<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
<TABLE>
<S> <C>
For the three month period ended March 31, 1999 Commission File Number: 333-04254
---------
</TABLE>
BAR TECHNOLOGIES INC.
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3753384
-------------------------------------------------------------- ---------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
3770 EMBASSY PARKWAY
AKRON, OHIO 44333 (330) 670-3000
-------------------------------------------------------------- ---------------------------------
(Address of principal executive offices) (Registrant's telephone number)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
--- ---
Number of shares outstanding of common stock as of March 31, 1999:
CLASS A COMMON STOCK, $0.001 PAR VALUE 204,458 SHARES
CLASS B COMMON STOCK, $0.001 PAR VALUE 536,829 SHARES
CLASS C COMMON STOCK, $0.001 PAR VALUE 536,865 SHARES
1
<PAGE> 2
BAR TECHNOLOGIES INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
------------------------------
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations (Unaudited) for the three month
periods ended March 31, 1999 and April 4, 1998...........................................3
Consolidated Balance Sheets as of March 31, 1999 (Unaudited) and
January 2, 1999........................................................................4-5
Consolidated Statement of Stockholders' Equity (Deficit) for the year ended
January 2, 1999 and the three month period ended March 31, 1999 (Unaudited)..............6
Consolidated Statements of Cash Flows (Unaudited) for the three month
periods ended March 31, 1999 and April 4, 1998...........................................7
Notes to Consolidated Financial Statements............................................8-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................13-17
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.......................................................................17
Item 2. Changes in Securities...................................................................17
Item 3. Defaults Upon Senior Securities.........................................................18
Item 4. Submission of Matters to a Vote of Security Holders.....................................18
Item 5. Other Information.......................................................................18
Item 6. Exhibits and Reports on Form 8-K........................................................18
Signatures..............................................................................19
</TABLE>
2
<PAGE> 3
Bar Technologies Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Month Periods Ended
March 31, 1999 and April 4, 1998
(In thousands of dollars, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 31, April 4,
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 59,777 $ 81,643
Cost of sales 56,769 78,776
Depreciation and amortization 1,247 1,427
Selling, general and administrative
expenses 2,923 5,110
------------ ------------
Loss from operations (1,162) (3,670)
Interest expense, net 6,045 6,174
Other income 38 77
------------ ------------
Loss before provision for income taxes (7,169) (9,767)
Provision for income taxes 93 163
------------ ------------
Net loss (7,262) (9,930)
Preferred stock dividends
96 96
------------ ------------
Net loss applicable to common shares $ (7,358) $ (10,026)
============ ============
Net loss per share - basic and diluted $ (5.76) $ (7.84)
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
Bar Technologies Inc. and Subsidiaries
Consolidated Balance Sheets
As of March 31, 1999 and January 2, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
March 31, 1999 January 2, 1999
-------------- ---------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,482 $ 2,188
Accounts receivable, less allowances of $1,180 and
$1,104, respectively 28,067 26,152
Amounts due from affiliates 5,555 1,935
Inventories 83,166 74,168
Other current assets 3,522 2,676
------------ ------------
Total current assets 121,792 107,119
Property, plant and equipment:
Land and improvements 2,609 2,580
Buildings and improvements 19,980 19,944
Machinery and equipment 72,318 72,162
Construction in-progress 10,518 8,396
------------ ------------
Total property, plant and equipment 105,425 103,082
Accumulated depreciation (14,169) (12,983)
------------ ------------
Net property, plant and equipment 91,256 90,099
Goodwill, net of accumulated amortization of $972 and
$891, respectively 11,888 11,969
Restricted debt service fund 1,551 1,551
Other assets 11,216 11,763
------------ ------------
Total assets $ 237,703 $ 222,501
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
Bar Technologies Inc. and Subsidiaries
Consolidated Balance Sheets
As of March 31, 1999 and January 2, 1999
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
March 31, 1999 January 2, 1999
-------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited)
Current liabilities:
Accounts payable $ 41,407 $ 44,791
Amounts due to affiliates 42,829 16,401
Accrued interest 7,728 4,885
Other accrued liabilities 18,248 19,687
Current maturities of long-term debt 3,211 3,805
Revolving credit facility 77,872 79,000
------------ ------------
Total current liabilities 191,295 168,569
Long-term debt 128,517 128,962
Deferred income taxes 5,011 5,001
Amounts due to affiliates, long-term 531 531
Other long-term liabilities 5,492 5,377
------------ ------------
Total liabilities 330,846 308,440
Redeemable stock:
Series A preferred stock $0.001 par value
Authorized 5,000 shares
Issued and outstanding, 1,100 shares 5,500 5,500
Commitments and contingencies
Stockholders' equity (deficit):
Series B preferred stock $0.001 par value
Authorized, issued and outstanding, 1 share -- --
Class A common stock, $0.001 par value
Authorized, 1,000,000 shares
Issued and outstanding, 204,458 shares -- --
Class B common stock, $0.001 par value
Authorized, 600,000 shares
Issued and outstanding, 536,829 shares 1 1
Class C common stock, non-voting, $0.001 par value,
Authorized, 600,000 shares
Issued and outstanding, 536,865 shares 1 1
Additional paid-in capital 63,055 63,055
Warrants outstanding 5,119 5,119
Accumulated deficit (165,782) (158,424)
Accumulated other comprehensive loss (1,037) (1,191)
------------ ------------
Total stockholders' equity (deficit) (98,643) (91,439)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 237,703 $ 222,501
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
Bar Technologies Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
For the Year Ended January 2, 1999 and
Three Months Ended March 31, 1999 (Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Additional
Class A Class B Class C Paid-in Warrants
Common Stock Common Stock Common Stock Capital Outstanding
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, January 3, 1998 $ - $ 1 $ 1 $ 63,055 $ 5,119
Net loss
Preferred stock dividend
Other comprehensive
income - foreign currency
translation adjustments
--------------- --------------- --------------- --------------- ---------------
Balance, January 2, 1999 - 1 1 63,055 5,119
Net loss
Preferred stock dividend
Other comprehensive
income - foreign currency
translation adjustments
--------------- --------------- --------------- --------------- ---------------
Balance, March 31, 1999 $ - $ 1 $ 1 $ 63,055 $ 5,119
=============== =============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Accumulated Comprehensive Comprehensive Stockholders'
Deficit Income (Loss) Income (Loss) Equity (Deficit)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance, January 3, 1998 $ (116,061) $ (494) $ (48,379)
Net loss (41,978) $ (41,978) (41,978)
Preferred stock dividend (385) (385)
Other comprehensive
income - foreign currency
translation adjustments (697) (697) (697)
--------------- --------------- --------------- ---------------
Balance, January 2, 1999 (158,424) (1,191) $ (42,675) (91,439)
===============
Net loss (7,262) (7,262) (7,262)
Preferred stock dividend (96) (96)
Other comprehensive
income - foreign currency
translation adjustments 154 154 154
--------------- --------------- --------------- ---------------
Balance, March 31, 1999 $ (165,782) $ (1,037) $ (7,108) $ (98,643)
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
Bar Technologies Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Month Periods Ended March 31, 1999 and April 4, 1998
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, April 4,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (7,262) $ (9,930)
Adjustments to reconcile net cash provided by
(used in) operating activities:
Depreciation and amortization 1,247 1,427
Amortization of original issue discount 348 325
Amortization of deferred financing cost 671 529
Increase in accounts receivable (1,845) (11,977)
Increase in inventory (8,373) (3,702)
Increase in other current assets (866) (185)
Decrease in accounts payable (3,067) (1,653)
Increase in due to affiliates, net 22,808 218
Increase in other current liabilities 571 551
Other (40) (9)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,192 (24,406)
------------ ------------
Cash flows from investing activities
Capital expenditures (2,254) (3,295)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (2,254) (3,295)
------------ ------------
Cash flows from financing activities
Net receipts (payments) under revolving credit agreement (1,128) 28,350
Repayments of debt (1,387) (414)
Preferred stock dividends (96) (96)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (2,611) 27,840
------------ ------------
Effect of exchange rate changes on cash (33) 30
NET DECREASE IN CASH AND CASH EQUIVALENTS (706) 169
Cash and cash equivalents-beginning of period 2,188 3,391
------------ ------------
Cash and cash equivalents-end of period $ 1,482 $ 3,560
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 2,601 $ 7,790
============ ============
Cash paid for income taxes, net $ 17 $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
BAR TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except share information)
1. NATURE OF OPERATIONS AND CONCENTRATION OF RISK
Bar Technologies Inc. a Delaware corporation ("Bar Tech" or, the "Company"),
produces and markets special bar quality ("SBQ") steel bar products. SBQ steel
bar products are high quality hot rolled and cold finished carbon and alloy
steel bars used primarily in critical applications in the automotive and
industrial equipment industries.
The Company's principal owners, Blackstone Capital Partners II Merchant Banking
Fund L. P. and its affiliates ("Blackstone") and Veritas Capital Management,
L.L.C. ("Veritas"), serving as general partners for limited partnerships,
acquired Republic Engineered Steels, Inc. ("Republic") in September 1998.
Blackstone and Veritas intend to combine the Company and Republic (the
"Combination") during 1999, subject to refinancing a significant portion of the
combined companies' debt.
