling, transport, storage, collection,
distribution, disposal or release or threat of release of Regulated Substances;
(v) the presence of Contamination; (vi) the protection of endangered or
threatened species; and (vii) the protection of Environmentally Sensitive Areas.
7
Environmentally Sensitive Area shall mean (i) any wetland as defined by
applicable Environmental Laws; (ii) any area designated as a coastal zone
pursuant to applicable Laws, including Environmental Laws; (iii) any area of
historic or archeological significance or scenic area as defined or designated
by applicable Laws, including Environmental Laws; (iv) habitats of endangered
species or threatened species as designated by applicable Laws, including
Environmental Laws; or (v) a floodplain or other flood hazard area as defined
pursuant to any applicable Laws. ERISA shall mean the Employee Retirement Income
Security Act of 1974, as the same may be amended or supplemented from time to
time, and any successor statute of similar import, and the rules and regulations
thereunder, as from time to time in effect.
ERISA Group shall mean, at any time, the Borrower and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control and all other entities which, together with
the Borrower, are treated as a single employer under Section 414 of the Internal
Revenue Code.
Euro-Rate shall mean, with respect to the Loans comprising any Borrowing Tranche
to which the Euro-Rate Option applies for any Interest Period, the interest rate
per annum determined by the Agent by dividing (the resulting quotient rounded
upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the rate of
interest determined by the Agent in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the average of
the London interbank offered rates for U.S. Dollars quoted by the British
Bankers' Association as set forth on Dow Jones Markets Service (formerly known
as Telerate) (or appropriate successor or, if the British Bankers' Association
or its successor ceases to provide such quotes, a comparable replacement
determined by the Agent) display page 3750 (or such other display page on the
Dow Jones Markets Service system as may replace display page 3750) two (2)
Business Days prior to the first day of such Interest Period for an amount
comparable to such Borrowing Tranche and having a borrowing date and a maturity
comparable to such Interest Period by (ii) a number equal to 1.00 minus the
Euro-Rate Reserve Percentage. The Euro-Rate may also be expressed by the
following formula:
Average of London interbank offered rates quoted
by BBA or appropriate successor as shown on
Euro-Rate = Dow Jones Markets Service display page 3750
1.00 - Euro-Rate Reserve Percentage
8
The Euro-Rate shall be adjusted with respect to any Loan to which the Euro-Rate
Option applies that is outstanding on the effective date of any change in the
Euro-Rate Reserve Percentage as of such effective date. The Agent shall give
prompt notice to the Borrower of the Euro-Rate as determined or adjusted in
accordance herewith, which determination shall be conclusive absent manifest
error.
Euro-Rate Option shall mean the option of the Borrower to have Revolving Credit
Loans bear interest at the rate and under the terms and conditions set forth in
Section 3.1.1((ii)).
Euro-Rate Reserve Percentage shall mean as of any day the maximum percentage in
effect on such day, as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the reserve requirements
(including supplemental, marginal and emergency reserve requirements) with
respect to eurocurrency funding (currently referred to as "Eurocurrency
Liabilities").
Event of Default shall mean any of the events described in Section 8.1 and
referred to therein as an "Event of Default."
Expiration Date shall mean, with respect to the Commitments, August 31, 2004, as
the same may hereafter be extended pursuant to Section 2.12.
Facility Usage shall mean at any time the sum of the Revolving Credit Loans and
Swing Loans outstanding and the Letters of Credit Outstanding.
Federal Funds Effective Rate for any day shall mean the rate per annum (based on
a year of 360 days and actual days elapsed and rounded upward to the nearest
1/100 of 1%) announced by the Federal Reserve Bank of New York (or any
successor) on such day as being the weighted average of the rates on overnight
federal funds transactions arranged by federal funds brokers on the previous
trading day, as computed and announced by such Federal Reserve Bank (or any
successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.
Financial Projections shall have the meaning assigned to that term in
Section 5.1.9((ii)).
GAAP shall mean generally accepted accounting principles as are in effect from
time to time, subject to the provisions of Section 1.3, and applied on a
consistent basis both as to classification of items and amounts.
Governmental Acts shall have the meaning assigned to that term in
Section 2.11.8.
9
Guarantor shall mean each of the parties to this Agreement which is designated
as a "Guarantor" on the signature page hereof and each other Person which joins
this Agreement as a Guarantor after the date hereof pursuant to Section 10.17.
Each Subsidiary of the Borrower shall join this Agreement as a Guarantor except
for Steel Technologies De Mexico S.A. De C.V. and the Joint Ventures (and
provided that any Subsidiary of the Borrower, including Steel Technologies De
Mexico S.A. De C.V. and the Joint Ventures, which executes a Guaranty of any
indebtedness of the Note Purchase Agreement and the Senior Notes shall join this
Agreement as a Guarantor).
Guarantor Joinder shall mean a joinder by a Person as a Guarantor under this
Agreement, the Guaranty Agreement and the other Loan Documents in the form of
Exhibit 1.1(G)(1).
Guaranty of any Person shall mean any obligation of such Person guaranteeing or
in effect guaranteeing any liability or obligation of any other Person in any
manner, whether directly or indirectly, including any agreement to indemnify or
hold harmless any other Person, any performance bond or other suretyship
arrangement and any other form of assurance against loss, except endorsement of
negotiable or other instruments for deposit or collection in the ordinary course
of business.
Guaranty Agreement shall mean the Guaranty and Suretyship Agreement in
substantially the form of Exhibit 1.1(G)(2) executed and delivered by each of
the Guarantors to the Agent for the benefit of the Banks.
Historical Statements shall have the meaning assigned to that term in
Section 5.1.9(i).
Indebtedness shall mean, as to any Person at any time and without duplication,
any and all indebtedness, obligations or liabilities (whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, or joint or several) of such Person for or in respect of:
(i) borrowed money, (ii) amounts raised under or liabilities in respect of any
note purchase or acceptance credit facility, (iii) reimbursement obligations
(contingent or otherwise) under any letter of credit, currency swap agreement,
interest rate swap, cap, collar or floor agreement or other interest rate
management device, (iv) all outstanding indebtedness under a Permitted
Securitization, (v) any other transaction (including forward sale or purchase
agreements, capitalized leases and conditional sales agreements) having the
commercial effect of a borrowing of money entered into by such Person to finance
its operations or capital requirements (but not including trade payables and
accrued expenses incurred in the ordinary course of business which are not
represented by a promissory note or other evidence of indebtedness and which are
not more than thirty (30) days past due), or (vi) any Guaranty of Indebtedness
for borrowed money.
10
Ineligible Security shall mean any security which may not be underwritten or
dealt in by member banks of the Federal Reserve System under Section 16 of the
Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended.
Insolvency Proceeding shall mean, with respect to any Person, (a) a case, action
or proceeding with respect to such Person (i) before any court or any other
Official Body under any bankruptcy, insolvency, reorganization or other similar
Law now or hereafter in effect, or (ii) for the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar
official) of any Loan Party or otherwise relating to the liquidation,
dissolution, winding-up or relief of such Person, or (b) any general assignment
for the benefit of creditors, composition, marshaling of assets for creditors,
or other, similar arrangement in respect of such Person's creditors generally or
any substantial portion of its creditors; undertaken under any Law.
Intercompany Subordination Agreement shall mean a Subordination Agreement among
the Loan Parties in the form attached hereto as Exhibit 1.1(I)(1).
Intercreditor Agreement shall mean an Intercreditor Agreement among the holders
of the Senior Notes and the Agent on behalf of the Banks in substantially the
form attached hereto as Exhibit 1.1(I)(2).
Interest and Rental Coverage Ratio shall mean the ratio of EBITR to the sum of
interest (including fees or charges equivalent to interest incurred under any
Permitted Securitization) and rental expenses.
Interest Period shall mean the period of time selected by the Borrower in
connection with (and to apply to) any election permitted hereunder by the
Borrower to have Loans bear interest under the Euro-Rate Option. Subject to the
last sentence of this definition, such period shall be one, two, three or six
Months. Such Interest Period shall commence on the effective date of such
Interest Rate Option, which shall be (i) the Borrowing Date if the Borrower is
requesting new Loans, or (ii) the date of renewal of or conversion to the
Euro-Rate Option if the Borrower is renewing or converting to the Euro-Rate
Option applicable to outstanding Loans. Notwithstanding the second sentence
hereof: (A) any Interest Period which would otherwise end on a date which is not
a Business Day shall be extended to the next succeeding Business Day unless such
Business Day falls in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day, and (B) the Borrower shall
not select, convert to or renew an Interest Period for any portion of the Loans
that would end after the Expiration Date.
Interest Rate Option shall mean any Euro-Rate Option or Base Rate Option.
Interest Rate Protection Agreement shall have the meaning assigned to such term
in Section 7.1.12.
11
Interim Statements shall have the meaning assigned to that term in
Section 5.1.9(i).
Internal Revenue Code shall mean the Internal Revenue Code of 1986, as the same
may be amended or supplemented from time to time, and any successor statute of
similar import, and the rules and regulations thereunder, as from time to time
in effect.
Joint Ventures shall mean (i) Mi-Tech Steel, Inc., a joint venture formed by the
Borrower and Mitsui Steel Development Company, and (ii) Processing Technology,
Inc., a joint venture formed by the Steel Technologies, LTV Corporation and
Mitsui Steel Development Company, and (iii) other partnerships or joint ventures
to which the Borrower is now or in the future a party.
Labor Contracts shall mean all employment agreements, employment contracts,
collective bargaining agreements and other agreements among any Loan Party or
Subsidiary of a Loan Party and its employees.
Law shall mean any law (including common law), constitution, statute, treaty,
regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ,
decree, bond, judgment, authorization or approval, lien or award of or
settlement agreement with any Official Body.
Letter of Credit shall have the meaning assigned to that term in Section 2.11.1.
Letter of Credit Borrowing shall have the meaning assigned to such term in
Section 2.11.3.4.
Letter of Credit Fee shall have the meaning assigned to that term in
Section 2.11.2.
Letters of Credit Outstanding shall mean at any time the sum of (i) the
aggregate undrawn face amount of outstanding Letters of Credit and (ii) the
aggregate amount of all unpaid and outstanding Reimbursement Obligations and
Letter of Credit Borrowings.
Leverage Ratio shall mean, as of the end of each fiscal quarter ending after the
Closing Date, the ratio of consolidated Indebtedness of Borrower and its
Subsidiaries on such date to the EBITDA for the four fiscal quarters ending on
such date.
Lien shall mean any mortgage, deed of trust, pledge, lien, security interest,
charge or other encumbrance or security arrangement of any nature whatsoever,
whether voluntarily or involuntarily given, including any conditional sale or
title retention arrangement, and any assignment, deposit arrangement or lease
intended as, or having the effect of, security and any filed financing statement
or other notice of any of the foregoing (whether or not a lien or other
encumbrance is created or exists at the time of the filing).
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LLC Interests shall have the meaning given to such term in Section 5.1.3.
Loans shall mean collectively and Loan shall mean separately all Revolving
Credit Loans and Swing Loans or any Revolving Credit Loan or Swing Loan.
Loan Documents shall mean this Agreement, the Agent's Letter, the Guaranty
Agreement, the Intercompany Subordination Agreement, the Intercreditor
Agreement, the Notes and any other instruments, certificates or documents
delivered or contemplated to be delivered hereunder or thereunder or in
connection herewith or therewith, as the same may be supplemented or amended
from time to time in accordance herewith or therewith, and Loan Document shall
mean any of the Loan Documents.
Loan Parties shall mean the Borrower and the Guarantors.
Loan Request shall mean either a Revolving Credit Loan Request or a Swing Loan
Request.
Material Adverse Change shall mean any set of circumstances or events which
(a) has or could reasonably be expected to have any material adverse effect
whatsoever upon the validity or enforceability of this Agreement or any other
Loan Document, (b) is or could reasonably be expected to be material and adverse
to the business, properties, assets, financial condition, results of operations
or prospects of the Loan Parties taken as a whole, (c) impairs materially or
could reasonably be expected to impair materially the ability of the Loan
Parties taken as a whole to duly and punctually pay or perform its Indebtedness,
or (d) impairs materially or could reasonably be expected to impair materially
the ability of the Agent or any of the Banks, to the extent permitted, to
enforce their legal remedies pursuant to this Agreement or any other Loan
Document.
Month, with respect to an Interest Period under the Euro-Rate Option, shall mean
the interval between the days in consecutive calendar months numerically
corresponding to the first day of such Interest Period. If any Euro-Rate
Interest Period begins on a day of a calendar month for which there is no
numerically corresponding day in the month in which such Interest Period is to
end, the final month of such Interest Period shall be deemed to end on the last
Business Day of such final month.
Multiemployer Plan shall mean any employee benefit plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which the Borrower or any member of the ERISA Group is then making or accruing
an obligation to make contributions or, within the preceding five Plan years,
has made or had an obligation to make such contributions.
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Multiple Employer Plan shall mean a Plan which has two or more contributing
sponsors (including the Borrower or any member of the ERISA Group) at least two
of whom are not under common control, as such a plan is described in
Sections 4063 and 4064 of ERISA.
Note Purchase Agreement shall mean that certain Note Agreement dated as of March
1, 1995, between the Borrower and the purchasers thereunder pursuant to which
Borrower issued and severally sold to such purchasers the Senior Notes, as
previously or hereafter amended.
Notes shall mean the Revolving Credit Notes or Swing Note.
Notices shall have the meaning assigned to that term in Section 10.6.
Obligation shall mean any obligation or liability of any of the Loan Parties to
the Agent or any of the Banks, howsoever created, arising or evidenced, whether
direct or indirect, absolute or contingent, now or hereafter existing, or due or
to become due, under or in connection with this Agreement, the Notes, the
Letters of Credit, the Agent's Letter or any other Loan Document.
Offered Rate shall mean the interest rate quoted from time to time by PNC Bank
to the Borrower as applicable to Swing Loans. The Offered Rate shall constitute,
on each Borrowing Date of a Swing Loan, the offer quoted by an officer of PNC
Bank to the Borrower on each such Borrowing Date of a Swing Loan.
Official Body shall mean any national, federal, state, local or other government
or political subdivision or any agency, authority, board, bureau, central bank,
commission, department or instrumentality of either, or any court, tribunal,
grand jury or arbitrator, in each case whether foreign or domestic.
Participation Advance shall mean, with respect to any Bank, such Bank's payment
in respect of its participation in a Letter of Credit Borrowing according to its
Ratable Share pursuant to Section 2.11.3.4.
Partnership Interests shall have the meaning given to such term in
Section 5.1.3.
PBGC shall mean the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA or any successor.
Permitted Acquisitions shall have the meaning assigned to such term in
Section 7.2.6.
Permitted Investments shall mean:
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(i) direct obligations of the United States of America or any agency or
instrumentality thereof or obligations backed by the full faith and credit
of the United States of America maturing in twelve (12) months or less from
the date of acquisition;
(ii) commercial paper maturing in 180 days or less rated not lower than
A-1, by Standard & Poor's or P-1 by Moody's Investors Service, Inc. on the
date of acquisition; and
(iii) demand deposits, time deposits or certificates of deposit
maturing within one year in commercial banks whose obligations are
rated A-1, A or the equivalent or better by Standard & Poor's on the
date of acquisition.
Permitted Liens shall mean:
(i) Liens for taxes, assessments, or similar charges, incurred in the
ordinary course of business and which are not yet due and payable;
(ii) Pledges or deposits made in the ordinary course of business to secure
payment of workmen's compensation, or to participate in any fund in
connection with workmen's compensation, unemployment insurance, old-age
pensions or other social security programs;
(iii) Liens of mechanics, materialmen, warehousemen, carriers, or other
like Liens, securing obligations incurred in the ordinary course of
business that are not yet due and payable and Liens of landlords securing
obligations to pay lease payments that are not yet due and payable or in
default;
(iv) Good-faith pledges or deposits made in the ordinary course of business
to secure performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases, not in excess of the aggregate
amount due thereunder, or to secure statutory obligations, or surety,
appeal, indemnity, performance or other similar bonds required in the
ordinary course of business;
(v) Encumbrances consisting of zoning restrictions, easements or other
restrictions on the use of real property, none of which materially impairs
the use of such property or the value thereof, and none of which is
violated in any material respect by existing or proposed structures or land
use;
(vi) Liens, security interests and mortgages in favor of the Agent for the
benefit of the Banks;
(vii) Liens on property leased by any Loan Party or Subsidiary of a Loan
Party under capital and operating leases permitted in Section 7.2.15
securing obligations of such Loan Party or Subsidiary to the lessor under
such leases;
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(viii) Any Lien existing on the date of this Agreement and described on
Schedule 1.1(P), provided that the principal amount secured thereby is not
hereafter increased, and no additional assets become subject to such Lien
and the aggregate amount of obligations secured by all Liens referred to in
this clause does not exceed $10,000,000;
(ix) Purchase Money Security Interests, provided that the aggregate amount
of loans and deferred payments secured by such Purchase Money Security
Interests shall be subject to Section 7.2.1(iv); and
(x) The following, (A) if the validity or amount thereof is being contested
in good faith by appropriate and lawful proceedings diligently conducted so
long as levy and execution thereon have been stayed and continue to be
stayed or (B) if a final judgment is entered and such judgment is
discharged within thirty (30) days of entry, and in either case they do not
in the aggregate, materially impair the ability of any Loan Party to
perform its Obligations hereunder or under the other Loan Documents:
(1) Claims or Liens for taxes, assessments or charges due and payable
and subject to interest or penalty, provided that the applicable Loan
Party maintains such reserves or other appropriate provisions as shall
be required by GAAP and pays all such taxes, assessments or charges
forthwith upon the commencement of proceedings to foreclose any such
Lien;
(2) Claims, Liens or encumbrances upon, and defects of title to, real
or personal property, including any attachment of personal or real
property or other legal process prior to adjudication of a dispute on
the merits;
(3) Claims or Liens of mechanics, materialmen, warehousemen, carriers,
or other statutory nonconsensual Liens; or
(4) Liens resulting from final judgments or orders described in
Section 8.1.6.
Permitted Securitization shall mean a sale to a bankruptcy remote entity of
accounts receivable and related rights of Loan Parties in connection with a
securitization thereof provided that (1) the net proceeds thereof and contingent
liabilities thereunder shall not exceed $50 million, (2) the Borrower shall
deliver notice thereof to the Banks and the Agent at least 30 days before the
closing thereof and otherwise comply with Section 7.3.4, (3) that the Revolving
Credit Commitments shall be reduced and the Borrower shall repay Loans in an
amount (the "Portion of Securitization Proceeds Allocated to the Revolver")
equal to the Banks' Pro Rata Share of the net proceeds received by the Borrower
in connection with such Permitted Securitization less the portion thereof that
is applied to repay the Senior Notes.
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Person shall mean any individual, corporation, partnership, limited liability
company, association, joint-stock company, trust, unincorporated organization,
joint venture, government or political subdivision or agency thereof, or any
other entity.
Plan shall mean at any time an employee pension benefit plan (including a
Multiple Employer Plan, but not a Multiemployer Plan) which is covered by Title
IV of ERISA or is subject to the minimum funding standards under Section 412 of
the Internal Revenue Code and either (i) is maintained by any member of the
ERISA Group for employees of any member of the ERISA Group or (ii) has at any
time within the preceding five years been maintained by any entity which was at
such time a member of the ERISA Group for employees of any entity which was at
such time a member of the ERISA Group.
PNC Bank shall mean PNC Bank, National Association, its successors and assigns.
Portion of Securitization Proceeds Allocated to the Revolver shall have the
meaning assigned to such term in the definition of Permitted Securitization.
Potential Default shall mean any event or condition which with notice, passage
of time or a determination by the Agent or the Required Banks, or any
combination of the foregoing, would constitute an Event of Default.
Principal Office shall mean the main banking office of the Agent in Pittsburgh,
Pennsylvania.
Prohibited Transaction shall mean any prohibited transaction as defined in
Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which
neither an individual nor a class exemption has been issued by the United States
Department of Labor.
Property shall mean all real property, both owned and leased, of any Loan Party
or Subsidiary of a Loan Party.
Purchase Money Security Interest shall mean Liens upon tangible personal
property securing loans to any Loan Party or Subsidiary of a Loan Party or
deferred payments by such Loan Party or Subsidiary for the purchase of such
tangible personal property.
Purchasing Bank shall mean a Bank which becomes a party to this Agreement by
executing an Assignment and Assumption Agreement.
Ratable Share shall mean the proportion that a Bank's Revolving Credit
Commitment bears to the Revolving Credit Commitments of all of the Banks.
Regulated Substances shall mean, without limitation, any substance, material or
waste, regardless of its form or nature, defined under Environmental Laws as a
"hazardous substance," "pollutant," "pollution," "contaminant," "hazardous or
toxic substance," "extremely hazardous substance," "toxic chemical," "toxic
substance," "toxic waste," "hazardous waste," "special handling waste,"
"industrial waste," "residual waste," "solid waste," "municipal waste," "mixed
waste," "infectious waste," "chemotherapeutic waste," "medical waste," or
"regulated substance" or any other material, substance or waste, regardless of
its form or nature, which otherwise is regulated by Environmental Laws.
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Regulation U shall mean Regulation U, T, G or X as promulgated by the Board of
Governors of the Federal Reserve System, as amended from time to time.
Reimbursement Obligation shall have the meaning assigned to such term in
Section 2.11.3.2.
Reportable Event shall mean a reportable event described in Section 4043 of
ERISA and regulations thereunder with respect to a Plan or Multiemployer Plan.
Required Banks shall mean
(i) if there are no Revolving Credit Loans, Reimbursement Obligations or
Letter of Credit Borrowings outstanding, Banks whose Revolving Credit
Commitments aggregate at least 60% of the Revolving Credit Commitments of
all of the Banks, or
(ii) if there are Revolving Credit Loans, Reimbursement Obligations, or
Letter of Credit Borrowings outstanding, any Bank or group of Banks if the
sum of the Revolving Credit Loans, Reimbursement Obligations and Letter of
Credit Borrowings of such Banks then outstanding aggregates at least 60% of
the total principal amount of all of the Revolving Credit Loans,
Reimbursement Obligations and Letter of Credit Borrowings then outstanding.
Reimbursement Obligations and Letter of Credit Borrowings shall be deemed,
for purposes of this definition, to be in favor of the Agent and not a
participating Bank if such Bank has not made its Participation Advance in
respect thereof and shall be deemed to be in favor of such Bank to the
extent of its Participation Advance if it has made its Participation
Advance in respect thereof.
Required Environmental Notices shall mean all notices, reports, plans, forms or
other filings which pursuant to Environmental Laws, Required Environmental
Permits or at the request or direction of an Official Body either must be
submitted to an Official Body or which otherwise must be maintained.
Required Environmental Permits shall mean all permits, licenses, bonds,
consents, programs, approvals or authorizations required under Environmental
Laws to own, occupy or maintain the Property or which otherwise are required for
the operations and business activities of the Borrower or Guarantors.
Revolving Credit Commitment shall mean, as to any Bank at any time, the amount
initially set forth opposite its name on Schedule 1.1(B) in the column labeled
"Amount of Revolving Credit Commitment for Loans," and thereafter on Schedule I
to the most recent Assignment and Assumption Agreement, and Revolving Credit
Commitments shall mean the aggregate Revolving Credit Commitments of all of the
Banks.
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Revolving Credit Loan shall mean separately and Revolving Credit Loans shall
mean collectively any Revolving Credit Loan or all Revolving Credit Loans made
by the Banks or one of the Banks to the Borrower pursuant to Section 2.1 or
2.11.3.
Revolving Credit Loan Request shall have the meaning given to such term in
Section 2.4.
Revolving Credit Notes shall mean collectively and Revolving Credit Note shall
mean separately all the Revolving Credit Notes of the Borrower in the form of
Exhibit 1.1(R) evidencing the Revolving Credit Loans together with all
amendments, extensions, renewals, replacements, refinancings or refundings
thereof in whole or in part.
Second Quarter Joint Venture Investment Charge shall mean the asset impairment
charge relating to Mi-Tech Steel, Inc. and Processing Technology, Inc. in the
amount of approximately $7,500,000 incurred by the Loan Parties in their fiscal
quarter ending March 31, 2001.
Section 20 Subsidiary shall mean the Subsidiary of the bank holding company
controlling any Bank, which Subsidiary has been granted authority by the Federal
Reserve Board to underwrite and deal in certain Ineligible Securities.
Senior Notes shall mean means Borrower's 8.52% Senior Notes due March 1, 2005
that Borrower issued and severally sold to the Note Purchasers pursuant to the
Note Purchase Agreement in original principal amount of $40,000,000.
Settlement Date shall mean any Business Day on which the Agent elects to effect
settlement.
Shares shall have the meaning assigned to that term in Section 5.1.2.
Standard & Poor's shall mean Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc.
Standby Letter of Credit shall mean a Letter of Credit issued to support
obligations of one or more of the Loan Parties, contingent or otherwise, which
finance the working capital and business needs of the Loan Parties incurred in
the ordinary course of business.
Subsidiary of any Person at any time shall mean any of the following (except
that Mi-Tech Steel, Inc. shall not be deemed to be a Subsidiary of the Loan
Parties): (i) any corporation or trust of which 50% or more (by number of shares
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or number of votes) of the outstanding capital stock or shares of beneficial
interest normally entitled to vote for the election of one or more directors or
trustees (regardless of any contingency which does or may suspend or dilute the
voting rights) is at such time owned directly or indirectly by such Person or
one or more of such Person's Subsidiaries, (ii) any partnership of which such
Person is a general partner or of which 50% or more of the partnership interests
is at the time directly or indirectly owned by such Person or one or more of
such Person's Subsidiaries, (iii) any limited liability company of which such
Person is a member and of which 50% or more of the limited liability company
interests is at the time directly or indirectly owned by such Person or one or
more of such Person's Subsidiaries or (iv) any corporation, trust, partnership,
limited liability company or other entity which is controlled or capable of
being controlled by such Person or one or more of such Person's Subsidiaries.
Subsidiary Shares shall have the meaning assigned to that term in Section 5.1.3.
Syndication Agent shall mean SunTrust Bank.
Swing Loan Note shall have the meaning assigned to such term in Section 2.8.
Swing Loan Request shall have the meaning assigned to such term in Section
2.5.2.
Transferor Bank shall mean the selling Bank pursuant to an Assignment and
Assumption Agreement.
Voting Stock shall mean the shares of capital stock or other securities of the
Borrower entitled to vote generally in the election of the directors of the
Borrower.
Waiver and Fourth Amendment shall mean that certain Waiver and Fourth Amendment
to the Note Purchase Agreement dated as of August 24, 2001 by and among the
Borrower, the Guarantors, and the holders of the Senior Notes.
1.2 Construction.
Unless the context of this Agreement otherwise clearly requires, the following
rules of construction shall apply to this Agreement and each of the other Loan
Documents:
1.2.1. Number; Inclusion.
references to the plural include the singular, the plural, the part and the
whole; "or" has the inclusive meaning represented by the phrase "and/or," and
"including" has the meaning represented by the phrase "including without
limitation";
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1.2.2. Determination.
references to "determination" of or by the Agent or the Banks shall be deemed to
include good-faith estimates by the Agent or the Banks (in the case of
quantitative determinations) and good-faith beliefs by the Agent or the Banks
(in the case of qualitative determinations) and such determination shall be
conclusive absent manifest error;
1.2.3. Agent's or Bank's Discretion and Consent.
Whenever the Agent's or any Bank's consent is required to be obtained under this
Agreement or any of the other Loan Documents as a condition to any action,
inaction, condition or event, the Agent and each Bank shall be authorized to
give or withhold such consent in its sole and absolute discretion (unless this
Agreement or such other Loan Document expressly provides that such discretion is
subject to some limitation (such as that it may not be unreasonably withheld))
and to condition its consent upon the giving of additional collateral, the
payment of money or any other matter. Whenever the Agent or the Banks are
granted the right herein to act in its or their sole discretion or to grant or
withhold consent, such right shall be exercised in good faith;
1.2.4. Documents Taken as a Whole.
the words "hereof," "herein," "hereunder," "hereto" and similar terms in this
Agreement or any other Loan Document refer to this Agreement or such other Loan
Document as a whole and not to any particular provision of this Agreement or
such other Loan Document;
1.2.5. Headings.
the section and other headings contained in this Agreement or such other Loan
Document and the Table of Contents (if any), preceding this Agreement or such
other Loan Document are for reference purposes only and shall not control or
affect the construction of this Agreement or such other Loan Document or the
interpretation thereof in any respect;
1.2.6. Implied References to this Agreement.
article, section, subsection, clause, schedule and exhibit references are to
this Agreement or other Loan Document, as the case may be, unless otherwise
specified;
1.2.7. Persons.
reference to any Person includes such Person's successors and assigns but, if
applicable, only if such successors and assigns are permitted by this Agreement
or such other Loan Document, as the case may be, and reference to a Person in a
particular capacity excludes such Person in any other capacity;
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1.2.8. Modifications to Documents.
reference to any agreement (including this Agreement and any other Loan Document
together with the schedules and exhibits hereto or thereto), document or
instrument means such agreement, document or instrument as amended, modified,
replaced, substituted for, superseded or restated;
1.2.9. From, To and Through.
relative to the determination of any period of time, "from" means "from and
including," "to" means "to but excluding," and "through" means "through and
including"; and
1.2.10. Shall; Will.
references to "shall" and "will" are intended to have the same meaning.
1.3 Accounting Principles.
Except as otherwise provided in this Agreement, all computations and
determinations as to accounting or financial matters and all financial
statements to be delivered pursuant to this Agreement shall be made and prepared
in accordance with GAAP (including principles of consolidation where
appropriate), and all accounting or financial terms shall have the meanings
ascribed to such terms by GAAP; provided, however, that all accounting terms
used in Section 7.2 [Negative Covenants] (and all defined terms used in the
definition of any accounting term used in Section 7.2 shall have the meaning
given to such terms (and defined terms) under GAAP as in effect on the date
hereof applied on a basis consistent with those used in preparing the Annual
Statements referred to in Section 5.1.9((i)) [Historical Statements]. In the
event of any change after the date hereof in GAAP, and if such change would
result in the inability to determine compliance with the financial covenants set
forth in Section 7.2 based upon the Borrower's regularly prepared financial
statements by reason of the preceding sentence, then the parties hereto agree to
endeavor, in good faith, to agree upon an amendment to this Agreement that would
adjust such financial covenants in a manner that would not affect the substance
thereof, but would allow compliance therewith to be determined in accordance
with the Borrower's financial statements at that time.
2. REVOLVING CREDIT FACILITY
2.1 Commitments.
2.1.1. Revolving Credit Commitments.
Subject to the terms and conditions hereof and relying upon the representations
and warranties herein set forth, each Bank severally agrees to make Revolving
22
Credit Loans to the Borrower at any time or from time to time on or after the
date hereof to the Expiration Date provided that after giving effect to such
Loan the aggregate amount of Loans from such Bank shall not exceed such Bank's
Revolving Credit Commitment minus such Bank's Ratable Share of the Letters of
Credit Outstanding. Within such limits of time and amount and subject to the
other provisions of this Agreement, the Borrower may borrow, repay and reborrow
pursuant to this Section 2.1.
2.1.2. Swing Loan Commitment.
Subject to the terms and conditions hereof and relying upon the representations
and warranties herein set forth, and in order to facilitate loans and repayments
between Settlement Dates, PNC Bank may, at its option, cancelable at any time
for any reason whatsoever, make swing loans (the "Swing Loans") to the Borrower
at any time or from time to time after the date hereof to, but not including,
the Expiration Date, in an aggregate principal amount up to but not in excess of
the lesser of $5,000,000 or the Revolving Credit Commitment of PNC Bank (the
"Swing Loan Commitment"), provided that the aggregate principal amount of PNC
Bank's Swing Loans and the Revolving Credit Loans of all the Banks at any one
time outstanding plus the Letters of Credit Outstanding shall not exceed the
Revolving Credit Commitments of all the Banks. Within such limits of time and
amount and subject to the other provisions of this Agreement, the Borrower may
borrow, repay and reborrow pursuant to this Section 2.1.2.
2.2 Nature of Banks' Obligations with Respect to Loans.
Each Bank shall be obligated to participate in each request for Revolving Credit
Loans pursuant to Section 2.5.1 [Revolving Credit Loan Requests] in accordance
with its Ratable Share. The aggregate of each Bank's Revolving Credit Loans
outstanding hereunder to the Borrower at any time shall never exceed its
Revolving Credit Commitment minus its Ratable Share of the Letters of Credit
Outstanding. The obligations of each Bank hereunder are several. The failure of
any Bank to perform its obligations hereunder shall not affect the Obligations
of the Borrower to any other party nor shall any other party be liable for the
failure of such Bank to perform its obligations hereunder. The Banks shall have
no obligation to make Loans hereunder on or after the Expiration Date.
2.3 Commitment Fees.
Accruing from the date hereof until the Expiration Date, the Borrower agrees to
pay to the Agent for the account of each Bank, as consideration for such Bank's
Revolving Credit Commitment hereunder, a nonrefundable commitment fee (the
"Commitment Fee") equal to the Applicable Commitment Fee Rate (computed on the
basis of a year of 365 or 366 days, as the case may be, and actual days elapsed)
on the average daily difference between the amount of (i) such Bank's Revolving
Credit Commitment as the same may be constituted from time to time and the
(ii) the sum of such Bank's Revolving Credit Loans plus Swing Loans outstanding
plus its Ratable Share of Letters of Credit Outstanding. All Commitment Fees
shall be payable in arrears on the last Business Day of each June, September,
December and March after the date hereof and on the Expiration Date or upon
acceleration of the Notes.
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2.4 Increase in Commitments.
Within ninety (90) days following the Closing Date, the Borrower may request
that a new bank join this Agreement, and that the Commitments be increased by
$5,000,000. The selection of such new bank shall be subject to the consent of
the Borrower and the Agent, which consent shall not be unreasonably withheld.
The new bank shall join this Agreement as a bank pursuant to the procedures
contained in Section 10.11(b). Borrower shall pay to the Agent on the day of
such joinder any fees due to the Agent in connection with the increase in the
Commitments resulting from such joinder.
2.5 Loan Requests.
2.5.1. Revolving Credit Loan Requests.
Except as otherwise provided herein, the Borrower may from time to time prior to
the Expiration Date request the Banks to make Revolving Credit Loans, or renew
or convert the Interest Rate Option applicable to existing Revolving Credit
Loans pursuant to Section 3.2 [Interest Periods], by delivering to the Agent,
not later than 10:00 a.m., Pittsburgh time, (i) three (3) Business Days prior to
the proposed Borrowing Date with respect to the making of Revolving Credit Loans
to which the Euro-Rate Option applies or the conversion to or the renewal of the
Euro-Rate Option for any Revolving Credit Loans; and (ii) one (1) Business Day
prior to either the proposed Borrowing Date with respect to the making of a
Revolving Credit Loan to which the Base Rate Option applies or the last day of
the preceding Interest Period with respect to the conversion to the Base Rate
Option for any Revolving Credit Loan, of a duly completed request therefor
substantially in the form of Exhibit 2.5.1 or a request by telephone immediately
confirmed in writing by letter, facsimile or telex in such form (each, a
"Revolving Credit Loan Request"), it being understood that the Agent may rely on
the authority of any individual making such a telephonic request without the
necessity of receipt of such written confirmation. Each Revolving Credit Loan
Request shall be irrevocable and shall specify (i) the proposed Borrowing Date;
(ii) the aggregate amount of the proposed Revolving Credit Loans comprising each
Borrowing Tranche, which shall be in integral multiples of $1,000,000 and not
less than $5,000,000 for each Borrowing Tranche to which the Euro-Rate Option
applies and not less than the lesser of $1,000,000 or the maximum amount
available for Borrowing Tranches to which the Base Rate Option applies;
(iii) whether the Euro-Rate Option or Base Rate Option shall apply to the
proposed Revolving Credit Loans comprising the applicable Borrowing Tranche; and
(iv) in the case of a Borrowing Tranche to which the Euro-Rate Option applies,
an appropriate Interest Period for the Revolving Credit Loans comprising such
Borrowing Tranche.
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2.5.2. Swing Loan Requests.
Except as otherwise provided herein, the Borrower may from time to time prior to
the Expiration Date request PNC Bank to make Swing Loans by delivery to PNC Bank
not later than 2:00 p.m. Pittsburgh time on the proposed Borrowing Date of a
duly completed request therefor substantially in the form of Exhibit 2.5.2
hereto or a request by telephone immediately confirmed in writing by letter,
facsimile or telex (each, a "Swing Loan Request"), it being understood that the
Agent may rely on the authority of any individual making such a telephonic
request without the necessity of receipt of such written confirmation. Each
Swing Loan Request shall be irrevocable and shall specify the proposed Borrowing
Date and the principal amount of such Swing Loan, which shall be not less than
$100,000.
2.6 Making Loans.
2.6.1. Making Revolving Credit Loans.
The Agent shall, promptly after receipt by it of a Revolving Credit Loan Request
pursuant to Section 2.5.1 [Revolving Credit Loan Requests], notify the Banks of
its receipt of such Revolving Credit Loan Request specifying: (i) the proposed
Borrowing Date and the time and method of disbursement of the Revolving Credit
Loans requested thereby; (ii) the amount and type of each such Revolving Credit
Loan and the applicable Interest Period (if any); and (iii) the apportionment
among the Banks of such Revolving Credit Loans as determined by the Agent in
accordance with Section 2.1.2 [Nature of Banks' Obligations]. Each Bank shall
remit the principal amount of each Revolving Credit Loan to the Agent such that
the Agent is able to, and the Agent shall, to the extent the Banks have made
funds available to it for such purpose and subject to Section 6.2 [Each
Additional Loan], fund such Revolving Credit Loans to the Borrower in U.S.
Dollars and immediately available funds at the Principal Office prior to 2:00
p.m., Pittsburgh time, on the applicable Borrowing Date, provided that if any
Bank fails to remit such funds to the Agent in a timely manner, the Agent may
elect in its sole discretion to fund with its own funds the Revolving Credit
Loans of such Bank on such Borrowing Date, and such Bank shall be subject to the
repayment obligation in Section 9.16 [Availability of Funds].
2.6.2. Making Swing Loans.
So long as PNC Bank elects to make Swing Loans, PNC Bank shall, after receipt by
it of a Swing Loan Request pursuant to Section 2.5.2, fund such Swing Loan to
the Borrower in U.S. Dollars and immediately available funds at the Principal
Office prior to 3:30 p.m., Pittsburgh time on the Borrowing Date.
2.7 Notes.
2.7.1. Revolving Credit Notes.
The Obligation of the Borrower to repay the aggregate unpaid principal amount of
the Loans made to it by each Bank, together with interest thereon, shall be
evidenced by a Revolving Credit Note dated the Closing Date payable to the order
of such Bank in a face amount equal to the Revolving Credit Commitment of such
Bank.
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2.8 Swing Loan Note.
The obligation of the Borrower to repay the unpaid principal amount of the Swing
Loans made to it by PNC Bank together with interest thereon shall be evidenced
by a demand promissory note of the Borrower dated the Closing Date in
substantially the form attached hereto as Exhibit 2.8(S) (the "Swing Loan Note")
payable to the order of PNC Bank in a face amount equal to the Swing Loan
Commitment.
2.9 Borrowings to Repay Swing Loans.
PNC may, at its option, exercisable at any time for any reason whatsoever,
demand repayment of the Swing Loans, and each Bank shall make a Revolving Credit
Loan in an amount equal to such Bank's Ratable Share of the aggregate principal
amount of the outstanding Swing Loans, plus, if PNC so requests, accrued
interest thereon, provided that no Bank shall be obligated in any event to make
Revolving Credit Loans in excess of its Revolving Credit Commitment. Revolving
Credit Loans made pursuant to the preceding sentence shall bear interest at the
Base Rate Option and shall be deemed to have been properly requested in
accordance with Section 6.2 without regard to any of the requirements of that
provision. PNC shall provide notice to the Banks (which may be telephonic or
written notice by letter, facsimile or telex) that such Revolving Credit Loans
are to be made under this Section and of the apportionment among the Banks, and
the Banks shall be unconditionally obligated to fund such Revolving Credit Loans
(whether or not the conditions specified in Section 6.2 are then satisfied) by
the time PNC so requests, which shall not be earlier than 3:00 p.m. Pittsburgh
time on the Business Day next after the date the Banks receive such notice from
PNC.
2.10 Use of Proceeds.
The proceeds of the Loans shall be used in accordance with the recitals hereto
and Section 7.1.10 [Use of Proceeds].
2.11 Letter of Credit Subfacility.
2.11.1. Issuance of Letters of Credit.
Borrower may request the issuance of a letter of credit (each a "Letter of
Credit") on behalf of itself or another Loan Party by delivering to the Agent a
completed application and agreement for letters of credit in such form as the
Agent may specify from time to time by no later than 10:00 a.m., Pittsburgh
time, at least five (5) Business Days, or such shorter period as may be agreed
to by the Agent, in advance of the proposed date of issuance. Each Letter of
Credit shall be either a Standby Letter of Credit or a Commercial Letter of
Credit. Subject to the terms and conditions hereof and in reliance on the
agreements of the other Banks set forth in this Section 2.11, the Agent shall
issue a Letter of Credit provided that each Letter of Credit shall (A) have a
maximum maturity of twelve (12) months from the date of issuance, and (B) in no
event expire later than ten (10) Business Days prior to the Expiration Date and
providing that in no event shall (i) the Letters of Credit Outstanding exceed,
at any one time, $15,000,000 or (ii) the Facility Usage exceed, at any one time,
the Revolving Credit Commitments.
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2.11.2. Letter of Credit Fees.
The Borrower shall pay (i) to the Agent for the ratable account of the Banks a
fee (the "Letter of Credit Fee") equal to the Applicable Margin applicable to
Euro-Rate Loans, and (ii) to the Agent for its own account a fronting fee equal
to 1/8% per annum (computed on the basis of a year of 360 days and actual days
elapsed), which fees shall be computed on the daily average Letters of Credit
Outstanding and shall be payable quarterly in arrears commencing with the last
Business Day of each June, September, December and March following issuance of
each Letter of Credit and on the Expiration Date. The Borrower shall also pay to
the Agent for the Agent's sole account the Agent's then in effect customary fees
and administrative expenses payable with respect to the Letters of Credit as the
Agent may generally charge or incur from time to time in connection with the
issuance, maintenance, modification (if any), assignment or transfer (if any),
negotiation, and administration of Letters of Credit.
2.11.3. Disbursements, Reimbursement.
2.11.3.1 Immediately upon the issuance of each Letter of Credit, each Bank shall
be deemed to, and hereby irrevocably and unconditionally agrees to, purchase
from the Agent a participation in such Letter of Credit and each drawing
thereunder in an amount equal to such Bank's Ratable Share of the maximum amount
available to be drawn under such Letter of Credit and the amount of such
drawing, respectively.
2.11.3.2 In the event of any request for a drawing under a Letter of Credit by
the beneficiary or transferee thereof, the Agent will promptly notify the
Borrower. Provided that it shall have received such notice, the Borrower shall
reimburse (such obligation to reimburse the Agent shall sometimes be referred to
as a "Reimbursement Obligation") the Agent prior to 12:00 noon, Pittsburgh time
on each date that an amount is paid by the Agent under any Letter of Credit
(each such date, an "Drawing Date") in an amount equal to the amount so paid by
the Agent. In the event the Borrower fails to reimburse the Agent for the full
amount of any drawing under any Letter of Credit by 12:00 noon, Pittsburgh time,
on the Drawing Date, the Agent will promptly notify each Bank thereof, and the
Borrower shall be deemed to have requested that Revolving Credit Loans be made
by the Banks under the Base Rate Option to be disbursed on the Drawing Date
under such Letter of Credit, subject to the amount of the unutilized portion of
the Revolving Credit Commitment and subject to the conditions set forth in
Section 6.2 [Each Additional Loan] other than any notice requirements. Any
notice given by the Agent pursuant to this Section 2.11.3.2 may be oral if
immediately confirmed in writing; provided that the lack of such an immediate
confirmation shall not affect the conclusiveness or binding effect of such
notice.
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2.11.3.3 Each Bank shall upon any notice pursuant to Section 2.11.3.2 make
available to the Agent an amount in immediately available funds equal to its
Ratable Share of the amount of the drawing, whereupon the participating Banks
shall (subject to Section 2.11.3.4) each be deemed to have made a Revolving
Credit Loan under the Base Rate Option to the Borrower in that amount. If any
Bank so notified fails to make available to the Agent for the account of the
Agent the amount of such Bank's Ratable Share of such amount by no later than
2:00 p.m., Pittsburgh time on the Drawing Date, then interest shall accrue on
such Bank's obligation to make such payment, from the Drawing Date to the date
on which such Bank makes such payment (i) at a rate per annum equal to the
Federal Funds Effective Rate during the first three days following the Drawing
Date and (ii) at a rate per annum equal to the rate applicable to Revolving
Credit Loans under the Base Rate Option on and after the fourth day following
the Drawing Date. The Agent will promptly give notice of the occurrence of the
Drawing Date, but failure of the Agent to give any such notice on the Drawing
Date or in sufficient time to enable any Bank to effect such payment on such
date shall not relieve such Bank from its obligation under this
Section 2.11.3.3.
2.11.3.4 With respect to any unreimbursed drawing that is not converted into
Revolving Credit Loans under the Base Rate Option to the Borrower in whole or in
part as contemplated by Section 2.11.3.2, because of the Borrower's failure to
satisfy the conditions set forth in Section 6.2 [Each Additional Loan] other
than any notice requirements or for any other reason, the Borrower shall be
deemed to have incurred from the Agent a borrowing (each a "Letter of Credit
Borrowing") in the amount of such drawing. Such Letter of Credit Borrowing shall
be due and payable on demand (together with interest) and shall bear interest at
the rate per annum applicable to the Revolving Credit Loans under the Base Rate
Option. Each Bank's payment to the Agent pursuant to Section 2.11.3.3 shall be
deemed to be a payment in respect of its participation in such Letter of Credit
Borrowing and shall constitute a "Participation Advance" from such Bank in
satisfaction of its participation obligation under this Section 2.11.3.
2.11.4. Repayment of Participation Advances.
2.11.4.1 Upon (and only upon) receipt by the Agent for its account of
immediately available funds from the Borrower (i) in reimbursement of any
payment made by the Agent under the Letter of Credit with respect to which any
Bank has made a Participation Advance to the Agent, or (ii) in payment of
interest on such a payment made by the Agent under such a Letter of Credit, the
Agent will pay to each Bank, in the same funds as those received by the Agent,
the amount of such Bank's Ratable Share of such funds, except the Agent shall
retain the amount of the Ratable Share of such funds of any Bank that did not
make a Participation Advance in respect of such payment by Agent.
2.11.4.2 If the Agent is required at any time to return to any Loan Party, or to
a trustee, receiver, liquidator, custodian, or any official in any Insolvency
Proceeding, any portion of the payments made by any Loan Party to the Agent
pursuant to Section 2.11.4.1 in reimbursement of a payment made under the Letter
of Credit or interest or fee thereon, each Bank shall, on demand of the Agent,
forthwith return to the Agent the amount of its Ratable Share of any amounts so
returned by the Agent plus interest thereon from the date such demand is made to
the date such amounts are returned by such Bank to the Agent, at a rate per
annum equal to the Federal Funds Effective Rate in effect from time to time.
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2.11.5. Documentation.
Each Loan Party agrees to be bound by the terms of the Agent's application and
agreement for letters of credit and the Agent's written regulations and
customary practices relating to letters of credit, though such interpretation
may be different from such Loan Party's own. In the event of a conflict between
such application or agreement and this Agreement, this Agreement shall govern.
It is understood and agreed that, except in the case of gross negligence or
willful misconduct, the Agent shall not be liable for any error, negligence
and/or mistakes, whether of omission or commission, in following any Loan
Party's instructions or those contained in the Letters of Credit or any
modifications, amendments or supplements thereto.
2.11.6. Determinations to Honor Drawing Requests.
In determining whether to honor any request for drawing under any Letter of
Credit by the beneficiary thereof, the Agent shall be responsible only to
determine that the documents and certificates required to be delivered under
such Letter of Credit have been delivered and that they comply on their face
with the requirements of such Letter of Credit.
2.11.7. Nature of Participation and Reimbursement Obligations.
Each Bank's obligation in accordance with this Agreement to make the Revolving
Credit Loans or Participation Advances, as contemplated by Section 2.11.3, as a
result of a drawing under a Letter of Credit, and the Obligations of the
Borrower to reimburse the Agent upon a draw under a Letter of Credit, shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Section 2.11 under all circumstances,
including the following circumstances:
(i) any set-off, counterclaim, recoupment, defense or other right which
such Bank may have against the Agent, the Borrower or any other Person for
any reason whatsoever;
(ii) the failure of any Loan Party or any other Person to comply, in
connection with a Letter of Credit Borrowing, with the conditions set forth
in Section 2.1 [Commitments], 2.45 [Loan Requests], 2.5.2 [Making Loans] or
6.2 [Each Additional Loan or Letter of Credit] or as otherwise set forth in
this Agreement for the making of a Revolving Credit Loan, it being
acknowledged that such conditions are not required for the making of a
Letter of Credit Borrowing and the obligation of the Banks to make
Participation Advances under Section 2.11.3;
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(iii) any lack of validity or enforceability of any Letter of Credit;
(iv) the existence of any claim, set-off, defense or other right which any
Loan Party or any Bank may have at any time against a beneficiary or any
transferee of any Letter of Credit (or any Persons for whom any such
transferee may be acting), the Agent or any Bank or any other Person or,
whether in connection with this Agreement, the transactions contemplated
herein or any unrelated transaction (including any underlying transaction
between any Loan Party or Subsidiaries of a Loan Party and the beneficiary
for which any Letter of Credit was procured);
(v) any draft, demand, certificate or other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect even if the Agent has been notified thereof;
(vi) payment by the Agent under any Letter of Credit against presentation
of a demand, draft or certificate or other document which does not comply
with the terms of such Letter of Credit;
(vii) any adverse change in the business, operations, properties, assets,
condition (financial or otherwise) or prospects of any Loan Party or
Subsidiaries of a Loan Party;
(viii) any breach of this Agreement or any other Loan Document by any party
thereto;
(ix) the occurrence or continuance of an Insolvency Proceeding with respect
to any Loan Party;
(x) the fact that an Event of Default or a Potential Default shall have
occurred and be continuing;
(xi) the fact that the Expiration Date shall have passed or this Agreement
or the Commitments hereunder shall have been terminated; and
(xii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.
2.11.8. Indemnity.
In addition to amounts payable as provided in Section 9.5 [Reimbursement of
Agent by Borrower, Etc.], the Borrower hereby agrees to protect, indemnify, pay
and save harmless the Agent from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
fees, expenses and disbursements of counsel and allocated costs of internal
30
counsel) which the Agent may incur or be subject to as a consequence, direct or
indirect, of the issuance of any Letter of Credit, other than as a result of
(A) the gross negligence or willful misconduct of the Agent as determined by a
final judgment of a court of competent jurisdiction or (B) the wrongful dishonor
by the Agent of a proper demand for payment made under any Letter of Credit,
except if such dishonor resulted from any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
governmental authority (all such acts or omissions herein called "Governmental
Acts").
2.11.9. Liability for Acts and Omissions.
As between any Loan Party and the Agent, such Loan Party assumes all risks of
the acts and omissions of, or misuse of the Letters of Credit by, the respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation of
the foregoing, the Agent shall not be responsible for: (i) the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document submitted by
any party in connection with the application for an issuance of any such Letter
of Credit, even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged (even if the Agent shall have
been notified thereof); (ii) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any such Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (iii) the
failure of the beneficiary of any such Letter of Credit, or any other party to
which such Letter of Credit may be transferred, to comply fully with any
conditions required in order to draw upon such Letter of Credit or any other
claim of any Loan Party against any beneficiary of such Letter of Credit, or any
such transferee, or any dispute between or among any Loan Party and any
beneficiary of any Letter of Credit or any such transferee; (iv) errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher;
(v) errors in interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any such Letter of Credit or of the proceeds thereof; (vii) the
misapplication by the beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit; or (viii) any consequences arising
from causes beyond the control of the Agent, including any Governmental Acts,
and none of the above shall affect or impair, or prevent the vesting of, any of
the Agent's rights or powers hereunder. Nothing in the preceding sentence shall
relieve the Agent from liability for the Agent's gross negligence or willful
misconduct in connection with actions or omissions described in such clauses(i)
through (viii) of such sentence.
In furtherance and extension and not in limitation of the specific provisions
set forth above, any action taken or omitted by the Agent under or in connection
with the Letters of Credit issued by it or any documents and certificates
delivered thereunder, if taken or omitted in good faith, shall not put the Agent
under any resulting liability to the Borrower or any Bank.
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2.12 Extension by Banks of the Expiration Date.
Upon or promptly after delivery by the Borrower of the annual financial
statements to be provided under Section 7.3.2 [Annual Financial Statements] for
the fiscal year ending September 30, 2002, but in no event any earlier than
January 1, 2003 and no later than May 31, 2003, the Borrower may request a
six-month or one-year extension of the Expiration Date by written notice to the
Banks, and the Banks agree to respond to the Borrower's request for an extension
within sixty (60) days following receipt of the request; provided, however, that
the failure of any Bank to respond within such time period shall not in any
manner constitute an agreement by such Bank to extend the Expiration Date. If
all Banks elect to extend, the Expiration Date shall be extended for a period of
six months or one year, as applicable.
3. INTEREST RATES
3.1 Interest Rate Options.
The Borrower shall pay interest in respect of the outstanding unpaid principal
amount of the Revolving Credit Loans as selected by it from the Base Rate Option
or Euro-Rate Option set forth below applicable to the Revolving Credit Loans, it
being understood that, subject to the provisions of this Agreement, the Borrower
may select different Interest Rate Options and different Interest Periods to
apply simultaneously to the Revolving Credit Loans comprising different
Borrowing Tranches and may convert to or renew one or more Interest Rate Options
with respect to all or any portion of the Revolving Credit Loans comprising any
Borrowing Tranche, provided that there shall not be at any one time outstanding
more than seven (7) Borrowing Tranches in the aggregate among all of the Loans.
If at any time the designated rate applicable to any Loan made by any Bank
exceeds such Bank's highest lawful rate, the rate of interest on such Bank's
Loan shall be limited to such Bank's highest lawful rate.
3.1.1. Selection of Rates.
The Swing Loans shall bear interest at the Offered Rate. The Borrower shall have
the right to select from the following Interest Rate Options applicable to the
other Loans:
(i) Base Rate Option: A fluctuating rate per annum (computed on the basis
of a year of 365 or 366 days, as the case may be, and actual days elapsed)
equal to the Base Rate, such interest rate to change automatically from
time to time effective as of the effective date of each change in the Base
Rate; or
(ii) Euro-Rate Option: A rate per annum (computed on the basis of a year of
360 days and actual days elapsed) equal to the following:
(1) Euro-Rate plus the Applicable Margin less .25% during such times
when the average daily Facility Usage during the fiscal quarter
immediately preceding the first day of the Interest Period for such
Revolving Credit Loans was equal to or less than 50% of the total
Revolving Credit Commitments, and
32
(2) Euro-Rate plus the Applicable Margin during such times when the
average daily Facility Usage during the fiscal quarter immediately
preceding the first day of the Interest Period for such Revolving
Credit Loans exceeded 50% of the total Revolving Credit Commitments.
3.1.2. Rate Quotations.
The Borrower may call the Agent on or before the date on which a Revolving
Credit Loan Request is to be delivered to receive an indication of the rates
then in effect, but it is acknowledged that such projection shall not be binding
on the Agent or the Banks nor affect the rate of interest which thereafter is
actually in effect when the election is made.
3.2 Interest Periods.
At any time when the Borrower shall select, convert to or renew a Euro-Rate
Option, the Borrower shall notify the Agent thereof at least three (3) Business
Days prior to the effective date of such Euro-Rate Option by delivering a
Revolving Credit Loan Request. The notice shall specify an Interest Period
during which such Interest Rate Option shall apply. Notwithstanding the
preceding sentence, the following provisions shall apply to any selection of,
renewal of, or conversion to a Euro-Rate Option:
3.2.1. Amount of Borrowing Tranche.
each Borrowing Tranche of Euro-Rate Loans shall be in integral multiples of
$1,000,000 and not less than $5,000,000.
3.2.2. Renewals.
in the case of the renewal of a Euro-Rate Option at the end of an Interest
Period, the first day of the new Interest Period shall be the last day of the
preceding Interest Period, without duplication in payment of interest for such
day.
3.3 Interest After Default.
To the extent permitted by Law, upon the occurrence of an Event of Default and
until such time such Event of Default shall have been cured or waived:
3.3.1. Letter of Credit Fees, Interest Rate.
the Letter of Credit Fees and the rate of interest for each Loan otherwise
applicable pursuant to Section 2.11.2 [Letter of Credit Fees] or Section 3.1
[Interest Rate Options], respectively, shall be increased by 2.0% per annum; and
33
3.3.2. Other Obligations.
each other Obligation hereunder if not paid when due shall bear interest at a
rate per annum equal to the sum of the rate of interest applicable under the
Base Rate Option plus an additional 2.0% per annum from the time such Obligation
becomes due and payable and until it is paid in full.
3.3.3. Acknowledgment.
The Borrower acknowledges that the increase in rates referred to in this
Section 3.3 reflects, among other things, the fact that such Loans or other
amounts have become a substantially greater risk given their default status and
that the Banks are entitled to additional compensation for such risk; and all
such interest shall be payable by Borrower upon demand by Agent.
3.4 Euro-Rate Unascertainable; Illegality; Increased Costs; Deposits Not
Available.
3.4.1. Unascertainable.
If on any date on which a Euro-Rate would otherwise be determined, the Agent
shall have determined that:
(i) adequate and reasonable means do not exist for ascertaining such
Euro-Rate, or
(ii) a contingency has occurred which materially and adversely affects the
London interbank eurodollar market relating to the Euro-Rate, the Agent
shall have the rights specified in Section 3.4.3.
3.4.2. Illegality; Increased Costs; Deposits Not Available.
If at any time any Bank shall have determined that:
(i) the making, maintenance or funding of any Loan to which a Euro-Rate
Option applies has been made impracticable or unlawful by compliance by
such Bank in good faith with any Law or any interpretation or application
thereof by any Official Body or with any request or directive of any such
Official Body (whether or not having the force of Law), or
(ii) such Euro-Rate Option will not adequately and fairly reflect the cost
to such Bank of the establishment or maintenance of any such Loan, or
(iii) after making all reasonable efforts, deposits of the relevant amount
in Dollars for the relevant Interest Period for a Loan, or to banks
generally, to which a Euro-Rate Option applies, respectively, are not
available to such Bank with respect to such Loan, or to banks generally, in
the interbank eurodollar market,
34
then the Agent shall have the rights specified in Section 3.4.3.
3.4.3. Agent's and Bank's Rights.
In the case of any event specified in Section 3.4.1 above, the Agent shall
promptly so notify the Banks and the Borrower thereof, and in the case of an
event specified in Section 3.4.2 above, such Bank shall promptly so notify the
Agent and endorse a certificate to such notice as to the specific circumstances
of such notice, and the Agent shall promptly send copies of such notice and
certificate to the other Banks and the Borrower. Upon such date as shall be
specified in such notice (which shall not be earlier than the date such notice
is given), the obligation of (A) the Banks, in the case of such notice given by
the Agent, or (B) such Bank, in the case of such notice given by such Bank, to
allow the Borrower to select, convert to or renew a Euro-Rate Option shall be
suspended until the Agent shall have later notified the Borrower, or such Bank
shall have later notified the Agent, of the Agent's or such Bank's, as the case
may be, determination that the circumstances giving rise to such previous
determination no longer exist. If at any time the Agent makes a determination
under Section 3.4.1 and the Borrower has previously notified the Agent of its
selection of, conversion to or renewal of a Euro-Rate Option and such Interest
Rate Option has not yet gone into effect, such notification shall be deemed to
provide for selection of, conversion to or renewal of the Base Rate Option
otherwise available with respect to such Loans. If any Bank notifies the Agent
of a determination under Section 3.4.2, the Borrower shall, subject to the
Borrower's indemnification Obligations under Section 4.6.2 [Indemnity], as to
any Loan of the Bank to which a Euro-Rate Option applies, on the date specified
in such notice either convert such Loan to the Base Rate Option otherwise
available with respect to such Loan or prepay such Loan in accordance with
Section 4.4 [Voluntary Prepayments]. Absent due notice from the Borrower of
conversion or prepayment, such Loan shall automatically be converted to the Base
Rate Option otherwise available with respect to such Loan upon such specified
date.
3.5 Selection of Interest Rate Options.
If the Borrower fails to select a new Interest Period to apply to any Borrowing
Tranche of Revolving Credit Loans under the Euro-Rate Option at the expiration
of an existing Interest Period applicable to such Borrowing Tranche in
accordance with the provisions of Section 3.2 [Interest Periods], the Borrower
shall be deemed to have converted such Borrowing Tranche to the Base Rate
Option, commencing upon the last day of the existing Interest Period.
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4. PAYMENTS
4.1 Payments.
All payments and prepayments to be made in respect of principal, interest,
Commitment Fees, Letter of Credit Fees, Agent's Fee or other fees or amounts due
from the Borrower hereunder shall be payable prior to 11:00 a.m., Pittsburgh
time, on the date when due without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived by the Borrower, and without
set-off, counterclaim or other deduction of any nature, and an action therefor
shall immediately accrue. Such payments shall be made to the Agent at the
Principal Office for the account of PNC Bank with respect to the Swing Loans and
for the ratable accounts of the Banks with respect to the Revolving Credit Loans
in U.S. Dollars and in immediately available funds, and the Agent shall promptly
distribute such amounts to the Banks in immediately available funds, provided
that in the event payments are received by 11:00 a.m., Pittsburgh time, by the
Agent with respect to the Revolving Credit Loans and such payments are not
distributed to the Banks on the same day received by the Agent, the Agent shall
pay the Banks the Federal Funds Effective Rate with respect to the amount of
such payments for each day held by the Agent and not distributed to the Banks.
The Agent's and each Bank's statement of account, ledger or other relevant
record shall, in the absence of manifest error, be conclusive as the statement
of the amount of principal of and interest on the Loans and other amounts owing
under this Agreement and shall be deemed an "account stated."
4.2 Pro Rata Treatment of Banks.
Each borrowing shall be allocated to each Bank according to its Ratable Share,
and each selection of, conversion to or renewal of any Interest Rate Option and
each payment or prepayment by the Borrower with respect to principal, interest,
Commitment Fees, Letter of Credit Fees, or other fees (except for the Agent's
Fee) or amounts due from the Borrower hereunder to the Banks with respect to the
Loans, shall (except as provided in Section 3.4.3 [Agent's and Bank's Rights] in
the case of an event specified in Section 3.4 [Euro-Rate Unascertainable; Etc.],
4.4.2 [Replacement of a Bank] or 4.6 [Additional Compensation in Certain
Circumstances]) be made in proportion to the applicable Loans outstanding from
each Bank and, if no such Loans are then outstanding, in proportion to the
Ratable Share of each Bank. Notwithstanding any of the foregoing, each borrowing
or payment or prepayment by the Borrower of principal, interest, fees or other
amounts from the Borrower with respect to Swing Loans shall be made by or to PNC
Bank.
4.3 Interest Payment Dates.
Interest on Loans to which the Base Rate Option applies shall be due and payable
in arrears on the last Business Day of each June, September, December and March
after the date hereof and on the Expiration Date or upon acceleration of the
Notes. Interest on Loans to which the Euro-Rate Option applies shall be due and
payable on the last day of each Interest Period for those Loans and, if such
Interest Period is longer than three (3) Months, also on the 90th day of such
Interest Period. Interest on mandatory prepayments of principal under
Section 4.5 [Mandatory Prepayments] shall be due on the date such mandatory
prepayment is due. Interest on the principal amount of each Loan or other
monetary Obligation shall be due and payable on demand after such principal
amount or other monetary Obligation becomes due and payable (whether on the
stated maturity date, upon acceleration or otherwise).
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4.4 Voluntary Prepayments and Reduction of Commitments.
4.4.1. Right to Prepay.
The Borrower shall have the right at its option from time to time to prepay the
Loans in whole or part without premium or penalty (except as provided in
Section 4.4.2 below or in Section 4.6 [Additional Compensation in Certain
Circumstances]):
(i) at any time with respect to any Loan to which the Base Rate Option
applies,
(ii) on the last day of the applicable Interest Period with respect to
Loans to which a Euro-Rate Option applies,
(iii) on the date specified in a notice by any Bank pursuant to Section 3.4
[Euro-Rate Unascertainable, Etc.] with respect to any Loan to which a
Euro-Rate Option applies.
Whenever the Borrower desires to prepay any part of the Loans, it shall provide
a prepayment notice to the Agent by 1:00 p.m. at least one (1) Business Day
prior to the date of prepayment of Revolving Credit Loans or no later than 2:00
p.m., Pittsburgh time, on the date of prepayment of Swing Loans, setting forth
the following information:
(y) the date, which shall be a Business Day, on which the proposed
prepayment is to be made; and
(z) the total principal amount of such prepayment, which shall not be less
than $1,000,000 for Revolving Credit Loans and $100,000 for any Swing Loan.
All prepayment notices shall be irrevocable. The principal amount of the
Revolving Credit Loans or Swing Loans for which a prepayment notice is given,
together with interest on such principal amount except with respect to Loans to
which the Base Rate Option applies, shall be due and payable on the date
specified in such prepayment notice as the date on which the proposed prepayment
is to be made. Except as provided in Section 3.4.3 [Agent's and Bank's Rights],
if the Borrower prepays a Revolving Credit Loan but fails to specify the
applicable Borrowing Tranche which the Borrower is prepaying, the prepayment
shall be applied first to Revolving Credit Loans to which the Base Rate Option
applies, then to Revolving Credit Loans to which the Euro-Rate Option applies.
Any prepayment hereunder shall be subject to the Borrower's Obligation to
indemnify the Banks under Section 4.6.2 [Indemnity].
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4.4.2. Voluntary Reduction of Commitments.
The Borrower shall have the right at any time and from time to time upon five
(5) Business Days' prior written notice to the Agent to permanently reduce, in
whole multiples of $5,000,000 of principal, or terminate the Commitments without
penalty or premium, except as hereinafter set forth, provided that any such
reduction or termination shall be accompanied by (a) the payment in full of any
Commitment Fee then accrued on the amount of such reduction or termination and
(b) prepayment of the applicable Notes, together with the full amount of
interest accrued on the principal sum to be prepaid (and all amounts referred to
in Section 4.6 hereof), to the extent that the aggregate amount thereof then
outstanding exceeds the applicable Commitment as so reduced or terminated. From
the effective date of any such reduction or termination the obligations of
Borrower to pay the Commitment Fee pursuant to Section 2.3 shall correspondingly
be reduced or cease.
4.4.3. Replacement of a Bank..
In the event any Bank (i) gives notice under Section 3.4 [Euro-Rate
Unascertainable, Etc.] or Section 4.6.1 [Increased Costs, Etc.], (ii) does not
fund Loans because the making of such Loans would contravene any Law applicable
to such Bank, or (iii) becomes subject to the control of an Official Body (other
than normal and customary supervision), then the Borrower shall have the right
at its option, with the consent of the Agent, which shall not be unreasonably
withheld, to prepay the Loans of such Bank in whole, together with all interest
accrued thereon, and terminate such Bank's Commitments within ninety (90) days
after (x) receipt of such Bank's notice under Section 3.4 [Euro-Rate
Unascertainable, Etc.] or 4.6.1 [Increased Costs, Etc.], (y) the date such Bank
has failed to fund Loans because the making of such Loans would contravene Law
applicable to such Bank, or (z) the date such Bank became subject to the control
of an Official Body, as applicable; provided that the Borrower shall also pay to
such Bank at the time of such prepayment any amounts required under Section 4.6
[Additional Compensation in Certain Circumstances] and any accrued interest due
on such amount and any related fees; provided, however, that the Commitment of
such Bank shall be provided by one or more of the remaining Banks or a
replacement bank acceptable to the Agent; provided, further, the remaining Banks
shall have no obligation hereunder to increase their Commitments.
Notwithstanding the foregoing, the Agent may only be replaced subject to the
requirements of Section 9.14 [Successor Agent] and provided that all Letters of
Credit have expired or been terminated or replaced and the Swing Loans have been
repaid.
4.4.4. Change of Lending Office.
Each Bank agrees that upon the occurrence of any event giving rise to increased
costs or other special payments under Section 3.4.2 [Illegality, Etc.] or 4.6.1
[Increased Costs, Etc.] with respect to such Bank, it will if requested by the
Borrower, use reasonable efforts (subject to overall policy considerations of
such Bank) to designate another lending office for any Loans or Letters of
Credit affected by such event, provided that such designation is made on such
terms that such Bank and its lending office suffer no economic, legal or
regulatory disadvantage, with the object of avoiding the consequence of the
event giving rise to the operation of such Section. Nothing in this
Section 4.4.4 shall affect or postpone any of the Obligations of the Borrower or
any other Loan Party or the rights of the Agent or any Bank provided in this
Agreement.
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4.5 Mandatory Prepayments and Reduction of Commitments.
4.5.1. Permitted Securitization.
On the closing date of any Permitted Securitization, (1) the Revolving Credit
Commitments shall be reduced in an amount equal to the Portion of Securitization
Proceeds Allocated to the Revolver, and (2) the Borrower shall make a mandatory
prepayment of principal on the Loans equal to the Portion of Securitization
Proceeds Allocated to the Revolver, together with accrued interest on such
principal amount.
4.5.2. Sale of Assets.
On the closing date of any transaction described in 7.2.7(vi), (1) the Revolving
Credit Commitments shall be reduced in an amount equal to the net proceeds from
such transaction, and (2) the Borrower shall make a mandatory prepayment of
principal on the Loans equal to the net proceeds from such transaction, together
with accrued interest on such principal amount.
4.5.3. Application Among Interest Rate Options.
All prepayments of Revolving Credit Loans required pursuant to this Section 4.5
shall first be applied among the Interest Rate Options to the principal amount
of the Revolving Credit Loans subject to the Base Rate Option, then to Loans
subject to a Euro-Rate Option. In accordance with Section 4.6.2 [Indemnity], the
Borrower shall indemnify the Banks for any loss or expense, including loss of
margin, incurred with respect to any such prepayments applied against Revolving
Credit Loans subject to a Euro-Rate Option on any day other than the last day of
the applicable Interest Period.
4.6 Additional Compensation in Certain Circumstances.
4.6.1. Increased Costs or Reduced Return Resulting from Taxes, Reserves,
Capital Adequacy Requirements, Expenses, Etc.
If any Law, guideline or interpretation enacted or adopted after the date of the
Agreement or any change in any Law, guideline or interpretation or application
thereof by any Official Body charged with the interpretation or administration
thereof which change first becomes effective after the date hereof, or
compliance with any request or directive (whether or not having the force of
Law) of any central bank or other Official Body first made of promulgated after
the date hereof:
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(i) subjects any Bank to any tax or changes the basis of taxation with
respect to this Agreement, the Notes, the Loans or payments by the Borrower
of principal, interest, Commitment Fees, or other amounts due from the
Borrower hereunder or under the Notes (except for taxes on the overall net
income of such Bank),
(ii) imposes, modifies or deems applicable any reserve, special deposit or
similar requirement against credits or commitments to extend credit
extended by, or assets (funded or contingent) of, deposits with or for the
account of, or other acquisitions of funds by, any Bank, (excluding
increased costs which result from changes in the Euro-Rate Reserve
Percentage (which changes shall result in a change in the Euro-Rate)) or
(iii) imposes, modifies or deems applicable any capital adequacy or similar
requirement (A) against assets (funded or contingent) of, or letters of
credit, other credits or commitments to extend credit extended by, any
Bank, or (B) otherwise applicable to the obligations of any Bank under this
Agreement,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Bank with respect to this Agreement, the Notes or the making, maintenance or
funding of any part of the Loans (or, in the case of any capital adequacy or
similar requirement, to have the effect of reducing the rate of return on any
Bank's capital relating to or resulting from the Loans or Facility Usage, taking
into consideration such Bank's customary policies with respect to capital
adequacy) by an amount which such Bank in its sole discretion deems to be
material, such Bank shall from time to time notify the Borrower and the Agent of
the amount determined in good faith (which determination shall be made using any
averaging and attribution methods employed in good faith and shall, absent
manifest or demonstrable error, be final and conclusive and binding upon all
parties hereto)by such Bank to be necessary to compensate such Bank for such
increase in cost, reduction of income, additional expense or reduced rate of
return. Such notice shall set forth in reasonable detail the basis for such
determination. Such amount shall be due and payable by the Borrower to such Bank
ten (10) Business Days after such notice is given.
4.6.2. Indemnity.
In addition to the compensation required by Section 4.6.1 [Increased Costs,
Etc.], the Borrower shall indemnify each Bank against all liabilities, losses or
expenses (including loss of margin, any loss or expense incurred in liquidating
or employing deposits from third parties and any loss or expense incurred in
connection with funds acquired by a Bank to fund or maintain Loans subject to a
Euro-Rate Option) which such Bank sustains or incurs as a consequence of any
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(i) payment, prepayment, conversion or renewal of any Loan to which a
Euro-Rate Option applies on a day other than the last day of the
corresponding Interest Period (whether or not such payment or prepayment is
mandatory, voluntary or automatic and whether or not such payment or
prepayment is then due),
(ii) attempt by the Borrower to revoke (expressly, by later inconsistent
notices or otherwise) in whole or part any Loan Requests under Section 2.4
[Loan Requests] or Section 3.2 [Interest Periods] or notice relating to
prepayments under Section 4.4 [Voluntary Prepayments], or
(iii) default by the Borrower in the performance or observance of any
covenant or condition contained in this Agreement or any other Loan
Document, including any failure of the Borrower to pay when due (by
acceleration or otherwise) any principal, interest, Commitment Fee or any
other amount due hereunder.