Subsequent to the acquisition of Republic, the Company and Republic share common
management and have begun to perform certain sales, marketing and administrative
functions on a combined basis. This includes marketing both companies' steel
products jointly under the combined brand name "Republic Technologies
International" using a single sales force. The costs of joint functions have
been borne ratably by the Company and Republic based upon relative sales volumes
achieved. The Company also participates in an inventory purchasing arrangement
with Republic. Under the terms of this arrangement, Republic purchases materials
on behalf of both companies and bills the Company for its respective purchases,
plus an administrative fee.
As of January 4, 1999, Republic Technologies International Marketing, LLC
("Marketing JV") was formed to formalize prior efforts of the Company and
Republic to jointly market, advertise, promote and sell both companies' steel
products to each company's existing and potential customers. The Marketing JV is
owned by the Company and Republic in equal proportions and will fill purchase
orders for steel products by purchasing such steel products from the Company
and/or Republic, as appropriate for a particular order, and allocating such
purchase orders to the Company or Republic and receiving a sales commission
designed to cover the marketing JV's operating expenses. The Company and
Republic are reimbursed for expenses they incur on behalf of the Marketing JV,
including compensation costs of employees of the Company and Republic who
perform sales and marketing functions for the Marketing JV.
Since its formation, the Company has incurred substantial losses as a result of
the ongoing start-up activities of its facilities and its general and
administrative expenses. Any substantial delay in achieving or a failure to
bring the facilities up to commercial volumes and productivity levels, or to
sell its products in its target markets could have a material adverse effect on
the Company's financial condition and results of operations. Also, in the event
of a substantial delay in integrating the operations of the Company and Republic
including implementation of the Combination, or the occurrence of any
substantial unanticipated costs related thereto, could have a material adverse
effect on the Company's financial condition and results of operations. In the
event of the above, the Company may need to borrow additional funds under its
Revolving Credit Agreement or, to the extent that the funds are not available
thereunder, to obtain additional financing to meet its cash flow requirements.
The Company is highly leveraged. Restrictive covenants included in the indenture
and other debt obligations may have the effect of limiting the Company's ability
to incur additional indebtedness, sell assets, or acquire other entities and may
otherwise limit the operational and financial flexibility of the Company.
The Company and Republic presently perform certain functions on a combined basis
and intend to further integrate operations in 1999 through the Marketing JV. As
a consequence, management believes that capital resources and liquidity of the
Company and Republic can and will be managed on a combined basis prior to
consummation of the Combination. Management has prepared fiscal 1999 financial
and operational plans on a combined basis for the Company and Republic. Based on
these plans, even if the Combination is not consummated during 1999, management
believes that the aggregate of cash flows from combined operations, available
funds under existing credit agreements and funds expected to be available to
refinance certain acquisition-related debt of Republic, will be sufficient in
1999 to enable both the Company and Republic to meet their debt service
requirements when due
8
<PAGE> 9
and to fund their capital expenditures, working capital and general corporate
requirements, although there can be no assurances with respect thereto.
The Company operates in two reportable segments: hot-rolled and cold-finished.
The Company manages the reportable segments as separate strategic business
units. Differences between the segments include manufacturing techniques and
equipment, competition, and end-users.
2. BASIS OF PRESENTATION
The consolidated financial statements and other financial information included
herein have been prepared by Bar Technologies Inc. ("Bar Tech") and are
unaudited. Certain information and footnote disclosures normally prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. Although management believes that all adjustments, including normal
recurring adjustments, necessary for a fair presentation have been made, interim
periods are not necessarily indicative of the results of operations for a full
year. As such, these financial statements should be read in conjunction with the
audited financial statements and notes thereto for the fiscal year ended January
2, 1999, included in the Company's Form 10-K, filed with the Securities and
Exchange Commission.
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.
The consolidated financial statements include the accounts of Bar Technologies
Inc. and its wholly owned subsidiary, Bliss & Laughlin Industries Inc. ("BLI").
All significant intercompany accounts and transactions have been eliminated.
3. FISCAL YEAR CHANGE
Effective with its reporting for fiscal 1999, the Company changed its fiscal
year from a 4/4/5 week fiscal quarter basis ending the Saturday closest to
December 31 to a calendar quarter basis with the fiscal year ending on December
31. Accordingly, under the new fiscal year calendar, the Company's quarters will
each be comprised of three calendar months ending March 31, June 30, September
30 and December 31. Previously, each of the Company's quarters were comprised of
thirteen weeks.
4. NET LOSS PER SHARE
Basic earnings per share are 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 common stock equivalents (i.e., warrants and stock options) were
exercised and then shared in the earnings of the Company. For the three month
periods ended March 31, 1999 and April 4, 1998, the reported basic and diluted
earnings per share were the same; however, securities totaling 91,609 and
137,416, respectively, were excluded from the diluted earnings per share
calculations due to their antidilutive effect. The weighted average number of
common shares used in the calculation of net loss per common share was 1,278,152
for both three month periods ended March 31, 1999 and April 4, 1998.
9
<PAGE> 10
5. INVENTORIES
The components of inventory were as follows:
<TABLE>
<CAPTION>
(in thousands)
March 31, 1999 January 2, 1999
------------------------- -------------------------
<S> <C> <C>
Raw materials $ 15,430 $ 13,965
Work-in-process 19,931 21,812
Finished goods 47,805 38,391
------------------------- -------------------------
Total $ 83,166 $ 74,168
========================= =========================
</TABLE>
6. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
(in thousands)
March 31, 1999 January 2, 1999
------------------------- -------------------------
<S> <C> <C>
Deferred financing costs, net of accumulated
amortization of $7,841 and $7,170 $ 5,886 $ 6,557
Deferred income taxes 1,214 1,214
Other 4,116 3,992
------------------------- -------------------------
Total $ 11,216 $ 11,763
========================= =========================
</TABLE>
7. DEBT
Interest on the Company's Senior Notes is at 13-1/2% per annum and is payable
semi-annually on each April 1 and October 1, to the holders of record of Senior
Notes at the close of business on March 15 and September 15 immediately
preceding such interest payment date.
The Senior Notes are callable at the following redemption prices:
<TABLE>
<CAPTION>
Month/Year Percentage
---------- ----------
<S> <C>
April 1999 106.750%
April 2000 103.375%
</TABLE>
The Senior Notes are fully and unconditionally guaranteed (the "Guarantee") on a
senior basis, jointly and severally, by the Company's wholly-owned subsidiary,
BLI and its wholly-owned subsidiary, CDSC. The subsidiary guarantors comprise
all of the direct and indirect subsidiaries of the Company.
The following is the condensed information of the subsidiary guarantors on a
combined basis. The separate financial statements and other disclosures
concerning the subsidiary guarantors are not presented because management does
not believe they would be material to investors. The following information is as
of and for the periods described below:
<TABLE>
<CAPTION>
(in thousands)
AT THE PERIOD ENDED: March 31, 1999 January 2, 1999
----------------------- --------------------
<S> <C> <C>
Current assets $ 48,716 $ 48,465
Noncurrent assets 37,497 37,745
Current liabilities 33,423 33,152
Noncurrent liabilities 14,103 13,979
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, April 4,
FOR THE THREE MONTH PERIOD ENDED: 1999 1998
----------------------- --------------------
<S> <C> <C>
Net sales $ 32,981 $ 47,724
Gross profit 2,191 5,445
Operating income (loss) (38) 2,219
Net income (loss) (547) 1,605
</TABLE>
The Company has a revolving credit agreement (the "Revolving Credit Agreement")
with a group of banks with The Chase Manhattan Bank as agent. The Revolving
Credit Agreement provides the Company with an aggregate principal amount of up
to $90.0 million, of which $5.4 million is in the form of letters of credit.
The Revolving Credit Agreement matures April 2, 2000 and is secured by certain
assets and stock of the Company.
The Revolving Credit Agreement was subsequently amended (the "Amended
Agreement"). The Amended Agreement provided for the addition of a new revolving
Sub-Facility ("Sub-Facility") and amended certain portions of the original
Revolving Credit Agreement. The Sub-Facility component of the Amended Agreement
provides the Company with up to $15.0 million of additional borrowing capacity
based on a higher receivable and inventory advance rate than in the Revolving
Credit Agreement. The Sub-Facility component of the Amended Agreement expires
on September 1, 1999. The maturity date of the Amended Agreement remains April
2, 2000.
Borrowings under the Amended Agreement bear interest at a rate per annum equal
to, at the Company's option, either a prime rate plus 2.0% or adjusted LIBOR
plus 3.0%, subject to upward adjustment in certain circumstances. Sub-Facility
borrowings bear interest at a rate per annum equal to, at the Company's option,
either a prime rate plus 3.5% or LIBOR plus 4.5%. Borrowings outstanding under
the Amended Agreement including the Sub-Facility were $77.9 million at March
31, 1999 and $79.0 million at January 2, 1999, respectively. Amounts available
under the Amended Agreement and Sub-Facility at March 31, 1999 based on the
applicable borrowing base under its Amended Agreement were $0.2 million.
Weighted-average interest rates on borrowings under the Amended Agreement and
the Sub-Facility were 8.55% and 11.25%, respectively at March 31, 1999 and
8.79% and 11.50%, respectively, at January 2, 1999.
The Amended Agreement contains a number of covenants that, among other things,
requires the Company to maintain a minimum consolidated interest coverage
ratio. As of March 31, 1999, the Company did not comply with the consolidated
interest coverage ratio covenant. The Company has received a waiver from its
lenders for this noncompliance.
8. SEGMENT INFORMATION
The Company operates in two reportable segments: hot-rolled and cold-finished.