If any Bank sustains or incurs any such loss or expense, it shall from time to
time notify the Borrower of the amount determined in good faith by such Bank
(which determination may include such assumptions, allocations of costs and
expenses and averaging or attribution methods as such Bank shall deem
reasonable) to be necessary to indemnify such Bank for such loss or expense.
Such notice shall set forth in reasonable detail the basis for such
determination. Such amount shall be due and payable by the Borrower to such Bank
ten (10) Business Days after such notice is given.
4.7 Settlement Date Procedures.
In order to minimize the transfer of funds between the Banks and the Agent, the
Borrower may borrow, repay and reborrow Swing Loans and PNC Bank may make Swing
Loans as provided in Section 2.1.2 hereof during the period between Settlement
Dates. Not later than noon, Pittsburgh time, on each Settlement Date, the Agent
shall notify each Bank of its Ratable Share of the total of the Revolving Credit
Loans and the Swing Loans (each a "Required Share"). Prior to 3:00 p.m.,
Pittsburgh time, on such Settlement Date, each Bank shall pay to the Agent the
amount equal to the difference between its Required Share and its Revolving
Credit Loans, and the Agent shall pay to each Bank its Ratable Share of all
payments made by the Borrower to the Agent with respect to the Revolving Credit
Loans. The Agent shall also effect settlement in accordance with the foregoing
sentence on the proposed Borrowing Dates for Revolving Credit Loans and on
[Mandatory Prepayment Dates] and may at its option effect settlement on any
other Business Day. These settlement procedures are established solely as a
matter of administrative convenience, and nothing contained in this Section
shall relieve the Banks of their obligations to fund Revolving Credit Loans on
dates other than a Settlement Date pursuant to Section 2.1.2. The Agent may at
any time at its option for any reason whatsoever require each Bank to pay
immediately to the Agent such Bank's Ratable Share of the outstanding Revolving
Credit Loans and each Bank may at any time require the Agent to pay immediately
to such Bank its Ratable Share of all payments made by the borrower to the Agent
with respect to the Revolving Credit Loans.
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5. REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties.
The Loan Parties, jointly and severally, represent and warrant to the Agent and
each of the Banks as follows:
5.1.1. Organization and Qualification.
Each Loan Party and each Subsidiary of each Loan Party is a corporation,
partnership or limited liability company duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each Loan
Party and each Subsidiary of each Loan Party has the lawful power to own or
lease its properties and to engage in the business it presently conducts or
proposes to conduct. Each Loan Party and each Subsidiary of each Loan Party is
duly licensed or qualified and in good standing in each jurisdiction listed on
Schedule 5.1.1 and in all other jurisdictions where the property owned or leased
by it or the nature of the business transacted by it or both makes such
licensing or qualification necessary.
5.1.2. Capitalization and Ownership.
The authorized capital stock of the Borrower on the Closing Date consists of
50,000,000 shares of common stock, of which 10,223,503 shares (referred to
herein as the "Shares") are issued and outstanding and 500,000 preferred shares,
none of which are outstanding. All of the Shares have been validly issued and
are fully paid and nonassessable. There are no options, warrants or other rights
outstanding to purchase any such Shares except under the Borrower's employee
stock ownership programs as disclosed in the Borrower's 2000 annual report and
proxy statement..
5.1.3. Subsidiaries.
Schedule 5.1.3 states the name of each of the Borrower's Subsidiaries, its
jurisdiction of incorporation, its authorized capital stock, the issued and
outstanding shares (referred to herein as the "Subsidiary Shares") and the
owners thereof if it is a corporation, its outstanding partnership interests
(the "Partnership Interests") if it is a partnership and its outstanding limited
liability company interests, interests assigned to managers thereof and the
voting rights associated therewith (the "LLC Interests") if it is a limited
liability company. The Borrower and each Subsidiary of the Borrower has good and
marketable title to all of the Subsidiary Shares, Partnership Interests and LLC
Interests it purports to own, free and clear in each case of any Lien. All
Subsidiary Shares, Partnership Interests and LLC Interests have been validly
issued, and all Subsidiary Shares are fully paid and nonassessable. All capital
contributions and other consideration required to be made or paid in connection
with the issuance of the Partnership Interests and LLC Interests have been made
or paid, as the case may be. There are no options, warrants or other rights
outstanding to purchase any such Subsidiary Shares, Partnership Interests or LLC
Interests except as indicated on Schedule 5.1.3.
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5.1.4. Power and Authority.
Each Loan Party has full power to enter into, execute, deliver and carry out
this Agreement and the other Loan Documents to which it is a party, to incur the
Indebtedness contemplated by the Loan Documents and to perform its Obligations
under the Loan Documents to which it is a party, and all such actions have been
duly authorized by all necessary proceedings on its part.
5.1.5. Validity and Binding Effect.
This Agreement has been duly and validly executed and delivered by each Loan
Party, and each other Loan Document which any Loan Party is required to execute
and deliver on or after the date hereof will have been duly executed and
delivered by such Loan Party on the required date of delivery of such Loan
Document. This Agreement and each other Loan Document constitutes, or will
constitute, legal, valid and binding obligations of each Loan Party which is or
will be a party thereto on and after its date of delivery thereof, enforceable
against such Loan Party in accordance with its terms, except to the extent that
enforceability of any of such Loan Document may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforceability of creditors' rights generally or limiting the right of specific
performance.
5.1.6. No Conflict.
Neither the execution and delivery of this Agreement or the other Loan Documents
by any Loan Party nor the consummation of the transactions herein or therein
contemplated or compliance with the terms and provisions hereof or thereof by
any of them will conflict with, constitute a default under or result in any
breach of (i) the terms and conditions of the certificate of incorporation,
bylaws, certificate of limited partnership, partnership agreement, certificate
of formation, limited liability company agreement or other organizational
documents of any Loan Party or (ii) any Law or any material agreement or
instrument or order, writ, judgment, injunction or decree to which any Loan
Party or any of its Subsidiaries is a party or by which it or any of its
Subsidiaries is bound or to which it is subject, or result in the creation or
enforcement of any Lien, charge or encumbrance whatsoever upon any property (now
or hereafter acquired) of any Loan Party or any of its Subsidiaries (other than
Liens granted under the Loan Documents).
5.1.7. Litigation.
There are no actions, suits, proceedings or investigations pending or, to the
knowledge of any Loan Party, threatened against such Loan Party or any
Subsidiary of such Loan Party at law or equity before any Official Body which
individually or in the aggregate may result in any Material Adverse Change. None
of the Loan Parties or any Subsidiaries of any Loan Party is in violation of any
order, writ, injunction or any decree of any Official Body which may result in
any Material Adverse Change.
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5.1.8. Title to Properties.
The real property owned or leased by each Loan Party and each Subsidiary of each
Loan Party is described on Schedule 5.1.8. Each Loan Party and each Subsidiary
of each Loan Party has good and marketable title to or valid leasehold interest
in all properties, assets and other rights which it purports to own or lease or
which are reflected as owned or leased on its books and records, free and clear
of all Liens and encumbrances except Permitted Liens, and subject to the terms
and conditions of the applicable leases. All leases of property are in full
force and effect without the necessity for any consent which has not previously
been obtained upon consummation of the transactions contemplated hereby.
5.1.9. Financial Statements.
(i) Historical Statements. The Borrower has delivered to the Agent copies
of its audited consolidated year-end financial statements for and as of the
end of the three (3) fiscal years ended September 30, 2000 (the "Annual
Statements"). In addition, the Borrower has delivered to the Agent copies
of its unaudited consolidated interim financial statements for the fiscal
year to date and as of the end of the fiscal quarter ended March 31, 2001
(the "Interim Statements") (the Annual and Interim Statements being
collectively referred to as the "Historical Statements"). The Historical
Statements were compiled from the books and records maintained by the
Borrower's management, are correct and complete and fairly represent the
consolidated financial condition of the Borrower and its Subsidiaries as of
their dates and the results of operations for the fiscal periods then ended
and have been prepared in accordance with GAAP consistently applied,
subject (in the case of the Interim Statements) to normal year-end audit
adjustments.
(ii) Financial Projections. The Borrower has delivered to the Agent
financial projections of the Borrower and its Subsidiaries for the period
from September 30, 2001 through September 30, 2004 derived from various
assumptions of the Borrower's management (the "Financial Projections"). The
Financial Projections represent a reasonable range of possible results in
light of the history of the business, present and foreseeable conditions
and the intentions of the Borrower's management. The Financial Projections
accurately reflect the liabilities of the Borrower and its Subsidiaries
upon consummation of the transactions contemplated hereby as of the Closing
Date.
(iii) Accuracy of Financial Statements. Neither the Borrower nor any
Subsidiary of the Borrower has any material liabilities, contingent or
otherwise, or forward or long-term commitments that are not disclosed in
the Historical Statements or in the notes thereto, and except as disclosed
therein there are no unrealized or anticipated losses from any commitments
of the Borrower or any Subsidiary of the Borrower which may cause a
Material Adverse Change. Since September 30, 2000, no Material Adverse
Change has occurred.
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5.1.10. Use of Proceeds; Margin Stock; Section 20 Subsidiaries.
5.1.10.1 General.
The Loan Parties intend to use the proceeds of the Loans in accordance with
Sections 2.10 and 7.1.10.
5.1.10.2 Margin Stock.
None of the Loan Parties or any Subsidiaries of any Loan Party engages or
intends to engage principally, or as one of its important activities, in
the business of extending credit for the purpose, immediately, incidentally
or ultimately, of purchasing or carrying margin stock (within the meaning
of Regulation U). No part of the proceeds of any Loan has been or will be
used, immediately, incidentally or ultimately, to purchase or carry any
margin stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock or to refund Indebtedness originally incurred for
such purpose, or for any purpose which entails a violation of or which is
inconsistent with the provisions of the regulations of the Board of
Governors of the Federal Reserve System. None of the Loan Parties or any
Subsidiary of any Loan Party holds or intends to hold margin stock in such
amounts that more than 25% of the reasonable value of the assets of any
Loan Party or Subsidiary of any Loan Party are or will be represented by
margin stock.
5.1.10.3 Section 20 Subsidiaries.
The Loan Parties do not intend to use and shall not use any portion of the
proceeds of the Loans, directly or indirectly, to purchase during the
underwriting period, or for thirty (30) days thereafter, Ineligible
Securities being underwritten by a Section 20 Subsidiary.
5.1.11. Full Disclosure.
Neither this Agreement nor any other Loan Document, nor any certificate,
statement, agreement or other documents furnished to the Agent or any Bank
in connection herewith or therewith, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements contained herein and therein, in light of the circumstances
under which they were made, not misleading. There is no fact known to any
Loan Party which materially adversely affects the business, property,
assets, financial condition, results of operations or prospects of any Loan
Party or Subsidiary of any Loan Party which has not been set forth in this
Agreement or in the certificates, statements, agreements or other documents
furnished in writing to the Agent and the Banks prior to or at the date
hereof in connection with the transactions contemplated hereby.
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5.1.12. Taxes.
All federal, state, local and other tax returns required to have been filed
with respect to each Loan Party and each Subsidiary of each Loan Party have
been filed, and payment or adequate provision has been made for the payment
of all taxes, fees, assessments and other governmental charges which have
or may become due pursuant to said returns or to assessments received,
except to the extent that such taxes, fees, assessments and other charges
are being contested in good faith by appropriate proceedings diligently
conducted and for which such reserves or other appropriate provisions, if
any, as shall be required by GAAP shall have been made. There are no
agreements or waivers extending the statutory period of limitations
applicable to any federal income tax return of any Loan Party or Subsidiary
of any Loan Party for any period.
5.1.13. Consents and Approvals.
No consent, approval, exemption, order or authorization of, or a
registration or filing with, any Official Body or any other Person is
required by any Law or any agreement in connection with the execution,
delivery and carrying out of this Agreement and the other Loan Documents by
any Loan Party, except as listed on Schedule 5.1.13, all of which shall
have been obtained or made on or prior to the Closing Date except as
otherwise indicated on Schedule 5.1.13.
5.1.14. No Event of Default; Compliance with Instruments; No Default Under
Senior Notes.
5.1.14.1 No Event of Default; Compliance with Instruments.
No event has occurred and is continuing and no condition exists or
will exist after giving effect to the borrowings or other extensions
of credit to be made on the Closing Date under or pursuant to the Loan
Documents which constitutes an Event of Default or Potential Default.
None of the Loan Parties or any Subsidiaries of any Loan Party is in
violation of (i) any term of its certificate of incorporation, bylaws,
certificate of limited partnership, partnership agreement, certificate
of formation, limited liability company agreement or other
organizational documents or (ii) any material agreement or instrument
to which it is a party or by which it or any of its properties may be
subject or bound where such violation would constitute a Material
Adverse Change.
5.1.14.2 No Default Under Senior Notes.
The Waiver and Fourth Amendment has been executed and delivered by the
holders of the Senior Notes and is in full force and effect, and after
giving effect thereto, there exist no defaults or events of default
under the Note Purchase Agreement, the Senior Notes or the other
documentation relating thereto, and the execution and delivery of this
Agreement does not conflict with the terms thereof.
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5.1.15. Patents, Trademarks, Copyrights, Licenses, Etc.
Each Loan Party and each Subsidiary of each Loan Party owns or possesses
all the material patents, trademarks, service marks, trade names,
copyrights, licenses, registrations, franchises, permits and rights
necessary to own and operate its properties and to carry on its business as
presently conducted and planned to be conducted by such Loan Party or
Subsidiary, without known possible, alleged or actual conflict with the
rights of others.
5.1.16. Insurance.
Schedule 5.1.16 lists all insurance policies and other bonds to which any
Loan Party or Subsidiary of any Loan Party is a party, all of which are
valid and in full force and effect. No notice has been given or claim made
and no grounds exist to cancel or avoid any of such policies or bonds or to
reduce the coverage provided thereby. Such policies and bonds provide
adequate coverage from reputable and financially sound insurers in amounts
sufficient to insure the assets and risks of each Loan Party and each
Subsidiary of each Loan Party in accordance with prudent business practice
in the industry of the Loan Parties and their Subsidiaries.
5.1.17. Compliance with Laws.
The Loan Parties and their Subsidiaries are in compliance in all material
respects with all applicable Laws (other than Environmental Laws which are
specifically addressed in Section 5.1.22 [Environmental Matters]) in all
jurisdictions in which any Loan Party or Subsidiary of any Loan Party is
presently or will be doing business except where the failure to do so would
not constitute a Material Adverse Change.
5.1.18. Material Contracts; Burdensome Restrictions.
Schedule 5.1.18 lists all material contracts relating to the business
operations of each Loan Party and each Subsidiary of any Loan Party,
including all employee benefit plans and Labor Contracts. All such material
contracts are valid, binding and enforceable upon such Loan Party or
Subsidiary and each of the other parties thereto in accordance with their
respective terms, and there is no default thereunder, to the Loan Parties'
knowledge, with respect to parties other than such Loan Party or
Subsidiary. None of the Loan Parties or their Subsidiaries is bound by any
contractual obligation, or subject to any restriction in any organization
document, or any requirement of Law which could result in a Material
Adverse Change.
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5.1.19. Investment Companies; Regulated Entities.
None of the Loan Parties or any Subsidiaries of any Loan Party is an
"investment company" registered or required to be registered under the
Investment Company Act of 1940 or under the "control" of an "investment
company" as such terms are defined in the Investment Company Act of 1940
and shall not become such an "investment company" or under such "control."
None of the Loan Parties or any Subsidiaries of any Loan Party is subject
to any other Federal or state statute or regulation limiting its ability to
incur Indebtedness for borrowed money.
5.1.20. Plans and Benefit Arrangements.
Except as set forth on Schedule 5.1.20:
(i) The Borrower and each other member of the ERISA Group are in
compliance in all material respects with any applicable provisions of
ERISA with respect to all Benefit Arrangements, Plans and
Multiemployer Plans. There has been no Prohibited Transaction with
respect to any Benefit Arrangement or any Plan or, to the best
knowledge of the Borrower, with respect to any Multiemployer Plan or
Multiple Employer Plan, which could result in any material liability
of the Borrower or any other member of the ERISA Group. The Borrower
and all other members of the ERISA Group have made when due any and
all payments required to be made under any agreement relating to a
Multiemployer Plan or a Multiple Employer Plan or any Law pertaining
thereto. With respect to each Plan and Multiemployer Plan, the
Borrower and each other member of the ERISA Group (i) have fulfilled
in all material respects their obligations under the minimum funding
standards of ERISA, (ii) have not incurred any liability to the PBGC,
and (iii) have not had asserted against them any penalty for failure
to fulfill the minimum funding requirements of ERISA.
(ii) To the best of the Borrower's knowledge, each Multiemployer Plan
and Multiple Employer Plan is able to pay benefits thereunder when
due.
(iii) Neither the Borrower nor any other member of the ERISA Group has
instituted or intends to institute proceedings to terminate any Plan.
(iv) No event requiring notice to the PBGC under Section 302(f)(4)(A)
of ERISA has occurred or is reasonably expected to occur with respect
to any Plan, and no amendment with respect to which security is
required under Section 307 of ERISA has been made or is reasonably
expected to be made to any Plan.
(v) The aggregate actuarial present value of all benefit liabilities
(whether or not vested) under each Plan, determined on a plan
termination basis, as disclosed in, and as of the date of, the most
recent actuarial report for such Plan, does not exceed the aggregate
fair market value of the assets of such Plan.
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(vi) Neither the Borrower nor any other member of the ERISA Group has
incurred or reasonably expects to incur any material withdrawal
liability under ERISA to any Multiemployer Plan or Multiple Employer
Plan. Neither the Borrower nor any other member of the ERISA Group has
been notified by any Multiemployer Plan or Multiple Employer Plan that
such Multiemployer Plan or Multiple Employer Plan has been terminated
within the meaning of Title IV of ERISA and, to the best knowledge of
the Borrower, no Multiemployer Plan or Multiple Employer Plan is
reasonably expected to be reorganized or terminated, within the
meaning of Title IV of ERISA.
(vii) To the extent that any Benefit Arrangement is insured, the
Borrower and all other members of the ERISA Group have paid when due
all premiums required to be paid for all periods through the Closing
Date. To the extent that any Benefit Arrangement is funded other than
with insurance, the Borrower and all other members of the ERISA Group
have made when due all contributions required to be paid for all
periods through the Closing Date.
(viii) All Plans, Benefit Arrangements and Multiemployer Plans have
been administered in accordance with their terms and applicable Law.
5.1.21. Employment Matters.
Each of the Loan Parties and each of their Subsidiaries is in compliance
with the Labor Contracts and all applicable federal, state and local labor
and employment Laws including those related to equal employment opportunity
and affirmative action, labor relations, minimum wage, overtime, child
labor, medical insurance continuation, worker adjustment and relocation
notices, immigration controls and worker and unemployment compensation,
where the failure to comply would constitute a Material Adverse Change.
There are no outstanding grievances, arbitration awards or appeals
therefrom arising out of the Labor Contracts or current or threatened
strikes, picketing, handbilling or other work stoppages or slowdowns at
facilities of any of the Loan Parties or any of their Subsidiaries which in
any case would constitute a Material Adverse Change. The Borrower has
delivered to the Agent true and correct copies of each of the Labor
Contracts.
5.1.22. Environmental Matters.
Except as disclosed on Schedule 5.1.22:
(i) None of the Loan Parties has received any Environmental Complaint,
whether directed or issued to any Loan Party or relating or pertaining
to any prior owner, operator or occupant of the Property, and has no
reason to believe that it might receive an Environmental Complaint.
(ii) No activity of any Loan Party at the Property is being or has
been conducted in violation of any Environmental Law or Required
Environmental Permit and to the knowledge of any Loan Party no
activity of any prior owner, operator or occupant of the Property was
conducted in violation of any Environmental Law.
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(iii) There are no Regulated Substances present on, in, under, or
emanating from, or to any Loan Party's knowledge emanating to, the
Property or any portion thereof which result in Contamination.
(iv) Each Loan Party has all Required Environmental Permits and all
such Required Environmental Permits are in full force and effect.
(v) Each Loan Party has submitted to an Official Body and/or
maintains, as appropriate, all Required Environmental Notices.
(vi) No structures, improvements, equipment, fixtures, impoundments,
pits, lagoons or aboveground or underground storage tanks located on
the Property contain or use, except in compliance with Environmental
Laws and Required Environmental Permits, Regulated Substances or
otherwise are operated or maintained except in compliance with
Environmental Laws and Required Environmental Permits. To the
knowledge of each Loan Party, no structures, improvements, equipment,
fixtures, impoundments, pits, lagoons or aboveground or underground
storage tanks of prior owners, operators or occupants of the Property
contained or used, except in compliance with Environmental Laws,
Regulated Substances or otherwise were operated or maintained by any
such prior owner, operator or occupant except in compliance with
Environmental Laws.
(vii) To the knowledge of each Loan Party, no facility or site to
which any Loan Party, either directly or indirectly by a third party,
has sent Regulated Substances for storage, treatment, disposal or
other management has been or is being operated in violation of
Environmental Laws or pursuant to Environmental Laws is identified or
proposed to be identified on any list of contaminated properties or
other properties which pursuant to Environmental Laws are the subject
of an investigation, cleanup, removal, remediation or other response
action by an Official Body.
(viii) No portion of the Property is identified or to the knowledge of
any Loan Party proposed to be identified on any list of contaminated
properties or other properties which pursuant to Environmental Laws
are the subject of an investigation or remediation action by an
Official Body, nor to the knowledge of any Loan Party is any property
adjoining or in the proximity of the Property identified or proposed
to be identified on any such list.
(ix) No portion of the Property constitutes an Environmentally
Sensitive Area.
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(x) No lien or other encumbrance authorized by Environmental Laws
exists against the Property and none of the Loan Parties has any
reason to believe that such a lien or encumbrance may be imposed.
5.1.23. Senior Debt Status.
The Obligations of each Loan Party under this Agreement, the Notes, the
Guaranty Agreement and each of the other Loan Documents to which it is a
party do rank and will rank at least pari passu in priority of payment with
all other Indebtedness of such Loan Party including the Senior Notes. There
is no Lien upon or with respect to any of the properties or income of any
Loan Party or Subsidiary of any Loan Party which secures indebtedness or
other obligations of any Person except for Permitted Liens.
5.2 Updates to Schedules.
Should any of the information or disclosures provided on any of the Schedules
attached hereto become outdated or incorrect in any material respect, the
Borrower shall promptly provide the Agent in writing with such revisions or
updates to such Schedule as may be necessary or appropriate to update or correct
same; provided, however, that no Schedule shall be deemed to have been amended,
modified or superseded by any such correction or update, nor shall any breach of
warranty or representation resulting from the inaccuracy or incompleteness of
any such Schedule be deemed to have been cured thereby, unless and until the
Required Banks, in their sole and absolute discretion, shall have accepted in
writing such revisions or updates to such Schedule.
6. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT
The obligation of each Bank to make Loans and of the Agent to issue Letters of
Credit hereunder is subject to the performance by each of the Loan Parties of
its Obligations to be performed hereunder at or prior to the making of any such
Loans or issuance of such Letters of Credit and to the satisfaction of the
following further conditions:
6.1 First Loans and Letters of Credit.
On the Closing Date:
6.1.1. Officer's Certificate.
The representations and warranties of each of the Loan Parties contained in
Section 5.1 and in each of the other Loan Documents shall be true and
accurate on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date (except
representations and warranties which relate solely to an earlier date or
time, which representations and warranties shall be true and correct on and
as of the specific dates or times referred to therein), and each of the
Loan Parties shall have performed and complied with all covenants and
conditions hereof and thereof, no Event of Default or Potential Default
shall have occurred and be continuing or shall exist; and there shall be
delivered to the Agent for the benefit of each Bank a certificate of each
of the Loan Parties, dated the Closing Date and signed by the Chief
Executive Officer, President, Chief Financial Officer, or Treasurer of each
of the Loan Parties, to each such effect.
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6.1.2. Secretary's Certificate.
There shall be delivered to the Agent for the benefit of each Bank a
certificate dated the Closing Date and signed by the Secretary or an
Assistant Secretary of each of the Loan Parties, certifying as appropriate
as to:
(i) all action taken by each Loan Party to approve of this Agreement
and the other Loan Documents;
(ii) the names of the officer or officers authorized to sign this
Agreement and the other Loan Documents and the true signatures of such
officer or officers and specifying the Authorized Officers permitted
to act on behalf of each Loan Party for purposes of this Agreement and
the true signatures of such officers, on which the Agent and each Bank
may conclusively rely; and
(iii) copies of its organizational documents, including its
certificate of incorporation, bylaws, certificate of limited
partnership, partnership agreement, certificate of formation, and
limited liability company agreement as in effect on the Closing Date
certified by the appropriate state official where such documents are
filed in a state office together with certificates from the
appropriate state officials as to the continued existence and good
standing of each Loan Party in each state where organized or qualified
to do business and a bring-down certificate by facsimile dated the
Closing Date.
6.1.3. Delivery of Loan Documents.
The Guaranty Agreement, Notes, and Intercompany Subordination Agreement
shall have been duly executed and delivered to the Agent for the benefit of
the Banks.
6.1.4. Opinion of Counsel.
There shall be delivered to the Agent for the benefit of each Bank a
written opinion of Greenebaum Doll & McDonald PLLC, outside counsel to the
Loan Parties (enforceability and authorization (limited to a review of
resolutions - may assume due adoption of resolutions)) and John M. Baumann,
Jr. Esquire, in house counsel to the Loan Parties (all other matters set
forth below) (who may rely on the opinions of such other counsel as may be
acceptable to the Agent), dated the Closing Date and in form and substance
satisfactory to the Agent and its counsel:
(i) as to the matters set forth in Exhibit 6.1.4; and
52
(ii) as to such other matters incident to the transactions
contemplated herein as the Agent may reasonably request.
6.1.5. Payoff of Existing Loan Agreement.
The Borrower shall repay all loans and other amounts outstanding under the
Second Amended And Restated Loan Agreement dated December 31, 1998 (the
"Existing Agreement"), among the Borrower as the borrower thereunder and
the other parties thereto. Each of the parties to this agreement agrees
that upon payment of the outstanding loans and other amounts, the Existing
Agreement shall be terminated and of no further force and effect.
6.1.6. Legal Details.
All legal details and proceedings in connection with the transactions
contemplated by this Agreement and the other Loan Documents shall be in
form and substance satisfactory to the Agent and counsel for the Agent, and
the Agent shall have received all such other counterpart originals or
certified or other copies of such documents and proceedings in connection
with such transactions, in form and substance satisfactory to the Agent and
said counsel, as the Agent or said counsel may reasonably request.
6.1.7. Payment of Fees.
The Borrower shall have paid or caused to be paid to the Agent for itself
and for the account of the Banks to the extent not previously paid all
other fees accrued through the Closing Date and the costs and expenses for
which the Agent and the Banks are entitled to be reimbursed.
6.1.8. Consents.
All material consents required to effectuate the transactions contemplated
hereby as set forth on Schedule 5.1.13 shall have been obtained.
6.1.9. Officer's Certificate Regarding MACs.
Since September 30, 2000 no Material Adverse Change shall have occurred;
prior to the Closing Date, there shall have been no material change in the
management of any Loan Party or Subsidiary of any Loan Party; and there
shall have been delivered to the Agent for the benefit of each Bank a
certificate dated the Closing Date and signed by the Chief Executive
Officer, President, Chief Financial Officer or Treasurer of each Loan Party
to each such effect.
6.1.10. Compliance With Note Purchase Agreement.
The Loan Parties and the holders of the Senior Notes shall have executed
and delivered the Waiver and Fourth Amendment waiving prior defaults and
amending the Note Purchase Agreement and shall have provided other
satisfactory evidence that the Loan Parties are in compliance with the Note
Purchase Agreement and the other documents related thereto.
53
6.1.11. No Violation of Laws.
The making of the Loans and the issuance of the Letters of Credit shall not
contravene any Law applicable to any Loan Party or any of the Banks.
6.1.12. No Actions or Proceedings.
No action, proceeding, investigation, regulation or legislation shall have
been instituted, threatened or proposed before any court, governmental
agency or legislative body to enjoin, restrain or prohibit, or to obtain
damages in respect of, this Agreement, the other Loan Documents or the
consummation of the transactions contemplated hereby or thereby or which,
in the Agent's sole discretion, would make it inadvisable to consummate the
transactions contemplated by this Agreement or any of the other Loan
Documents.
6.1.13. Insurance Policies; Certificates of Insurance; Endorsements.
The Loan Parties shall have delivered evidence acceptable to the Agent that
adequate insurance in compliance with Section 7.1.3 [Maintenance of
Insurance] is in full force and effect and that all premiums then due
thereon have been paid, together with a certified copy of each Loan Party's
casualty insurance policy or policies evidencing coverage satisfactory to
the Agent.
6.1.14. Lien Search.
The Agent shall have received satisfactory results of a Lien search
acceptable to the Agent.
6.1.15. Administrative Questionnaire.
Each of the Banks and the Borrower shall have completed and delivered to
the Agent the Agent's form of administrative questionnaire.
6.1.16. Intercreditor Agreement - - Authorization to Execute and Deliver.
The holders of the Senior Notes and the Agent shall have executed the
Intercreditor Agreement. The Banks hereby authorize the Agent to execute
the Intercreditor Agreement in substantially the form attached hereto as
Exhibit 1.1(I)(2), with such modifications as the Agent deems appropriate,
and acknowledge that the Banks and the Agent shall be bound thereby upon
such execution and the execution of the other parties thereto.
54
6.2 Each Additional Loan or Letter of Credit.
At the time of making any Loans or issuing any Letters of Credit other than
Loans made or Letters of Credit issued on the Closing Date and after giving
effect to the proposed extensions of credit: the representations and warranties
of the Loan Parties contained in Section 5.1 and in the other Loan Documents
shall be true on and as of the date of such additional Loan or Letter of Credit
with the same effect as though such representations and warranties had been made
on and as of such date (except representations and warranties which expressly
relate solely to an earlier date or time, which representations and warranties
shall be true and correct on and as of the specific dates or times referred to
therein) and the Loan Parties shall have performed and complied with all
covenants and conditions hereof; no Event of Default or Potential Default shall
have occurred and be continuing or shall exist; the making of the Loans or
issuance of such Letter of Credit shall not contravene any Law applicable to any
Loan Party or Subsidiary of any Loan Party or any of the Banks; and the Borrower
shall have delivered to the Agent a duly executed and completed Loan Request or
application for a Letter of Credit as the case may be.
7. COVENANTS
7.1 Affirmative Covenants.
The Loan Parties, jointly and severally, covenant and agree that until payment
in full of the Loans, Reimbursement Obligations and Letter of Credit Borrowings,
and interest thereon, expiration or termination of all Letters of Credit,
satisfaction of all of the Loan Parties' other Obligations under the Loan
Documents and termination of the Commitments, the Loan Parties shall comply at
all times with the following affirmative covenants:
7.1.1. Preservation of Existence, Etc.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
maintain its legal existence as a corporation, limited partnership or
limited liability company and its license or qualification and good
standing in each jurisdiction in which its ownership or lease of property
or the nature of its business makes such license or qualification
necessary, except as otherwise expressly permitted in Section 7.2.6
[Liquidations, Mergers, Etc.].
7.1.2. Payment of Liabilities, Including Taxes, Etc.
Each Loan Party shall, and shall cause each of its Subsidiaries to, duly
pay and discharge all liabilities to which it is subject or which are
asserted against it, promptly as and when the same shall become due and
payable, including all taxes, assessments and governmental charges upon it
or any of its properties, assets, income or profits, prior to the date on
which penalties attach thereto, except to the extent that such liabilities,
including taxes, assessments or charges, are being contested in good faith
and by appropriate and lawful proceedings diligently conducted and for
which such reserve or other appropriate provisions, if any, as shall be
55
required by GAAP shall have been made, but only to the extent that failure
to discharge any such liabilities would not result in any additional
liability which would adversely affect to a material extent the financial
condition of any Loan Party or Subsidiary of any Loan Party, provided that
the Loan Parties and their Subsidiaries will pay all such liabilities
forthwith upon the commencement of proceedings to foreclose any Lien which
may have attached as security therefor.
7.1.3. Maintenance of Insurance.
Each Loan Party shall, and shall cause each of its Subsidiaries to, insure
its properties and assets against loss or damage by fire and such other
insurable hazards as such assets are commonly insured (including fire,
extended coverage, property damage, workers' compensation, public liability
and business interruption insurance) and against other risks (including
errors and omissions) in such amounts as similar properties and assets are
insured by prudent companies in similar circumstances carrying on similar
businesses, and with reputable and financially sound insurers, including
self-insurance to the extent customary, all as reasonably determined by the
Agent.
7.1.4. Maintenance of Properties and Leases.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
maintain in good repair, working order and condition (ordinary wear and
tear excepted) in accordance with the general practice of other businesses
of similar character and size, all of those properties useful or necessary
to its business, and from time to time, such Loan Party will make or cause
to be made all appropriate repairs, renewals or replacements thereof.
7.1.5. Maintenance of Patents, Trademarks, Etc.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
maintain in full force and effect all patents, trademarks, service marks,
trade names, copyrights, licenses, franchises, permits and other
authorizations necessary for the ownership and operation of its properties
and business if the failure so to maintain the same would constitute a
Material Adverse Change.
7.1.6. Visitation Rights.
Each Loan Party shall, and shall cause each of its Subsidiaries to, permit
any of the officers or authorized employees or representatives of the Agent
or any of the Banks to visit and inspect any of its properties and to
examine and make excerpts from its books and records and discuss its
business affairs, finances and accounts with its officers, all in such
detail and at such times and as often as any of the Banks may reasonably
request, provided that each Bank shall provide the Borrower and the Agent
with reasonable notice prior to any visit or inspection. In the event any
Bank desires to conduct an audit of any Loan Party, such Bank shall make a
reasonable effort to conduct such audit contemporaneously with any audit to
be performed by the Agent.
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7.1.7. Keeping of Records and Books of Account.
The Borrower shall, and shall cause each Subsidiary of the Borrower to,
maintain and keep proper books of record and account which enable the
Borrower and its Subsidiaries to issue financial statements in accordance
with GAAP and as otherwise required by applicable Laws of any Official Body
having jurisdiction over the Borrower or any Subsidiary of the Borrower,
and in which full, true and correct entries shall be made in all material
respects of all its dealings and business and financial affairs.
7.1.8. Plans and Benefit Arrangements.
The Borrower shall, and shall cause each other member of the ERISA Group
to, comply with ERISA, the Internal Revenue Code and other applicable Laws
applicable to Plans and Benefit Arrangements except where such failure,
alone or in conjunction with any other failure, would not result in a
Material Adverse Change. Without limiting the generality of the foregoing,
the Borrower shall cause all of its Plans and all Plans maintained by any
member of the ERISA Group to be funded in accordance with the minimum
funding requirements of ERISA and shall make, and cause each member of the
ERISA Group to make, in a timely manner, all contributions due to Plans,
Benefit Arrangements and Multiemployer Plans.
7.1.9. Compliance with Laws.
Each Loan Party shall, and shall cause each of its Subsidiaries to, comply
with all applicable Laws, including all Environmental Laws, in all
respects, provided that it shall not be deemed to be a violation of this
Section 7.1.9 if any failure to comply with any Law would not result in
fines, penalties, remediation costs, other similar liabilities or
injunctive relief which in the aggregate would constitute a Material
Adverse Change.
7.1.10. Use of Proceeds.
The Loan Parties will use the Letters of Credit and the proceeds of the
Loans only for (i) general corporate purposes and for working capital, (ii)
to finance Permitted Acquisitions, or (iii) at their option to repay
Indebtedness under the Senior Notes. The Loan Parties shall not use the
Letters of Credit or the proceeds of the Loans for any purposes which
contravenes any applicable Law or any provision hereof.
7.1.11. Subordination of Intercompany Loans.
Each Loan Party shall cause any intercompany Indebtedness, loans or
advances owed by any Loan Party to any other Loan Party to be subordinated
pursuant to the terms of the Intercompany Subordination Agreement.
57
7.1.12. Interest Rate Protection.
Within ninety (90) calendar days after the Closing Date, the Borrower shall
have entered into an interest rate protection agreement with a Bank for a
period of at least two (2) years (i) in an amount equal to at least
$30,000,000, and (ii) with such other terms and conditions as shall be
acceptable to the Agent (the "Interest Rate Protection Agreement").
Documentation for the Interest Rate Protection Agreement shall be in a
standard International Swap Dealer Association Agreement, shall provide for
the method of calculating the reimbursable amount of the provider's credit
exposure in a reasonable and customary manner, shall be reasonably
satisfactory to the Agent and shall not require that any collateral be
provided as security for such agreement.
7.1.13. Subsequent Note Purchase Agreement Terms.
Upon the execution of any amendment, modification, renewal or replacement
of the Note Purchase Agreement that would make any of the covenants or
defaults thereunder (or definitions related thereto) more onerous to the
Loan Parties than those in effect on August 24, 2001 (the "More Restrictive
Provisions"), the corresponding covenants or defaults of this Agreement
shall be and shall be deemed to be automatically and immediately amended to
conform with the More Restrictive Provisions; provided, however, that the
foregoing shall not be applicable to or be deemed to affect any provision
of this Agreement if any such amendment, modification, renewal or
replacement of the Note Purchase Agreement is less restrictive to the Loan
Parties. The Loan Parties hereby agree promptly to execute and deliver any
and all such documents and instruments and to take all such further actions
as the Agent may, in its discretion, deem necessary or appropriate to
effectuate the provisions of this Section 7.1.13.
7.2 Negative Covenants.
The Loan Parties, jointly and severally, covenant and agree that until payment
in full of the Loans, Reimbursement Obligations and Letter of Credit Borrowings
and interest thereon, expiration or termination of all Letters of Credit,
satisfaction of all of the Loan Parties' other Obligations hereunder and
termination of the Commitments, the Loan Parties shall comply with the following
negative covenants:
7.2.1. Indebtedness.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, at any time create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness under the Loan Documents;
(ii) Existing Indebtedness as set forth on Schedule 7.2.1 (including
any extensions or renewals thereof, provided there is no increase in
the amount thereof or other significant change in the terms thereof
unless otherwise specified on Schedule 7.2.1;
58
(iii) Capitalized and operating leases as and to the extent permitted
under Section 7.2.15 [Capital Expenditures and Leases];
(iv) Indebtedness secured by Purchase Money Security Interests
incurred in connection with the acquisition of capital assets and
other unsecured Indebtedness not exceeding $10,000,000 in the
aggregate; and
(v) Indebtedness arising with respect to any Interest Rate Protection
Agreement entered into pursuant to Section 7.1.12;
(vi) Indebtedness associated with a Permitted Securitization;
(vii) Indebtedness of a Loan Party to another Loan Party which is
subordinated in accordance with the provisions of Section 7.1.11
[Subordination of Intercompany Loans].
7.2.2. Liens.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, at any time create, incur, assume or suffer to exist any
Lien on any of its property or assets, tangible or intangible, now owned or
hereafter acquired, or agree or become liable to do so, except Permitted
Liens.
7.2.3. Guaranties.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, at any time, directly or indirectly, become or be liable
in respect of any Guaranty, or assume, guarantee, become surety for,
endorse or otherwise agree, become or remain directly or contingently
liable upon or with respect to any obligation or liability of any other
Person, except for Guaranties of Indebtedness of the Loan Parties permitted
hereunder.
7.2.4. Loans and Investments.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, at any time make or suffer to remain outstanding any loan
or advance to, or purchase, acquire or own any stock, bonds, notes or
securities of, or any partnership interest (whether general or limited) or
limited liability company interest in, or any other investment or interest
in, or make any capital contribution to, any other Person, or agree, become
or remain liable to do any of the foregoing, except:
(i) trade credit extended on usual and customary terms in the ordinary
course of business;
59
(ii) advances to employees to meet expenses incurred by such employees
in the ordinary course of business;
(iii) Permitted Investments;
(iv) any Interest Rate Protection Agreement entered into pursuant to
Section 7.1.12;
(v) loans, advances and investments in other Loan Parties; and
(vi) existing capital contributions or loans to Mi-Tech Steel, Inc.
and guaranties of payment on promissory notes issued by Mi-Tech Steel,
Inc. set forth on Schedule 7.2.4(vi).
(vii) so long as no Event of Default or Potential Default has occurred
and is continuing or would result therefrom, the Borrower during the
term of this Agreement may contribute capital and/or make loans to
Mi-Tech Steel, Inc., provided that the aggregate amount of capital
contributions and loans to Mi-Tech Steel, Inc. (including those listed
on Schedule 7.2.4(vi)) shall not to exceed Fifteen Million Dollars
($15,000,000) and may extend, renew and/or reissue from time to time
any guaranties of payment of the unpaid principal of and/or unpaid
interest on promissory notes issued by Mi-Tech Steel, Inc. provided
that the aggregate amount of guaranties (including guaranties listed
on Schedule 7.2.4(vi)) shall not exceed Ten Million Dollars
($10,000,000);
(viii) existing capital contributions or loans to, and guaranties of
payment on debt of, or other investments in, the Joint Ventures and
Steel Technologies De Mexico S.A. De C.V. set forth on Schedule
7.2.4(viii).
7.2.5. Dividends and Related Distributions.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, make or pay, or agree to become or remain liable to make
or pay, any dividend or other distribution of any nature (whether in cash,
property, securities or otherwise) on account of or in respect of its
shares of capital stock, partnership interests or limited liability company
interests on account of the purchase, redemption, retirement or acquisition
of its shares of capital stock (or warrants, options or rights therefor),
partnership interests or limited liability company interests, except
dividends or other distributions payable to another Loan Party and for
dividends paid by the Borrower to its shareholders or repurchases by the
Borrower of the stock of the Borrower, provided that no Potential Default
or Event of Default exists on the date of such dividend or repurchase would
be created as a result of such dividend or repurchase.
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7.2.6. Liquidations, Mergers, Consolidations, Acquisitions.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, dissolve, liquidate or wind-up its affairs, or become a
party to any merger or consolidation, or acquire by purchase, lease or
otherwise all or substantially all of the assets or capital stock of any
other Person, provided that
(1) any Loan Party other than the Borrower may consolidate or merge into
another Loan Party which is wholly-owned by one or more of the other Loan
Parties, and
(2) any Loan Party may acquire, whether by purchase or by merger, (A) all
of the ownership interests of another Person or (B) substantially all of
assets of another Person or of a business or division of another Person
(each an "Permitted Acquisition"), provided that each of the following
requirements is met:
(i) no Event of Default or Potential Event of Default has occurred and
is continuing or would result from such Permitted Acquisition;
(ii) the board of directors or other equivalent governing body of such
Person shall have approved such Permitted Acquisition and, if the Loan
Parties shall use any portion of the Loans to fund such Permitted
Acquisition, the Loan Parties also shall have delivered to the Banks
written evidence of the approval of the board of directors (or
equivalent body) of such Person for such Permitted Acquisition (i.e.,
it is a "friendly" acquisition),
(iii) the Borrower shall deliver to the Agent on or before ten (10)
Business Days prior to the proposed Permitted Acquisition the Proforma
Acquisition Information and Acquisition Compliance Certificate in the
form of Exhibit 7.2.6 hereto, evidencing that after giving effect to
such Permitted Acquisition: (1) none of the financial covenants
contained in Sections 7.2.16, 7.2.17 or 7.2.18 or otherwise in this
Agreement will be violated and (2) the sum of cash of the Loan Parties
plus "Available Borrowings" equals or exceeds $15,000,000. The word
"Proforma" shall be deemed to precede the references to "Leverage
Ratio" and "Interest and Rental Coverage Ratio" in such financial
covenants on and after the date of such Permitted Acquisition;
"Available Borrowings shall mean the lesser of (i) the amount which
the Loan Parties may borrow without violating their Maximum Leverage
Ratio covenant in Section 7.2.17 or any other covenant, and (ii) the
difference between the Revolving Credit Commitments and the Facility
Usage ,
(iv) if the Loan Parties are acquiring the ownership interests in such
Person, such Person shall execute a Guarantor Joinder and join this
Agreement as a Guarantor pursuant to Section 10.17 [Joinder of
Guarantors] on or before the date of such Permitted Acquisition;
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(v) the business acquired, or the business conducted by the Person
whose ownership interests are being acquired, as applicable, shall be
substantially the same as one or more line or lines of business
conducted by the Loan Parties and shall comply with Section 7.2.10
[Continuation of or Change in Business];
(vi) the Loan Parties shall deliver to the Agent at least five (5)
Business Days before such Permitted Acquisition copies of any
agreements entered into or proposed to be entered into by such Loan
Parties in connection with such Permitted Acquisition and shall
deliver to the Agent such other information about such Person or its
assets as any Loan Party may reasonably require;
(vii) the Agent shall have confirmed by written notice to the Borrower
on or before three (3) Business Days prior to the closing of the
Permitted Acquisition that the Agent is satisfied with the deliveries
listed above.
Anything contained in the foregoing provisions of this Section 7.2.6
notwithstanding, the prior written consent of the Required Banks shall be
required as to any acquisition (i) that would not be a Permitted
Acquisition but for the Permitted Synergies, or (ii) for which the
financial statements of the Target Person are not available or are not
audited.
For purposes of this Section, the following terms have the following
meanings:
Target Person means a Person engaged in the same line of business as
Borrower, the assets or stock of which a Loan Party desires to acquire
pursuant to a Permitted Acquisition.
Proforma Acquisition Information means the actual financial statements
for the Target Person solely (a) audited in accordance with GAAP for
the most recent fiscal year then ended, and (b) unaudited but in
accordance with GAAP for the Proforma Calculation Period, together
with proforma consolidated financial statements of Borrower and the
Target Person for the Proforma Calculation Period, which shall include
the effect of any Indebtedness to be incurred or acquired by Borrower
in conjunction with the Permitted Acquisition as well as the results
of the operations of the Target Person, assuming the Target Person had
been made a consolidated Subsidiary of Borrower at the inception of
the Proforma Calculation Period, containing such other assumptions as
are in accordance with GAAP, together with such other information
concerning the proposed Permitted Acquisition as the Agent shall
request.
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Proforma Calculation Period means the four complete Fiscal Quarters of
Borrower and Target Person most recently preceding the date of a
Permitted Acquisition.
Proforma Leverage Ratio shall mean as of the end of each fiscal
quarter, the ratio of consolidated Proforma Indebtedness of Borrower
and its Subsidiaries on date to the EBITDA for the four fiscal
quarters ending on such date.
Proforma Interest and Rental Coverage Ratio shall mean the ratio of
Proforma EBITR to the sum of Proforma Interest Expense plus rental
expense.
Proforma EBITDA means EBITDA for the Proforma Calculation Period as
adjusted pursuant to the Proforma Acquisition Information for the
purpose of including the proforma financial results of the Target
Person plus the Permitted Synergies to determine whether the intended
acquisition is a Permitted Acquisition.
Proforma EBITR means EBITR for the Proforma Calculation Period as
adjusted pursuant to the Proforma Acquisition Information for the
purpose of including the proforma financial results of the Target
Person plus the Permitted Synergies to determine whether the intended
acquisition is a Permitted Acquisition.
Permitted Synergies means those readily identifiable expenses,
satisfactory to the Agent and the Required Banks, of the Target Person
that will be either eliminated or reduced as a result of the Permitted
Acquisition Compliant Acquisition.
Proforma Indebtedness means the consolidated Indebtedness of the Loan
Parties existing as of the date of the Permitted Acquisition plus any
Indebtedness to be incurred or assumed as a result of the Permitted
Acquisition, all as established pursuant to the Proforma Acquisition
Information.
Proforma Interest Expense means the product of the interest rate
actually applicable to the Loans and or charges equivalent to interest
under any Permitted Securitization at the time the Proforma
Acquisition Information is tendered by Borrower to the Agent
multiplied by any Indebtedness to be incurred or assumed as a result
of the Permitted Acquisition.
7.2.7. Dispositions of Assets or Subsidiaries.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, sell, convey, assign, lease, abandon or otherwise transfer
or dispose of, voluntarily or involuntarily, any of its properties or
assets, tangible or intangible (including sale, assignment, discount or
other disposition of accounts, contract rights, chattel paper, equipment or
general intangibles with or without recourse or of capital stock, shares of
beneficial interest, partnership interests or limited liability company
interests of a Subsidiary of such Loan Party), except:
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(i) transactions involving the sale of inventory in the ordinary
course of business;
(ii) any sale, transfer or lease of assets in the ordinary course of
business which are no longer necessary or required in the conduct of
such Loan Party's or such Subsidiary's business;
(iii) any sale, transfer or lease of assets by any wholly owned
Subsidiary of such Loan Party to another Loan Party;
(iv) any sale, transfer or lease of assets in the ordinary course of
business which are replaced by substitute assets acquired or leased
within the parameters of Section 7.2.15 [Capital Expenditures and
Leases];
(v) sell accounts receivable and related rights in connection with a
Permitted Securitization; or
(vi) any sale, transfer or lease of assets, other than those
specifically excepted pursuant to clauses (i) through (iv) above;
provided that (1) if, after giving effect to a proposed sale, transfer
or lease, the amount proceeds received by the Loan Parties from sales,
transfers and leases described in this clause (vi) exceeds $10,000,000
in the aggregate over the term of this Agreement, then the Loan
Parties shall reduce the Revolving Credit Commitments and repay the
Loans in a principal amount equal to the Banks' Pro Rata Share
(computed on the date of such sale, transfer or lease) of the amount
of the net proceeds from such sale, transfer or lease on the date of
such sale, transfer or lease.
7.2.8. Affiliate Transactions.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, enter into or carry out any transaction (including
purchasing property or services from or selling property or services to any
Affiliate of any Loan Party or other Person) unless such transaction is not
otherwise prohibited by this Agreement, is entered into in the ordinary
course of business upon fair and reasonable arm's-length terms and
conditions which are fully disclosed to the Agent and is in accordance with
all applicable Law.
7.2.9. Subsidiaries, Partnerships and Joint Ventures.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, own or create directly or indirectly any Subsidiaries
other than (i) any Subsidiary which has joined this Agreement as Guarantor
on the Closing Date; (ii) any Subsidiary formed after the Closing Date
which joins this Agreement as a Guarantor pursuant to Section 10.17
[Joinder of Guarantors] (it is acknowledged that any Subsidiary of the
Borrower, including Steel Technologies De Mexico S.A. De C.V. or the Joint
Ventures, which executes a Guaranty of any indebtedness of the Note
Purchase Agreement and the Senior Notes shall join this Agreement as a
Guarantor), provided that the Required Banks shall have consented to such
formation and joinder, and (iii) Steel Technologies De Mexico S.A. De C.V.
or the Joint Ventures.
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7.2.10. Continuation of or Change in Business.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, engage in any business other than the business
substantially as conducted and operated by such Loan Party or Subsidiary
during the present fiscal year, and such Loan Party or Subsidiary shall not
permit any material change in such business.
7.2.11. Plans and Benefit Arrangements.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to:
(i) fail to satisfy the minimum funding requirements of ERISA and the
Internal Revenue Code with respect to any Plan;
(ii) request a minimum funding waiver from the Internal Revenue
Service with respect to any Plan;
(iii) engage in a Prohibited Transaction with any Plan, Benefit
Arrangement or Multiemployer Plan which, alone or in conjunction with
any other circumstances or set of circumstances resulting in liability
under ERISA, would constitute a Material Adverse Change;
(iv) permit the aggregate actuarial present value of all benefit
liabilities (whether or not vested) under each Plan, determined on a
plan termination basis, as disclosed in the most recent actuarial
report completed with respect to such Plan, to exceed, as of any
actuarial valuation date, the fair market value of the assets of such
Plan;
(v) fail to make when due any contribution to any Multiemployer Plan
that the Borrower or any member of the ERISA Group may be required to
make under any agreement relating to such Multiemployer Plan, or any
Law pertaining thereto;
(vi) withdraw (completely or partially) from any Multiemployer Plan or
withdraw (or be deemed under Section 4062(e) of ERISA to withdraw)
from any Multiple Employer Plan, where any such withdrawal is likely
to result in a material liability of the Borrower or any member of the
ERISA Group;
(vii) terminate, or institute proceedings to terminate, any Plan,
where such termination is likely to result in a material liability to
the Borrower or any member of the ERISA Group;
65
(viii) make any amendment to any Plan with respect to which security
is required under Section 307 of ERISA; or
(ix) fail to give any and all notices and make all disclosures and
governmental filings required under ERISA or the Internal Revenue
Code, where such failure is likely to result in a Material Adverse
Change.
7.2.12. Fiscal Year.
The Borrower shall not, and shall not permit any Subsidiary of the
Borrower to, change its fiscal year from the twelve-month period
beginning October 1 and ending September 30.
7.2.13. Issuance of Stock.
Each of the Loan Parties other than the Borrower shall not, and shall
not permit any of its Subsidiaries to, issue any additional shares of
its capital stock or any options, warrants or other rights in respect
thereof except for issuances to other Loan Parties.
7.2.14. Changes in Organizational Documents.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, amend in any respect its certificate of incorporation
(including any provisions or resolutions relating to capital stock),
by-laws, certificate of limited partnership, partnership agreement,
certificate of formation, limited liability company agreement or other
organizational documents without providing at least fifteen (15)
calendar days' prior written notice to the Agent and the Banks and, in
the event such change would be adverse to the Banks as determined by
the Agent in its sole discretion, obtaining the prior written consent
of the Required Banks.
7.2.15. Capital Expenditures and Leases.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, make any payments exceeding (a) $20,000,000 in the
aggregate during any 12-month period ending on or before September 30,
2002, or (b) $22,500,000 in the aggregate during any 12-month period
ending after September 30, 2002, in each case on account of the
purchase or lease of any assets which if purchased would constitute
fixed assets or which if leased would constitute a capitalized lease,
or any payments exceeding $5,000,000 in the aggregate in any fiscal
year on account of the rental or lease of real or personal property of
any other Person which does not constitute a capitalized lease, and
all such capital expenditures and leases shall be made under usual and
customary terms and in the ordinary course of business.
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7.2.16. Minimum Interest and Rental Coverage Ratio.
The Loan Parties shall not permit the ratio of the Loan Parties' EBITR
to the sum of interest expense plus rental expense, calculated as of
the end of each fiscal quarter for the four fiscal quarters then ended
to be less than 2.0 to 1.0.
7.2.17. Maximum Leverage Ratio.
The Loan Parties shall not at the end of any quarter permit the
Leverage Ratio, calculated as of the end of each fiscal quarter for
the four fiscal quarters then ended to exceed the ratio set forth
below:
Period Maximum Ratio
------ -------------
Quarters ending on or before
September 30, 2001 3.75 to 1.0
Quarters ending on or after
December 31, 2001 3.50 to 1.0
7.2.18. Minimum Tangible Net Worth.
The Borrower shall not at any time permit Consolidated Tangible Net
Worth to be less than Base Tangible Net Worth.
7.3 Reporting Requirements.
The Loan Parties, jointly and severally, covenant and agree that until payment
in full of the Loans, Reimbursement Obligations and Letter of Credit Borrowings
and interest thereon, expiration or termination of all Letters of Credit,
satisfaction of all of the Loan Parties' other Obligations hereunder and under
the other Loan Documents and termination of the Commitments, the Loan Parties
will furnish or cause to be furnished to the Agent and each of the Banks:
7.3.1. Quarterly Financial Statements.
As soon as available and in any event within forty-five (45) calendar days
after the end of each of the first three fiscal quarters in each fiscal
year, financial statements of the Borrower, consisting of a consolidated
and consolidating balance sheet as of the end of such fiscal quarter and
related consolidated and consolidating statements of income, stockholders'
equity and cash flows for the fiscal quarter then ended and the fiscal year
through that date, all in reasonable detail and certified (subject to
normal year-end audit adjustments) by the Chief Executive Officer,
President or Chief Financial Officer of the Borrower as having been
prepared in accordance with GAAP, consistently applied, and setting forth
in comparative form the respective financial statements for the
corresponding date and period in the previous fiscal year.
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7.3.2. Annual Financial Statements.
As soon as available and in any event within ninety (90) days after the end
of each fiscal year of the Borrower, financial statements of the Borrower
consisting of a consolidated and consolidating balance sheet as of the end
of such fiscal year, and related consolidated and consolidating statements
of income, stockholders' equity and cash flows for the fiscal year then
ended, all in reasonable detail and setting forth in comparative form the
financial statements as of the end of and for the preceding fiscal year,
and certified by independent certified public accountants of nationally
recognized standing satisfactory to the Agent. The certificate or report of
accountants shall be free of qualifications (other than any consistency
qualification that may result from a change in the method used to prepare
the financial statements as to which such accountants concur) and shall not
indicate the occurrence or existence of any event, condition or contingency
which would materially impair the prospect of payment or performance of any
covenant, agreement or duty of any Loan Party under any of the Loan
Documents.
7.3.3. Certificate of the Borrower.
Concurrently with the financial statements of the Borrower furnished to the
Agent and to the Banks pursuant to Sections 7.3.1 [Quarterly Financial
Statements] and 7.3.2 [Annual Financial Statements], a certificate (each a
"Compliance Certificate") of the Borrower signed by the Chief Executive
Officer, President or Chief Financial Officer of the Borrower, in the form
of Exhibit 7.3.3, to the effect that, except as described pursuant to
Section 7.3.4 [Notice of Default], (i) the representations and warranties
of the Borrower contained in Section 5.1 and in the other Loan Documents
are true on and as of the date of such certificate with the same effect as
though such representations and warranties had been made on and as of such
date (except representations and warranties which expressly relate solely
to an earlier date or time) and the Loan Parties have performed and
complied with all covenants and conditions hereof, (ii) no Event of Default
or Potential Default exists and is continuing on the date of such
certificate and (iii) containing calculations in sufficient detail to
demonstrate compliance as of the date of such financial statements with all
financial covenants contained in Section 7.2 [Negative Covenants].
7.3.4. Notice of a Permitted Securitization.
On or before thirty (30) days prior to the closing of any Permitted
Securitization, notice thereof including a detailed description and copies
of any term sheets or documentation related thereto, and thereafter
promptly upon request such additional information with respect thereto as
reasonably may be requested by the Agent or the Required Banks.
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7.3.5. Notice of Default.
Promptly after any officer of any Loan Party has learned of the occurrence
of an Event of Default or Potential Default, a certificate signed by the
Chief Executive Officer, President or Chief Financial Officer of such Loan
Party setting forth the details of such Event of Default or Potential
Default and the action which the such Loan Party proposes to take with
respect thereto.
7.3.6. Notice of Litigation.
Promptly after the commencement thereof, notice of all actions, suits,
proceedings or investigations before or by any Official Body or any other
Person against any Loan Party or Subsidiary of any Loan Party which involve
a claim or series of claims in excess of $1,000,000 or which if adversely
determined would constitute a Material Adverse Change.
7.3.7. Certain Events.
Written notice to the Agent within the time limits set forth in Section
7.2.14 [Changes in Organizational Documents], any amendment to the
organizational documents of any Loan Party.
7.3.8. Budgets, Forecasts, Other Reports and Information.
Promptly upon their becoming available to the Borrower:
(i) the annual budget and any forecasts or projections of the
Borrower, to be supplied not later than ten (10)days prior to
commencement of the fiscal year to which any of the foregoing may be
applicable,
(ii) any reports including management letters submitted to the
Borrower by independent accountants in connection with any annual,
interim or special audit,
(iii) any reports, notices or proxy statements generally distributed
by the Borrower to its stockholders on a date no later than the date
supplied to such stockholders,
(iv) regular or periodic reports, including Forms 10-K, 10-Q and 8-K,
registration statements and prospectuses, filed by the Borrower with
the Securities and Exchange Commission,
(v) a copy of any order in any proceeding to which the Borrower or any
of its Subsidiaries is a party issued by any Official Body, and
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(vi) such other reports and information as any of the Banks may from
time to time reasonably request. The Borrower shall also notify the
Banks promptly of the enactment or adoption of any Law which may
result in a Material Adverse Change.
7.3.9. Notices Regarding Plans and Benefit Arrangements.
7.3.9.1 Certain Events.
Promptly upon becoming aware of the occurrence thereof, notice
(including the nature of the event and, when known, any action taken
or threatened by the Internal Revenue Service or the PBGC with respect
thereto) of:
(i) any Reportable Event with respect to the Borrower or any
other member of the ERISA Group (regardless of whether the
obligation to report said Reportable Event to the PBGC has been
waived),
(ii) any Prohibited Transaction which could subject the Borrower
or any other member of the ERISA Group to a civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Internal Revenue Code in connection with any
Plan, any Benefit Arrangement or any trust created thereunder,
(iii) any assertion of material withdrawal liability with respect
to any Multiemployer Plan,
(iv) any partial or complete withdrawal from a Multiemployer Plan
by the Borrower or any other member of the ERISA Group under
Title IV of ERISA (or assertion thereof), where such withdrawal
is likely to result in material withdrawal liability,
(v) any cessation of operations (by the Borrower or any other
member of the ERISA Group) at a facility in the circumstances
described in Section 4062(e) of ERISA,
(vi) withdrawal by the Borrower or any other member of the ERISA
Group from a Multiple Employer Plan,
(vii) a failure by the Borrower or any other member of the ERISA
Group to make a payment to a Plan required to avoid imposition of
a Lien under Section 302(f) of ERISA,
(viii) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307 of
ERISA, or
70
(ix) any change in the actuarial assumptions or funding methods
used for any Plan, where the effect of such change is to
materially increase or materially reduce the unfunded benefit
liability or obligation to make periodic contributions.
7.3.9.2 Notices of Involuntary Termination and Annual Reports.
Promptly after receipt thereof, copies of (a) all notices received by
the Borrower or any other member of the ERISA Group of the PBGC's
intent to terminate any Plan administered or maintained by the
Borrower or any member of the ERISA Group, or to have a trustee
appointed to administer any such Plan; and (b) at the request of the
Agent or any Bank each annual report (IRS Form 5500 series) and all
accompanying schedules, the most recent actuarial reports, the most
recent financial information concerning the financial status of each
Plan administered or maintained by the Borrower or any other member of
the ERISA Group, and schedules showing the amounts contributed to each
such Plan by or on behalf of the Borrower or any other member of the
ERISA Group in which any of their personnel participate or from which
such personnel may derive a benefit, and each Schedule B (Actuarial
Information) to the annual report filed by the Borrower or any other
member of the ERISA Group with the Internal Revenue Service with
respect to each such Plan.
7.3.9.3 Notice of Voluntary Termination.
Promptly upon the filing thereof, copies of any Form 5310, or any
successor or equivalent form to Form 5310, filed with the PBGC in
connection with the termination of any Plan.
8. DEFAULT
8.1 Events of Default.
An Event of Default shall mean the occurrence or existence of any one or more of
the following events or conditions (whatever the reason therefor and whether
voluntary, involuntary or effected by operation of Law):
8.1.1. Payments Under Loan Documents.
The Borrower shall fail to pay any principal of any Loan (including
scheduled installments, mandatory prepayments or the payment due at
maturity), Reimbursement Obligation or Letter of Credit Borrowing when due
or shall fail to pay any interest on any Loan , Reimbursement Obligation or
Letter of Credit Borrowing or any other amount (excluding principal,
Reimbursement Obligations or Letter of Credit Borrowings which are
addressed above) owing hereunder or under the other Loan Documents within
three (3) Business Days after such, interest or other amount becomes due in
accordance with the terms hereof or thereof;
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8.1.2. Breach of Warranty.
Any representation or warranty made at any time by any of the Loan Parties
herein or by any of the Loan Parties in any other Loan Document, or in any
certificate, other instrument or statement furnished pursuant to the
provisions hereof or thereof, shall prove to have been false or misleading
in any material respect as of the time it was made or furnished;
8.1.3. Breach of Negative Covenants or Visitation Rights.
Any of the Loan Parties shall default in the observance or performance of
any covenant contained in Section 7.1.6 [Visitation Rights] or Section 7.2
[Negative Covenants];
8.1.4. Breach of Other Covenants.
Any of the Loan Parties shall default in the observance or performance of
any other covenant, condition or provision hereof or of any other Loan
Document and such default shall continue unremedied for a period of ten
(10) Business Days after any officer of any Loan Party becomes aware of the
occurrence thereof (such grace period to be applicable only in the event
such default can be remedied by corrective action of the Loan Parties as
determined by the Agent in its sole discretion), provided that such
10-Business Day grace period shall be increased to 30 calendar days if the
Borrower notifies the Agent and each of the Banks of such default within
such 10-Business Day period and states in such notice that the Borrower
reasonably believes that it (or the applicable Loan Party) will cure such
default within such 30-calendar-day period;
8.1.5. Defaults in Other Agreements or Indebtedness.
A default or event of default shall occur at any time under the terms of
any other agreement involving borrowed money or the extension of credit or
any other Indebtedness under which any Loan Party or Subsidiary of any Loan
Party may be obligated as a borrower or guarantor in excess of $1,000,000
in the aggregate, and such breach, default or event of default:
(1) consists of the failure to pay (beyond any period of grace
permitted with respect thereto, whether waived or not) any
Indebtedness when due (whether at stated maturity, by acceleration or
otherwise);
(2) relates to a negative covenant or is otherwise material and
permits or causes the acceleration of any Indebtedness or the
termination of any commitment to lend (whether or not such right to
accelerate or terminate shall have been waived), or
(3) is not material and does not relate to a negative covenant and
permits or causes the acceleration of any Indebtedness or the
termination of any commitment to lend (provided that such right to
accelerate or terminate shall not have been waived);
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8.1.6. Final Judgments or Orders.
Any final judgments or orders for the payment of money in excess of
$1,000,000 in the aggregate shall be entered against any Loan Party by
a court having jurisdiction in the premises, which judgment is not
discharged, vacated, bonded or stayed pending appeal within a period
of thirty (30) days from the date of entry;
8.1.7. Loan Document Unenforceable.
Any of the Loan Documents shall cease to be legal, valid and binding
agreements enforceable against the party executing the same or such
party's successors and assigns (as permitted under the Loan Documents)
in accordance with the respective terms thereof or shall in any way be
terminated (except in accordance with its terms) or become or be
declared ineffective or inoperative or shall in any way be challenged
or contested or cease to give or provide the respective Liens,
security interests, rights, titles, interests, remedies, powers or
privileges intended to be created thereby;
8.1.8. Uninsured Losses; Proceedings Against Assets.
Any of the Loan Parties' or any of their Subsidiaries' assets are
attached, seized, levied upon or subjected to a writ or distress
warrant; or such come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors and the same is not
cured within thirty (30) days thereafter;
8.1.9. Notice of Lien or Assessment.
A notice of Lien or assessment in excess of $1,000,000 which is not a
Permitted Lien is filed of record with respect to all or any part of
any of the Loan Parties' or any of their Subsidiaries' assets by the
United States, or any department, agency or instrumentality thereof,
or by any state, county, municipal or other governmental agency,
including the PBGC, or any taxes or debts owing at any time or times
hereafter to any one of these becomes payable and the same is not paid
within thirty (30) days after the same becomes payable;
8.1.10. Insolvency.
Any Loan Party or any Subsidiary of a Loan Party ceases to be solvent
or admits in writing its inability to pay its debts as they mature;
8.1.11. Events Relating to Plans and Benefit Arrangements.
Any of the following occurs: (i) any Reportable Event, which the Agent
determines in good faith constitutes grounds for the termination of
any Plan by the PBGC or the appointment of a trustee to administer or
liquidate any Plan, shall have occurred and be continuing; (ii)
proceedings shall have been instituted or other action taken to
terminate any Plan, or a termination notice shall have been filed with
respect to any Plan; (iii) a trustee shall be appointed to administer
73
or liquidate any Plan; (iv) the PBGC shall give notice of its intent
to institute proceedings to terminate any Plan or Plans or to appoint
a trustee to administer or liquidate any Plan; and, in the case of the
occurrence of (i), (ii), (iii) or (iv) above, the Agent determines in
good faith that the amount of the Borrower's liability is likely to
exceed 10% of its Consolidated Tangible Net Worth; (v) the Borrower or
any member of the ERISA Group shall fail to make any contributions
when due to a Plan or a Multiemployer Plan; (vi) the Borrower or any
other member of the ERISA Group shall make any amendment to a Plan
with respect to which security is required under Section 307 of ERISA;
(vii) the Borrower or any other member of the ERISA Group shall
withdraw completely or partially from a Multiemployer Plan; (viii) the
Borrower or any other member of the ERISA Group shall withdraw (or
shall be deemed under Section 4062(e) of ERISA to withdraw) from a
Multiple Employer Plan; or (ix) any applicable Law is adopted, changed
or interpreted by any Official Body with respect to or otherwise
affecting one or more Plans, Multiemployer Plans or Benefit
Arrangements and, with respect to any of the events specified in (v),
(vi), (vii), (viii) or (ix), the Agent determines in good faith that
any such occurrence would be reasonably likely to materially and
adversely affect the total enterprise represented by the Borrower and
the other members of the ERISA Group;
8.1.12. Cessation of Business.
Any Loan Party or Subsidiary of a Loan Party ceases to conduct its
business as contemplated, except as expressly permitted under Section
7.2.6 [Liquidations, Mergers, Etc.] or 7.2.7, or any Loan Party or
Subsidiary of a Loan Party is enjoined, restrained or in any way
prevented by court order from conducting all or any material part of
its business and such injunction, restraint or other preventive order
is not dismissed within thirty (30) days after the entry thereof;
8.1.13. Change of Control. Any Change of Control shall occur.
8.1.14. Involuntary Proceedings.
A proceeding shall have been instituted in a court having jurisdiction
in the premises seeking a decree or order for relief in respect of any
Loan Party or Subsidiary of a Loan Party in an involuntary case under
any applicable bankruptcy, insolvency, reorganization or other similar
law now or hereafter in effect, or for the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator, conservator
(or similar official) of any Loan Party or Subsidiary of a Loan Party
for any substantial part of its property, or for the winding-up or
liquidation of its affairs, and such proceeding shall remain
undismissed or unstayed and in effect for a period of thirty (30)
consecutive days or such court shall enter a decree or order granting
any of the relief sought in such proceeding; or
8.1.15. Voluntary Proceedings.
Any Loan Party or Subsidiary of a Loan Party shall commence a
voluntary case under any applicable bankruptcy, insolvency,
reorganization or other similar law now or hereafter in effect, shall
consent to the entry of an order for relief in an involuntary case
under any such law, or shall consent to the appointment or taking
possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator (or other similar official) of itself or for
any substantial part of its property or shall make a general
assignment for the benefit of creditors, or shall fail generally to
pay its debts as they become due, or shall take any action in
furtherance of any of the foregoing.
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8.2 Consequences of Event of Default.
8.2.1. Events of Default Other Than Bankruptcy, Insolvency or
Reorganization Proceedings.
If an Event of Default specified under Sections 8.1.1 through 8.1.13
shall occur and be continuing, the Banks and the Agent shall be under
no further obligation to make Loans or issue Letters of Credit, as the
case may be, and the Agent may, and upon the request of the Required
Banks, shall (i) by written notice to the Borrower, declare the unpaid
principal amount of the Notes then outstanding and all interest
accrued thereon, any unpaid fees and all other Obligations of the
Borrower to the Banks hereunder and thereunder to be forthwith due and
payable, and the same shall thereupon become and be immediately due
and payable to the Agent for the benefit of each Bank without
presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived, and (ii) require the Borrower to,
and the Borrower shall thereupon, deposit in a non-interest-bearing
account with the Agent, as cash collateral for its Obligations under
the Loan Documents, an amount equal to the maximum amount currently or
at any time thereafter available to be drawn on all outstanding
Letters of Credit, and the Borrower hereby pledges to the Agent and
the Banks, and grants to the Agent and the Banks a security interest
in, all such cash as security for such Obligations. Upon the curing of
all existing Events of Default to the satisfaction of the Required
Banks, the Agent shall return such cash collateral to the Borrower;
and
8.2.2. Bankruptcy, Insolvency or Reorganization Proceedings.
If an Event of Default specified under Section 8.1.14 [Involuntary
Proceedings] or 8.1.15 [Voluntary Proceedings] shall occur, the Banks
shall be under no further obligations to make Loans hereunder and the
unpaid principal amount of the Loans then outstanding and all interest
accrued thereon, any unpaid fees and all other Obligations of the
Borrower to the Banks hereunder and thereunder shall be immediately
due and payable, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived; and
8.2.3. Set-off.
If an Event of Default shall occur and be continuing, any Bank to whom
any Obligation is owed by any Loan Party hereunder or under any other
Loan Document or any participant of such Bank which has agreed in
writing to be bound by the provisions of Section 9.13 [Equalization of
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Banks] and any branch, Subsidiary or Affiliate of such Bank or
participant anywhere in the world shall have the right, in addition to
all other rights and remedies available to it, without notice to such
Loan Party, to set-off against and apply to the then unpaid balance of
all the Loans and all other Obligations of the Borrower and the other
Loan Parties hereunder or under any other Loan Document any debt owing
to, and any other funds held in any manner for the account of, the
Borrower or such other Loan Party by such Bank or participant or by
such branch, Subsidiary or Affiliate, including all funds in all
deposit accounts (whether time or demand, general or special,
provisionally credited or finally credited, or otherwise) now or
hereafter maintained by the Borrower or such other Loan Party for its
own account (but not including funds held in custodian or trust
accounts) with such Bank or participant or such branch, Subsidiary or
Affiliate. Such right shall exist whether or not any Bank or the Agent
shall have made any demand under this Agreement or any other Loan
Document, whether or not such debt owing to or funds held for the
account of the Borrower or such other Loan Party is or are matured or
unmatured and regardless of the existence or adequacy of any
collateral, Guaranty or any other security, right or remedy available
to any Bank or the Agent; and
8.2.4. Suits, Actions, Proceedings.
If an Event of Default shall occur and be continuing, and whether or
not the Agent shall have accelerated the maturity of Loans pursuant to
any of the foregoing provisions of this Section 8.2, the Agent or any
Bank, if owed any amount with respect to the Loans, may proceed to
protect and enforce its rights by suit in equity, action at law and/or
other appropriate proceeding, whether for the specific performance of
any covenant or agreement contained in this Agreement or the other
Loan Documents, including as permitted by applicable Law the obtaining
of the ex parte appointment of a receiver, and, if such amount shall
have become due, by declaration or otherwise, proceed to enforce the
payment thereof or any other legal or equitable right of the Agent or
such Bank; and
8.2.5. Application of Proceeds.
From and after the date on which the Agent has taken any action
pursuant to this Section 8.2 and until all Obligations of the Loan
Parties have been paid in full, any and all proceeds received by the
Agent from the exercise of any other remedy by the Agent, shall be
applied as follows:
(i) first, to reimburse the Agent and the Banks for out-of-pocket
costs, expenses and disbursements, including reasonable
attorneys' and paralegals' fees and legal expenses, incurred by
the Agent or the Banks in connection with collection of any
Obligations of any of the Loan Parties under any of the Loan
Documents;
(ii) second, to the repayment of all Indebtedness then due and
unpaid of the Loan Parties to the Banks incurred under this
Agreement or any of the other Loan Documents, whether of
principal, interest, fees, expenses or otherwise, in such manner
as the Agent may determine in its discretion; and
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(iii) the balance, if any, as required by Law.