The Company manages the reportable segments as separate strategic business
units. Differences between the segments include manufacturing techniques and
equipment, competition, and end-users. The Company measures segment performance
based on earnings before interest, taxes, depreciation and amortization
("EBITDA").
Hot-rolled accounts for intersegment sales at current market prices as if the
transaction had taken place with a third party.
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1999
(in thousands)
---------------------------------------------------------------------------------------
Inter
Cold- Total Segment
Hot-Rolled Finished Segments Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 35,828 $ 32,981 $ 68,809 $ (9,032) $ 59,777
Depreciation and amortization 689 558 1,247 -- 1,247
Segment profit (EBITDA) (316) 439 123 -- 123
Segment assets 165,716 86,213 251,929 (14,226) 237,703
Capital expenditures 2,075 179 2,254 -- 2,254
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended April 4, 1998
(in thousands)
---------------------------------------------------------------------------------------
Inter
Cold- Total Segment
Hot-Rolled Finished Segments Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 48,318 $ 47,724 $ 96,042 $ (14,399) $ 81,643
Depreciation and amortization 786 641 1,427 -- 1,427
Segment profit (EBITDA) (5,026) 2,861 (2,165) -- (2,165)
Segment assets 152,714 97,949 250,663 (27,496) 223,167
Capital expenditures 2,831 464 3,295 -- 3,295
</TABLE>
9. RELATED PARTY TRANSACTIONS
Affiliates of Blackstone and Veritas provide certain management and financial
monitoring services to the Company pursuant to an agreement between the
respective parties for which the Company pays an annual advisory fee of $0.9
million plus reimbursement of certain out-of-pocket expenses.
At January 1, 1999, certain salaried employees of the Company became employees
of Republic. Under the terms of an employee leasing and overhead allocation
agreement, the Company and Republic share the costs of common
11
<PAGE> 12
expenses including, but not limited to sales and marketing services,
administrative services, plant overhead and costs for certain common facilities.
The Company's allocation of these net costs, which was based on approximate
share of combined trade volumes, was $1.7 million for the three month period
ended March 31, 1999 and is included in selling, general and administrative
expense.
The Company participates in an inventory purchasing arrangement with Republic.
Under the terms of this arrangement, Republic purchases materials on behalf of
both companies and bills the Company for its respective purchases plus an
administrative fee. During the three month period ended March 31, 1999, the
Company purchased approximately $24.4 million of materials from Republic. A
similar arrangement is in place with regard to insurance. Republic purchased
insurance coverage for the combined company for which the costs are borne
ratably by the Company and Republic based on their respective share of coverage.
The Company purchased $1.8 million of billet and bar products at market prices
from Republic during the three month period ended March 31, 1999.
As of January 4, 1999, Republic Technologies International Marketing, LLC
("Marketing JV") was formed to formalize prior efforts of the Company and
Republic to jointly market, advertise, promote and sell both companies' steel
products to each company's existing and potential customers. The Marketing JV is
owned by the Company and Republic in equal proportions and fills purchase orders
for steel products by purchasing such steel products from the Company and/or
Republic, as appropriate for a particular order. The Marketing JV allocates such
purchase orders to the Company or Republic and receives a sales commission
designed to cover the marketing JV's operating expenses. The Company and
Republic are reimbursed for expenses they incur on behalf of the Marketing JV,
including compensation costs of employees of the Company and Republic who
perform sales and marketing functions for the Marketing JV.
The following information is the result of the Company's transactions with its
affiliates as described above. The following information is as of and for the
periods described below:
<TABLE>
<CAPTION>
(in thousands)
As of: March 31, 1999 January 2, 1999
--------------- ---------------
<S> <C> <C>
Amounts due from affiliates:
Republic Engineered Steels, Inc. $ 1,524 $ 1,935
Republic Technologies International Marketing, LLC 4,031 --
--------------- ---------------
$ 5,555 $ 1,935
=============== ===============
Amounts due to affiliates:
Republic Engineered Steels, Inc. $ 41,689 $ 15,526
Blackstone Capital Partners II 1,094 875
Republic Technologies International Marketing, LLC 46 --
--------------- ---------------
$ 42,829 $ 16,401
=============== ===============
Amounts due to affiliates, long-term:
Republic Engineered Steels, Inc. $ 531 $ 531
--------------- ---------------
$ 531 $ 531
=============== ===============
FOR THE THREE MONTH PERIOD ENDED: March 31, 1999 April 4, 1998
--------------- ---------------
Net sales to affiliates:
Republic Engineered Steels, Inc. $ 8,713 $ --
Republic Technologies International Marketing, LLC 4,147 --
--------------- ---------------
$ 12,860 $ --
=============== ===============
</TABLE>
10. SUBSEQUENT EVENT
In April 1999, the Company's principal owners, Blackstone and Veritas entered
into a letter of intent with U.S. Steel Group of USX Corporation ("USX") and
Kobe Steel, Ltd. ("Kobe") concerning the combination of USS/Kobe Steel Company's
steelmaking and bar producing assets with those of the Company and Republic. USX
and Kobe would jointly own 30% of the combined operations. The combination is
subject to numerous conditions including approval by the board of directors of
USX and Kobe, negotiation and execution of definitive agreements, receipt of
12
<PAGE> 13
necessary government approvals, including antitrust, negotiation of a new labor
agreement with the United Steel Workers of America and the refinancing of a
significant portion of the combined companies' debt.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
-------------
OVERVIEW
See Note 1 to the Consolidated Financial Statements for a description of the
Company's operations and a discussion of its relationship with Republic and the
Marketing JV.
In April 1999, Blackstone and Veritas entered into a letter of intent with U.S.
Steel Group of USX Corporation ("USX") and Kobe Steel, Ltd. ("Kobe") concerning
the combination of USS/Kobe Steel Company's steelmaking and bar producing assets
("USS/Kobe") with those of the Company and Republic. Blackstone and Veritas
intend to combine the steelmaking and bar producing assets of BarTech, Republic
and USS/Kobe during 1999, subject to refinancing a significant portion of the
combined companies' debt.
The Company's strategy is to expand its role as a critical supplier to
automotive and original equipment manufacturers and their first tier suppliers.
To successfully penetrate these markets, producers must meet pre-qualification
requirements for certain potential customers. Certain customers in the higher
quality bar segments require their suppliers to be certified to third party
quality systems such as QS-9000 and ISO 9000 before commencing new supplier
trials. The Company obtained QS-9000 certification for its Lackawanna hot rolled
steelmaking operations in August 1998 and is in the process of obtaining such
certification for its Johnstown hot rolled facility with completion scheduled
for third quarter 1999. The Company's Hamilton, Ontario and Harvey, Illinois
cold finishing plants also received QS-9000 certification in 1998. Certification
of the Company's facility in Cartersville, Georgia has begun with expected
completion in the first quarter 2000. As a result of these qualifications, the
Company has accelerated the shift of its product mix from lower to higher
margins and product grades.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED APRIL 4, 1998
Net sales for the three months ended March 31, 1999 totaled $59.8 million on
shipments of approximately 120,000 net tons compared with net sales of $81.6
million for the three months ended April 4, 1998 on shipments of approximately
161,000 tons. Net sales for the three months ended March 31, 1999 were comprised
of $26.8 million for hot-rolled and $33.0 million for cold-finished, compared
with hot-rolled net sales of $33.9 million and cold-finished net sales of $47.7
million for the three months ended April 4, 1998. The $21.8 million decrease in
net sales is primarily the result of a 25.3% decrease in shipping volumes
reflecting the general weakening in demand within the domestic steel industry.
Additionally, there was a 2.5% decrease in average selling prices per ton on
cold-finished products as a reaction to competition and as a result of product
mix.
Cost of sales totaled $56.8 million, or 95.0% of net sales, for the three months
ended March 31, 1999 compared with cost of sales of $78.8 million, or 96.6% of
net sales, for the similar period ended April 4, 1998. Cost of sales for the
three months ended March 31, 1999 consisted of $26.0 million on hot-rolled
products and $30.8 million on cold-finished products compared with $36.5 million
on hot-rolled products and $42.3 million on cold-finished products for the three
months ended April 4, 1998. The improvement in cost of sales as a percentage of
sales was primarily generated by a decrease in material and manufacturing costs
on a cost per ton basis for the Company's hot-rolled products.
Selling, general and administrative expenses were $2.9 million, or 4.8% of net
sales, for the three months ended March 31, 1999 compared with $5.1 million, or
6.3% of net sales, for the three months ended April 4, 1998. The decrease in
selling, general and administrative expenses is attributable to a credit for
real estate taxes related to the Company's Lackawanna facility and certain cost
sharing arrangements effective the fourth quarter of fiscal 1998 between the
Company and Republic. Under the terms of an employee leasing and overhead
allocation agreement, the Company and Republic share the costs of common
expenses of the combined company including, but not limited to sales and
marketing services, administrative services, plant overhead and costs for
certain common facilities. These costs are allocated according to each company's
approximate share of combined trade volumes. Also a contributing factor to the
decrease in selling, general and administrative expense as a percentage of net
sales are the results of the consolidation plan between the Company and Republic
initiating
13
<PAGE> 14
certain cost reductions prior to the planned Combination. Cost reductions
realized in the three months ended March 31, 1999 included head count
reductions in the selling, general and administrative areas.
Interest expense, net was $6.0 million for the three months ended March 31,
1999 compared with $6.2 million for the similar period ended April 4, 1998.