8.2.6. Other Rights and Remedies.
The Agent may, and upon the request of the Required Banks shall, exercise
all post-default rights granted to the Agent and the Banks under the Loan
Documents or applicable Law.
8.3 Notice of Sale.
Any notice required to be given by the Agent of any intended action by the
Agent, if given ten (10) days prior to such proposed action, shall constitute
commercially reasonable and fair notice thereof to the Borrower.
9. THE AGENT
9.1 Appointment.
Each Bank hereby irrevocably designates, appoints and authorizes PNC Bank to act
as Agent for such Bank under this Agreement and to execute and deliver or accept
on behalf of each of the Banks the other Loan Documents. Each Bank hereby
irrevocably authorizes, and each holder of any Note by the acceptance of a Note
shall be deemed irrevocably to authorize, the Agent to take such action on its
behalf under the provisions of this Agreement and the other Loan Documents and
any other instruments and agreements referred to herein, and to exercise such
powers and to perform such duties hereunder as are specifically delegated to or
required of the Agent by the terms hereof, together with such powers as are
reasonably incidental thereto. PNC Bank agrees to act as the Agent on behalf of
the Banks to the extent provided in this Agreement.
9.2 Delegation of Duties.
The Agent may perform any of its duties hereunder by or through agents or
employees (provided such delegation does not constitute a relinquishment of its
duties as Agent) and, subject to Sections 9.5 [Reimbursement of Agent by
Borrower, Etc.] and 9.6, shall be entitled to engage and pay for the advice or
services of any attorneys, accountants or other experts concerning all matters
pertaining to its duties hereunder and to rely upon any advice so obtained.
9.3 Nature of Duties; Independent Credit Investigation.
The Agent shall have no duties or responsibilities except those expressly set
forth in this Agreement and no implied covenants, functions, responsibilities,
duties, obligations, or liabilities shall be read into this Agreement or
otherwise exist. The duties of the Agent shall be mechanical and administrative
in nature; the Agent shall not have by reason of this Agreement a fiduciary or
trust relationship in respect of any Bank; and nothing in this Agreement,
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expressed or implied, is intended to or shall be so construed as to impose upon
the Agent any obligations in respect of this Agreement except as expressly set
forth herein. Without limiting the generality of the foregoing, the use of the
term "agent" in this Agreement with reference to the Agent is not intended to
connote any fiduciary or other implied (or express) obligations arising under
agency doctrine of any applicable Law. Instead, such term is used merely as a
matter of market custom, and is intended to create or reflect only an
administrative relationship between independent contracting parties. Each Bank
expressly acknowledges (i) that the Agent has not made any representations or
warranties to it and that no act by the Agent hereafter taken, including any
review of the affairs of any of the Loan Parties, shall be deemed to constitute
any representation or warranty by the Agent to any Bank; (ii) that it has made
and will continue to make, without reliance upon the Agent, its own independent
investigation of the financial condition and affairs and its own appraisal of
the creditworthiness of each of the Loan Parties in connection with this
Agreement and the making and continuance of the Loans hereunder; and (iii)
except as expressly provided herein, that the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any Bank
with any credit or other information with respect thereto, whether coming into
its possession before the making of any Loan or at any time or times thereafter.
9.4 Actions in Discretion of Agent; Instructions From the Banks.
The Agent agrees, upon the written request of the Required Banks, to take or
refrain from taking any action of the type specified as being within the Agent's
rights, powers or discretion herein, provided that the Agent shall not be
required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or any other Loan Document or applicable
Law. In the absence of a request by the Required Banks, the Agent shall have
authority, in its sole discretion, to take or not to take any such action,
unless this Agreement specifically requires the consent of the Required Banks or
all of the Banks. Any action taken or failure to act pursuant to such
instructions or discretion shall be binding on the Banks, subject to Section 9.6
[Exculpatory Provisions, Etc.]. Subject to the provisions of Section 9.6, no
Bank shall have any right of action whatsoever against the Agent as a result of
the Agent acting or refraining from acting hereunder in accordance with the
instructions of the Required Banks, or in the absence of such instructions, in
the absolute discretion of the Agent.
9.5 Reimbursement and Indemnification of Agent by the Borrower.
The Borrower unconditionally agrees to pay or reimburse the Agent and hold the
Agent harmless against (a) liability for the payment of all reasonable
out-of-pocket costs, expenses and disbursements, including fees and expenses of
counsel (including the allocated costs of staff counsel), appraisers and
environmental consultants, incurred by the Agent (i) in connection with the
development, negotiation, preparation, printing, execution, administration,
syndication, interpretation and performance of this Agreement and the other Loan
Documents, (ii) relating to any requested amendments, waivers or consents
pursuant to the provisions hereof, (iii) in connection with the enforcement of
this Agreement or any other Loan Document or collection of amounts due hereunder
or thereunder or the proof and allowability of any claim arising under this
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Agreement or any other Loan Document, whether in bankruptcy or receivership
proceedings or otherwise, and (iv) in any workout or restructuring or in
connection with the protection, preservation, exercise or enforcement of any of
the terms hereof or of any rights hereunder or under any other Loan Document or
in connection with any foreclosure, collection or bankruptcy proceedings, and
(b) all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the Agent,
in its capacity as such, in any way relating to or arising out of this Agreement
or any other Loan Documents or any action taken or omitted by the Agent
hereunder or thereunder, provided that the Borrower shall not be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements if the same results from the
Agent's gross negligence or willful misconduct, or if the Borrower was not given
notice of the subject claim and the opportunity to participate in the defense
thereof, at its expense (except that the Borrower shall remain liable to the
extent such failure to give notice does not result in a loss to the Borrower),
or if the same results from a compromise or settlement agreement entered into
without the consent of the Borrower, which shall not be unreasonably withheld.
In addition, the Borrower agrees to reimburse and pay all reasonable
out-of-pocket expenses of the Agent's regular employees and agents engaged
periodically to perform audits of the Loan Parties' books, records and business
properties.
9.6 Exculpatory Provisions; Limitation of Liability.
Neither the Agent nor any of its directors, officers, employees, agents,
attorneys or Affiliates shall (a) be liable to any Bank for any action taken or
omitted to be taken by it or them hereunder, or in connection herewith including
pursuant to any Loan Document, unless caused by its or their own gross
negligence or willful misconduct, (b) be responsible in any manner to any of the
Banks for the effectiveness, enforceability, genuineness, validity or the due
execution of this Agreement or any other Loan Documents or for any recital,
representation, warranty, document, certificate, report or statement herein or
made or furnished under or in connection with this Agreement or any other Loan
Documents, or (c) be under any obligation to any of the Banks to ascertain or to
inquire as to the performance or observance of any of the terms, covenants or
conditions hereof or thereof on the part of the Loan Parties, or the financial
condition of the Loan Parties, or the existence or possible existence of any
Event of Default or Potential Default. No claim may be made by any of the Loan
Parties, any Bank, the Agent or any of their respective Subsidiaries against the
Agent, any Bank, any of the Loan Parties or any of their respective directors,
officers, employees, agents, attorneys or Affiliates, or any of them, for any
special, indirect or consequential damages or, to the fullest extent permitted
by Law, for any punitive damages in respect of any claim or cause of action
(whether based on contract, tort, statutory liability, or any other ground)
based on, arising out of or related to any Loan Document or the transactions
contemplated hereby or any act, omission or event occurring in connection
therewith, including the negotiation, documentation, administration or
collection of the Loans, and each of the Loan Parties, (for itself and on behalf
of each of its Subsidiaries), the Agent and each Bank hereby waive, releases and
agree never to sue upon any claim for any such damages, whether such claim now
exists or hereafter arises and whether or not it is now known or suspected to
exist in its favor. Each Bank agrees that, except for notices, reports and other
documents expressly required to be furnished to the Banks by the Agent hereunder
or given to the Agent for the account of or with copies for the Banks, the Agent
and each of its directors, officers, employees, agents, attorneys or Affiliates
shall not have any duty or responsibility to provide any Bank with an credit or
other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of the Loan Parties
which may come into the possession of the Agent or any of its directors,
officers, employees, agents, attorneys or Affiliates.
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9.7 Reimbursement and Indemnification of Agent by Banks.
Each Bank agrees to reimburse and indemnify the Agent (to the extent not
reimbursed by the Borrower and without limiting the Obligation of the Borrower
to do so) in proportion to its Ratable Share from and against all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements, including attorneys' fees and disbursements
(including the allocated costs of staff counsel), and costs of appraisers and
environmental consultants, of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Agent, in its capacity as such, in any
way relating to or arising out of this Agreement or any other Loan Documents or
any action taken or omitted by the Agent hereunder or thereunder, provided that
no Bank shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements (a) if the same results from the Agent's gross negligence or
willful misconduct, or (b) if such Bank was not given notice of the subject
claim and the opportunity to participate in the defense thereof, at its expense
(except that such Bank shall remain liable to the extent such failure to give
notice does not result in a loss to the Bank), or (c) if the same results from a
compromise and settlement agreement entered into without the consent of such
Bank, which shall not be unreasonably withheld. In addition, each Bank agrees
promptly upon demand to reimburse the Agent (to the extent not reimbursed by the
Borrower and without limiting the Obligation of the Borrower to do so) in
proportion to its Ratable Share for all amounts due and payable by the Borrower
to the Agent in connection with the Agent's periodic audit of the Loan Parties'
books, records and business properties.
9.8 Reliance by Agent.
The Agent shall be entitled to rely upon any writing, telegram, telex or
teletype message, resolution, notice, consent, certificate, letter, cablegram,
statement, order or other document or conversation by telephone or otherwise
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons, and upon the advice and opinions of counsel and
other professional advisers selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action hereunder unless it shall
first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
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9.9 Notice of Default.
The Agent shall not be deemed to have knowledge or notice of the occurrence of
any Potential Default or Event of Default unless the Agent has received written
notice from a Bank or the Borrower referring to this Agreement, describing such
Potential Default or Event of Default and stating that such notice is a "notice
of default."
9.10 Notices.
The Agent shall promptly send to each Bank a copy of all notices received from
the Borrower pursuant to the provisions of this Agreement or the other Loan
Documents promptly upon receipt thereof. The Agent shall promptly notify the
Borrower and the other Banks of each change in the Base Rate and the effective
date thereof.
9.11 Banks in Their Individual Capacities; Agent in its Individual Capacity.
With respect to its Commitments and the Loans made by it and any other rights
and powers given to it as a Bank hereunder or under any of the other Loan
Documents, the Agent shall have the same rights and powers hereunder as any
other Bank and may exercise the same as though it were not the Agent, and the
term "Bank" and "Banks" shall, unless the context otherwise indicates, include
the Agent in its individual capacity. PNC Bank and its Affiliates and each of
the Banks and their respective Affiliates may, without liability to account,
except as prohibited herein, make loans to, issue letters of credit for the
account of, acquire equity interests in, accept deposits from, discount drafts
for, act as trustee under indentures of, and generally engage in any kind of
banking, trust, financial advisory, underwriting or other business with, the
Loan Parties and their Affiliates, in the case of the Agent, as though it were
not acting as Agent hereunder and in the case of each Bank, as though such Bank
were not a Bank hereunder, in each case without notice to or consent of the
other Banks. The Banks acknowledge that, pursuant to such activities, the Agent
or its Affiliates may (i) receive information regarding the Loan Parties or any
of their Subsidiaries or Affiliates (including information that may be subject
to confidentiality obligations in favor of the Loan Parties or such Subsidiary
or Affiliate) and acknowledge that the Agent shall be under no obligation to
provide such information to them, and (ii) accept fees and other consideration
from the Loan Parties for services in connection with this Agreement and
otherwise without having to account for the same to the Banks.
9.12 Holders of Notes.
The Agent may deem and treat any payee of any Note as the owner thereof for all
purposes hereof unless and until written notice of the assignment or transfer
thereof shall have been filed with the Agent. Any request, authority or consent
of any Person who at the time of making such request or giving such authority or
consent is the holder of any Note shall be conclusive and binding on any
subsequent holder, transferee or assignee of such Note or of any Note or Notes
issued in exchange therefor.
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9.13 Equalization of Banks.
The Banks and the holders of any participations in any Notes agree among
themselves that, with respect to all amounts received by any Bank or any such
holder for application on any Obligation hereunder or under any Note or under
any such participation, whether received by voluntary payment, by realization
upon security, by the exercise of the right of set-off or banker's lien, by
counterclaim or by any other non-pro rata source, equitable adjustment will be
made in the manner stated in the following sentence so that, in effect, all such
excess amounts will be shared ratably among the Banks and such holders in
proportion to their interests in payments under the Notes, except as otherwise
provided in Section 3.4.3 [Agent's and Bank's Rights], 4.4.2 [Replacement of a
Bank] or 4.6 [Additional Compensation in Certain Circumstances]. The Banks or
any such holder receiving any such amount shall purchase for cash from each of
the other Banks an interest in such Bank's Loans in such amount as shall result
in a ratable participation by the Banks and each such holder in the aggregate
unpaid amount under the Notes, provided that if all or any portion of such
excess amount is thereafter recovered from the Bank or the holder making such
purchase, such purchase shall be rescinded and the purchase price restored to
the extent of such recovery, together with interest or other amounts, if any,
required by law (including court order) to be paid by the Bank or the holder
making such purchase.
9.14 Successor Agent.
The Agent (i) may resign as Agent or (ii) shall resign if such resignation is
requested by the Required Banks (if the Agent is a Bank, the Agent's Loans and
its Revolving Credit Commitments shall be considered in determining whether the
Required Banks have requested such resignation) or required by Section 4.4.2
[Replacement of a Bank], in either case of (i) or (ii) by giving not less than
thirty (30) days' prior written notice to the Borrower. If the Agent shall
resign under this Agreement, then either (a) the Required Banks shall appoint
from among the Banks a successor agent for the Banks, subject to the consent of
the Borrower, such consent not to be unreasonably withheld, or (b) if a
successor agent shall not be so appointed and approved within the thirty (30)
day period following the Agent's notice to the Banks of its resignation, then
the Agent shall appoint, with the consent of the Borrower, such consent not to
be unreasonably withheld, a successor agent who shall serve as Agent until such
time as the Required Banks appoint and the Borrower consents to the appointment
of a successor agent. Upon its appointment pursuant to either clause (a) or (b)
above, such successor agent shall succeed to the rights, powers and duties of
the Agent, and the term "Agent" shall mean such successor agent, effective upon
its appointment, and the former Agent's rights, powers and duties as Agent shall
be terminated without any other or further act or deed on the part of such
former Agent or any of the parties to this Agreement. After the resignation of
any Agent hereunder, the provisions of this Section 9 shall inure to the benefit
of such former Agent and such former Agent shall not by reason of such
resignation be deemed to be released from liability for any actions taken or not
taken by it while it was an Agent under this Agreement.
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9.15 Agent's Fee.
The Borrower shall pay to the Agent a nonrefundable fee (the "Agent's Fee")
under the terms of a letter (the "Agent's Letter") between the Borrower and
Agent, as amended from time to time.
9.16 Availability of Funds.
The Agent may assume that each Bank has made or will make the proceeds of a
Revolving Credit Loan available to the Agent unless the Agent shall have been
notified by such Bank on or before the later of (1) the close of Business on the
Business Day preceding the Borrowing Date with respect to such Revolving Credit
Loan or two (2) hours before the time on which the Agent actually funds the
proceeds of such Revolving Credit Loan to the Borrower (whether using its own
funds pursuant to this Section 9.16 or using proceeds deposited with the Agent
by the Banks and whether such funding occurs before or after the time on which
Banks are required to deposit the proceeds of such Revolving Credit Loan with
the Agent). The Agent may, in reliance upon such assumption (but shall not be
required to), make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Agent by such Bank,
the Agent shall be entitled to recover such amount on demand from such Bank (or,
if such Bank fails to pay such amount forthwith upon such demand from the
Borrower) together with interest thereon, in respect of each day during the
period commencing on the date such amount was made available to the Borrower and
ending on the date the Agent recovers such amount, at a rate per annum equal to
(i) the Federal Funds Effective Rate during the first three (3) days after such
interest shall begin to accrue and (ii) the applicable interest rate in respect
of such Revolving Credit Loan after the end of such three-day period.
9.17 Calculations.
In the absence of gross negligence or willful misconduct, the Agent shall not be
liable for any error in computing the amount payable to any Bank whether in
respect of the Loans, fees or any other amounts due to the Banks under this
Agreement. In the event an error in computing any amount payable to any Bank is
made, the Agent, the Borrower and each affected Bank shall, forthwith upon
discovery of such error, make such adjustments as shall be required to correct
such error, and any compensation therefor will be calculated at the Federal
Funds Effective Rate.
9.18 Beneficiaries.
Except as expressly provided herein, the provisions of this Section 9 are solely
for the benefit of the Agent and the Banks, and the Loan Parties shall not have
any rights to rely on or enforce any of the provisions hereof. In performing its
functions and duties under this Agreement, the Agent shall act solely as agent
of the Banks and does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for any of the Loan
Parties.
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10. MISCELLANEOUS
10.1 Modifications, Amendments or Waivers.
With the written consent of the Required Banks, the Agent, acting on behalf of
all the Banks, and the Borrower, on behalf of the Loan Parties, may from time to
time enter into written agreements amending or changing any provision of this
Agreement or any other Loan Document or the rights of the Banks or the Loan
Parties hereunder or thereunder, or may grant written waivers or consents to a
departure from the due performance of the Obligations of the Loan Parties
hereunder or thereunder. Any such agreement, waiver or consent made with such
written consent shall be effective to bind all the Banks and the Loan Parties;
provided, that, without the written consent of all the Banks, no such agreement,
waiver or consent may be made which will:
10.1.1. Increase of Commitment; Extension of Expiration Date.
Increase the amount of the Commitment of any Bank hereunder or extend the
Expiration Date;
10.1.2. Extension of Payment; Reduction of Principal Interest or Fees;
Modification of Terms of Payment.
Whether or not any Loans are outstanding, extend the time for payment of
principal or interest of any Loan (excluding the due date of any mandatory
prepayment of a Loan or any mandatory Commitment reduction in connection
with such a mandatory prepayment hereunder except for mandatory reductions
of the Commitments on the Expiration Date), the Commitment Fee or any other
fee payable to any Bank, or reduce the principal amount of or the rate of
interest borne by any Loan or reduce the Commitment Fee or any other fee
payable to any Bank, or otherwise affect the terms of payment of the
principal of or interest of any Loan, the Commitment Fee or any other fee
payable to any Bank;
10.1.3. Release of Guarantor or Security.
Except for sales of assets permitted by Section 7.2.7 [Disposition of
Assets or Subsidiaries], release any Guarantor from its Obligations under
the Guaranty Agreement or any other security for any of the Loan Parties'
Obligations; or
10.1.4. Miscellaneous.
Amend Section 4.2 [Pro Rata Treatment of Banks], 9.6 [Exculpatory
Provisions, Etc.] or 9.13 [Equalization of Banks] or this Section 10.1,
alter any provision regarding the pro rata treatment of the Banks, change
the definition of Required Banks, or change any requirement providing for
the Banks or the Required Banks to authorize the taking of any action
hereunder;
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provided, further, that no agreement, waiver or consent which would modify
the interests, rights or obligations of the Agent in its capacity as Agent
or as the issuer of Letters of Credit shall be effective without the
written consent of the Agent.
10.2 No Implied Waivers; Cumulative Remedies; Writing Required.
No course of dealing and no delay or failure of the Agent or any Bank in
exercising any right, power, remedy or privilege under this Agreement or any
other Loan Document shall affect any other or future exercise thereof or operate
as a waiver thereof, nor shall any single or partial exercise thereof or any
abandonment or discontinuance of steps to enforce such a right, power, remedy or
privilege preclude any further exercise thereof or of any other right, power,
remedy or privilege. The rights and remedies of the Agent and the Banks under
this Agreement and any other Loan Documents are cumulative and not exclusive of
any rights or remedies which they would otherwise have. Any waiver, permit,
consent or approval of any kind or character on the part of any Bank of any
breach or default under this Agreement or any such waiver of any provision or
condition of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing.
10.3 Reimbursement and Indemnification of Banks by the Borrower; Taxes.
The Borrower agrees unconditionally upon demand to pay or reimburse to each Bank
(other than the Agent, as to which the Borrower's Obligations are set forth in
Section 9.5 [Reimbursement of Agent By Borrower, Etc.]) and to save such Bank
harmless against (i) liability for the payment of all reasonable out-of-pocket
costs, expenses and disbursements (including fees and expenses of counsel
(including allocated costs of staff counsel) for each Bank except with respect
to (a) and (b) below), incurred by such Bank (a) in connection with the
negotiation, administration and interpretation of this Agreement, and other
instruments and documents to be delivered hereunder, (b) relating to any
amendments, waivers or consents pursuant to the provisions hereof, (c) in
connection with the enforcement of this Agreement or any other Loan Document, or
collection of amounts due hereunder or thereunder or the proof and allowability
of any claim arising under this Agreement or any other Loan Document, whether in
bankruptcy or receivership proceedings or otherwise, and (d) in any workout or
restructuring or in connection with the protection, preservation, exercise or
enforcement of any of the terms hereof or of any rights hereunder or under any
other Loan Document or in connection with any foreclosure, collection or
bankruptcy proceedings, or (ii) all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against such Bank, in its capacity as such, in any way relating to or arising
out of this Agreement or any other Loan Documents or any action taken or omitted
by such Bank hereunder or thereunder, provided that the Borrower shall not be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements (A) if
the same results from such Bank's gross negligence or willful misconduct, or (B)
if the Borrower was not given notice of the subject claim and the opportunity to
participate in the defense thereof, at its expense (except that the Borrower
shall remain liable to the extent such failure to give notice does not result in
85
a loss to the Borrower), or (C) if the same results from a compromise or
settlement agreement entered into without the consent of the Borrower, which
shall not be unreasonably withheld. The Banks will attempt to minimize the fees
and expenses of legal counsel for the Banks which are subject to reimbursement
by the Borrower hereunder by considering the usage of one law firm to represent
the Banks and the Agent if appropriate under the circumstances. The Borrower
agrees unconditionally to pay all stamp, document, transfer, recording or filing
taxes or fees and similar impositions now or hereafter determined by the Agent
or any Bank to be payable in connection with this Agreement or any other Loan
Document, and the Borrower agrees unconditionally to save the Agent and the
Banks harmless from and against any and all present or future claims,
liabilities or losses with respect to or resulting from any omission to pay or
delay in paying any such taxes, fees or impositions.
10.4 Holidays.
Whenever payment of a Loan to be made or taken hereunder shall be due on a day
which is not a Business Day such payment shall be due on the next Business Day
(except as provided in Section 3.2 [Interest Periods] with respect to Interest
Periods under the Euro-Rate Option) and such extension of time shall be included
in computing interest and fees, except that the Loans shall be due on the
Business Day preceding the Expiration Date if the Expiration Date is not a
Business Day. Whenever any payment or action to be made or taken hereunder
(other than payment of the Loans) shall be stated to be due on a day which is
not a Business Day, such payment or action shall be made or taken on the next
following Business Day, and such extension of time shall not be included in
computing interest or fees, if any, in connection with such payment or action.
10.5 Funding by Branch, Subsidiary or Affiliate.
10.5.1. Notional Funding.
Each Bank shall have the right from time to time, without notice to the
Borrower, to deem any branch, Subsidiary or Affiliate (which for the
purposes of this Section 10.5 shall mean any corporation or association
which is directly or indirectly controlled by or is under direct or
indirect common control with any corporation or association which directly
or indirectly controls such Bank) of such Bank to have made, maintained or
funded any Loan to which the Euro-Rate Option applies at any time, provided
that immediately following (on the assumption that a payment were then due
from the Borrower to such other office), and as a result of such change,
the Borrower would not be under any greater financial obligation pursuant
to Section 4.6 [Additional Compensation in Certain Circumstances] than it
would have been in the absence of such change. Notional funding offices may
be selected by each Bank without regard to such Bank's actual methods of
making, maintaining or funding the Loans or any sources of funding actually
used by or available to such Bank.
86
10.5.2. Actual Funding.
Each Bank shall have the right from time to time to make or maintain any
Loan by arranging for a branch, Subsidiary or Affiliate of such Bank to
make or maintain such Loan subject to the last sentence of this Section
10.5.2. If any Bank causes a branch, Subsidiary or Affiliate to make or
maintain any part of the Loans hereunder, all terms and conditions of this
Agreement shall, except where the context clearly requires otherwise, be
applicable to such part of the Loans to the same extent as if such Loans
were made or maintained by such Bank, but in no event shall any Bank's use
of such a branch, Subsidiary or Affiliate to make or maintain any part of
the Loans hereunder cause such Bank or such branch, Subsidiary or Affiliate
to incur any cost or expenses payable by the Borrower hereunder or require
the Borrower to pay any other compensation to any Bank (including any
expenses incurred or payable pursuant to Section 4.6 [Additional
Compensation in Certain Circumstances]) which would otherwise not be
incurred.
10.6 Notices.
Any notice, request, demand, direction or other communication (for purposes of
this Section 10.6 only, a "Notice") to be given to or made upon any party hereto
under any provision of this Agreement shall be given or made by telephone or in
writing (which includes means of electronic transmission (i.e., "e-mail") or
facsimile transmission or by setting forth such Notice on a site on the World
Wide Web (a "Website Posting") if Notice of such Website Posting (including the
information necessary to access such site) has previously been delivered to the
applicable parties hereto by another means set forth in this Section 10.6) in
accordance with this Section 10.6. Any such Notice must be delivered to the
applicable parties hereto at the addresses and numbers set forth under their
respective names on Schedule 1.1(B) hereof or in accordance with any subsequent
unrevoked Notice from any such party that is given in accordance with this
Section 10.6. Any Notice shall be effective:
(i) In the case of hand-delivery, when delivered;
(ii) If given by mail, four days after such Notice is deposited with the
United States Postal Service, with first-class postage prepaid, return
receipt requested;
(iii) In the case of a telephonic Notice, when a party is contacted by
telephone, if delivery of such telephonic Notice is confirmed no later than
the next Business Day by hand delivery, a facsimile or electronic
transmission, a Website Posting or overnight courier delivery of a
confirmatory notice (received at or before noon on such next Business Day);
(iv) In the case of a facsimile transmission, when sent to the applicable
party's facsimile machine's telephone number if the party sending such
Notice receives confirmation of the delivery thereof from its own facsimile
machine;
(v) In the case of electronic transmission, when actually received;
87
(vi) In the case of a Website Posting, upon delivery of a Notice of such
posting (including the information necessary to access such web site) by
another means set forth in this Section 10.6; and
(vii) If given by any other means (including by overnight courier), when
actually received.
Any Bank giving a Notice to a Loan Party shall concurrently send a copy thereof
to the Agent, and the Agent shall promptly notify the other Banks of its receipt
of such Notice.
10.7 Severability.
The provisions of this Agreement are intended to be severable. If any provision
of this Agreement shall be held invalid or unenforceable in whole or in part in
any jurisdiction, such provision shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without in any manner
affecting the validity or enforceability thereof in any other jurisdiction or
the remaining provisions hereof in any jurisdiction.
10.8 Governing Law.
Each Letter of Credit and Section 2.11 [Letter of Credit Subfacility] shall be
subject to the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500, as the same
may be revised or amended from time to time, and to the extent not inconsistent
therewith, the internal laws of the Commonwealth of Pennsylvania without regard
to its conflict of laws principles, and the balance of this Agreement shall be
deemed to be a contract under the Laws of the Commonwealth of Pennsylvania and
for all purposes shall be governed by and construed and enforced in accordance
with the internal laws of the Commonwealth of Pennsylvania without regard to its
conflict of laws principles.
10.9 Prior Understanding.
This Agreement and the other Loan Documents supersede all prior understandings
and agreements, whether written or oral, between the parties hereto and thereto
relating to the transactions provided for herein and therein, including any
prior confidentiality agreements and commitments.
10.10 Duration; Survival.
All representations and warranties of the Loan Parties contained herein or made
in connection herewith shall survive the making of Loans and issuance of Letters
of Credit and shall not be waived by the execution and delivery of this
Agreement, any investigation by the Agent or the Banks, the making of Loans,
issuance of Letters of Credit, or payment in full of the Loans. All covenants
and agreements of the Loan Parties contained in Sections 7.1 [Affirmative
Covenants], 7.2 [Negative Covenants] and 7.3 [Reporting Requirements] herein
88
shall continue in full force and effect from and after the date hereof so long
as the Borrower may borrow or request Letters of Credit hereunder and until
termination of the Commitments and payment in full of the Loans and expiration
or termination of all Letters of Credit. All covenants and agreements of the
Borrower contained herein relating to the payment of principal, interest,
premiums, additional compensation or expenses and indemnification, including
those set forth in the Notes, Section 4 [Payments] and Sections 9.5
[Reimbursement of Agent by Borrower, Etc.], 9.7 [Reimbursement of Agent by
Banks, Etc.] and 10.3 [Reimbursement of Banks by Borrower; Etc.], shall survive
payment in full of the Loans, expiration or termination of the Letters of Credit
and termination of the Commitments.
10.11 Successors and Assigns.
(a) (i) This Agreement shall be binding upon and shall inure to the benefit
of the Banks, the Agent, the Loan Parties and their respective successors
and assigns, except that none of the Loan Parties may assign or transfer
any of its rights and Obligations hereunder or any interest herein. Each
Bank may, at its own cost, make assignments of or sell participations in
all or any part of its Commitments and the Loans made by it to one or more
banks or other entities, subject to the consent of the Borrower and the
Agent with respect to any assignee, such consent not to be unreasonably
withheld, provided that (1) no consent of the Borrower shall be required
(A) if an Event of Default exists and is continuing, or (B) in the case of
an assignment by a Bank to an Affiliate of such Bank, and (2) any
assignment by a Bank to a Person other than an Affiliate of such Bank may
not be made in amounts less than the lesser of $5,000,000 or the amount of
the assigning Bank's Commitment. In the case of an assignment, upon receipt
by the Agent of the Assignment and Assumption Agreement, the assignee shall
have, to the extent of such assignment (unless otherwise provided therein),
the same rights, benefits and obligations as it would have if it had been a
signatory Bank hereunder, the Commitments shall be adjusted accordingly,
and upon surrender of any Note subject to such assignment, the Borrower
shall execute and deliver new Notes to the assignee in an amount equal to
the amount of the applicable Commitments assumed by it and new Notes to the
assigning Bank in an amount equal to the applicable Commitments retained by
it hereunder. Any Bank which assigns any or all of its Commitments or Loans
to a Person other than an Affiliate of such Bank shall pay to the Agent a
service fee in the amount of $3,500 for each assignment. In the case of a
participation, the participant shall only have the rights specified in
Section 8.2.3 [Set-off] (the participant's rights against such Bank in
respect of such participation to be those set forth in the agreement
executed by such Bank in favor of the participant relating thereto and not
to include any voting rights except with respect to changes of the type
referenced in Sections 10.1.1 [Increase of Commitment, Etc.], 10.1.2
[Extension of Payment, Etc.], or 10.1.3 [Release of Guarantor or
Security]), all of such Bank's obligations under this Agreement or any
other Loan Document shall remain unchanged, and all amounts payable by any
Loan Party hereunder or thereunder shall be determined as if such Bank had
not sold such participation.
(ii) Any assignee or participant which is not incorporated under the
Laws of the United States of America or a state thereof shall deliver
to the Borrower and the Agent the form of certificate described in
Section 10.16 [Tax Withholding Clause] relating to federal income tax
withholding. Each Bank may furnish any publicly available information
concerning any Loan Party or its Subsidiaries and any other
information concerning any Loan Party or its Subsidiaries in the
possession of such Bank from time to time to assignees and
participants (including prospective assignees or participants),
provided that such assignees and participants agree to be bound by the
provisions of Section 10.12 [Confidentiality].
89
(iii) Notwithstanding any other provision in this Agreement, any Bank
may at any time pledge or grant a security interest in all or any
portion of its rights under this Agreement, its Note and the other
Loan Documents to any Federal Reserve Bank in accordance with
Regulation A of the FRB or U.S. Treasury Regulation 31 CFR Section
203.14 without notice to or consent of the Borrower or the Agent. No
such pledge or grant of a security interest shall release the
transferor Bank of its obligations hereunder or under any other Loan
Document.
(b) A bank which is to become a party to this Agreement pursuant to Section
2.4 hereof or otherwise (each, an "Additional Bank") shall execute and
deliver to the Agent a bank joinder (the "Bank Joinder") to this Agreement
in a form acceptable to the Agent. Upon execution and delivery of a Bank
Joinder, such Additional Bank shall be a party hereto and a Bank under each
of the Loan Documents for all purposes, except that such Additional Bank
shall not participate in any Revolving Credit Loans to which the Euro-Rate
Option applies which are outstanding on the effective date of such Bank
Joinder. If Borrower should renew after the effective date of such Bank
Joinder the Euro-Rate Option with respect to Revolving Credit Loans
existing on such date, Borrower shall be deemed to repay the applicable
Revolving Credit Loans on the renewal date and then reborrow a similar
amount on such date so that the Additional Bank shall participate in such
Revolving Credit Loans after such renewal date. The Additional Bank shall
participate in Letters of Credit pursuant to Section 2.11 hereof. Schedule
1.1(B) shall be amended and restated on the date of such Bank Joinder to
reflect such Bank Joinder. Simultaneously with the execution and delivery
of such Bank Joinder, Borrower shall execute a Revolving Credit Note and
deliver it to such Additional Bank together with originals of such other
documents described in Section 6.1 hereof as such Additional Bank may
reasonably require.
10.12 Confidentiality.
10.12.1. General.
The Agent and the Banks each agree to keep confidential all information
obtained from any Loan Party or its Subsidiaries which is nonpublic and
confidential or proprietary in nature (including any information the
Borrower specifically designates as confidential), except as provided
below, and to use such information only in connection with their respective
capacities under this Agreement and for the purposes contemplated hereby.
The Agent and the Banks shall be permitted to disclose such information (i)
to outside legal counsel, accountants and other professional advisors who
need to know such information in connection with the administration and
enforcement of this Agreement, subject to agreement of such Persons to
90
maintain the confidentiality, (ii) to assignees and participants as
contemplated by Section 10.11, and prospective assignees and participants,
(iii) to the extent requested by any bank regulatory authority or, with
notice to the Borrower, as otherwise required by applicable Law or by any
subpoena or similar legal process, or in connection with any investigation
or proceeding arising out of the transactions contemplated by this
Agreement, (iv) if it becomes publicly available other than as a result of
a breach of this Agreement or becomes available from a source not known to
be subject to confidentiality restrictions, or (v) if the Borrower shall
have consented to such disclosure.
10.12.2. Sharing Information With Affiliates of the Banks.
Each Loan Party acknowledges that from time to time financial advisory,
investment banking and other services may be offered or provided to the
Borrower or one or more of its Affiliates (in connection with this
Agreement or otherwise) by any Bank or by one or more Subsidiaries or
Affiliates of such Bank and each of the Loan Parties hereby authorizes each
Bank to share any information delivered to such Bank by such Loan Party and
its Subsidiaries pursuant to this Agreement, or in connection with the
decision of such Bank to enter into this Agreement, to any such Subsidiary
or Affiliate of such Bank, it being understood that any such Subsidiary or
affiliate of any Bank receiving such information shall be bound by the
provisions of Section 10.12.1 as if it were a Bank hereunder. Such
Authorization shall survive the repayment of the Loans and other
Obligations and the termination of the Commitments.
10.13 Counterparts.
This Agreement may be executed by different parties hereto on any number of
separate counterparts, each of which, when so executed and delivered, shall be
an original, and all such counterparts shall together constitute one and the
same instrument.
10.14 Exceptions.
The representations, warranties and covenants contained herein shall be
independent of each other, and no exception to any representation, warranty or
covenant shall be deemed to be an exception to any other representation,
warranty or covenant contained herein unless expressly provided, nor shall any
such exceptions be deemed to permit any action or omission that would be in
contravention of applicable Law.