The slight decrease in interest expense, net was attributable to a decrease
in the average amount outstanding under the revolving credit agreement
while average debt levels on amounts borrowed under long-term arrangements
remained relatively constant during the comparable periods.
The provision for income taxes for the three month periods ended March 31, 1999
and April 4, 1998 consisted of currently payable income taxes, primarily foreign
income taxes owed by CDSC. As a result, the Company reported a net loss of $7.3
million for the three months ended March 31, 1999 compared with a net loss of
$9.9 million for the three months ended April 4, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the acquisition of Republic by Blackstone and Veritas, the Company's
liquidity and capital resources were managed on a stand-alone basis. The
resources available to the Company on a stand-alone basis are described below.
Subsequently, the Company's relationship with Republic has provided additional
capital resources and sources of liquidity through the combined management of
the two companies, as more fully described below.
The Company's primary capital resources have consisted of long-term debt and
borrowings under a revolving credit agreement. The long-term debt financing
arrangements consist principally of Senior Secured Notes and economic
development financing. The Company has obtained deferrals of principal and
interest payments on certain economic development financing through fiscal 1999.
The Company has a revolving credit agreement that provides for an aggregate
principal amount of up to $90.0 million, including letters of credit, through
April 2, 2000. A sub-facility component of the revolving credit agreement
provides the Company with up to $15.0 million of additional borrowing capacity
through September 1, 1999 based on a higher receivable and inventory advance
rate. Amounts available under the revolving credit agreement and sub-facility
vary based upon the Company's borrowing base, as defined under the agreements.
As of March 31, 1999, amounts available for additional borrowings under the
revolving credit agreement and sub-facility were $0.2 million. Amounts
outstanding under the Company's revolving credit agreement, including amounts
outstanding under its sub-facility, were $77.9 million and $79.0 million at
March 31, 1999 and January 2, 1999, respectively. As of March 31, 1999, the
Company did not comply with the consolidated interest ratio coverage covenant
for its revolving credit agreement. The Company has received a waiver from its
lenders for this noncompliance.
Weighted average interest rates on borrowings under the revolving credit
agreement were 8.55% and 8.79% at March 31, 1999 and January 2, 1999,
respectively. Weighted average interest rates on amounts outstanding under the
Company's sub-facility were 11.25% and 11.5% at March 31, 1999 and January 2,
1999, respectively.
Capital expenditures were $2.3 million in the three months ended March 31, 1999
compared with $3.3 million in the similar period of the prior year. Capital
expenditures are funded by cash provided by operations and borrowings under the
Company's revolving credit agreement. Expenditures for the three months ended
March 31, 1999 were for capital improvement projects directed at expanding the
Company's product offering.
There are no restrictions on the ability of BLI to transfer funds to the
Company.
Pending the completion of the Combination of the Company and Republic, the
companies are combining their sales efforts and commencing marketing their
respective steel products jointly under the combined brand name "Republic
Technologies International". As of January 4, 1999, Republic Technologies
International Marketing, LLC ("Marketing JV") was formed to formalize prior
efforts of the Company and Republic to jointly market, advertise, promote
and sell both companies' steel products to each company's existing and
potential customers. The Marketing JV is owned by the Company and Republic
in equal proportions and fills purchase orders for steel products by
purchasing such steel products from the Company and/or Republic, as
appropriate for a particular order. The Marketing JV allocates such
purchase orders to the Company or Republic and receives a sales commission
designed to cover the Marketing JV's operating expenses. The Company and
Republic are reimbursed for expenses they incur
14
<PAGE> 15
on behalf of the Marketing JV, including compensation costs of employees of the
Company and Republic who perform sales and marketing functions for the Marketing
JV.
The Company participates in an inventory purchasing arrangement with
Republic. Under the terms of this arrangement, Republic purchases materials
on behalf of the combined company and bills the Company for their
respective share plus an administrative fee. A similar arrangement is in
place with regards to insurance. Republic purchases insurance coverage for
the combined companies for which the costs are borne ratably by the Company
and Republic based on their respective share.
At January 1, 1999, certain salaried employees of the Company became employees
of Republic. Under the terms of an employee leasing and overhead allocation
agreement, the Company and Republic share the costs of common expenses
including, but not limited to sales and marketing services, administrative
services, plant overhead and costs for certain common facilities. The Company's
allocation of these net costs are based on approximate share of combined trade
volumes.
Since its formation, the Company has incurred substantial losses as a result of
the ongoing start-up activities of its facilities and its general and
administrative expenses. Any substantial delay in achieving or a failure to
bring the facilities up to commercial volumes and productivity levels, or to
sell its products in its target markets could have a material adverse effect on
the Company's financial condition and results of operations. Also, in the event
of a substantial delay in integrating the operations of the Company and Republic
including implementation of the Combination, or the occurrence of any
substantial unanticipated costs related thereto, could have a material adverse
effect on the Company's financial condition and results of operations. In the
event of the above, the Company may need to borrow additional funds under its
Revolving Credit Agreement or, to the extent that the funds are not available
thereunder, to obtain additional financing to meet its cash flow requirements.
The Company is highly leveraged. Restrictive covenants included in the indenture
and other debt obligations may have the effect of limiting the Company's ability
to incur additional indebtedness, sell assets, or acquire other entities and may
otherwise limit the operational and financial flexibility of the Company.
The Company and Republic presently perform the above mentioned functions on a
combined basis and intend to further integrate operations in 1999 through the
Marketing JV. As a consequence, management believes that capital resources and
liquidity of the Company and Republic can and will be managed on a combined
basis prior to consummation of the Combination. Management has prepared fiscal
1999 financial and operational plans on a combined basis for the Company and
Republic. Based on these plans, even if the Combination is not consummated
during 1999, management believes that the aggregate of cash flows from combined
operations, available funds under existing credit agreements and funds expected
to be available to refinance certain acquisition-related debt of Republic, will
be sufficient in 1999 to enable both the Company and Republic to meet their debt
service requirements when due and to fund their capital expenditures, working
capital and general corporate requirements, although there can be no assurances
with respect thereto.
Cash provided by operating activities was $4.2 million for the three months
ended March 31, 1999 compared with net cash used by operations of $24.4
million for the similar period ended April 4, 1998. The increase in net
cash provided by operations was primarily attributable to the growth in
amounts due to affiliates and a lower increase in accounts receivable in
the first quarter of 1999 compared to 1998.
In March 1999, the Company announced plans to close BLI's cold-finishing plants
in Medina, Ohio and Batavia, Illinois by July 1999. The planned closures
resulted from the overall strategic plan of the Company and Republic to utilize
both companies' plants in key market areas to best service the combined customer
base. The closure of these plants is not expected to have a material effect on
the Company's future results of operations or cash flows. The Company believes
there will be no material impairments of the carrying values of the related
assets. These plant closures will affect less than ninety employees and the
related severance costs are not material to the Company's consolidated financial
statements.
Dividends paid to holders of the Company's preferred stock were approximately
$96 thousand in both three month periods ended March 31, 1999 and April 4, 1998.
15
<PAGE> 16
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Year 2000
The Year 2000 issue ("Year 2000") is the result of computer programs being
written using two digits rather than four digits to define the applicable year.
Computer equipment, software and other devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to receive orders or manufacture product, ship inventory, process transactions,
send invoices, deposit cash, or engage in other normal business activities. The
inability of business processes to function properly in year 2000 could have
adverse effects on companies and entities throughout the world.
The Company and Republic have developed integrated plans to address issues
related to the impact of Year 2000 in both companies in four major areas:
infrastructure, business applications, plant applications and suppliers.
The infrastructure portion of the program addresses wide and local area
networks, servers, personal computing, telecommunications systems and software,
fax and facility security systems. Each location's equipment has been
inventoried and assessed for Year 2000 problems. Some facilities have completed
the remediation process through replacement or upgrade, and have been tested. As
of March 31, 1999, this portion of the program is approximately 75% complete.
The remaining facilities are scheduled to be completed by September 1999.
The business application portion of the program addresses applications and
system software that run on the larger mainframe and mid-range computers. These
systems are being upgraded and/or replaced with new applications to provide Year
2000 readiness. As of March 31, 1999, approximately 50% of this program area has
been completed, with four facilities converted or upgraded and the remaining
facilities scheduled to be completed by September 1999.
The Company's plant systems include hardware, software and associated embedded
computer technologies that are used to operate the Company's manufacturing
facilities. These systems have been inventoried and adequately assessed. Five
plant sites have completed remediation and testing. The final plant site is
scheduled for remediation and testing in July 1999.
The Company is currently assessing the impact of the Year 2000 issue as it
relates to its suppliers and customers to identify the extent to which the
Company may be vulnerable in the event those parties fail to properly resolve
their own Year 2000 issues. Readiness questionnaires were sent to the Company's
supplier base. Less than 25% of the suppliers surveyed responded.
As part of the Year 2000 readiness plan, the Company is continuing to assess the
risks associated with the potential system failures of its suppliers, banks,
utilities and internal systems. The Company is developing contingency plans for
these failures, which may include, but are not limited to the use of alternative
suppliers and developing alternative manual systems.
The cost of the Year 2000 project is estimated at $1.6 to $2.0 million and is
being funded through operating cash flows. The Company has to date incurred
approximately $1 million of costs and expects to incur the remaining amounts
through year 2000. The cost of replacement hardware and software will be
capitalized as appropriate according to the Company's capital policies and
amortized over the applicable useful lives.
The Company presently believes that it has effective plans in place to
anticipate and resolve the potential Year 2000 issues. In the event, however,
that the Company does not properly and fully anticipate and resolve all Year
2000 issues, there can be no assurance that Year 2000 issues will not materially
impact and adversely effect the Company's results of operations or its
relationships with third parties.
The estimated costs and dates by which the Company believes it will have
completed its objectives are based on management's best estimates, which rely on
numerous assumptions regarding future events, including the availability of
certain key resources, third-party remediation plans, and other factors. These
estimates, however, may prove to be inaccurate, and actual results could differ
materially from those anticipated. Factors that could
16
<PAGE> 17
result in material differences include, without limitation, the availability and
cost of personnel with the appropriate training and experience, the ability to
accurately identify, assess, remediate and test all relevant computer codes and
embedded technology, and similar uncertainties. In addition, Year 2000 issues
may lead to possible third-party claims, the impact of which cannot be estimated
at this time. No assurances can be given that the aggregate cost of defending
and resolving such claims, if any, would not have a material adverse effect on
the Company.
The Company currently believes that the most reasonably likely worst case
scenario for its operations with respect to the Year 2000 issue would be the
inability to sustain its current level of shipments, inability to bill or
invoice and a decrease in operational efficiency as a result of the increase in
manual processing efforts. This could result in potential lost sales and
profits. The Company is continuing to develop its contingency plans to address
these potential disruptions to its business.
FORWARD LOOKING STATEMENTS
Statements included in this filing with the Securities and Exchange Commission
(including those portions of Management's Discussion and Analysis that refer to
the future) may contain forward-looking statements that are not historical facts
but refer to management's intentions, beliefs, or expectations for the future.
It is important to note that the Company's actual results could differ
materially from those projected in such forward-looking statements. Certain
factors that could cause actual results to differ from those in such
forward-looking statements include, but are not limited to, the following:
Any substantial delay in the proposed combination of the Company, Republic
and USS/Kobe or in the event of a combination that the combined company is
unable to achieve the objectives of rationalizing and modernizing
production facilities;
Any substantial unanticipated delays or difficulties in implementing the
agreement with respect to the Marketing JV or managing the capital
resources and liquidity of the Company and Republic on a combined basis;
Any substantial delay in the implementation of the Company's plans or
substantial unanticipated costs associated with its plans for a successful
transition into an integrated steelmaking and bar rolling operation;
The ability of the Company to sell its products in its targeted markets at
gross margins necessary to produce and maintain positive operating income.
The Company's success is dependent on its ability to increase sales. The
Company is in the process of enhancing its sales and customer service
programs;
The Company is subject to a variety of competitive factors such as pricing,
the financial strength of its competitors and the Company's ability to
establish a favorable position in the steelmaking and bar rolling industry.
The Company's competitive position could also be adversely affected by any
consolidation of its competition in the steelmaking industry; and
The ability of the Company and its major suppliers to remedy its Year 2000
issues timely and in a cost-effective manner.
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
The Company and its subsidiaries are involved in various legal proceedings
occurring in the ordinary course of business. It is the opinion of management,
after consultation with legal counsel, that these matters will not materially
affect the Company's consolidated financial position, results of operations or
cash flows.
ITEM 2. CHANGES IN SECURITIES
- --------------------------
None.
17
<PAGE> 18
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
- --------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a.) Exhibits
(10.52) Agreement between the Company and Republic Engineered Steels,
Inc. in connection with the formation of Republic Technologies
International Marketing, LLC, dated March 1, 1999 and filed
herewith.
(27) Financial Data Schedule
b.) Reports on Form 8-K
None.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements 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.
BAR TECHNOLOGIES INC.
Date: May 14, 1999 By: /s/ Thomas N. Tyrrell
--------------------------
Thomas N. Tyrrell
Chief Executive Officer
Date: May 14, 1999 By: /s/ Brenda K. Brown
------------------------
Brenda K. Brown
Vice President of Finance and Controller
19
<PAGE> 1
Exhibit 10.52
LIMITED LIABILITY COMPANY AGREEMENT
OF
REPUBLIC TECHNOLOGIES INTERNATIONAL MARKETING, LLC
BAR TECHNOLOGIES INC. ("BARTECH") and REPUBLIC ENGINEERED
STEELS, INC. ("RESI") are entering into this Limited Liability Company Agreement
(the "AGREEMENT") in connection with the formation of a limited liability
company (the "COMPANY").
WHEREAS, the Company has been formed pursuant to the
provisions of the Delaware Limited Liability Company Act, 6 DEL. C. section
section 18-101 ET SEQ., as it may be amended from time to time and any successor
to such Act (the "ACT"), by filing a Certificate of Formation of the Company
with the office of the Secretary of State of the State of Delaware on January 4,
1999;
WHEREAS, BarTech and RESI have endeavored to coordinate their
sales and marketing efforts to realize efficiencies through the sharing of their
sales and marketing personnel so that the sales and marketing expenses each
shall bear through the Company will be less than such expenses would be on a
stand-alone basis;
WHEREAS, the Boards of Directors of BarTech and RESI have
determined that engaging in the joint marketing, advertising, promotion and
sales activities described herein will be advantageous to, and in the best
interests of, BarTech and RESI, and their respective shareholders and have
approved the formation of the Company in connection therewith;
WHEREAS, the Boards of Directors of BarTech and RESI
(including in each case a majority of the disinterested directors on such
Boards) have determined that the terms contained herein are fair and reasonable
to their respective companies and are no less favorable to their respective
companies than those terms which could have been obtained in a comparable
marketing joint venture with a joint venture partner not affiliated with such
company.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and in consideration of
the mutual covenants hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
General Provisions
------------------
I.1 NAME. The name of the Company shall be Republic
Technologies International Marketing, LLC, or such other name as the Members,
acting jointly, may from time to time hereafter designate.
I.2 DEFINITIONS. Capitalized terms not otherwise defined
herein shall have the meanings set forth therefor in Section 18-101 of the Act.
<PAGE> 2
I.3 PURPOSE. The Company is formed for the purpose of engaging
in the marketing, advertising, promotion and sales activities described herein.
The Company shall have the power to engage in all activities and transactions
which the Members, acting jointly, deem necessary or advisable in connection
with the foregoing; PROVIDED, HOWEVER, that the Company shall not (a) incur,
create, assume or permit to exist any indebtedness (except for indebtedness owed
to RESI, BarTech or any of their respective subsidiaries under the terms of this
Agreement, and except for the Company's guaranty obligations and grant of
security interests in favor of certain of RESI's lenders pursuant to that
certain Amendment No. 3 to Second Amended and Restated Revolving Credit
Agreement to be entered into among RESI, the Company, BankBoston, N.A. ("BKB"),
Bank of America National Trust and Savings Association, Congress Financial
Corporation and BKB as agent for the banks thereunder (as so amended and as
further amended, restated, modified and in effect from time to time, the RESI
Credit Agreement, the lenders party thereto being the "RESI Lenders" and the
"RESI Lenders" agent thereunder being the "RESI Agent")), (b) create, incur,
assume or permit to exist any lien on any property or assets now owned or
hereinafter acquired by it (except for liens created to secure indebtedness owed
under, or otherwise created pursuant to the terms of, this Agreement, and except
for liens securing its guaranty obligations in favor of the RESI Lenders and the
RESI Agent or otherwise created pursuant to the RESI Credit Agreement), or (c)
purchase, hold or acquire any capital stock, evidences of indebtedness or other
securities of, or make or permit to exist any investment or any other interest
in, any other person (except for indebtedness of RESI, BarTech or any of their
respective subsidiaries arising under the terms of this Agreement and
investments consisting of its guaranty obligations in favor of the RESI Lenders
and the RESI Agent).
I.4 OFFICES.
(a) The principal place of business and office of the Company
shall be located at, and the Company's business shall be conducted from, such
place or places as the Members, acting jointly, may designate from time to time.
(b) The registered office of the Company in the State of
Delaware shall be located at c/o The Corporation Trust Company, Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The name and
address of the registered agent of the Company for service of process on the
Company in the State of Delaware shall be The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The
Members, acting jointly, may from time to time change the registered agent or
office by an amendment to the certificate of formation of the Company.
I.5 TERM. The term of the Company shall commence on the date
of filing of the certificate of formation of the Company in accordance with the
Act and shall continue until the Company is dissolved and its affairs are wound
up in accordance with Article VIII of this Agreement and a certificate of
cancellation is filed in accordance with the Act.
ARTICLE II
Members and Transfer Restrictions
---------------------------------
<PAGE> 3
II.1 MEMBERS. The name and business or residence address of
each Member of the Company are as set forth on Schedule A attached hereto.
Subject to Sections 1.3 and 6.1 hereof, the business and affairs of the Company
shall be managed by the Members, and each Member shall have the power to do any
and all acts necessary or convenient to or for the furtherance of the purposes
described herein, including all powers, statutory or otherwise, possessed by
members under the laws of the State of Delaware. Each Member is hereby
designated as an authorized person, within the meaning of the Act, to execute,
deliver and file the certificate of formation of the Company (and any amendments
and/or restatements thereof) and any other certificates (and any amendments
and/or restatements thereof) necessary for the Company to qualify to do business
in a jurisdiction in which the Company may wish to conduct business.