10.15 CONSENT TO FORUM; WAIVER OF JURY TRIAL.
EACH LOAN PARTY HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF
THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY AND THE UNITED STATES DISTRICT
COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA, AND WAIVES PERSONAL SERVICE OF
ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE
MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH LOAN PARTY AT THE
91
ADDRESSES PROVIDED FOR IN SECTION 10.6 AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH LOAN PARTY WAIVES ANY OBJECTION TO
JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN
AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE.
EACH LOAN PARTY, THE AGENT AND THE BANKS HEREBY WAIVE TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED
TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE COLLATERAL TO THE FULL EXTENT
PERMITTED BY LAW.
10.16 Tax Withholding Clause.
Each Bank or assignee or participant of a Bank that is not incorporated under
the Laws of the United States of America or a state thereof (and, upon the
written request of the gent, each other Bank or assignee or participant of a
Bank) agrees that it will deliver to each of the Borrower and the Agent two (2)
duly completed appropriate valid Withholding Certificates (as defined under Sec.
1.1441-1(c)(16) of the Income Tax Regulations (the "Regulations")) certifying
its status (i.e. U.S. or foreign person) and, if appropriate, making a claim of
reduced, or exemption from, U.S. withholding tax on the basis of an income tax
treaty or an exemption provided by the Internal Revenue Code. The term
"Withholding Certificate" means a Form W-9; a Form W-8BEN; a Form W-8ECI; a Form
W-8IMY and the related statements and certifications as required under Sec.
1.1441-1(e)(2) and/or (3) of the Regulations; a statement described in Sec.
1.871-14(c)(2)(v) of the Regulations; or any other certificates under the
Internal Revenue Code or Regulations that certify or establish the status of a
payee or beneficial owner as a U.S. or foreign person. Each Bank, assignee or
participant required to deliver to the Borrower and the Agent a Withholding
Certificate pursuant to the preceding sentence shall deliver such valid
Withholding Certificate as follows: (A) each Bank which is a party hereto on the
Closing Date shall deliver such valid Withholding Certificate at least five (5)
Business Days prior to the first date on which any interest or fees are payable
by the Borrower hereunder for the account of such Bank; (B) each assignee or
participant shall deliver such valid Withholding Certificate at least five (5)
Business Days before the effective date of such assignment or participation
(unless the Agent in its sole discretion shall permit such assignee or
participant to deliver such valid Withholding Certificate less than five (5)
Business Days before such date in which case it shall be due on the date
specified by the Agent). Each Bank, assignee or participant which so delivers a
valid Withholding Certificate further undertakes to deliver to each of the
Borrower and the Agent two (2) additional copies of such Withholding Certificate
(or a successor form) on or before the date that such Withholding Certificate
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent Withholding Certificate so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Agent. Notwithstanding the submission of a
Withholding Certificate claiming a reduced rate of or exemption from U.S.
withholding tax, the Agent shall be entitled to withhold United States federal
income taxes at the full 30% withholding rate if in its reasonable judgment it
is required to do so under the due diligence requirements imposed upon a
92
withholding agent under Sec. 1.1441-7(b) of the Regulations. Further, the Agent
is indemnified under Sec. 1.1461-1(e) of the Regulations against any claims and
demands of any Bank or assignee or participant of a Bank for the amount of any
tax it deducts and withholds in accordance with regulations under Sec. 1441 of
the Internal Revenue Code.
10.17 Joinder of Guarantors.
Any Subsidiary of the Borrower which is required to join this Agreement as a
Guarantor pursuant to Section 7.2.9 [Subsidiaries, Partnerships and Joint
Ventures] shall execute and deliver to the Agent (i) a Guarantor Joinder in
substantially the form attached hereto as Exhibit 1.1(G)(1) pursuant to which it
shall join as a Guarantor each of the documents to which the Guarantors are
parties; and (ii) documents in the forms described in Section 6.1 [First Loans]
modified as appropriate to relate to such Subsidiary. The Loan Parties shall
deliver such Guarantor Joinder and related documents to the Agent within five
(5) Business Days after the date of the filing of such Subsidiary's articles of
incorporation if the Subsidiary is a corporation, the date of the filing of its
certificate of limited partnership if it is a limited partnership or the date of
its organization if it is an entity other than a limited partnership or
corporation.
[SIGNATURE PAGE FOLLOWS]
93
[SIGNATURE PAGE 1A TO CREDIT AGREEMENT]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
STEEL TECHNOLOGIES INC.
By:/S/
Title:
By: /S/
Title:
[GUARANTORS]
By: /S/
Title:
By: /S/
Title:
94
[SIGNATURE PAGE 2 TO CREDIT AGREEMENT]
PNC BANK, NATIONAL ASSOCIATION, individually and as Agent
By: /S/
Title:
95
[SIGNATURE PAGE 3 TO CREDIT AGREEMENT]
SUNTRUST BANK,
individually and as Syndication Agent
By:/S/
Title:
96
[SIGNATURE PAGE 4 TO CREDIT AGREEMENT]
NATIONAL CITY BANK OF KENTUCKY
By: /S/
Title:
97
[SIGNATURE PAGE 5 TO CREDIT AGREEMENT]
BANK ONE, KENTUCKY, N.A.
By: /S/
Title:
98
[SIGNATURE PAGE 6 TO CREDIT AGREEMENT]
FIRSTAR BANK, N.A.
By:/S/
Title:
99
[SIGNATURE PAGE 7 TO CREDIT AGREEMENT]
JOINING SOLELY FOR PURPOSES OF CONFIRMING SECTION 6.1.5 OF
THIS AGREEMENT:
BANK ONE, INDIANA, N.A.
By:/S/
Title:
100
SCHEDULE 1.1(A)
PRICING GRID--
VARIABLE PRICING AND FEES BASED ON LEVERAGE RATIO
(OBJECT OMITTED)
For purposes of determining the Applicable Margin and the Applicable Commitment
Fee Rate, the Applicable Margin and the Applicable Commitment Fee Rate shall be
Level III on the Closing Date and shall be recomputed as of the end of each
fiscal quarter ending after the Closing Date based on the Leverage Ratio as of
such quarter end. Any increase or decrease in the Applicable Margin or the
Applicable Commitment Fee Rate computed as of a quarter end shall be effective
on the date on which the Compliance Certificate evidencing such computation is
due to be delivered under Section 7.3.3.
101
SCHEDULE 1.1(B)
COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
Page 1 of 2
Part 1 - Revolving Credit Commitments of Banks and Addresses for Notices to
Banks
Amount of
Commitment for
Revolving Credit
Bank Loans Ratable Share
---- ---------------- -------------
Name: PNC Bank, National Association
Address: One PNC Plaza, 249 Fifth
Avenue, Pittsburgh, PA 15222
Attention: Louis McLinden
Telephone: (412)-762-8830
Telecopy: (412)-705-3231 $ 35,000,000 28.00%
Name: Bank One, Kentucky, N.A.
Address: 416 West Jefferson Street,
Louisville, KY 40202
Attention: Thelma Ferguson
Telephone: (502)-566-2821
Telecopy: (502)-566-8339 $ 27,500,000 22.00%
Name: SunTrust Bank
Address: 201 Fourth Avenue North,
3rd floor, Nashville, TN 37219
Attention: Scott Corley
Telephone: (615)-748-5715
Telecopy: (615)-748-5269 $ 27,500,000 22.00%
Name: National City Bank of Kentucky
Address: 101 South Fifth Street,
Louisville, KY 40202
Attention: Deroy Scott
Telephone: (502)-581-7821
Telecopy: (502)-581-4224 $ 20,000,000 16.00%
Name: Firstar Bank, N.A.
Address: One Financial Square,
Louisville, KY 40202-3322
Attention: Toby Rau
Telephone: (502)-562-6648
Telecopy: (502)-562-6460 $ 15,000,000 12.00%
------------ --------
Total $125,000,000 100.000%
============ ========
102
SCHEDULE 1.1(B)
COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
Page 2 of 2
Part 2 - Addresses for Notices to Borrower and Guarantors:
AGENT:
Name: PNC Bank, National Association
Address: One PNC Plaza, 249 Fifth Avenue,
Pittsburgh, PA 15222
Attention: Louis McLinden
Telephone: (412)-762-8830
Telecopy: (412)-705-3231
BORROWER AND GUARANTORS:
Name: Steel Technologies Inc.
Address: 15415 Shelbyville Road
Post Office Box 43339
Louisville, KY 40253-0339
Attention: Joseph P. Bellino
Telephone: (502) 254-0204
Telecopy: (502) 254-3821
103
Exhibit 10.2(d)
Third Amendment of Note Agreement
1
THIRD AMENDMENT TO NOTE PURCHASE AGREEMENT
This Third Amendment to Note Agreement (the "Agreement") is entered into as of
this ___ day of December, 1998, among Principal Life Insurance Company (f/k/a
Principal Mutual Life Insurance Company), The Lincoln National Life Insurance
Company, First Penn-Pacific Life Insurance Company, Lincoln National Reassurance
Company, Lincoln National Income Fund, Inc., American States Life Insurance
Company, Jefferson-Pilot Life Insurance Company, Northern Life Insurance Company
and ReliaStar Life Insurance Company (collectively the "Noteholders") and Steel
Technologies Inc., a Kentucky corporation, (the "Company").
RECITALS:
The Company and the Noteholders entered into a Note Agreement dated as of March
1, 1995, as amended by Request of Consent to Amendment to Note Agreement dated
June 13, 1997, and further amended by Request for Consent to Second Amendment to
Note Agreement dated October 9, 1997 (the "Note Agreement"). In accordance with
the terms of the Note Agreement, Steel Technologies Inc., issued its 8.52%
Senior Notes due March 1, 2005 (the "Notes"), in the original principal amount
of $40,000,000.
By letter dated December 3, 1998, the Company notified the Noteholders that
Steel Technologies Ohio, Inc., has become a Subsidiary of the Company, and
requested that the Note Agreement be amended to reflect that guaranties by
Subsidiaries of the Company with respect to the Loan Agreement shall
automatically be Subsidiary Guaranties of the Notes.
NOW, THEREFORE, in consideration of the premises set fourth above and in
consideration of the mutual covenants and conditions herein contained and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and the Noteholders hereby agree as follows:
1. Recitals Incorporated. The recitals set forth above are incorporated herein
by reference.
2. Amendment. Section 5.11(g)(Investments) of the Note Agreement is deleted in
its entirety and the following inserted in lieu thereof:
"(g) Guaranties by any Subsidiary of the Company's Indebtedness for
borrowed money under the Loan Agreement, but only if each such Subsidiary
also guaranties the Notes."
3. Representations of the Company. The Company, by its execution and delivery
of this Agreement, hereby represents and warrants as follows:
3.1 As of the date hereof, no Default or Event of Default under the Note
Agreement, or under any other agreement to which the Company is
subject, exists or is continuing.
3.2 Except as otherwise disclosed to the Noteholders, the representations
and warranties of the Company referred to in Section 3.1 of the Note
2
Agreement are true and correct and complete in all material respects
as if made on the date hereof, except as to those representations and
warranties made as of a specific date, which are true and correct and
materially complete as of such date.
3.3 No dissolution proceedings with respect to the Company have been
commenced or are contemplated, and there has been no material adverse
change in the business, condition, or operation (financial or
otherwise) of the Company taken as a whole since March 1, 1995.
3.4 This Agreement has been duly authorized, executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the
Company.
4. Miscellaneous.
4.1 Except as expressly set forth herein, the terms of this Agreement
shall not operate as a waiver by the Noteholders of any of the
provisions of, or otherwise prejudice, remedies or powers under the
Note Agreement, the Notes or applicable law and shall not operate as a
waiver of or otherwise prejudice any rights they may have against any
other Person. Except as set forth herein, none of the terms or
provisions of either the Note Agreement or the Note shall be modified
hereby, and each of the Note Agreement and the Notes, as modified
herein, shall continue in full force and effect.
4.2 All headings and captions preceding the text of the several sections
of this Agreement are intended solely for convenience of reference and
shall not constitute as part of this Agreement nor shall they affect
its meaning, construction, or effect.
4.3 This Agreement embodies the entire agreement and understanding among
the Principal Life, the Noteholders, and the Company with regard to
the matters set forth herein, and supersedes all prior agreements and
undertakings relating to such matters.
4.4 This Agreement shall be governed by, and construed and enforced in
accordance with Illinois law.
4.5 This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed shall be deemed an
original and all of which taken together shall constitute one and the
same Agreement.
4.6 This Agreement shall not become effective until the requirements set
forth in Section 7.1 of the Note Agreement are satisfied.
3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their authorized officers as of the date first written above.
STEEL TECHNOLOGIES, INC.
By:/S/___________________________
Its:_____________________________
By:/S/___________________________
Its:_____________________________
PRINCIPAL LIFE INSURANCE COMPANY
By:/S/___________________________
Its:_____________________________
By:/S/___________________________
Its:_____________________________
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: LINCOLN INVESTMENT MANAGEMENT INC.,
Its Attorney-in-Fact
By:/S/_____________________________
Title:_____________________________
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
By: LINCOLN INVESTMENT MANAGEMENT INC.,
Its Attorney-in-Fact
By:/S/_____________________________
Title:_____________________________
4
LINCOLN NATIONAL LIFE REINSURANCE COMPANY
By: LINCOLN INVESTMENT MANAGEMENT INC.,
Its Attorney-in-Fact
By:/S/_____________________________
Title:_____________________________
LINCOLN NATIONAL INCOME FUND, INC.
By:/S/_____________________________
Title:_____________________________
AMERICAN STATES LIFE INSURANCE COMPANY
By:/S/_____________________________
Title:_____________________________
NORTHERN LIFE INSURANCE COMPANY
By:/S/_____________________________
Title:_____________________________
RELIASTAR LIFE INSURANCE COMPANY
By:/S/_____________________________
Title:_____________________________
JEFFERSON-PILOT LIFE INSURANCE COMPANY
By:/S/_____________________________
Title:_____________________________
5
Exhibit 10.2(e)
Waiver and Fourth Amendment to Note Agreement
1
STEEL TECHNOLOGIES INC.
15415 Shelbyville Road
Louisville, Kentucky 40245
WAIVER AND FOURTH AMENDMENT
Dated as of August 24, 2001
Relating To
NOTE AGREEMENTS
Dated as of March 1, 1995
Re: $40,000,000 8.52% Senior Notes
Due March 1, 2005
To the Holders Named on the Signature Pages
of this Waiver
Reference is made to the separate Note Agreements, each dated as of
March 1, 1995, between the undersigned, Steel Technologies Inc., a Kentucky
corporation (the "Company"), and each of the Purchasers named on Schedule I
thereto, as amended by the First Amendment dated as of June 13, 1997, the Second
Amendment dated as of October 9, 1997 and the Third Amendment dated as of
December 31, 1998 (as so amended, the "Note Agreements"). Unless otherwise
herein defined or the context hereof shall otherwise require, capitalized terms
used m this waiver and amendment (this "Waiver") shall have the respective
meanings specified in the Note Agreements.
The Company now requests that the Holders waive compliance with certain
provisions of the Note Agreements and amend certain provisions of the Note
Agreements in the respects hereinafter set forth, and, based on the
representations and warranties of the Company and subject to the conditions
hereinafter set forth, the Holders are willing to grant such waivers and agree
to such amendments.
SECTION 1. WAIVERS
a) Section 5.8A. The Holders hereby waive any Default or Event of Default
arising under Section 5.8.A(a) of the Note Agreements for the quarterly period
ended March 31, 2001. Further, the Holders and the Company agree that,
notwithstanding anything in the Note Agreements to the contrary, the Fixed
Charge Coverage Ratio under Section 5.8A(a) of the Note Agreements shall be
calculated for all quarterly periods from the date hereof through and including
June 30, 2002, by adding back to Net Income Available for Fixed Charges (to the
extent such charge has been deducted therefrom) the asset impairment charge
relating to Mi-Tech Steel, Inc. and Processing Technology, Inc. in an amount not
exceeding $7,500,000 incurred by the Company and its Subsidiaries during the
first quarter of 2001.
2
b) Section 5.6 Current Ratio. The Holders hereby waive any Default or Event
of Default arising under Section 5.6 of the Note Agreements for all times prior
to and including the date of this Waiver.
SECTION 2. AMENDMENTS
a) Section 5.6 of the Note Agreements is amended and restated to read in
its entirety as follows:
Section 5.6. Current Ratio. The Company will at all times keep and
maintain the ratio of Consolidated Current Assets to Consolidated Current
Liabilities at not less than 1.5 to 1; provided, however, that for purposes
of this Section 5.6, the calculation of Consolidated Current Liabilities
shall not include Indebtedness of the Company incurred under the Loan
Agreement except (i) unless clause (ii) below applies, for the period six
months immediately prior to the final maturity date of such Indebtedness or
(ii) for the period twelve (12) months immediately prior to the final
maturity date of such Indebtedness if any of the following events shall
occur: (x) any default or unmatured default exists under the Loan
Agreement, (y) the final maturity date for all Indebtedness of the Company
incurred under the Loan Agreement has been shortened to a date earlier than
August 24, 2004 or (z) the Loan Agreement shall provide for any required
prepayments or amortization payments prior to the scheduled final maturity
date for the Indebtedness incurred by the Company thereunder (other than
mandatory prepayments required by the Loan Agreement as in effect on
August 24, 2001).
b) Section 5.7 of the Note Agreements is amended and restated to read in
its entirety as follows:
Section 5.7. Consolidated Tangible Net Worth. The Company shall not at
any time permit Consolidated Tangible Net Worth to be less than Base
Tangible Net Worth.
c) Section 5.8(a)(3) of the Note Agreements is hereby amended and restated
to read in its entirety as follows:
(3) Indebtedness of the Company incurred under the Loan Agreement, as
hereafter amended or replaced (to the extent not permitted by clause (2)
above), provided that the aggregate amount of the Indebtedness thereunder
shall not exceed $130,000,000 and provided further that at the time of
incurrence thereof and after giving effect thereto and to the application
of the proceeds thereof, the Company remains in compliance with
Section 5.8A of this Agreement; and
3
d) Section 5.8(a) of the Note Agreements is hereby amended to add new
clauses (5) through (9) as follows:
(5) Existing Indebtedness as of August 24, 2001 as set forth on
Schedule _____ including any extensions or renewals thereof, provided there
is no increase in the amount thereof or other significant change in the
terms thereof unless otherwise specified on Schedule ____;
(6) Capitalized and operating leases as and to the extent permitted
hereunder;
(7) Indebtedness secured by Purchase Money Security Interests incurred
in connection with the acquisition of capital assets and other unsecured
Indebtedness not exceeding $10,000,000 in the aggregate; and
(8) Indebtedness arising with respect to any Interest Rate Protection
Agreement;
(9) Indebtedness associated with a Permitted Securitization;
e) Section 5.8A of the Note Agreements is amended by adding the following
clause (d) thereto:
(d) Maximum Leverage Ratio. The Company shall not at the end of any
quarter permit the Leverage Ratio, calculated as of the end of each fiscal
quarter for the four fiscal quarters then ended to exceed the ratio set
forth below:
Period Maximum Ratio
------ -------------
Quarters ending on or before
September 30, 2001 3.75 to 1.0
Quarters ending on or after
December 31, 2001 3.50 to 1.0
f) Section 5.11(g) of the Note Agreements is hereby amended and restated to
read in its entirety as follows:
(g) Guaranties by the Company's Subsidiaries of (x) the indebtedness
under the Loan Agreement and related loan documents, and (y) the Notes
which shall be delivered by all of the Company's Subsidiaries except for
Steel Technologies De Mexico S.A. De C.V. and the Joint Ventures (and
provided that any Subsidiary which executes a Guaranty of the indebtedness
under the Loan Agreement shall execute and deliver a Guaranty Agreement in
the form attached as Exhibit B hereto in favor of the Holders). . ;
4
g) Section 5.13 of the Note Agreements is deleted in its entirety and the
following is inserted in lieu thereof:
Section 5.13. Dispositions of Assets or Subsidiaries.
The Company shall not, and shall not permit any of its Subsidiaries
to, sell, convey, assign, lease, abandon or otherwise transfer or dispose
of, voluntarily or involuntarily, any of its properties or assets, tangible
or intangible (including, sale, assignment, discount or other disposition
of accounts, contract rights, chattel paper, equipment or general
intangibles with or without recourse or of capital stock, shares of
beneficial interest, partnership interests or limited liability company
interests of a Subsidiary), except:
(i) transactions involving the sale of inventory in the ordinary
course of business;
(ii) any sale, transfer or lease of assets in the ordinary course
of business which are no longer necessary or required in the conduct
of the Company's or such Subsidiary's business;
(iii) any sale, transfer or lease of assets by any wholly owned
Subsidiary of the Company to the Company or another wholly-owned
Subsidiary;
(iv) any sale, transfer or lease of assets in the ordinary course
of business which are replaced by substitute assets acquired or leased
within the parameters of Section 5.21;
(v) sales of accounts receivable and related rights in connection
with a Permitted Securitization; or
(vi) any sale, transfer or lease of assets, other than those
specifically excepted pursuant to clauses (i) through (iv) above;
provided that if, after giving effect to a proposed sale, transfer or
lease, the amount of proceeds received by the Company and its
Subsidiaries from sales, transfers and leases described in this
clause (vi) exceeds $10,000,000 in the aggregate over the term of this
Agreement, then the Company shall make an optional prepayment of the
Notes under Section 2.2 in a principal amount equal to the Holders'
Pro Rata Share (computed on the date of such sale, transfer or lease)
of the amount of the net proceeds from such sale, transfer or lease on
the date of such sale, transfer or lease (and shall pay as a premium
on such principal amount the Make-Whole Amount, if any, pursuant to
Section 2.2).
h) The following Sections 5.20, 5.21, 5.22 and 5.23 are hereby added to the
Note Agreements:
5
Section 5.20. Dividends and Related Distributions. The Company shall
not, and shall not permit any of its Subsidiaries to, make or pay, or agree
to become or remain liable to make or pay, any dividend or other
distribution of any nature (whether in cash, property, securities or
otherwise) on account of or in respect of its shares of capital stock,
partnership interests or limited liability company interests on account of
the purchase, redemption, retirement or acquisition of its shares of
capital stock (or warrants, options or rights therefor), partnership
interests or limited liability company interests, except dividends or other
distributions payable to the Company or a wholly-owned Subsidiary and for
dividends paid by the Company to its shareholders or repurchases by the
Company of the stock of the Company, provided that no Default or Event of
Default exists on the date of such dividend or repurchase would be created
as a result of such dividend or repurchase.
Section 5.21. Capital Expenditures and Leases. The Company shall not,
and shall not permit any of its Subsidiaries to, make any payments
exceeding (a) $20,000,000 in the aggregate during any 12-month period
ending on or before September 30, 2002, or (b) $22,500,000 in the aggregate
during any 12-month period ending after September 30, 2002, in each case on
account of the purchase or lease of any assets which if purchased would
constitute fixed assets or which if leased would constitute a capitalized
lease, or any payments exceeding $5,000,000 in the aggregate in any fiscal
year on account of the rental or lease of real or personal property of any
other Person which does not constitute a capitalized lease, and all such
capital expenditures and leases shall be made under usual and customary
terms and in the ordinary course of business.
Section 5.22 Subsequent Credit Terms. Upon the execution of any
amendment, modification, renewal or replacement of the Loan Agreement that
would make any of the covenants or defaults thereunder (or definitions
related thereto) more onerous to the Company than those in effect on August
24, 2001 ("More Restrictive Provisions"), the corresponding covenants or
defaults of the Notes shall be and shall be deemed to be automatically and
immediately amended to conform with the More Restrictive Provisions;
provided, however, that the foregoing shall not be applicable to or be
deemed to affect any provision of the Notes if any such amendment,
modification, renewal or replacement of the Loan Agreement is less
restrictive to the Borrower. The Borrower hereby agrees promptly to execute
and deliver any and all such documents and instruments and to take all such
further actions as the Holders may, in their discretion, deem necessary or
appropriate to effectuate the provisions of this Section 5.22.
Section 5.23. Permitted Securitization. On or before thirty days prior
to the closing of any Permitted Securitization, the Company shall provide
each Holder notice thereof including a detailed description and copies of
any term sheets or documentation related thereto, and thereafter promptly
upon request such additional information with respect thereto as reasonably
may be requested by any Holder.
6
i) Sections 6.1(d) and (e) of the Note Agreements are amended and restated
in their entireties to read as follows:
(d) any Change in Control shall occur; or
(e) Any default shall occur under the terms applicable to any
Indebtedness of the Company or any Subsidiary in an aggregate amount (for
all such Indebtedness so affected) exceeding $1,000,000 and such default
shall (i) consist of the failure to pay such Indebtedness when due, whether
by acceleration or otherwise, or (ii) accelerate the maturity of such
Indebtedness or permit the holder or holders thereof, or any trustee or
agent for such holder or holders, to cause such Indebtedness to become due
and payable (or require the Company or any Subsidiary to purchase or redeem
such Indebtedness) prior to its expressed maturity; or
j) Section 5.19 of the Note Agreement is deleted in its entirety and the
following is inserted in lieu thereof:
In accordance with Section 5.11(g), the Company shall cause each of
its Subsidiaries except for Steel Technologies De Mexico S.A. De C.V. and
the Joint Ventures to execute and deliver a Guaranty Agreement in the form
attached as Exhibit B hereto and the Company shall cause any newly formed
or acquired Subsidiary of the Company to execute and deliver such Guaranty
Agreement immediately after such Subsidiary is formed or acquired.
Notwithstanding the foregoing, the Company shall cause any Subsidiary of
the Company which executes a Guaranty of the indebtedness under the Loan
Agreement to execute and deliver a Guaranty Agreement in the form attached
as Exhibit B hereto in favor of the Holders.
k) (i) The following definitions are each added to Section 8.1 of the Note
Agreements, each in its appropriate alphabetical position:
"Base Tangible Net Worth" shall mean the sum of $95,000,000 plus the
sum of (i) 50% of consolidated net income of the Company and its
Subsidiaries for each fiscal quarter in which net income was earned (as
opposed to a net loss) during the period from March 31, 2001 through the
date of determination, and (ii) 100% of the net cash proceeds received by
the Company from any issuance of its capital stock after August 24, 2001.
"Change in Control" shall mean (i) the acquisition by any Person or
"group" (as defined in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended) of more than 50% of the Voting Stock of the Company,
including any such acquisition by merger or consolidation, or (ii) the
acquisition by any Person or "group" (as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) of more than 20% of the Voting
Stock of the Company, including any such acquisition by merger or
consolidation, and, at any time following an acquisition described in this
clause (ii), the Continuing Directors shall not constitute a majority of
the Board of Directors of the Company.
7
"Consolidated Tangible Net Worth" shall mean as of any date of
determination total stockholders' equity less intangible assets of the
Company and its Subsidiaries as of such date determined and consolidated in
accordance with GAAP.
"Continuing Director" shall mean any member of the Board of Directors
of the Company who is a member of such Board on August 24, 2001 and any
Person who is a member of such Board and whose nomination as director was
approved by a majority of the Continuing Directors then on the Board of
Directors of the Company.
"EBITDA" for any period of determination shall mean the sum of net
income, depreciation, amortization, interest expense, income tax expense
and the Second Quarter Joint Venture Investment Charge, in each case of the
Company and its Subsidiaries for such period determined and consolidated in
accordance with GAAP.
"Holders' Pro Rata Share" shall mean, as of any date of determination,
(A) if no default or unmatured event of default which has resulted in the
termination of the Commitments under the Loan Agreement exist on such date,
the fraction obtained by dividing (1) the principal amount outstanding
under the Notes (the "Outstanding Note Balance"), by (2) the sum of the
Outstanding Note Balance plus the amount of the Commitments (as defined in
the Loan Agreement as in effect as of August 24, 2001 or the corresponding
provision in any replacement agreement) provided that any payments received
by the banks party to the Loan Agreement as a result of any Transaction
described in Sections 5.13 and 5.8(a)(9), when received, permanently reduce
such Commitments or (B) if a default or unmatured event of default exist on
such date which has resulted in the termination of the Commitments under
the Loan Agreement, the fraction obtained by dividing (1) the Outstanding
Note Balance, by (2) the sum of the Outstanding Note Balance plus the
amount of all (x) Letters of Credit (as defined in the Loan Agreement
(including any definitions referred to in such definition) as in effect as
of August 24, 2001 or the corresponding definition in any replacement
agreement provided that there are not material differences between such
definition in such replacement agreement and such definition in the
original Loan Agreement) issued and outstanding and (y) Loans (as defined
in the Loan Agreement (including any definitions referred to in such
definition) as in effect as of August 24, 2001 or the corresponding
definition in any replacement agreement provided that there are not
material differences between such definition in such replacement agreement
and such definition in the original Loan Agreement) advanced prior to the
date of such default or unmatured event of default and Commitment
termination, provided that any payments received by the banks party to the
Loan Agreement as a result of any transaction described in Sections 5.13 or
5.8(a)(9), when received, permanently reduce the Commitments.
8
"Interest Rate Protection Agreement" shall mean the interest rate
protection agreement entered into by the Company in accordance with Section
7.1.12 of the Loan Agreement (as in effect as of August 24, 2001 or the
corresponding provisions in any replacement agreement provided that there
are not material differences between such provisions in such replacement
agreement and such provisions in the original Loan Agreement) for a period
of at least two (2) years (i) in an amount equal to at least $30,000,000,
and (ii) with such other terms and conditions as are reasonable and
customary. Documentation for such agreement shall be in a standard
International Swap Dealer Association Agreement, shall provide for the
method of calculating the reimbursable amount of the provider's credit
exposure in a reasonable and customary manner, shall be reasonable and
customary and shall not require that any collateral be provided as security
for such agreement.
"Joint Ventures" shall mean (i) Mi-Tech Steel, Inc., a joint venture
formed by the Borrower and Mitsui Steel Development Company, and (ii)
Processing Technology, Inc., a joint venture formed by the Steel
Technologies, LTV Corporation and Mitsui Steel Development Company, and
(iii) other partnerships or joint ventures to which the Borrower is now or
in the future a party.
"Leverage Ratio" shall mean, as of the end of each fiscal quarter, the
ratio of consolidated Indebtedness of the Company and its Subsidiaries on
such date to the EBITDA for the four fiscal quarters ending on such date.
"Permitted Securitization" shall mean a sale to a bankruptcy remote
entity of accounts receivable and related rights of the Company and its
Subsidiaries in connection with a securitization thereof provided that
(1) the net proceeds thereof and contingent liabilities thereunder shall
not exceed $50 million in the aggregate, (2) the Company shall deliver
notice thereof to the Holders at least 30 days before the closing thereof
and otherwise comply with Section 5.23, and (3) the Company shall have made
a prepayment under Section 2.2 of the Note Agreement of such principal
amount of the Notes as is equal to the Holders' Pro Rata Share of the net
proceeds received by the Company in connection with such sale (together
with the Make-Whole Amount, if any, payable on such principal amount
pursuant to Section 2.2 of the Note Agreement).
"Purchase Money Security Interest" shall mean Liens upon tangible
personal property securing loans to the Company or any of its Subsidiaries
or deferred payments by the Company or any of its Subsidiaries for the
purchase of such tangible personal property.
"Second Quarter Joint Venture Investment Charge" shall mean the asset
impairment charge relating to Mi-Tech Steel, Inc. and Processing
Technology, Inc. in an amount not exceeding $7,500,000 incurred by the
Company in its fiscal quarter ending March 31, 2001.
9
"Voting Stock" shall mean the shares of capital stock or other
securities of the Company entitled to vote generally in the election of the
directors of the Company.
(ii) The definition of "Loan Agreement" in Section 8.1 of the
Note Agreements is deleted in its entirety and the following is
inserted in lieu thereof:
"Loan Agreement" shall mean that certain Credit Agreement dated as of
August 24, 2001 among the Company, PNC Bank, National Association, as agent
and the other banks named on the signature pages thereof (as the same may
be amended, modified, waived or supplemented from time to time, and any
extension, renewal or replacement thereof, except as otherwise set out
herein).
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Holders that:
(a) This Waiver has been duly authorized by all necessary corporate
action on the part of the Company, and this Waiver constitutes a legal,
valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except as such enforceability may be limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally
and (ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(b) The Note Agreements, as amended by this Waiver, constitute the
legal, valid and binding obligations, contracts and agreements of the
Company enforceable against it in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles relating
to or limiting creditors' rights generally.
(c) No written statement furnished by the Company to the Holders in
connection with the solicitation of this Waiver contains any untrue
statement of a material fact or omits a material fact necessary to make the
statements contained therein or herein not misleading. There is no fact
peculiar to the Company or its Subsidiaries which the Company has not
disclosed to the Holders in writing which materially affects adversely nor,
so far as the Company can now foresee, will materially affect adversely the
properties, business, prospects, profits or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole.
(d) The execution, delivery and performance by the company of this
Waiver will not (i) contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any
property of the Company or any Subsidiary under, any indenture, mortgage,
deed of trust, loan, purchase or credit agreement, lease, corporate charter
10
or by-laws, or any other agreement or instrument to which the Company or
any Subsidiary is bound or by which the Company or any Subsidiary or any of
their respective properties may be bound or affected, (ii) conflict with a
result in a breach of any of the terms, conditions or provisions of any
order, judgment, decree, or ruling of any court, arbitrator or Governmental
Authority applicable to the Company or any Subsidiary or (iii) violate any
provision of any statute or other rule or regulation of any Governmental
Authority applicable to the Company or any Subsidiary.
(e) No fee or other consideration has been or will be paid to any of
the banks who are parties to the Loan Agreement in connection with their
consent to the Waiver.
(f) No Default or Event of Default has occurred and is continuing,
and, giving effect to the execution and delivery of this Waiver, no Default
or Event of Default will have occurred and be continuing.
(g) All the representations and warranties contained in Section 3.1 of
the Note Agreements are true and correct with the same force and effect as
if made by the Company on and as of the date hereof (other than any
representation and warranty that expressly relates to a specified earlier
date, which was true and correct as of such date).
SECTION 4. CONDITIONS. This Waiver shall become effective on the date (the
"Effective Date") when the following conditions shall have been satisfied:
(a) executed counterparts of this Waiver, duly executed by the Company
and the holders of all of the Notes, shall have been delivered to the
Holders;
(b) the Holders shall have received a copy of the resolutions of the
Board of Directors of the Company authorizing the execution, delivery and
performance by the Company of this Waiver, certified by the Company's
Secretary or an Assistant Secretary;
(c) the representations and warranties of the Company set forth in
Section 3 hereof are true and correct on and with respect to the date
hereof;
(d) the Holders shall have received the favorable opinion of counsel
to the Company as to the matters set forth in Sections 3(a), 3(b) and 3(d)
hereof, which opinion shall be in form and substance satisfactory to the
Holders and as to such other matters as may be requested by the Holders;
(e) the Holders shall have received a Guaranty Agreement,
substantially in the form previously executed by Wabash Steel Corporation,
Steel Technologies North Carolina, Inc., Steel Technologies, L.P., Steel
Technologies Corp., Steel Technologies, LLC, a South Carolina limited
liability company, and Steel Technologies, LLC, an Ohio limited liability
company (collectively, the "Prior Guarantors"), executed and delivered by
each Subsidiary of the Company that is not a Prior Guarantor;
11
(f) the Holders shall have received a Guarantor Consent and
Acknowledgment, as set forth at the foot hereof, executed and delivered by
each Prior Guarantor;
(g) the Holders shall have received a counterpart of an Intercreditor
Agreement, in the form of Exhibit A hereto, executed by PNC Bank, National
Association, as agent under the Loan Agreement (defined below) and by the
Holders;
(h) each Holder shall have received a true and correct copy certified
Secretary of the Company of the Loan Agreement; and
(i) each Holder shall have received the payment in cash of an
amendment fee in the amount of 0.20% of the principal amount of such
Holder's Note.
SECTION 5. PAYMENT OF HOLDERS' COUNSEL FEES AND EXPENSES. The Company agrees to
pay upon demand, the reasonable fees and expenses of Mayer, Brown & Platt,
special counsel to the Holders, in connection with the negotiation, preparation,
approval, execution and delivery of this Waiver.
SECTION 6. MISCELLANEOUS.
Section 6.1 Construction. This Waiver shall be construed in connection with
and as part of each of the Note Agreements, and except to the extent amended or
waived by this Waiver, all terms, conditions and covenants contained in the Note
Agreements and the Notes are hereby ratified and shall be and remain in full
force and effect.
Section 6.2 Notices. Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
Waiver may refer to the Note Agreements without making specific reference to
this Waiver but nevertheless all such references shall include this Waiver
unless the context otherwise requires.
Section 6.3 Captions. The descriptive headings of the various Sections or
parts of this Waiver are for convenience only and shall not affect the meaning
or construction of any of the provisions hereof.
Section 6.4 Governing Law. This Waiver shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the law of
the State of Illinois excluding choice-of-law principles of the law of such
State that would require the application of the laws of a jurisdiction other
than such State.
12
Section 6.5 Counterparts. The execution hereof by you shall constitute a
contract between us for the uses and purposes hereinabove set forth, and this
Waiver may be executed in any number of counterparts, each executed counterpart
constituting an original, but all together only one agreement.