II.2 ASSIGNMENTS OF MEMBERSHIP INTEREST. A Member may not
sell, assign or otherwise transfer (collectively, a "TRANSFER") any of its
Membership Interest or Voting Interest in the Company or its Economic Allocation
to any Person without the written consent of the other Member, which consent may
be granted or withheld in its sole and absolute discretion; PROVIDED, HOWEVER,
that a Member may pledge its Membership Interest, Voting Interest or Economic
Allocation pursuant to any collateral requirements of its lenders (and such
lenders may realize upon such pledged Membership Interest, Voting Interest or
Economic Allocation) without the consent of the other Member.
II.3 RESIGNATION. No Member shall have the right to resign
from the Company except with the consent of the other Member and upon such terms
and conditions as may be specifically agreed upon between the resigning Member
and the other Member. The provisions hereof with respect to distributions upon
resignation are exclusive and no Member shall be entitled to claim any further
or different distribution upon resignation under Section 18-604 of the Act or
otherwise.
ARTICLE III
Joint Marketing
---------------
III.1 JOINT MARKETING PLAN. Subject to Section 3.6 hereof,
during the term hereof, BarTech (on behalf of itself and Bliss & Laughlin Steel
Company ("B&L"), but not Canadian Drawn Steel Company Inc.) and RESI (each, a
"STEEL PRODUCING MEMBER") agree to (a) market, advertise and promote their
respective steel products (collectively, the "STEEL PRODUCTS") to existing and
potential customers of the Steel Producing Members (collectively, "PURCHASERS")
exclusively through the Company, and (b) sell their respective Steel Products
exclusively through the Company (the "JOINT MARKETING PLAN").
III.2 ALLOCATION OF PRODUCTION OF STEEL PRODUCTS; PURCHASE
ORDERS.(a) During the term hereof, all sales of Steel Products to Purchasers
shall be booked at the Company ("COMPANY PURCHASE ORDERS"), and the Company
shall allocate the manufacture of Steel Products for delivery to each such
Purchaser between BarTech (including B&L) and RESI in accordance with the
Allocation Procedures described in Section 3.2(b) hereof. The applicable
<PAGE> 4
Steel Producing Member with respect to each Steel Product delivered to a
Purchaser pursuant to a Company Purchase Order shall pay the Company a
commission equal to 1.1% of the purchase price paid by such Purchaser for such
Steel Product (subject to adjustment downward from time to time to reflect the
Company's obligations pursuant to Section 3.4 hereto as agreed by the Company
and the Steel Producing Members and approved by the respective Boards of
Directors of the Steel Producing Members (including at least a majority of the
disinterested directors of each such Board)), such amount to be payable by the
applicable Steel Producing Member within one business day after the later of (i)
receipt by such Steel Producing Member of notice that payment of the purchase
price has been received by RESI from such Purchaser and (ii) if such Steel
Producing Member is BarTech (including with respect to shipments made by B&L),
such Steel Producing Member (or B&L, as applicable) having received payment in
full from RESI as and when required by Section 3.2(d).
(b) The production of Steel Products sold under Company
Purchase Orders shall be allocated between the Steel Producing Members (the
"PRODUCTION ALLOCATION") in accordance with written allocation procedures
approved by the respective Boards of Directors of the Steel Producing Members
(including at least a majority of the disinterested directors of each such
Board), such procedures to be attached hereto as ANNEX I and subject to
adjustment from time to time as agreed by the Steel Producing Members and
approved by their respective Boards of Directors (including at least a majority
of the disinterested directors of each such Board) (the "ALLOCATION
PROCEDURES"). All allocations of production of Steel Products sold by the
Company shall be submitted to the respective Boards of Directors of the Steel
Producing Members for their review on a quarterly basis.
(c) Each Steel Producing Member shall notify the Company and
the other Steel Producing Member at least one business day prior to shipping
Steel Products (including, in the case of BarTech, shipments made by B&L) to a
Purchaser pursuant to a Company Purchase Order. Immediately upon the shipping by
a Steel Producing Member (including in the case of BarTech, shipments made by
B&L) of Steel Products to a Purchaser, the account receivable from such
Purchaser relating to such Company Purchase Order shall be automatically
assigned and transferred by the Company to RESI, and such assignment and
transfer shall be deemed to occur without any action by either the Company or
RESI and thereafter such account receivable shall be a direct obligation of such
Purchaser to RESI (and the Company and, if such shipping Steel Producing Member
was BarTech or B&L, BarTech and B&L within one business day following receipt
thereof shall remit to RESI all payments received with respect thereto as agent
for RESI). In connection with the foregoing, the Company, B&L or BarTech, as
applicable, shall immediately (A) forward all wire or other electronic means of
payment received from a Purchaser with respect to a receivable that has been
assigned and transferred to RESI to the bank account designated by RESI and (B)
indorse over to the order of RESI any check or other instruments by their terms
payable to the Company, B&L or BarTech, as applicable, received by the Company,
B&L or BarTech with respect to a receivable that has been assigned and
transferred to RESI and, in the case of a receivable that relates to Steel
Products shipped by BarTech or B&L, that has not subsequently been assigned back
to BarTech or B&L pursuant to paragraph (e) below. In addition, (i) the Company
shall maintain such "lock-box arrangements," and take all other actions
necessary and appropriate, to enable RESI to comply with the collateral
<PAGE> 5
and bank account requirements of its lenders and (ii) RESI shall cause the
issuance of one or more irrevocable standby letters of credit for the benefit of
the lenders under Bar Tech's credit agreement to support the obligations of RESI
to make payments to BarTech and B&L, to enable BarTech to comply with the
requirements of its lenders.
(d) Immediately upon the shipping by BarTech or B&L of Steel
Products to a Purchaser, within one business day after the date of shipment,
RESI shall pay to BarTech or B&L, as applicable, as payment in full for
BarTech's or B&L's work performed with respect to the manufacture and delivery
of Steel Products pursuant to such Company Purchase Order, an amount equal to
99% of the principal amount of the account receivable arising from such shipped
Steel Products.
(e) In the event that a Purchaser to whom BarTech or B&L has
shipped Steel Products pursuant to a Company Purchase Order refuses to accept
delivery of such Steel Products or otherwise later rejects such Steel Products
on the basis of the quality of such Steel Products or their failure otherwise to
conform to the Purchaser's purchase order, and as a result of such refusal or
rejection, such Purchaser does not make payment in full for such refused or
rejected Steel Products within three business days after BarTech receives notice
from RESI or any other person of such refusal or rejection by such Purchaser,
then (A) BarTech or B&L, as applicable, at the end of such three business day
period shall reimburse to RESI an amount equal to 99% of the principal amount of
such receivable (together with interest thereon at the rate paid by RESI under
its bank credit facility), and (B) upon such reimbursement by BarTech or B&L, as
applicable, such receivable of RESI shall be automatically assigned and
transferred by RESI to BarTech or B&L, as applicable, and such assignment and
transfer shall be deemed to occur without any action by BarTech, B&L, the
Company or RESI and thereafter such receivable shall be a direct obligation of
such Purchaser to BarTech or B&L, as applicable; PROVIDED, HOWEVER, that such
reimbursement obligation shall be subject to the offset provisions set forth in
the final sentence of Section 3.6 hereof.
III.3 MARKETING STAFF. During the term hereof, the Company
shall maintain a sales force and administrative staff (collectively, the
"MARKETING STAFF") and otherwise use its commercially reasonable efforts to
market, advertise, promote and sell Steel Products. The Marketing Staff shall be
comprised of employees of each Steel Producing Member designated by such Steel
Producing Member and agreed to by the other Steel Producing Member and the
Company, and each such employee shall be made available to the Company to
provide sales, marketing and/or administrative functions for the Company
(provided that any such person also may continue to serve as an active employee
of such Steel Producing Member). Each member of the Marketing Staff shall remain
on the payroll of, and be compensated in all respects solely by, the respective
Steel Producing Member who has made such member of the Marketing Staff available
to the Company, and in no event shall the Company directly provide any
employment compensation to such members of the Marketing Staff. Notwithstanding
the foregoing, (i) this Agreement shall in no way affect the employment status
of any member of the Marketing Staff or otherwise obligate either of the Steel
Producing Members to continue to employ any member of the Marketing Staff on
such Steel Producing Member's payroll (whether currently or at any future time)
and (ii) in no event shall members of the Marketing Staff be deemed to be
<PAGE> 6
employees or independent contractors of the Company or any Steel Producing
Member other than the Steel Producing Member employing such person directly.
III.4 EXPENSE REIMBURSEMENT. To the extent a Steel Producing
Member during the term in which the Joint Marketing Plan remains in effect
incurs out-of-pocket expenses on behalf of the Company or otherwise in
connection with the joint marketing, advertising, promotion or sales activities
contemplated hereby (including cash compensation and other employee benefits of
the Marketing Staff attributable to each Marketing Staff member's efforts on
behalf of the Company), the Company or the other Steel Producing Member, as the
Steel Producing Members shall agree, shall reimburse such Steel Producing Member
for all such reasonable expenses promptly following written notice from such
Steel Producing Member to the Company of such expenses (including reasonable
written documentation of such expenses).
III.5 INDEMNIFICATION. The Company shall indemnify, defend and
hold harmless each Steel Producing Member and its affiliates (other than the
Company) and their respective partners (both general and limited), members (both
managing and otherwise), officers, directors, employees, agents and
representatives (each such person being an "INDEMNIFIED PARTY") from and against
any and all losses, claims, damages and liabilities, whether joint or several
(the "LIABILITIES"), related to, arising out of or in connection with an action,
claim, suit, investigation or proceeding (each of the foregoing, an "ACTION")
arising out of or otherwise related to the Company or the marketing,
advertising, promotional or sales activities contemplated hereby, whether or not
pending or threatened, whether or not an Indemnified Party is a party, whether
or not resulting in any liability and whether or not such Action is initiated or
brought by such Steel Producing Member or its affiliates. The Company shall
reimburse any Indemnified Party for all reasonable out-of-pocket costs and
expenses (including reasonable attorneys' fees and expenses) ("COSTS") as they
are incurred in connection with investigating, preparing, pursuing, defending or
assisting in the defense of any Action for which the Indemnified Party would be
entitled to indemnification under the terms of the previous sentence, or any
Action arising therefrom, whether or not such Indemnified Party is a party
thereto. The Company shall not be liable under the foregoing indemnification
provisions with respect to any Indemnified Party to the extent that any
Liabilities or Costs are determined by a court, in a final judgment from which
no further appeal may be taken, to have resulted primarily from the gross
negligence or willful misconduct of such Indemnified Party or its affiliates
(other than the Company or the other Indemnified Party or its affiliates). If an
Indemnified Party is reimbursed hereunder for any expenses, such reimbursement
of expenses shall be refunded to the extent it is finally judicially determined
that the Liabilities in question resulted primarily from the gross negligence or
willful misconduct of such Indemnified Party or its affiliates (other than the
Company or the other Indemnified Party or its affiliates). Notwithstanding
anything to the contrary herein, all indemnification obligations of the Company
shall survive the termination of the Joint Marketing Plan or of the Company.
III.6 SUSPENSION; TERMINATION. Upon written notice to the
other Steel Producing Member, either Steel Producing Member (and, in the case of
BarTech, the agent for BarTech's lenders, and, in the case of RESI, the RESI
Agent) may suspend for a period set forth in such notice (which may be until a
further notice revoking such suspension is given) or may terminate the Joint
Marketing Plan, in each case at will without penalty (provided that, except as
<PAGE> 7
otherwise provided herein, the terms of the Joint Marketing Plan shall remain in
effect with respect to purchase orders booked prior to delivery of such notice).
When a suspension of this Agreement remains in effect or following any
termination of this Agreement, in each case pursuant to this Section 3.6, (a)
BarTech and B&L shall have the right to offset all amounts then due and payable
by RESI to BarTech or B&L under this Agreement against any amounts then due and
payable by BarTech or B&L to RESI under this Agreement and (b) RESI shall have
the right to offset all amounts then due and payable by BarTech or B&L to RESI
under this Agreement against any amounts then due and payable by RESI to BarTech
or B&L under this Agreement.
ARTICLE IV
Capital Contributions, Withdrawals and Capital Accounts
-------------------------------------------------------
IV.1 CAPITAL CONTRIBUTIONS. Members shall make capital
contributions to the Company in such amounts and at such times as they shall
mutually agree. No Member shall be required to make any capital contributions
except as set forth in this Agreement.
IV.2 WITHDRAWALS OF CAPITAL ACCOUNTS.
(a) No Member shall be entitled to withdraw any amount from
its Capital Account (as defined in Section 4.3 hereof) without the consent of
the other Member. In the event of the withdrawal of any Member, the withdrawing
Member shall not otherwise share in the income, gains and losses of the
Membership from and after the valuation date of its Membership Interest and
shall not have any other rights under this Agreement other than payment of its
Capital Account.
(b) The right of any withdrawn Member or its legal
representatives to have distributed the Capital Account of such Member is
subject to the provision for all Company liabilities in accordance with section
18-607 of the Act, and for estimates for contingencies and expenses. The unused
portion of any such estimates shall be distributed after the need therefor shall
have ceased.
IV.3 CAPITAL ACCOUNTS.
(a) The Company shall maintain for each Member a separate
capital account (a "CAPITAL ACCOUNT") in accordance with the capital accounting
rules of section 704(b) of the Internal Revenue Code of 1986, (the "CODE"), and
the Income Tax Regulations thereunder (including particularly section
1.704-l(b)(2)(iv) of the Income Tax Regulations).
(b) Pursuant to such capital accounting rules, a Member's
Capital Account shall be (i) increased by the amount of money and the fair
market value (as determined by the mutual agreement of the Members) of other
property (net of liabilities secured by such contributed property that the
Company is considered to take subject to or assume under section 752 of the
<PAGE> 8
Code) contributed by the Member to the Company and allocations to the Member of
Company Profit pursuant to Section 5.1 hereof and any items of income and gain
and (ii) decreased by the amount of money and the fair market value (as
determined by the mutual agreement of the Members) of other property distributed
(net of liabilities secured by such distributed property that the Member is
considered to take subject to or assume under section 752 of the Code) to the
Member by the Company and allocations to the Member of Company Loss pursuant to
Section 5.1 hereof and any items of loss or deduction.
(c) The Members shall direct the Company's accountant to make
all necessary adjustments in each Member's Capital Account as required by the
rules of section 704(b) of the Code and the Income Tax Regulations thereunder.
(d) The following definitions shall apply for purposes of this
Section 4.3:
"CARRYING VALUE" shall mean, with respect to any Company
asset, the asset's adjusted basis for federal income tax purposes, except that
the Carrying Values of all Company assets shall be adjusted to equal their
respective fair market values, in accordance with the rules set forth in section
1.704-1(b)(2)(iv)(f) of the Income Tax Regulations, except as otherwise provided
herein, as of: (i) the date of the acquisition of any interest by any new or
existing Member in exchange for more than a DE MINIMIS capital contribution; and
(ii) the date of the distribution of more than a DE MINIMIS amount of Company
property to a Member in respect of its Membership Interest. The Carrying Value
of any Company asset distributed to any Member shall be adjusted immediately
prior to such distribution to equal its fair market value and depreciation shall
be calculated by reference to Carrying Value, instead of tax basin once Carrying
Value differs from tax basis. The Carrying Value of any asset contributed by a
Member to the Company will be the fair market value of the asset at the date of
its contribution thereto, as determined by the mutual agreement of the Members.
"PROFIT AND LOSS" shall mean for each fiscal year or other
period, the taxable income or loss of the Company, or particular items thereof,
determined in accordance with the accounting method used by the Company for
federal income tax purposes with the following adjustments: (i) all items of
income, gain, loss or deduction allocated pursuant to Section 5.1 shall not be
taken into account in computing such taxable income or loss; (ii) any income of
the Company that is exempt from federal income taxation and not otherwise taken
into account in computing Profit and Loss shall be added to such taxable income
or loss; (iii) if the Carrying Value of any asset differs from its adjusted tax
basis for federal income tax purposes, any depreciation, amortization or gain
resulting from a disposition of such asset shall be calculated with reference to
such Carrying Value; (iv) upon an adjustment to the Carrying Value of any asset
pursuant to the definition of Carrying Value, the amount of the adjustment shall
be included as gain or loss in computing such taxable income or loss; and (v)
except for items in (i) above, any expenditures of the Company not deductible in
computing taxable income or loss, not properly capitalizable and not otherwise
taken into account in computing Profit and Loss pursuant to this definition
shall be treated as deductible items.
<PAGE> 9
IV.4 INTEREST ON CAPITAL ACCOUNTS. No interest shall be paid
on or with respect to the capital contributions or Capital Account of any of the
Members, except as otherwise provided herein.
ARTICLE V
PROFITS AND LOSSES AND DISTRIBUTIONS
V.1 ALLOCATION OF PROFITS AND LOSSES BETWEEN THE PARTNERS. The
Company's total income, gain, loss, deduction or credit (or items thereof) which
total shall be as shown on the annual federal income tax return prepared by the
Company's accountants or as finally determined by the Internal Revenue Service
or the courts, and as modified by the capital accounting rules of section 704(b)
of the Code and the Income Tax Regulations thereunder as implemented by Section
4.3 hereof, as applicable, shall be allocated among the Members in proportion to
their total Production Allocations to such date (the "ECONOMIC ALLOCATIONS").
The initial Economic Allocations of the Members are as set forth on SCHEDULE A
hereof. The Economic Allocations shall be adjusted to account for all Production
Allocations to date at the end of each quarter or any such other period or date
as the Members shall decide.
V.2 DISTRIBUTIONS. Distributions shall be made to the Members
at the times and in the aggregate amounts determined by the mutual agreement of
the Members and such distributions shall be made to the Members solely in
proportion to their Economic Allocations. Any other provision of this Agreement
to the contrary notwithstanding, no distribution shall be made which would
render the Company insolvent or which is prohibited by the terms of any Company
or Member indebtedness or by the Act.
ARTICLE VI
Management
----------
VI.1 MANAGEMENT OF THE COMPANY. Any action to be taken by the
Company shall require the affirmative consent of at least fifty-one percent
(51.0%) of the Voting Interests of the Members as set forth on SCHEDULE A
hereof. Any action so approved may be taken by either Member on behalf of the
Company and any action so taken shall bind the Company.
VI.2 OFFICERS. The Company may employ and retain persons as
may be necessary or appropriate for the conduct of the Company's business
(subject to the supervision and control of the Members), including employees and
agents who may be designated as officers with titles, including, but not limited
to, "chairman," "chief executive officer," "president," "vice president,"
"treasurer," "secretary," "managing director," "chief financial officer,"
"assistant treasurer" and "assistant secretary" as and to the extent authorized
by the Members, acting jointly.