STEEL TECHNOLOGIES INC. STEEL TECHNOLOGIES INC.
By:/S/__________________________ By:/S/__________________________
Joseph P. Bellino, John M. Baumann,
Chief Financial Officer Secretary
PRINCIPAL LIFE INSURANCE COMPANY
(formerly known as Principal Mutual Life Insurance Company)
By: Principal Capital Management, LLC, a Delaware limited
liability company, its authorized signatory
By:/S/_____________________
Name:
Title:
By:/S/_____________________
Name:
Title:
13
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
By: Lincoln Investment Management, Inc. its
Attorney-in-Fact
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: Lincoln Investment Management, Inc., its
Attorney-in-Fact
and
LINCOLN NATIONAL REASSURANCE COMPANY,
the successor by corporate merger to the interests of
Lincoln National Life Reinsurance Company
By: Lincoln Investment Management, Inc., its
Attorney-in-Fact
and
LINCOLN NATIONAL INCOME FUND, INC.
By:/S/_____________________
Name:
Title:
14
JEFFERSON-PILOT LIFE INSURANCE COMPANY
By:/S/_____________________
Name:
Title:
15
NORTHERN LIFE INSURANCE COMPANY and
RELIASTAR LIFE INSURANCE COMPANY, as Successor to
Northwestern National Life Insurance Company
By:/S/_____________________
Name:
Title:
16
AMERICAN STATES LIFE INSURANCE COMPANY
c/o SAFECO ASSET MANAGEMENT
By:/S/_____________________
Name:
Title:
17
GUARANTOR ACKNOWLEDGMENT AND AGREEMENT
Each of the undersigned consents and agrees to and acknowledges the terms
of the foregoing Waiver and Fourth Amendment dated as of August 24, 2001. Each
of the undersigned specifically acknowledges the terms of and consents to the
amendments set forth therein. Each of the undersigned further agrees that the
obligations of each of the undersigned pursuant to the Guaranty Agreement
executed by each of the undersigned shall remain in full force and effect and be
unaffected thereby.
WABASH STEEL CORPORATION
STEEL TECHNOLOGIES NORTH CAROLINA, INC.
STEEL TECHNOLOGIES, L.P.
STEEL TECHNOLOGIES CORP.
STEEL TECHNOLOGIES, LLC, a South Carolina limited liability
company
STEEL TECHNOLOGIES, LLC, an Ohio limited liability company
By:/S/__________________________ By:/S/__________________________
Joseph P. Bellino, John M. Baumann,
Chief Financial Officer Secretary
18
EXHIBIT 13 2001
ANNUAL REPORT TO SHAREHOLDERS
Steel Technologies Inc.
Selected Financial Data
(In thousands, except per share results)
Years Ended September 30
------------------------
INCOME STATEMENT DATA 2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------
Sales(1) $436,828 $469,253 $418,799 $390,239 $351,208
Cost of goods sold(1) 388,363 418,680 361,192 346,143 314,032
Gross profit 48,465 50,573 57,607 44,096 37,176
Selling, general and
administrative expenses 29,535 28,251 26,108 22,144 19,989
Equity in net income (loss) of
unconsolidated corporate
joint ventures(2) (6,832) 898 1,095 537 1,609
Operating income 12,098 23,220 32,594 22,489 18,796
Income before income taxes 5,497 16,177 25,233 16,410 13,123
Net income 764 10,212 15,572 9,803 8,502
Diluted earnings per common share $ 0.07 $ 0.94 $ 1.38 $ 0.82 $ 0.71
Diluted weighted average number
of common shares outstanding 10,308 10,857 11,256 11,989 12,057
Basic earnings per common share $ 0.07 $ 0.94 $ 1.39 $ 0.82 $ 0.71
Basic weighted average number of
common shares outstanding 10,267 10,818 11,230 11,942 11,976
Cash dividends per common share $ 0.07 $ 0.12 $ 0.11 $ 0.10 $ 0.10
September 30
--------------------------------------------
BALANCE SHEET DATA 2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------
Working capital $ 80,532 $ 97,428 $ 89,418 $ 80,319 $ 90,317
Total assets 287,658 315,389 289,105 266,481 257,510
Long-term debt 89,110 115,394 90,209 88,300 97,190
Shareholders' equity 124,985 127,032 124,439 113,676 108,829
Years Ended September 30
------------------------
OTHER DATA 2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------
Capital expenditures, including
acquisitions and investments in
joint ventures $ 11,033 $ 32,010 $ 18,304 $ 25,414 $ 25,341
Shareholders' equity per common
share 12.23 12.14 11.17 9.81 9.07
Depreciation and amortization 15,351 13,929 12,852 11,860 10,500
(1) All amounts billed to customers relating to shipping and handling have been
reclassified from cost of goods sold to sales.
(2) 2001 includes $7.5 million impairment charge (see Note 5 of the Company's
Notes to Consolidated Financial Statements).
1
Steel Technologies Inc.
Selected Quarterly Financial Data
(In thousands, except per share results)
Fiscal Year 2001 First Second Third Fourth
- ------------------------------------------------------------------------
Sales(1) $112,863 $108,692 $109,247 $106,026
Gross profit 11,468 12,377 12,895 11,725
Net income (loss) 1,782 (5,356) 2,571 1,767
Diluted earnings (loss) per
common share $ 0.33 $ 0.30 $ 0.24 $ 0.07
Basic earnings (loss) per
common sharee $ 0.33 $ 0.30 $ 0.24 $ 0.07
Fiscal Year 2000 First Second Third Fourth
- ------------------------------------------------------------------------
Sales(1) $106,817 $123,060 $123,986 $115,390
Gross profit 13,221 14,620 12,587 10,145
Net income 3,651 3,294 2,552 715
Diluted earnings per common share $ 0.33 $ 0.30 $ 0.24 $ 0.07
Basic earnings per common sharee $ 0.33 $ 0.30 $ 0.24 $ 0.07
(1) All amounts billed to customers relating to shipping and handling have been
reclassified from cost of goods sold to sales.
Market Price and Dividend Information:
The Company's common stock trades on The Nasdaq Stock Market under the symbol
STTX. At October 31, 2001, there were approximately 471 shareholders of record.
The Company's current dividend policy provides for semiannual payments of cash
dividends. The following table shows cash dividends and high and low prices for
the common stock for each quarter of fiscal 2001 and 2000. Nasdaq National
Market System quotations are based on actual transactions.
Stock Price
------------------------------------
Fiscal Year 2001 High Low Dividends
- --------------------------------------------------------------------------------
First Quarter $ 6.500 $ 4.750 $ 0.06
Second Quarter $ 7.063 $ 5.250
Third Quarter $ 7.500 $ 5.688 $ 0.06
Fourth Quarter $ 8.380 $ 6.060
Stock Price
------------------------------------
Fiscal Year 2000 High Low Dividends
- --------------------------------------------------------------------------------
First Quarter $14.875 $ 9.750 $ 0.06
Second Quarter $15.250 $ 7.625
Third Quarter $ 8.688 $ 6.000 $ 0.06
Fourth Quarter $ 7.563 $ 5.375
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
When used in the following discussion, the word "expects" and other similar
expressions are intended to identify forward-looking statements, which are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those projected. Specific risks and uncertainties include, but are not limited
to, general business and economic conditions; cyclicality of demand in the steel
industry, specifically in the automotive market; work stoppages; risk of
business interruptions affecting automotive manufacturers; competitive factors
such as pricing and availability of steel; reliance on key customers; and
potential equipment malfunctions. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
thereof. The Company undertakes no obligation to republish revised
forward-looking statements to reflect the occurrence of unanticipated events or
circumstances after the date hereof.
RESULTS OF OPERATIONS - FISCAL 2001 COMPARED TO FISCAL 2000
Steel Technologies posted sales of $436,828,000 in fiscal 2001, a decrease of 7%
from 2000 sales of $469,253,000. Tons shipped of Company-owned steel products in
fiscal 2001 decreased approximately 2% compared to fiscal 2000 while the average
selling price of Company-owned steel products for the year decreased
approximately 5% from the previous year.
The Company focuses significant resources on the automotive industry and
generates a major portion of business from selling manufacturing component parts
to the automotive industry. The Company continues to increase market share and
to develop a substantial amount of new business with both existing and new
customers which should help mitigate the effects of slowing demand levels in the
automotive industry.
The gross profit margin was 11.1% in 2001 and was relatively consistent with the
gross profit margin in 2000 of 10.8%. The lower selling prices were offset by
production cost efficiencies and slightly lower raw material costs in 2001
compared to 2000. Should raw material costs increase, gross margins could be
negatively affected. In general, production cost efficiencies and product mix
improvements may positively impact gross margins and somewhat offset rising raw
material costs.
Sales, general and administrative costs increased 4.5% in fiscal 2001 and were
6.8% and 6.0% of sales in 2001 and 2000, respectively. The increase was
primarily a result of additional expenses from the acquisition of Custom Steel
Inc. and Custom Steel Processing Corp., collectively Custom Steel (now wholly
owned subsidiaries of the Company) in January 2000 and an increase in the
allowance for doubtful accounts attributable to the weakening economy. Steel
Technologies continues to actively manage the level at which selling, general
and administrative expenses are added to its cost structure.
The Company's share of (loss) income of its joint venture operations was
($6,832,000) in 2001 and $898,000 in 2000. This includes approximately $7.5
million of asset impairment charges before taxes recorded by the Company during
the second fiscal quarter of 2001 relating to its joint venture operations (see
Note 5 of the Company's Notes to Condensed Consolidated Financial Statements).
Net interest expense decreased to $6,601,000 in 2001 from $7,043,000 in 2000.
The decrease is attributable to lower average borrowings and declining interest
rates experienced by the Company on its variable rate debt in fiscal 2001.
Excluding the asset impairment charges included in equity in net income (loss)
of joint ventures during the second quarter of fiscal 2001 and the related tax
benefit of approximately $500,000, the Company's effective income tax rate was
approximately 40.3% in fiscal 2001 compared to 36.9% in fiscal 2000. The
increase in 2001 is attributable to lower earnings for 2001 which resulted in a
higher percentage of items not deductible for tax purposes including goodwill
amortization.
3
RESULTS OF OPERATIONS - FISCAL 2000 COMPARED TO FISCAL 1999
Steel Technologies posted record sales of $469,253,000 in fiscal 2000, an
increase of 12% from 1999 sales of $418,799,000. Tons shipped of Company-owned
steel products in fiscal 2000 increased approximately 10% compared to fiscal
1999 while the average selling price of Company-owned steel products for the
year increased approximately 2% from the previous year. Custom Steel Inc. and
Custom Steel Processing Corp., collectively Custom Steel (now wholly owned
subsidiaries of the Company), acquired on January 12, 2000, added $17,091,000 of
revenues in 2000. Sales of existing Steel Technologies steel processing
operations increased by approximately $33,363,000 or 8% from a year ago.
The Company focuses significant resources on the automotive industry and
generates a major portion of business from selling manufacturing component parts
to the automotive industry. The gross profit margin was 11.0% in 2000 compared
to 14.0% in 1999 as increases in sales prices were not sufficient to offset
significant increases in raw material costs. Strong demand for steel products
and the efforts of the domestic steel industry to curtail alleged unfair trade
practices of certain foreign steel importers resulted in the domestic steel
producers significantly increasing raw material prices in 2000 over 1999.
Sales, general and administrative costs increased 8% in fiscal 2000, while sales
increased 12% for 1999. The increase in selling, general and administrative
expenses was primarily attributable to additional expenses from the addition of
Custom Steel and additional marketing expenses to support recent capacity
expansions in Ohio and South Carolina and sales growth in Mexico. Sales, general
and administrative expenses were 6.1% and 6.4% of sales in 2000 and 1999,
respectively.
The Company's share of the income of Mi-Tech Steel, Inc., an unconsolidated
corporate joint venture, was $898,000 in 2000 and $1,096,000 in 1999. An
increase in raw material costs and a weaker steel market in the southeastern
United States region serviced by the Decatur, Alabama operation have adversely
impacted Mi-Tech Steel's profitability for fiscal 2000 as compared to fiscal
1999.
Net interest expense decreased from $7,361,000 in 1999 to $7,043,000 in 2000.
Although average borrowings and the interest rate for borrowings increased
during fiscal 2000, net interest expense decreased because of the amortization
of a gain generated by terminating an interest rate swap agreement in the third
quarter of fiscal 1999, foreign currency transaction gains generated from
operations in Mexico and interest capitalized from construction in progress in
Matamoros, Mexico.
The Company's effective income tax rate was approximately 36.9% in 2000 and
38.2% in 1999. The decrease is attributable primarily to a higher percentage of
overall earnings from the Mi-Tech Steel joint venture, which are not fully
taxable to the Company, and a reduction in state income taxes realized from
restructuring the Company in fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, Steel Technologies had $80,532,000 of working capital,
maintained a current ratio of 2.4:1 and had total debt at 43% of total
capitalization. The Company continues to manage the levels of accounts
receivable, inventories and other working capital items in relation to the
trends in sales and overall market. During 2001, inventories decreased
$12,981,000 as the Company reduced its inventory levels to reflect management's
efforts to increase inventory turnover. Accounts receivable decreased by
$2,428,000 from the lower level of customer sales and accounts payable decreased
$1,544,000. These factors, along with non-cash charges for equity in net loss of
corporate joint ventures, depreciation and amortization, contributed to
$37,547,000 of cash provided by operations.
Capital expenditures for 2001 totaled $9,830,000. The major expenditures were
for the completion of the construction of Matamoros, Mexico facility and certain
productivity improvement projects. Steel Technologies continues to expand
production capacity to serve the growing needs of customers and invest in
automation to improve productivity and make its operations more efficient. For
fiscal 2002, the capital additions to all facilities are expected to approximate
$10,000,000.
4
Steel Technologies maintains an equity investment of approximately $19,000,000
in its 90%-owned Mexican subsidiary. As of January 1, 1999, the Mexican
subsidiary uses the peso as the functional currency and the assets and
liabilities of the Mexican subsidiary are translated into U.S. dollars at the
period end rate of exchange, and revenues and expenses are translated at average
rates of exchanges in effect during the periods. Resulting translation
adjustments are reported as a component of comprehensive income. Foreign
currency transaction gains and losses are included in net income when incurred.
Prior to January 1, 1999, the Mexican economy was considered hyper-inflationary.
Accordingly, the Company used the monetary/non-monetary method of accounting for
foreign currency translation. Under the monetary/non-monetary method,
non-monetary assets and liabilities were translated at historical rates of
exchange and the functional currency was the U.S. dollar.
In September 2001, the Company purchased 49% of Ferrolux Metals Co., LLC
(Ferrolux) from Ferragon Corporation. Ferrolux operates a facility in Wayne,
Michigan as a steel processor specializing in exposed automotive products. The
Ferrolux joint venture is accounted for by the equity method of accounting and
did not have a material impact on the Company's results of operations during
2001.
Pursuant to a joint venture agreement, Steel Technologies has guaranteed
$8,250,000 of the bank financing required for the working capital purposes of
Mi-Tech Steel. Additional equity contributions to the joint venture are not
expected for the foreseeable future, but, if required, would be financed with
available funds from the Company's bank line of credit.
The Company has a $125,000,000 line of credit agreement expiring on August 31,
2004, with various variable options on the interest rate, none of which are
greater than the bank's prime. During 2001, the Company borrowed $70,000,000 and
repaid $96,249,000 in debt as a result of refinancing its credit facility during
2001 and from cash generated from operations. At September 30, 2001 and 2000,
there was $66,000,000 and $86,000,000, respectively, outstanding on the credit
facility.
Cash flows from operations and available borrowing capabilities are expected to
meet the needs of the Company throughout fiscal 2002. At this time, the Company
has no known material obligations, commitments or demands that must be met
beyond the next twelve months other than the ten-year private placement note.
The Company has approximately $22,840,000 outstanding at September 30, 2001 on
the ten-year note which requires annual principal payments of approximately
$5,700,000 through March 2005. Any additional funds will be used for growth,
including strategic acquisitions, investment in joint ventures, construction of
new plant capacity, and investment in production and processing capabilities.
The form of such financing may vary depending upon the prevailing market and
related conditions, and may include short or long-term borrowings or the
issuance of debt or equity securities.
Provisions contained in the Company's various debt agreements require the
Company to maintain specified levels of net worth, maintain certain financial
ratios and limit the addition of substantial debt. The Company is in compliance
with all of its loan covenants, and none of these covenants would restrict the
completion of currently planned capital expenditures or acquisitions.
On January 22, 1998, the Board of Directors approved a plan under which Steel
Technologies may repurchase up to 500,000 shares of its common stock.
Subsequently, the Board of Directors authorized repurchase of an additional
1,000,000 shares on September 30, 1998 and another additional 1,000,000 shares
on April 30, 2000 for a total of 2,500,000 shares. Shares may be purchased from
time to time at prevailing prices in open market transactions, subject to market
conditions, share price and other considerations. The Company has purchased to
date 1,823,000 shares for an aggregate of $15,203,000 as of September 30, 2001.
During fiscal 2001 and 2000, the Company repurchased approximately 253,000 and
690,000 shares of common stock for $1,392,000 and $6,688,000, respectively.
Steel Technologies believes all manufacturing facilities are in compliance with
applicable federal and state environmental regulations. The Company is not
presently aware of any fact or circumstance, which would require the expenditure
of material amounts for environmental compliance.
5
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141 (SFAS No. 141), "Business
Combinations," which provides that all business combinations should be accounted
for using the purchase method of accounting and establishes criteria for the
initial recognition and measurement of goodwill and other intangible assets
recorded in connection with a business combination. The provisions of SFAS No.
141 apply to all business combinations initiated or completed after June 30,
2001. The Company will apply the provisions of SFAS No. 141 to any future
business combinations.
In addition, the FASB issued Statement of Financial Accounting Standards No. 142
(SFAS No. 142), "Goodwill and Other Intangible Assets," which establishes the
accounting for goodwill and other intangible assets following their recognition.
SFAS No. 142 applies to all goodwill and other intangible assets whether
acquired singly, as part of a group, or in a business combination. SFAS No. 142
provides that goodwill should not be amortized but should be tested for
impairment annually using a fair-value based approach. In addition, SFAS No. 142
provides that other intangible assets other than goodwill should be amortized
over their useful lives and reviewed for impairment in accordance with Statement
of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 142 is effective for the Company beginning on October 1, 2002. Upon
adoption, the Company will be required to perform a transitional impairment test
under SFAS No. 142 for all goodwill recorded as of October 1, 2002. Any
impairment loss recorded as a result of completing the transitional impairment
test will be treated as a change in accounting principle. Management of the
Company is currently analyzing the impact of SFAS No. 142 and cannot estimate
the impact of the adoption of SFAS No. 142 as of October 1, 2002 at this time.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No.
144). SFAS No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supercedes SFAS No. 121 and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations, Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for the disposal of a segment of a business (as
previously defined in that Opinion). SFAS No. 121 also amends Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. The objectives of SFAS No. 144 are to address significant issues
relating to the implementation of SFAS No. 121 and to develop a single
accounting model, based on the framework established in SFAS No. 121, for
long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired. Management of the Company is currently analyzing the impact of
SFAS No. 144 and cannot estimate the impact of the adoption of SFAS No. 144 as
of October 1, 2002 at this time.
6
STEEL TECHNOLOGIES INC.
Consolidated Balance Sheets
(In thousands, except shares)
September 30
--------------------------
2001 2000
- ----------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents.................... $ 3,380 $ 4,469
Trade accounts receivable, less
allowance for doubtful accounts:
$2,671 in 2001 and $1,327 in 2000.......... 64,632 67,039
Inventories.................................. 66,951 79,925
Deferred income taxes........................ 2,998 2,579
Prepaid expenses and other assets............ 1,364 1,043
--------- ---------
Total current assets .................... 139,325 155,055
--------- ---------
Property, plant and equipment (at cost), net of
accumulated depreciation 112,405 118,214
--------- ---------
Investments in corporate joint ventures 15,127 20,756
Goodwill, net of amortization ................. 18,879 19,613
Other assets .................................. 1,922 1,751
--------- ---------
$ 287,658 $ 315,389
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................... $ 43,088 $ 44,645
Accrued liabilities ........................ 8,073 6,734
Income taxes payable ....................... 1,349 --
Long-term debt due within one year ......... 6,283 6,248
--------- ---------
Total current liabilities ............... 58,793 57,627
Long-term debt ................................ 89,110 115,394
Deferred income taxes ......................... 14,437 15,240
Other long term liabilities ................... 333 96
--------- ---------
Total liabilities ........................ 162,673 188,357
--------- ---------
Commitments and contingencies ................. -- --
Shareholders' equity:
Preferred stock, no par value;
authorized shares: 500,000 shares;
none issued or outstanding ............... -- --
Common stock, no par value; 50,000,000 shares
authorized; issued and outstanding shares:
10,216,949 in 2001 and 10,460,325 in ..... 17,348 17,287
Treasury stock at cost: 1,823,000 shares in
2001 and 1,570,000 shares in 2000 ........ (15,203) (13,811)
Additional paid-in capital ................. 4,909 4,909
Retained earnings .......................... 119,652 120,125
Accumulated other comprehensive loss ....... (1,721) (1,478)
--------- ---------
Total shareholders' equity ............... 124,985 127,032
--------- ---------
$ 287,658 $ 315,389
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
7
STEEL TECHNOLOGIES INC.
Consolidated Statements of Income
(In thousands, except per share results)
For the Years Ended September 30
--------------------------------
2001 2000 1999
- --------------------------------------------------------------------------
Sales .................................. $436,828 $469,253 $418,799
Cost of goods sold ..................... 388,363 418,680 361,192
-------- -------- --------
Gross profit ......................... 48,465 50,573 57,607
Selling, general and administrative
expenses ............................. 29,535 28,251 26,108
Equity in net (loss) income of
unconsolidated corporate joint
ventures (including impairment charge
of $7.5 million) ..................... (6,832) 898 1,095
-------- -------- --------
Operating income ..................... 12,098 23,220 32,594
Interest expense ....................... 6,601 7,043 7,361
-------- -------- --------
Income before income taxes ........... 5,497 16,177 25,233
Provision for income taxes ............. 4,733 5,965 9,661
-------- -------- --------
Net income ........................... $ 764 $ 10,212 $ 15,572
======== ======== ========
Weighted average number of common shares
outstanding-diluted .................. 10,308 10,857 11,256
-------- -------- --------
Diluted earnings per common share ...... $ 0.07 $ 0.94 $ 1.38
-------- -------- --------
Weighted average number of common shares
outstanding-basic .................... 10,267 10,818 11,230
-------- -------- --------
Basic earnings per common share ........ $ 0.07 $ 0.94 $ 1.39
-------- -------- --------
Consolidated Statements of Comprehensive Income
(In thousands)
For the Years Ended September 30
--------------------------------
2001 2000 1999
- ---------------------------------------------------------------------------
Net income ............................. $ 764 $ 10,212 $ 15,572
Foreign currency translation
adjustment ......................... 121 320 (358)
Change in unrealized loss on cash flow
hedges, net of tax of $227 ......... (364) -- --
-------- -------- -------
Comprehensive income ................... $ 521 $ 10,532 $ 15,214
======== ======== =======
The accompanying notes are an integral part of the consolidated financial
statements.
8
STEEL TECHNOLOGIES INC.
Consolidated Statements of Shareholders' Equity
(In thousands, except per share amounts)
For the Years Ended September 30, 2001, 2000 and 1999
-----------------------------------------------------------------------------------------------
Common Stock Treasury Stock Accumulated
------------------ -------------------- Additional Other
Paid-In Retained Comprehensive
Shares Amount Shares Amount Capital Earnings Loss Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, September 30, 1998 ...... 11,582 $ 16,928 421 $ (3,792) $ 4,909 $ 97,071 $ (1,440) $113,676
Net income ........................ 15,572 15,572
Net issuance of common stock under
incentive stock option plan .... 14 212 (92) 120
Repurchase of common stock under
stock repurchase program ....... (459) 459 (3,331) (3,331)
Cash dividends on common stock
($.11 per share) ................ (1,240) (1,240)
Foreign currency translation
adjustment ...................... (358) (358)
------- -------- ----- -------- -------- -------- -------- --------
Balances, September 30, 1999 ...... 11,137 $ 17,140 880 $ (7,123) $ 4,909 $111,311 $ (1,798) $124,439
Net income ........................ 10,212 10,212
Net issuance of common stock under
incentive stock option plan ..... 13 147 (87) 60
Repurchase of common stock under
stock repurchase program ....... (690) 690 (6,688) (6,688)
Cash dividends on common stock
($.12 per share)................. (1,311) (1,311)
Foreign currency translation
adjustment ...................... 320 320
------- -------- ----- -------- -------- -------- --------- --------
Balances, September 30, 2000 ...... 10,460 $ 17,287 1,570 $(13,811) $ 4,909 $120,125 $ (1,478) $127,032
Net income ........................ 764 764
Net issuance of common stock under
incentive stock option plan..... 10 61 61
Repurchase of common stock under
stock repurchase program........ (253) 253 $ (1,392) (1,392)
Cash dividends on common stock
($.12 per share)................. (1,237) (1,237)
Foreign currency translation
adjustment ...................... 121 121
Change in unrealized loss on cash
flow hedges, net of tax ......... (364) (364)
------- -------- ----- -------- -------- --------- -------- --------
Balances, September 30, 2001 ...... 10,217 $ 17,348 1,823 $(15,203) $ 4,909 $119,652 $ (1,721) $124,985
======= ======== ===== ======== ======== ========= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
9
STEEL TECHNOLOGIES INC.
Consolidated Statements of Cash Flows
(In thousands)
For the Years Ended September 30
--------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................... $ 764 $ 10,212 $ 15,572
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ................................................. 14,620 13,306 12,468
Amortization ................................................. 731 623 384
Deferred income taxes ........................................ (995) 1,924 (1,148)
Equity in net loss (income) of corporate joint ventures ...... 6,832 (898) (1,095)
Loss (gain) on sale of property plant and equipment .......... 82 23 (276)
Increase (decrease) in cash resulting
from changes in:
Trade accounts receivable ................................ 2,428 (10,614) (6,127)
Inventories .............................................. 12,981 2,744 (4,481)
Prepaid expenses and other assets ........................ (665) (688) (404)
Accounts payable ......................................... (1,544) (2,264) 8,513
Accrued liabilities ...................................... 2,313 (4,288) 3,903
-------- -------- --------
Net cash provided by operating activities .......................... 37,547 10,080 27,309
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment ....................... (9,830) (19,888) (17,704)
Proceeds from sale of property, plant and equipment .............. 977 327 3,626
Acquisition, net of cash acquired ................................ -- (12,122) --
Investment in unconsolidated corporate joint ventures ............ (1,203) -- (600)
-------- -------- --------
Net cash used in investing activities .............................. (10,056) (31,683) (14,678)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ..................................... 70,000 49,000 24,800
Principal payments on long-term debt ............................. (96,249) (26,839) (25,303)
Cash dividends on common stock ................................... (1,237) (1,311) (1,240)
Repurchase of common stock ....................................... (1,392) (6,688) (3,331)
Net issuance of common stock under
stock option plans ............................................. 61 60 120
Other ............................................................. 175 (700) 2
-------- -------- --------
Net cash provided by (used in) financing activities ................ (28,642) 13,522 (4,952)
-------- -------- --------
Effect of exchange rate changes on cash ............................ 62 (28) 121
-------- -------- --------
Net (decrease) increase in cash and cash equivalents ............... (1,089) (8,109) 7,800
Cash and cash equivalents, beginning of year ....................... 4,469 12,578 4,778
-------- -------- --------
Cash and cash equivalents, end of year ............................. $ 3,380 $ 4,469 $ 12,578
======== ======== ========
Supplemental Cash Flow Disclosures:
Cash payments for interest ....................................... $ 7,232 $ 7,887 $ 7,005
Cash payments for taxes .......................................... $ 3,955 $ 7,151 $ 9,752
Supplemental Schedule of Noncash Investing and Financing Activities:
Fair value of assets acquired, net of cash acquired of
$1,228 and $457, respectively .................................... $ -- $ 17,914 $ --
Liabilities assumed ................................................ -- 5,792 --
-------- -------- --------
Net cash paid ...................................................... $ -- $ 12,122 --
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
10
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Description of the Business:
Steel Technologies Inc. is an intermediate steel processor engaged in the
business of processing flat rolled steel to specified thickness, width, temper
and finish requirements for customers' manufacturing processes. A majority of
its sales are to industrial customers in North America, manufacturing component
parts for use in the automotive industry. Steel Technologies Inc. operates in
one reportable segment.
Principles of Consolidation: The consolidated financial statements include the
accounts of Steel Technologies Inc. and its majority-owned subsidiaries (the
Company). The Company's investments in corporate joint ventures are accounted
for by the cost or equity method based on the percentage of common ownership and
control. All significant intercompany transactions have been eliminated.
Cash and Cash Equivalents: Cash and cash equivalents include highly liquid
investments with an original maturity of three months or less. The carrying
value of cash equivalents approximates fair value due to the short-term maturity
of the securities.
Inventories: Inventories are valued at the lower of cost or market. Cost is
determined using the specific identification method for all inventories.
Depreciation and Amortization: Depreciation is computed using the straight-line
method with the following estimated useful lives:
Buildings and improvements 20-45 years
Machinery and equipment 3-12 years
When properties are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts with any resulting gain
or loss reflected in results of operations. Maintenance and repairs are expensed
in the year incurred. The Company capitalizes interest costs as part of the cost
of constructing major facilities. Interest costs of $285,000, $481,000 and
$162,000 were capitalized in 2001, 2000 and 1999, respectively.
Goodwill represents the excess of the purchase price over the fair value of net
assets acquired through acquisitions accounted for using the purchase method of
accounting. Goodwill is being amortized on a straight-line basis over a 30 year
life. Accumulated amortization approximated $2,306,000 and $1,575,000 at
September 30, 2001 and 2000, respectively.
In the event that facts and circumstances indicate that the carrying value of
long-lived assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with an asset would be compared to the asset's carrying value
to determine if a write-down to market value or discounted cash flow value is
required.
Revenue Recognition: The Company recognizes revenue when the customer takes
title to goods shipped and risk of loss passes to the customer.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements". SAB 101 summarizes some of the staff's interpretations of the
application of generally accepted accounting principles to revenue recognition.
The Company adopted the accounting and disclosure requirements described in SAB
101 on July 1, 2001. The adoption of SAB 101 did not have a material impact on
the Company's results of operations or its financial position.
11
The Company also adopted Emerging Issues Task Force Issue No. 00-10 (EITF
00-10), "Accounting for Shipping and Handling Revenues and Costs" on July 1,
2001 which requires classifying all amounts billed to a customer related to
shipping and handling as revenue and all shipping and handling expenses as cost
of goods sold. In conformance with EITF 00-10, the Company reclassified all
shipping and handling amounts billed to customers as sales from costs of goods
sold.
Earnings Per Common Share: Earnings per share for all periods presented have
been calculated and presented in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share". Basic earnings per
share excludes dilution and is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflect the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company.
Foreign Currency Translation: As of January 1, 1999, the Mexican subsidiary uses
the peso as the functional currency and the assets and liabilities of the
Mexican subsidiary are translated into U.S. dollars at the year-end rate of
exchange, and revenues and expenses are translated at average rates of exchange
in effect during the period. Resulting translation adjustments are reported as a
component of comprehensive income. Foreign currency transaction losses (gains)
are included in net income when incurred and were $256,000, ($356,000) and
$364,000 for the fiscal years ending 2001, 2000 and 1999, respectively. Prior to
January 1, 1999, the Mexican economy was considered hyper-inflationary.
Accordingly, the Company used the monetary/non-monetary method of accounting for
foreign currency translation. Under the monetary/non-monetary method,
non-monetary assets and liabilities were translated at historical rates of
exchange and the functional currency was the U.S. dollars.
Comprehensive Income: Accumulated other comprehensive loss consists of the
following:
September 30
------------------------------
(In thousands) 2001 2000
-------------- ---- ----
Cumulative translation adjustment $1,357 $1,478
Unrealized loss on cash flow hedges, net of tax 364 -
------ ------
$1,721 $1,478
------ ------
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.
2. ACQUISITIONS:
On January 12, 2000 the Company completed the purchase of Custom Steel, Inc. and
Custom Steel Processing Corp., collectively referred to as Custom, for
approximately $12,122,000 in cash and assumption of $5,792,000 of liabilities.
Additional contingent payments of up to $2,990,000 may also be made during the
next three years.
The Company financed the acquisition with existing credit facilities. The excess
of the purchase price over the acquired net assets has been recorded as goodwill
and is being amortized over 30 years. The acquisitions has been recorded under
the purchase method of accounting, with the operating results of Custom being
included in the Company's consolidated financial statements since the date of
acquisition.
The pro forma impact of the acquisition was not material during the three years
ended September 30, 2001, 2000 and 1999.
12
3. INVENTORIES:
Inventories consist of:
September 30
------------------------
(In thousands) 2001 2000
-------------- ------------------------
Raw materials $ 47,159 $ 59,951
Finished goods and work in process 19,792 19,974
--------- ---------
$ 66,951 $ 79,925
========= =========
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment and related accumulated depreciation at September
30, 2001 and 2000 consist of the following:
September 30
------------------------
(In thousands) 2001 2000
-------------- ------------------------
Land and improvements $ 6,147 $ 5,960
Buildings and improvements 60,009 54,241
Machinery and equipment 137,841 126,235
Construction in progress 2,545 14,005
-------- --------
206,542 200,441
Less accumulated depreciation 94,137 82,227
-------- --------
$112,405 $118,214
======== ========
5. INVESTMENTS IN UNCONSOLIDATED CORPORATE JOINT VENTURES:
Mi-Tech Steel, Inc. (Mi-Tech Steel) owns and operates two high-volume steel
slitting facilities to serve Japanese and domestic automotive and appliance
parts manufacturers in the United States. In March 2001, Mi-Tech Steel
discontinued its Decatur, Alabama operation. Mi-Tech Steel is pursuing
alternatives to sell its assets in Decatur. In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," Mi-Tech Steel
recorded an impairment charge associated with this facility based on its
estimates of fair value. The Company's share of Mi-Tech Steel's impairment
charges recorded during the second quarter of fiscal 2001 was approximately $6.5
million.
Summarized condensed financial information of Mi-Tech Steel, a fifty percent
owned corporate joint venture accounted for by the equity method follows:
September 30
BALANCE SHEET (In thousands) 2001 2000
----------------------------- ------------------------
Assets:
Current assets $ 39,287 $ 54,847
Other assets 31,198 48,722
Liabilities:
Current liabilities $ 28,203 $ 38,067
Long-term liabilities 14,434 26,095
For the Years Ended September 30
---------------------------------------
INCOME STATEMENT (In thousands) 2001 2000 1999
---------------------------------------
Net Sales $137,322 $154,450 $145,684
Net Income (Loss) $(11,559) $ 1,796 $ 2,191
13
The Company has various transactions with Mi-Tech Steel, Inc. Included in
operating income of the Company are management, construction and other fees,
interest earned on advances and equity from the joint venture earnings (losses)
totaling ($5,084,000), $1,594,000 and $2,102,000 in 2001, 2000 and 1999,
respectively. The Company is a guarantor of up to $8,250,000 of Mi-Tech Steel,
Inc's borrowings under a revolving line of credit due June 30, 2002. As of
September 30, 2001, there were no borrowings outstanding on this credit
facility. The lender has the ability to call the debt if debt covenants are
violated. The Company's equity in undistributed net income of Mi-Tech Steel,
Inc. was $4,324,000 and $10,103,000 at September 30, 2001 and 2000,
respectively.
During the second quarter of fiscal 2001, the Company determined that Processing
Technology Inc. (PTI), an unconsolidated corporate joint venture accounted for
by the cost method, was not able to sustain an earnings capacity which justified
the carrying amount of its investment due to the deteriorating financial
condition of PTI and its principal customer. Accordingly, the Company wrote off
its approximate $1 million investment in PTI in accordance with Accounting
Principles Board Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock."
In September 2001, the Company purchased 49% of Ferrolux Metals Co., LLC
(Ferrolux) from Ferragon Corporation. Ferrolux operates a facility in Wayne,
Michigan as a steel processor specializing in exposed automotive products. The
Ferrolux joint venture is accounted for by the equity method of accounting and
did not have a material impact on the Company's results of operations during
2001.
6. LONG-TERM DEBT:
Long-term debt consists of the following:
September 30
-----------------------------
(In thousands) 2001 2000
-------------- -----------------------------
Notes payable to bank, unsecured under
current line of credit; interest rates at
September 30, 2001 and 2000 ranged from
4.77% to 5.65% and 7.35% to 7.46%,
respectively $ 66,000 $ 86,000
Notes payable, unsecured, interest due
monthly at 8.52% 22,840 28,560
Variable rate industrial development
revenue bonds payable in annual installments
through November 1, 2014; interest rate at
September 30, 2001 and 2000 was 2.45% and
5.60%, respectively 4,000 4,100
Industrial development revenue bonds payable
in semi-annual installments through May 1,
2011; interest rates ranged from 7.38% to
8.13% at September 30, 2001 and 2000 2,210 2,335
Mortgage notes payable in installments through
2002; interest rates averaging 8.15% at
September 30, 2001 and 2000 267 533
Other 76 114
------- -------
95,393 121,642
Less amount due within one year 6,283 6,248
-------- --------
$ 89,110 $115,394
======== ========
Steel Technologies has a $125,000,000 line of credit agreement expiring on
August 31, 2004 with various variable options on the interest rate, none of
which are greater than the bank's prime. The Company has elected to use the
LIBOR based interest rate on its outstanding borrowings under the agreement. At
September 30, 2001, there was $66,000,000 outstanding on the credit facility.
In April 1995, the Company entered into a $40,000,000 private placement note.
Annual principal payments of $5,720,000 began March 1, 1999 and continue through
March 1, 2005.
14
The aggregate amounts of all long-term debt to be repaid for the five years
following September 30, 2000, are: 2002, $6,283,000; 2003, $6,015,000; 2004,
$72,000,000; 2005, $5,970,000; 2006, $305,000; and thereafter $4,820,000.
Provisions contained in the Company's various debt agreements require the
Company to maintain specified levels of net worth, maintain certain financial
ratios and limit the addition of substantial debt. The Company estimates that
the fair value of fixed interest debt instruments approximate $25,818,000 at
September 30, 2001. The fair value of the Company's debt is estimated based on
quoted market rates or current rates offered to the Company on comparable
remaining maturities.
On June 30, 1999, the Company terminated its long-term interest rate swap
agreement, which was entered into to reduce the risk of interest rate
variability. Under the contract, the Company agreed with another party to
exchange quarterly the difference between variable-rate and fixed-rate amounts
calculated on a notional principal amount of $30,000,000. The termination
generated a deferred gain of $958,000, which was being amortized over a period
of 30 months (the remaining term of the underlying debt instrument) as a
reduction of interest expense beginning in July 1999. On August 31, 2001, the
Company refinanced its existing credit facilities (the underlying debt
instrument) and the remaining unamortized gain of approximately $128,000 was
recognized as a reduction in interest expense.
7. FINANCIAL INSTRUMENTS:
In order to mitigate a portion of the market risk on its variable rate debt, the
Company entered into interest rate swap contracts with major financial
institutions on August 30, 2001. Under terms of these separate contracts the
Company receives a LIBOR based variable interest rate and pay a fixed interest
rate of 4.24% and 4.48% on notional amounts of $15 million each which mature in
August 2003 and February 2004, respectively. The variable rate interest rate
paid on the contracts is determined based on LIBOR on the last day of the
applicable month, which is consistent with the variable rate determination on
the underlying debt.
Effective October 1, 2000, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133), as amended, which established accounting and
reporting standards requiring that every derivative financial instrument be
recorded on the balance sheet at its fair value. SFAS No. 133 requires all
derivatives be recognized as either assets or liabilities in the balance sheet
at their fair value, and sets forth the manner in which gains and losses thereon
are to be recorded. The treatment of such gains or losses is dependent upon the
type of exposure, if any, for which the derivative is designated as a hedge.
Gains and losses for qualifying hedges can be deferred in accumulated other
comprehensive loss and recognized in the income statement along with the related
results of the hedged item. SFAS No. 133 requires that the Company formally
document, designate and assess the effectiveness of such transactions in order
to qualify for hedge accounting treatment.
The Company has designated its interest rate swap contracts as cash flow hedges
of anticipated interest payments under its variable rate line of credit
agreement. Gains and losses on these swaps that are recorded in accumulated
other comprehensive loss will be reclassified into net income as interest
expense, net in the periods in which the related variable interest is paid.
The adoption of SFAS No. 133 did not have any impact on the Company's results of
operations or its financial position. The Company expects to reclassify
approximately $159,000 of the $364,000 recorded in accumulated other
comprehensive loss into net income as interest expense, net over the next twelve
months.
8. SHAREHOLDERS' EQUITY:
In April 1998, the Company adopted a shareholder rights plan by declaring a
dividend of one right for each share of Common Stock outstanding payable to
shareholders of record on May 14, 1998. Each right entitles shareholders to buy
one one-hundredth of a share of series A junior participating preferred stock
for $50 per share. The rights may be exercised only if a person or group
acquires 20% or more of the outstanding shares of common stock or announces a
tender offer or exchange offer that would result in ownership of 20% or more of
the common stock. The rights currently trade with the Company's common stock and
may be redeemed by the Board of Directors for one cent per right until they
become exercisable, and thereafter under certain circumstances. The rights
expire in 2008.
15
The Company's Articles of Incorporation authorized 500,000 shares of no par
value preferred stock, of which 200,000 shares have been reserved and designated
Series A 1998 junior participating preferred stock for possible issuance under
the Company's shareholder rights plan. As of September 30, 2000, no preferred
shares have been issued.
During 2000, the Company amended its restated articles of incorporation to
increase the number of authorized common shares from 20,000,000 to 50,000,000.
On January 22, 1998, the Board of Directors approved a plan under which Steel
Technologies may repurchase up to 500,000 shares of its common stock.
Subsequently, the Board of Directors authorized repurchase of an additional
1,000,000 shares on September 30, 1998 and another additional 1,000,000 shares
on April 30, 2000 for a total of 2,500,000 shares. Shares may be purchased from
time to time at prevailing prices in open market transactions, subject to market
conditions, share price and other considerations. The Company has purchased to
date 1,823,000 shares for an aggregate of $15,203,000 as of September 30, 2001.
During fiscal 2001, 2000 and 1999, the Company repurchased approximately
253,000, 690,000 and 459,000 shares of common stock for $1,392,000, $6,688,000
and $3,331,000, respectively.
9. RETIREMENT PLAN:
The Company maintains a 401(k) defined contribution pension plan. Annual expense
provisions are based upon the level of employee participation, as the plan
requires the Company to match a certain portion of the employees' contributions.
Total retirement plan expense was $792,000 in 2001, $716,000 in 2000 and
$666,000 in 1999. The Company follows the policy of funding retirement plan
contributions as accrued.
10. INCOME TAXES:
The following table represents the components of the provision for income taxes:
For the Years Ended September 30
---------------------------------------
(In thousands) 2001 2000 1999
-------------- ---------------------------------------
Current:
Federal $ 4,057 $ 4,535 $ 7,691
State, local and foreign 1,671 (494) 3,155
------- ------- -------
5,728 4,041 10,846
======= ======= =======
Deferred:
Federal (154) 105 (555)
State, local and foreign (841) 1,819 (630)
------- ------- -------
(995) 1,924 (1,185)
------- ------- -------
$ 4,733 $ 5,965 $ 9,661
======= ======= =======
16
Deferred income taxes are recorded at currently enacted rates and result from
temporary differences in the recognition of revenues and expenses for tax and
financial statement purposes. The primary temporary differences giving rise to
the Company's deferred tax assets and liabilities are as follows:
September 30
-----------------------------
(In thousands) 2001 2000
-------------- -----------------------------
Deferred tax assets:
Inventory capitalization $ 720 $ 1,209
Provision for doubtful accounts 983 493
Non deductible liabilities 1,295 877
-------- ---------
Total deferred tax assets 2,998 2,579
Deferred tax liabilities:
Accelerated depreciation 11,374 11,170
Other, net 3,063 4,070
-------- ---------
Total deferred tax liabilities 14,437 15,240
-------- ---------
Net deferred tax liabilities $(11,439) $ (12,661)
======== =========
A reconciliation of the provision for income taxes with amounts computed by
applying the federal statutory rate to income before income taxes follows:
For the Years Ended September 30
--------------------------------
2001 2000 1999
---- ---- ----
Tax at U.S. federal statutory rate 34.2% 34.2% 35.0%
State and local income taxes, net
of U.S. federal tax benefit 3.5 3.5 4.6
Equity in net (income) loss of
unconsolidated corporate joint ventures 45.0 (1.9) (1.4)
Other, net 3.4 1.1 -
---- ---- ----
86.1% 36.9% 38.2%
==== ==== ====
11. STOCK OPTION PLANS:
Under its employee stock option plans, the Company may grant employees incentive
stock options to purchase shares at not less than 100% of market value at date
of grant or non-qualified stock options at a price determined by the
Compensation Committee of the Company's Board of Directors. Generally, options
are exercisable at the rate of 20% a year beginning one year from date of grant
and expire ten years from the date of grant.
The Company applies Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for its stock option plans. Generally, the exercise price of options
awarded under these plans has been equal to the fair market value of the
underlying common stock on the date of grant. Accordingly, no compensation
expense has been recognized for its stock-based compensation plans. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS No. 123, "Accounting
for Stock-Based Compensation", net income and earnings per share would have been
reduced to the pro forma amounts indicated in the table below.
17
For the Years Ended September 30
--------------------------------
(In thousands, except per share results) 2001 2000 1999
---------------------------------------- ---- ---- ----
Net income - as reported $ 764 $10,212 $15,572
Net income - pro forma $ 459 $ 9,912 $15,216
Diluted net income per share - as reported $0.07 $ 0.94 $ 1.38
Diluted net income per share - pro forma $0.04 $ 0.91 $ 1.35
Basic net income per share - as reported $0.07 $ 0.94 $ 1.39
Basic net income per share - pro forma $0.04 $ 0.92 $ 1.35
The pro forma effects on net income are not necessarily representative of the
pro forma effect on net income in future years. The fair value of options
granted during 2001, 2000 and 1999 are $4.40, $2.19 and $6.57 per share,
respectively.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
For the Years Ended September 30
--------------------------------
2001 2000 1999
---- ---- ----
Expected dividend yield 1.9% 1.3% 1.3%
Expected stock price volatility 46.0% 46.0% 44.0%
Weighted average risk-free interest rate 5.9% 6.1% 4.8%
Expected life of options (years) 7.0 7.0 7.0
The summary of the status of all of the Company's stock incentive plans as of
September 30, 2001, 2000 and 1999 and changes during the years then ended is
presented below:
Average
Shares Under Range of Option Exercise
Plans Prices Per Share Price
------------ --------------------- --------
Balance, September 30, 1998 623,000 $ 6.67 - $ 12.79 $ 10.81
Granted 78,000 $ 7.25 - $ 8.73 $ 7.95
Exercised (19,500) $ 6.67 $ 6.67
Canceled (48,000) $ 10.08 $ 10.08
------- --------------------- -------
Balance, September 30, 1999 633,500 $ 6.67 - $ 12.79 $ 10.64
Granted 10,000 $ 11.94 $ 11.94
Exercised (16,000) $ 6.67 - $ 10.67 $ 8.79
Canceled - $ - $ -
------- --------------------- -------
Balance, September 30, 2000 627,500 $ 6.67 - $ 12.79 $ 10.71
Granted 214,000 $ 5.34 $ 5.34
Exercised - $ - $ -
Canceled (50,000) $ 6.67 - $ 12.79 $ 9.12
------- --------------------- -------
Balance, September 30, 2001 791,500 $ 5.34 - $ 12.51 $ 9.36
------- --------------------- -------
18
The following table summarizes information about stock options outstanding and
exercisable:
September 30, 2001
---------------------------------------------------------------------------------
Options Outstanding: Options Exercisable:
------------------------------------------------- ----------------------------
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted
Exercise Prices at 9/30/01 Contracted Life Exercise Price at 9/30/01 Exercise Price
- -----------------------------------------------------------------------------------------------------
$ 5.34 - $10.00 292,000 8.63 years $ 6.03 32,200 $ 7.93
$10.01 - $12.51 499,500 4.21 years $11.30 418,000 $11.22
- ---------------- ------- ---------- ------ ------- -------
$ 5.34 - $12.51 791,500 5.84 years $ 9.36 450,200 $10.99
At September 30, 2001, there were 286,000 shares available for granting of stock
options under the Company's stock option plans. All unexercised options expire
not later than the year 2010.
12. NET INCOME PER SHARE COMPUTATIONS:
The following is a reconciliation of the numerator of the basic and diluted per
share computations:
For the Years Ended
September 30
--------------------------
(In thousands, except for share results) 2001 2000 1999
- -------------------------------------------------------------------------------
Net income ................................... $ 764 $10,212 $15,572
------- ------- -------
Shares (denominator) used for diluted share
computations:
Weighted average shares of common stock
outstanding ................................... 10,267 10,818 11,230
Plus: dilutive effect of stock options ........ 41 39 26
------- ------- -------
Adjusted weighted average shares .......... 10,308 10,857 11,256
------- ------- -------
Shares (denominator) used for basic per share
computations:
Weighted average shares of common stock
outstanding ................................... 10,267 10,818 11,230
------- ------- -------
Net income per share data:
Basic ..................................... $ 0.07 $ 0.94 $ 1.38
Diluted ................................... $ 0.07 $ 0.94 $ 1.39
Options to purchase 567,500, 597,500 and 310,000 shares for the years ended
September 30, 2001, 2000 and 1999, respectively were excluded from the
calculations above because the exercise prices of the options were greater than
the average market price of the Company's stock during the periods.
19
13. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141 (SFAS No. 141), "Business
Combinations," which provides that all business combinations should be accounted
for using the purchase method of accounting and establishes criteria for the
initial recognition and measurement of goodwill and other intangible assets
recorded in connection with a business combination. The provisions of SFAS No.
141 apply to all business combinations initiated or completed after June 30,
2001. The Company will apply the provisions of SFAS No. 141 to any future
business combinations.
In addition, the FASB issued Statement of Financial Accounting Standards No. 142
(SFAS No. 142), "Goodwill and Other Intangible Assets," which establishes the
accounting for goodwill and other intangible assets following their recognition.
SFAS No. 142 applies to all goodwill and other intangible assets whether
acquired singly, as part of a group, or in a business combination. SFAS No. 142
provides that goodwill should not be amortized but should be tested for
impairment annually using a fair-value based approach. In addition, SFAS No. 142
provides that other intangible assets other than goodwill should be amortized
over their useful lives and reviewed for impairment in accordance with Statement
of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 142 is effective for the Company beginning on October 1, 2002. Upon
adoption, the Company will be required to perform a transitional impairment test
under SFAS No. 142 for all goodwill recorded as of October 1, 2002. Any
impairment loss recorded as a result of completing the transitional impairment
test will be treated as a change in accounting principle. Management of the
Company is currently analyzing the impact of SFAS No. 142 and cannot estimate
the impact of the adoption of SFAS No. 142 as of October 1, 2002 at this time.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No.
144). SFAS No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supercedes SFAS No. 121 and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations, Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for the disposal of a segment of a business (as
previously defined in that Opinion). SFAS No. 121 also amends Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. The objectives of SFAS No. 144 are to address significant issues
relating to the implementation of SFAS No. 121 and to develop a single
accounting model, based on the framework established in SFAS No. 121, for
long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired. Management of the Company is currently analyzing the impact of
SFAS No. 144 and cannot estimate the impact of the adoption of SFAS No. 144 as
of October 1, 2002 at this time.
20
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Steel Technologies Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, shareholders' equity
and cash flows present fairly, in all material respects, the financial position
of Steel Technologies Inc. and its subsidiaries at September 30, 2001 and 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 2001, in conformity with accounting
principles generally accepted in the United States of America. 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
auditing standards generally accepted in the United States of America, 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 our opinion.
PricewaterhouseCoopers LLP
Louisville, Kentucky
October 29, 2001
21
EXHIBIT 21.1
STEEL TECHNOLOGIES INC.
SUBSIDIARIES AND AFFILIATES
BEFORE SEPTEMBER 30, 1999
Percentage of
Voting
Names Under Securities
Jurisdiction of Which Business Owned By
Name Incorporation Transacted Registrant
- --------------------------------------------------------------------------------
Wabash Steel Corporation
(Formerly Southern Strip
Steel-Peru, Inc.) Indiana Wabash Steel Corporation 100%
Steel Technologies
Carolinas, Inc. North Carolina Steel Technologies Carolinas 100%
Steel Technologies
Ohio, Inc. (formerly
Southern Strip Steel-
Columbus, Inc.) Ohio Steel Technologies Ohio 100%
Roberts Steel Company Ohio Roberts Steel 100%
Steel Technologies de
Mexico (formerly
Transformadora y
Commercializdora de
Metales, S.A. de C.V.)Mexico Steel Technologies de Mexico 90%
Mi-Tech Steel, Inc. Delaware Mi-Tech Steel, Inc. 50%
Processing Technology,
Inc. * Delaware Processing Technology, Inc. 5%
* Steel Technologies Inc. also owns shares of Processing Technology,
Inc., non-voting preferred stock. The Company continues to evaluate
the possible conversion of its preferred shares into common shares of
Processing Technology, Inc. If converted, Steel Technologies Inc.,
including the 5% interest currently held, would own 33% of the
outstanding common shares of Processing Technology, Inc.
EXHIBIT 21.1 (CONTINUED)
STEEL TECHNOLOGIES INC.
SUBSIDIARIES AND AFFILIATES
AFTER SEPTEMBER 30, 1999
Percentage of
Voting
Names Under Securities
Jurisdiction of Which Business Owned By
Name Incorporation Transacted Registrant
- --------------------------------------------------------------------------------
Wabash Steel Corporation Steel Technologies, LLC
(Formerly Steel Technologies
Carolinas, Inc.) South Carolina Steel Technologies Carolinas 100%
Steel Technologies, L.P. Delaware Steel Technologies General Partner
Limited partner
is Steel
Technologies,
LLC (SC)
Steel Technologies Corp.
(Formerly Roberts Steel
Company) Ohio Steel Technologies Ohio 100%
Steel Technologies, LLC Ohio Steel Technologies 100% owned by
Steel
Technologies
Corp.
Wabash Steel Corporation
(Formerly Southern Strip
Steel-Peru, Inc.) Indiana Wabash Steel Corporation 100%
Steel Technologies Ohio,
Inc. (formerly
Southern Strip Steel-
Columbus, Inc) Ohio Steel Technologies Ohio 100%
Steel Technologies de
Mexico (formerly
Transformadora y
Commercializadora de
Metales, S.A. de C.V.)Mexico Steel Technologies de Mexico 90%
Custom Steel, Inc. Kentucky Custom Steel 100%
Custom Steel Processing,
Inc. Ohio Custom SteelProcessing 100%
Mi-Tech Steel, Inc. Delaware Mi-Tech Steel, Inc. 50%
Processing Technology,
Inc. * Delaware Processing Technology, Inc. 5%
* Steel Technologies Inc. also owns shares of Processing Technology,
Inc., non-voting preferred stock. The Company continues to evaluate
the possible conversion of its preferred shares into common shares of
Processing Technology, Inc. If converted, Steel Technologies Inc.,
including the 5% interest currently held, would own 33% of the
outstanding common shares of Processing Technology, Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File Nos. 333-66318, 333-21279 and 333-21359) of Steel
Technologies Inc. and Subsidiaries of our report dated October 29, 2001,
relating to the consolidated financial statements, which appears in the Annual
Report to Shareholders, which is incorporated in this Annual Report on Form
10-K. We also consent to the incorporation by reference of our report dated
October 29, 2001 relating to the financial statement schedules, which appears in
this Form 10-K.
PricewaterhouseCoopers LLP
Louisville, Kentucky
December 21, 2001
Exhibit 99
Financial Statements of Mi-Tech Steel Inc.
Mi-Tech Steel, Inc. and Subsidiary
Report on Audits of Consolidated Financial Statements
for the years ended September 30, 2001, 2000 and 1999
1
C O N T E N T S
Pages
-----
Report of Independent Accountants 3
Financial Statements:
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statements of Shareholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8-14
2
Report of Independent Accountants
Board of Directors
Mi-Tech Steel, Inc. and Subsidiary
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity, and cash flows
present fairly, in all material respects, the financial position of Mi-Tech
Steel, Inc. and Subsidiary at September 30, 2001 and 2000 and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 2001, in conformity with accounting principles generally
accepted in the United States of America. 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 auditing standards generally
accepted in the United States of America 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 our opinion.
Pricewaterhousecoopers LLP
October 29, 2001
3
Mi-Tech Steel, Inc. and Subsidiary
Consolidated Balance Sheets
September 30
-----------------------------
2001 2000
- -------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents.................... $ 2,419,325 $ 2,885,709
Trade accounts receivable, less
allowance for doubtful accounts:
$425,000 in 2001 and $323,000 in 2000...... 17,942,987 16,532,226
Inventories.................................. 17,609,025 33,780,416
Deferred income taxes........................ 912,971 935,000
Income taxes refundable...................... 285,055 399,838
Prepaid expenses and other assets............ 117,449 314,561
------------- -------------
Total current assets .................... 39,286,812 54,846,750
------------- -------------
Property, plant and equipment (at cost), net... 28,033,534 47,487,466
------------- -------------
Investments in corporate joint ventures -- 1,200,000
Deferred income taxes - long-term.............. 2,250,307 --
Other assets .................................. 32,535 34,535
------------- -------------
$ 69,603,188 $ 103,568,751
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................... $ 17,049,206 $ 19,548,428
Accrued liabilities ........................ 2,100,990 2,465,483
Long-term debt due within one year ......... 9,052,640 24,302,640
------------- -------------
Total current liabilities ............... 28,202,836 46,316,551
Long-term debt ................................ 13,552,600 14,605,240
Deferred income taxes ......................... -- 3,240,056
------------- -------------
Total liabilities ........................ 41,755,436 64,161,847
------------- -------------
Commitments and contingencies ................. -- --
Shareholders' equity:
Common stock:
Class A, $4,000 par value; 2,400 shares
authorized, issued and outstanding ....... 9,600,000 9,600,000
Class B, $4,000 par value; 2,400 shares
authorized, issued and outstanding ....... 9,600,000 9,600,000
Retained earnings .......................... 8,647,752 20,206,904
------------- -------------
Total shareholders' equity ............... 27,847,752 39,406,904
------------- -------------
$ 69,603,188 $ 103,568,751
============= =============
The accompanying notes are an integral part of
the consolidated financial statements.
4
Mi-Tech Steel, Inc. and Subsidiary
Consolidated Statements of Operations
For the Years Ended September 30
--------------------------------
2001 2000 1999
- --------------------------------------------------------------------------
Sales .............................. $137,321,433 $154,450,026 $145,684,264
Cost of goods sold ................. 127,597,551 143,287,002 134,800,400
------------ ------------ ------------
Gross profit ..................... 9,723,882 11,163,024 10,883,864
Selling, general and administrative
expenses ......................... 5,430,143 5,369,156 4,840,084
Asset impairment charge (Note 4).... 18,962,106 -- --
------------ ------------ ------------
Operating (loss) income ........... (14,668,367) 5,793,868 6,043,780
Interest expense ................... 2,203,238 2,802,180 2,317,945
------------ ------------ ------------
(Loss) income before income taxes. (16,871,605) 2,991,688 3,725,835
(Benefit) provision for income
taxes ............................ (5,312,453) 1,195,121 1,534,500
------------ ------------ ------------
Net income ....................... $(11,559,152) $ 1,796,567 $ 2,191,335
============ ============ ============
The accompanying notes are an integral part of
the consolidated financial statements.
5
Mi-Tech Steel, Inc. and Subsidiary
Consolidated Statements of Shareholders' Equity
For the Years Ended September 30, 2001, 2000 and 1999
------------------------------------------------------------------------
Class A Class B
Common Stock Common Stock
--------------------- -------------------
Retained
Shares Amount Shares Amount Earnings Total
- -------------------------------------------------------------------------------------------------------------
Balances, September 30, 1998 ...... 2,250 $9,000,000 2,250 $9,000,000 $16,219,002 $34,219,002
Issuance of common stock .......... 150 600,000 150 600,000 -- 1,200,000
Net income ........................ -- -- -- -- 2,191,335 2,191,335
------- ---------- ----- ---------- ----------- -----------
Balances, September 30, 1999 ...... 2,400 9,600,000 2,400 9,600,000 18,410,337 37,610,337
Net income ........................ -- -- -- -- 1,796,567 1,796,567
------- ---------- ----- ---------- ----------- -----------
Balances, September 30, 2000 ...... 2,400 9,600,000 2,400 9,600,000 20,206,904 39,406,904
Net loss .......................... -- -- -- -- (11,559,152) (11,559,152)
------- ---------- ----- ---------- ----------- -----------
Balances, September 30, 2001 ...... 2,400 $9,600,000 2,400 $9,600,000 $ 8,647,752 $27,847,752
======= ========== ===== ========== =========== ===========
The accompanying notes are an integral part of
the consolidated financial statements.
6
Mi-Tech Steel, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Years Ended September 30
---------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ............................................ $(11,559,152) $ 1,796,567 $ 2,191,335
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Asset impairment charge (Note 4) ......................... 18,962,106 -- --
Depreciation and amortization ............................ 3,172,617 4,570,222 4,259,766
Deferred income taxes .................................... (5,468,334) 392,056 537,000
Provision for bad debts on trade accounts receivable ..... 102,000 58,000 38,000
Loss on sale of property plant and equipment ............. 14,476 1,289 4,175
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable ............................ (1,512,761) 4,869,620 (6,171,876)
Inventories .......................................... 16,171,391 (1,771,618) (7,559,126)
Prepaid expenses and other assets .................... 116,399 (158,689) 64,464
Accounts payable ..................................... (2,499,222) (6,288,359) 9,603,255
Accrued liabilities .................................. (364,493) 620,342 517,668
Income taxes ......................................... 113,783 (58,818) 451,779
------------ ----------- -----------
Net cash provided by operating activities ...................... 17,248,810 4,030,612 3,936,440
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment ................... (1,476,163) (1,815,356) (4,896,811)
Proceeds from sale of property, plant and equipment .......... 63,609 -- 2,500
Investment in unconsolidated corporate joint ventures ........ -- -- (1,200,000)
------------ ----------- -----------
Net cash used in investing activities .......................... (1,412,554) (1,815,356) (6,094,311)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ................................. 5,000,000 2,500,000 17,000,000
Principal payments on long-term debt ......................... (21,302,640) (4,802,640) (17,789,480)
Proceeds from issuance of common stock ....................... -- -- 1,200,000
------------ ----------- -----------
Net cash (used in) provided by financing activities ............ (16,302,640) (2,302,640) 410,520
------------ ----------- -----------
Net decrease increase in cash and cash equivalents ............. (466,384) (87,384) (1,747,351)
Cash and cash equivalents, beginning of year ................... 2,885,709 2,973,093 4,720,444
------------ ----------- -----------
Cash and cash equivalents, end of year ......................... $ 2,419,325 $ 2,885,709 $ 2,973,093
============ =========== ===========
Supplemental Cash Flow Disclosures:
Cash payments for interest ................................... $ 2,480,000 $ 2,196,000 $ 2,470,000
Cash payments for taxes ...................................... $ 42,000 $ 979,000 $ 792,000
The accompanying notes are an integral part of
the consolidated financial statements.
7
Mi-Tech Steel, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies:
Description of Business: Mi-Tech Steel, Inc. and Subsidiary (the Company)
owns and operates two high-volume steel slitting facilities operation to
serve Japanese and domestic parts manufacturers in the Southeastern and
Midwestern United States. In March 2001, the Company discontinued its
Decatur, Alabama operations (see Note 4). A significant amount of sales is
generated by selling manufacturing component parts to the automotive
industry.
Principles of Consolidation: The consolidated financial statements include
the accounts of Mi-Tech Steel, Alabama, Inc., a wholly-owned subsidiary.
The Company's investments in corporate joint ventures are accounted for by
the cost or equity method based on the percentage of common ownership and
control. All significant intercompany accounts and transactions have been
eliminated.
Cash and Cash Equivalents: Cash and cash equivalents includes highly liquid
investments with an original maturity of three months or less. Carrying
value approximates fair value due to the short-term maturities of the
investments.
Inventories: Inventories are valued at the lower of cost or market. Cost is
determined using the specific identification method for all inventories.
Depreciation: Depreciation is computed using the straight-line method with
the following estimated useful lives:
Buildings and improvements 5-25 years
Machinery and equipment 2-12 years
When properties are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts with any resulting
gain or loss reflected in results of operations. Maintenance and repairs
are expensed in the year incurred. The Company capitalized interest costs
as part of the cost of constructing major facilities. Interest costs of
approximately $10,000, $8,000 and $103,000 were capitalized in 2001, 2000
and 1999, respectively.
Revenue Recognition: The Company recognizes revenues when the customer
takes title to goods shipped and risk of loss passes to the customer.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in
Financial Statements". SAB 101 summarizes some of the staff's
interpretations of the application of generally accepted accounting
principles to revenue recognition. The Company adopted the accounting and
disclosure requirements described in SAB 101 on July 1, 2001. The adoption
of SAB 101 did not have a material impact on the Company's results of
operations or its financial position.
8
The Company also adopted Emerging Issues Task Force Issue No. 00-10 (EITF
00-10), "Accounting for Shipping and Handling Revenues and Costs" on July
1, 2001 which requires classifying all amounts billed to a customer related
to shipping and handling as revenue and all shipping and handling expenses
as cost of goods sold. In conformance with EITF 00-10, the Company
reclassified all shipping and handling amounts billed to customers as sales
from costs of goods sold.
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
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
2. Inventories: Inventories at September 30 consist of:
September 30
------------------------
2001 2000
------------------------
Raw materials $13,309,635 $27,536,041
Finished goods and work in process 4,299,390 6,244,375
----------- -----------
$17,609,025 $33,780,416
=========== ===========
3. Property, Plant and Equipment
Property, plant and equipment and related accumulated depreciation at
September 30 consist of the following:
September 30
----------------------------
2001 2000
----------------------------
Land and improvements $ 873,396 $ 2,438,752
Buildings and improvements 14,407,241 26,046,541
Machinery and equipment 19,570,145 39,579,067
Construction in progress 27,715 342,783
Assets available for sale 9,830,047 --
------------ ------------
44,708,544 68,407,143
Less accumulated depreciation (16,675,010) (20,919,677)
------------ ------------
$ 28,033,534 $ 47,487,466
============ ============
9
4. Asset Impairment Charge:
In January 2001, the Company announced the closure of its Decatur, Alabama
operation which was completed during fiscal 2001. The closure occurred as a
result of a weaker steel market in the southeastern United States region
serviced by the Decatur operation. The Company is pursuing alternatives to
sell its assets in Decatur which consist of land, two buildings and
machinery and equipment. In accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," the Company recorded
an impairment charge of approximately $17.8 million based on its estimate
of fair value. At September 30, 2001, the net assets of Decatur have an
estimated fair value of approximately $9.8 million. The Company estimates
it will complete the sale of these assets by the middle of 2003.
During the second quarter of fiscal 2001, the Company determined that its
30% interest in San Diego Coil Center (SDCC), an unconsolidated corporate
joint venture between the Company and Mitsui and Co., Ltd. accounted for by
the cost method, was not able to sustain an earnings capacity which
justified the carrying amount of its investment. In accordance with
Accounting Principles Board Opinion No. 18, "The Equity Method of
Accounting for Investments in Common Stock," the Company wrote off its $1.2
million investment in SDCC.
10
5. Long-Term Debt:
Long-term debt at September 30 consists of the following:
September 30
-----------------------------
2001 2000
-----------------------------
Term note, due February 2003; interest rate
at 4.93% and 6.91% at September 30, 2001
and 2000, respectively $12,500,000 $12,500,000
Notes payable to bank, collateralized, due
September 2002; interest rate 4.50% and
7.22% at September 30, 2001 and 2000,
respectively 8,000,000 10,000,000
Term note, collateralized, due September
2003; interest rate 5.72% and 8.87% at
September 30, 2001 and 2000, respectively 2,105,240 3,157,880
Notes payable to bank, unsecured under
current line of credit due June 2002;
interest rate 7.85% at September 30, 2000 -- 8,250,000
Note payable to shareholder, unsecured;
interest rate 7.57% at September 30, 2000 -- 5,000,000
----------- -----------
22,605,240 38,907,880
Less amount due within one year 9,052,640 24,302,640
----------- -----------
$13,552,600 $14,605,240
=========== ===========
In February 1998, the Company entered into a term loan for $12,500,000 with
a banking institution independent of the bank providing the Company's
existing line of credit. The loan is collateralized by a letter of
awareness from a shareholder and is due February 9, 2003. The agreement
bears interest at no greater than the federal funds rate.
In September 2001, the Company continued an uncommitted line of credit
agreement for $12,000,000. The line was entered into for working capital
purposes and is due September 2002 at which time the Company intends to
renew the line. Borrowings under the agreement are limited to certain
percentages of accounts receivable and inventory. The agreement bears
interest at no greater than the federal funds rate.
The term note is collateralized by certain equipment owned by the Company's
wholly-owned subsidiary and requires monthly principal payments of $87,720
plus interest until maturity in September 2003.
The Company has an $8,250,000 unsecured bank line of credit agreement
expiring in June 2002 with various options on the variable interest rate,
none of which are greater than the bank's prime. The line is guaranteed by
a shareholder in the amount of $8,250,000. There were no borrowings
outstanding on this credit facility at September 30, 2001.
11
Provisions contained in the Company's various debt agreements require the
Company to maintain specified levels of net worth and comply with certain
financial ratios. The lenders have the ability to call the debt if debt
covenants were to be violated.
The carrying value of the Company's long-tem debt approximates fair value.
The maturities of all long-term debt for the years following September 30,
2001 are as follows:
2002 $ 9,052,640
2003 13,552,600
------------
$ 22,605,240
============
6. Retirement Plan:
The Company maintains a 401(k) defined contribution pension plan. Annual
expense provisions are based upon the level of employee participation, as
the plan requires the Company to match a certain portion of the employees'
contributions. The total expense under the plan was approximately $90,000
in 2001, $103,000 in 2000 and $83,000 in 1999. The Company follows the
policy of funding retirement plan contributions as accrued.
7. Income Taxes:
The following table represents the components of the provision for income
taxes:
For the Years Ended September 30
-----------------------------------------
2001 2000 1999
-----------------------------------------
Current:
Federal $ 143,789 $ 703,487 $ 703,500
State and local 12,092 99,578 294,000
----------- ----------- -----------
155,881 803,065 997,500
=========== =========== ===========
Deferred:
Federal (5,381,403) 341,792 402,000
State and local (86,931) 50,264 135,000
----------- ---------- -----------
(5,468,334) 392,056 537,000
----------- ----------- -----------
$(5,312,453) $ 1,195,121 $ 1,534,500
=========== =========== ===========
12
Deferred income taxes are recorded at currently enacted rates and result
from temporary differences in the recognition of revenues and expenses for
tax and financial reporting purposes. The primary temporary differences
giving rise to the Company's deferred tax assets and liabilities are as
follows:
September 30
------------------------------
2001 2000
------------------------------
Deferred tax assets:
Asset impairment charge $ 6,011,910 $ --
Alternative minimum tax carryforwards 912,971 935,000
Provision for doubtful accounts 148,955 165,106
Inventory capitalization 76,687 295,053
Other, net 49,369 41,008
----------- ------------
Total deferred tax assets 7,199,892 1,436,167
Deferred tax liabilities:
Accelerated depreciation (4,036,614) (3,661,007)
Other, net -- (80,216)
----------- -----------
Total deferred tax liabilities (4,036,614) (3,741,223)
----------- -----------
Net deferred tax liabilities $ 3,163,278 $(2,305,056)
=========== ===========
A reconciliation of the income tax provision with amounts computed by
applying the federal statutory income tax rate to income before income
taxes follows:
For the Years Ended September 30
--------------------------------
2001 2000 1999
---- ---- ----
(Benefit) tax at U.S. federal
statutory rate (34.0)% 34.0% 34.0%
State and local income taxes, net
of U.S. federal tax benefit -- 3.9 8.0
Non-deductible capital loss 2.4 -- --
Other, net 0.1 2.1 (0.8)
---- ---- ----
(31.5)% 40.0% 41.2%
==== ==== ====
13
8. Related Party Transactions:
The Company is involved in various transactions with its shareholders.
These transactions involve the purchases, processing and sales of
inventories between companies, the advancing of funds at the prime rate of
interest for the acquisition of capital equipment and working capital
purposes, and the payment of fees for services performed for the Company.
The following presents the related party transactions between the Company
and its shareholders for each of the three years ended September 30:
2001 2000 1999
----------- ----------- -----------
Management and construction fees $ 996,000 $ 981,000 $ 1,246,000
Sales of inventory 1,330,000 4,933,000 5,606,000
Purchases of inventory 41,484,000 62,549,000 56,125,000
The following presents the related party balances between the Company and
its shareholders at September 30:
2001 2000
----------- -----------
Accounts payable - affiliate $ 8,933,000 $ 8,326,000
Accounts receivable from shareholders 315,000 501,000
Note payable to shareholder -- 5,000,000
The Company has a management fee agreement with SDCC for certain services
performed by the Company. The total fee income recorded was $259,800,
$340,800 and $134,800 in 2001, 2000 and 1999, respectively.
9. Major Customers:
Sales to two customers accounted for 32%, 37% and 34% of sales for the
years ended September 30, 2001, 2000 and 1999. Amounts receivable from
these customers totaled approximately $6,921,000 and $5,250,000 at
September 30, 2001 and 2000, respectively. The loss of one of these
customers would have a material adverse effect on the Company's results of
operations, financial position and cash flows.
14