<PAGE> 10
ARTICLE VII
Tax and Accounting Matters
--------------------------
VII.1 FILING OF TAX RETURNS. A Member (as determined by the
mutual agreement of the Members), at the expense of the Company, shall prepare
and file, or cause the accountants of the Company to prepare, submit to the
Members for joint approval and thereafter file, all required tax returns
including a federal information tax return in compliance with section 6031 of
the Code and any required state and local tax and information returns for each
tax year of the Company.
VII.2 TAX REPORTS TO CURRENT AND FORMER MEMBERS. The Members
will receive unaudited quarterly progress reports on the Company within sixty
(60) days of the end of the first three fiscal quarters. Within ninety (90) days
of the end of each fiscal year, the Company shall prepare and mail, or cause its
accountants to prepare and mail, to each Member and, to the extent necessary, to
each former Member (or its legal representatives), a report setting forth in
sufficient detail such information as is required to be furnished to partners by
law (e.g., section 6031(b) of the Code and the regulations thereunder) and as
shall enable such Member or former Member (or its legal representatives) to
prepare their respective federal and state income tax or informational returns
in accordance with the laws, rules and regulations then prevailing and any
information necessary for such Member to calculate the fair market value of its
Membership Interest (as determined by the mutual agreement of the Members).
VII.3 BOOKS AND RECORDS; INDEPENDENT AUDIT; PROGRESS REPORTS.
Complete books and records accurately reflecting the accounts, business and
transactions of the Company and Members of the Company shall be maintained and
kept by a Member (as determined by the mutual agreement of the Members) at the
Company's principal place of business. The books and records of the Company
shall be open at reasonable business hours on prior appointment for inspection
and copying by the Members.
VII.4 FISCAL YEAR. Except as may otherwise be required by the
federal tax laws or jointly agreed by the Members, the fiscal year of the
Company for both financial and tax reporting purposes shall end on December 31.
VII.5 METHOD OF ACCOUNTING. The books and accounts of the
Company shall be maintained using the accrual method of accounting for financial
reporting purposes and for tax purposes. Those documents relating to allocation
of items of Company income, gain, loss, deduction or credit and Capital Accounts
shall be kept under federal income tax accounting principles as provided herein.
VII.6 TAX MATTERS MEMBER. The Members, by mutual agreement
shall designate a Member to duly discharge the duties of, the Tax Matters
Partner of the Company, as that term is defined in section 6231(a)(7) of the
Code (such Member, the "TAX MATTERS MEMBER"). The Tax Matters Member shall at
all times assure that each Member is a Notice Partner (as defined in section
6231(a)(8) of the Code) with respect to the Company. The Tax Matters Member
shall
<PAGE> 11
promptly (immediately by telephone and then by personal delivery within two (2)
business days of notification or receipt of notice) (a) notify the Members of
any audit or other tax matter which is brought to the attention of the Tax
Matters Member, by notice from the Internal Revenue Service, and (b) forward to
all Members copies of any notices, correspondence, reports or other instruments,
communications or documents received by the Tax Matters Member in connection
therewith. The Tax Matters Member shall not perform any nonministerial act
pursuant to this provision unless such act has been approved in writing by the
Members. Without limitation of the preceding sentence, the Tax Matters Member,
unless so approved by the Members, shall not have the right (i) to extend any
statute of limitations or any period of limitations with respect to the Company
or any Member in any matter; (ii) to agree on behalf of itself or others to any
settlement of any alleged tax deficiency or other tax matter, or to any
adjustment of taxable income or loss or any item included therein, affecting the
Company or any Member; (iii) to file any petition for judicial review, or any
other judicial proceeding, with respect to the Company or any Member in any tax
matter; or (iv) to file any requests for administrative review of adjustment, or
other administrative relief, on behalf of the Company or any Member in any tax
matter.
ARTICLE VIII
Dissolution of Company
----------------------
VIII.1 DISSOLUTION. The Company shall be dissolved and its
affairs wound up upon the first to occur of the following:
(a) December 31, 2020;
(b) Upon a determination in writing by either Member,
with the approval of its Board of Directors
(including at least a majority of the disinterested
directors), to dissolve the Company (provided that
the Company shall survive until the final disposition
of all purchase orders booked prior to the Company's
receipt of such determination); or
(c) Upon the occurrence of an event causing a dissolution
of the Company under Section 18-801 of the Act,
except the Company shall not be dissolved upon the
occurrence of an event that terminates the continued
membership of a Member if (i) at the time of the
occurrence of such event there are at least two
Members of the Company, or (ii) within ninety (90)
days after the occurrence of such event, all
remaining Members agrees in writing to continue the
business of the Company and to the appointment,
effective as of the date of such event, of one or
more additional Members.
VIII.2 DISTRIBUTION OF ASSETS UPON DISSOLUTION. Upon the
dissolution and winding up of the affairs of the Company, the assets of the
Company shall be distributed as provided in Section 18-804 of the Act.
<PAGE> 12
ARTICLE IX
Miscellaneous
-------------
IX.1 RESOLUTION OF DISPUTES. In the event of any dispute
between the Members hereunder, including, without limitation, disputes as to
allocation of production of Steel Products pursuant to Section 3.2(c) or
reimbursement of reasonable expenses pursuant to Section 3.4, the disputing
Members shall negotiate in good faith a resolution to the dispute for a period
of no less than 30 days after delivery of a written notice of dispute by a
Member to another Member (such notice to include a summary description of the
dispute and a proposed resolution). In the event that the Members are unable to
resolve such dispute within the 30 day negotiation period, a disputing Member
may submit the dispute to binding arbitration in accordance with the Commercial
Rules of the American Arbitration Association ("AAA") then in effect. Unless
otherwise agreed by the disputing Members, the dispute shall be resolved by the
AAA within thirty (30) days of submission, and the AAA shall be informed of the
thirty (30) day resolution requirement when the initial submission is made to
the AAA. Judgment on the award may be entered in any court having jurisdiction.
The location of the arbitration proceeding shall be in the greater metropolitan
area of New York, New York.
IX.2 AMENDMENTS. This Agreement may be amended only upon the
written consent of both Members.
IX.3 NO THIRD PARTY BENEFICIARIES. This Agreement does not
create, and shall not be construed as creating, any rights in favor of any
person not a party to this Agreement.
IX.4 FURTHER ASSURANCES. Each of the Members, B&L and the
Company shall execute any and all further documents, financing statements,
agreements and instruments, and take all further action (including filing
Uniform Commercial Code and other financing statements) that may be required
under applicable law, or that any agent for the lenders of BarTech or RESI may
reasonably request, in order to grant, preserve, protect and perfect the
validity and first priority of the security interests under the respective
credit agreements of BarTech and RESI or to perfect any transfer or assignment
of accounts receivable under this Agreement (including, without limitation, the
rights of (a) RESI and the RESI Lenders and/or the RESI Agent in any accounts
receivable assigned and transferred by BarTech, B&L or the Company to RESI and
(b) BarTech, B&L and BarTech's lenders in any accounts receivable assigned and
transferred by RESI to BarTech or B&L). Each of the Members and the Company
agrees to provide such evidence as any lender of BarTech, agent of the lenders
of BarTech, RESI Lenders and/or the RESI Agent shall reasonably request as to
the perfection and priority status of any such security interests.
IX.5 MISCELLANEOUS. The Members shall not have any liability
for the debts, obligations or liabilities of the Company except to the extent
provided by the Act. This Agreement shall be governed by, and construed under,
the laws of the State of Delaware, provided that the enforceability and
effectiveness of the assignment and transfer of receivables
<PAGE> 13
pursuant to the second sentence of Section 3.2(c) and pursuant to Section 3.2(e)
shall be governed by the laws of the State of Ohio.
<PAGE> 14
IN WITNESS WHEREOF, the undersigned has duly executed this
Agreement as of March 1, 1999.
BAR TECHNOLOGIES INC.
By:_______________________
Name: Thomas N. Tyrrell
Title: Chief Executive Officer
REPUBLIC ENGINEERED STEELS, INC.
By:_______________________
Name: Thomas N. Tyrrell
Title: Chief Executive Officer
<PAGE> 15
SCHEDULE A
<TABLE>
<CAPTION>
Name and Address of Members Membership/Voting Interests Initial Economic Allocations
- --------------------------- --------------------------- ----------------------------
<S> <C> <C>
BAR TECHNOLOGIES INC. 50% 33_%
3770 Embassy Parkway
Akron, Ohio 44333-8367
REPUBLIC ENGINEERED STEELS, INC. 50% 66_%
3770 Embassy Parkway
Akron, Ohio 44333-8367
</TABLE>
<PAGE> 16
ANNEX I
ALLOCATION PROCEDURES
Attached hereto.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001013335
<NAME> BAR TECHNOLOGIES INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-03-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 1482
<SECURITIES> 0
<RECEIVABLES> 34802
<ALLOWANCES> 1180
<INVENTORY> 83166
<CURRENT-ASSETS> 121792
<PP&E> 105425
<DEPRECIATION> 14169
<TOTAL-ASSETS> 237703
<CURRENT-LIABILITIES> 191295
<BONDS> 128517
5500
0
<COMMON> 2
<OTHER-SE> (98645)
<TOTAL-LIABILITY-AND-EQUITY> 237703
<SALES> 59777
<TOTAL-REVENUES> 59815
<CGS> 56769
<TOTAL-COSTS> 56769
<OTHER-EXPENSES> 4170
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6045
<INCOME-PRETAX> (7169)
<INCOME-TAX> 93
<INCOME-CONTINUING> (7262)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7262)
<EPS-PRIMARY> (5.76)
<EPS-DILUTED> (5.76)
</TABLE>
