UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
COMMISSION FILE NUMBER 1-13123
METALS USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0533626
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
THREE RIVERWAY, SUITE 600 77056
HOUSTON, TEXAS (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (713) 965-0990
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based upon the March 23, 1999 New York Stock Exchange closing price of $8.13
per share, the aggregate market value of the Registrant's outstanding stock held
by non-affiliates was approximately $222.1 million.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of Registrant's definitive proxy statement, to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A not later than
120 days after the close of the Registrant's fiscal year, are incorporated by
reference under Part III.
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THIS ANNUAL REPORT ON FORM 10-K CONTAINS STATEMENTS WHICH CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. THESE STATEMENTS APPEAR IN A NUMBER OF PLACES,
INCLUDING ITEM 1. "BUSINESS," ITEM 3. "LEGAL PROCEEDINGS" AND ITEM 7.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." SUCH STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "BELIEVES," "EXPECTS," "MAY," "ESTIMATES," "WILL," "SHOULD,"
"PLANS" OR "ANTICIPATES" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR
COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY. READERS ARE CAUTIONED
THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND INVOLVE SIGNIFICANT RISKS AND UNCERTAINTIES, AND THAT ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF VARIOUS FACTORS. THESE FACTORS INCLUDE THE EFFECTIVENESS OF
MANAGEMENT'S STRATEGIES AND DECISIONS, GENERAL ECONOMIC AND BUSINESS CONDITIONS,
DEVELOPMENTS IN TECHNOLOGY, NEW OR MODIFIED STATUTORY OR REGULATORY REQUIREMENTS
AND CHANGING PRICES AND MARKET CONDITIONS. THIS REPORT IDENTIFIES OTHER FACTORS
THAT COULD CAUSE SUCH DIFFERENCES. NO ASSURANCE CAN BE GIVEN THAT THESE ARE ALL
OF THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS.
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P A R T I
ITEM 1. BUSINESS
GENERAL
Metals USA, Inc. ("Metals USA") was founded in 1996 to become a leading
national value-added metals processor/service center, to manufacture
higher-value components from processed metals and to pursue aggressively the
consolidation of the highly-fragmented metals processing industry. In connection
with its initial public offering on July 11, 1997, Metals USA acquired, in
separate merger transactions (collectively, the "IPO") in exchange for cash and
shares of its $.01 par value common stock ("Common Stock"), eight companies
(each a "Founding Company" and, collectively, the "Founding Companies"). The
Founding Companies are engaged in value-added processing of steel, aluminum and
specialty metals, as well as manufacturing metal components. Since that date,
Metals USA has acquired numerous additional metal processing companies and
businesses (the "Subsequent Acquisitions" and collectively with the Founding
Companies, the "Acquired Companies"). On average, the Acquired Companies have
been in business for over 40 years. Unless otherwise indicated, all references
to the "Company" herein include the Acquired Companies and other entities
wholly-owned by Metals USA, and references herein to "Metals USA" mean Metals
USA, Inc. prior to the consummation of the IPO. See "Business -- Strategy."
The Company's metals processing business purchases metals from primary
producers, who focus on large volume sales of unprocessed metals, and in most
cases performs customized processing services to meet specifications provided by
end-use customers. By providing these services, as well as offering inventory
management and just-in-time delivery services, the Company enables its customers
to reduce material costs, enhance quality, decrease capital required for raw
materials inventory and processing equipment and save time, labor and other
expenses. The Company believes that fostering the development of long-term
working relationships with key suppliers and customers enables it to reduce its
customers' overall cost of manufactured metal products. In addition to its
metals processing capabilities, the Company manufactures higher-value components
from processed metals, such as finished building products, and produces a number
of finished components machined from specialty metals, such as bushings, pump
parts and hydraulic cylinder parts. The Company intends to continue its focus on
aluminum and other specialty metals, which are the fastest growing segments of
the metals processing industry.
The Company sells to over 60,000 customers in businesses such as the
machining, furniture, transportation equipment, power and process equipment,
industrial/commercial construction, consumer durables and electrical equipment
industries, and machinery and equipment manufacturers. The Company believes that
its broad customer base and its wide array of metals processing capabilities,
products and services, coupled with its broad geographic coverage of the United
States, reduce its susceptibility to economic fluctuations affecting any one
industry or geographical area.
During 1998 the Company organized itself around the following four business
groups: the Heavy Carbon Steel Group, the Flat Rolled Steel Group, the Specialty
Metals Group and the Aluminum Building Products Group. Each group is led by an
experienced entrepreneurial focused executive, who is supported by a
professional staff in finance, purchasing and sales and marketing. All but two
of the product group staff positions were filled from within the Company. This
organizational structure will facilitate the achievement of the Company's goals
and objectives more efficiently in terms of operational synergies, focused
capital investment and improved working capital turnover.
HEAVY CARBON STEEL GROUP
The Heavy Carbon Steel Group has annual revenues of approximately $750
million and forty-two locations throughout the United States, which makes it the
largest business group. This business group sells wide-flange beams, plate,
tubular, angles and other structural shapes. These products are available in a
number of alloy grades and sizes and generally undergo additional processing
prior to customer delivery. Processing services include cutting, cambering/
beveling, punching, bending, shearing, cut-to-length and T-splitting. The Heavy
Carbon Steel Group sells to over 26,000 individual customers in the fabrication,
construction, machinery and equipment, transportation and energy industries.
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FLAT ROLLED STEEL GROUP
The Flat Rolled Steel Group has annual revenues of approximately $500 million
and twelve locations in the mid-west region of the United States. This business
group sells steel in a variety of alloy grades and sizes. Steel mills generally
ship steel in sizes less than a quarter of an inch in thickness in continuous
coils that typically weigh forty to fifty thousand pounds each. Few customers
can handle steel in this form. Accordingly, substantially all of the material
sold by the Flat Rolled Steel Group undergo additional processing prior to
customer delivery. Processing services include slitting, precision blanking,
leveling, cut-to-length, laser cutting, beveling, punching, bending and
shearing. The Flat Rolled Steel Group sells to over 1,500 individual customers
in the electrical manufacturing, fabrication, furniture, appliance
manufacturers, machinery and equipment and transportation industries.
SPECIALTY METALS GROUP
The Specialty Metals Group has annual revenues of approximately $420 million
and twenty-seven locations throughout the United States. This business group
sells a diverse number of products including stainless steel, ductile iron,
brass, copper, aluminum, magnesium and titanium. These products are available in
a number of alloy grades and sizes and generally undergo additional processing
prior to customer delivery. Processing services include cutting, beveling,
punching, bending, shearing and cut-to-length. The Specialty Metals Group sells
to over 23,000 individual customers in the fabrication, industrial machinery and
equipment, aerospace and electronics industries.
ALUMINUM BUILDING PRODUCTS GROUP
The Aluminum Building Products Group has annual revenues of approximately
$110 million and fifty-two locations throughout the southeastern, southwest and
western regions of the United States. This business group sells a number of
finished products that are both cost and energy efficient for use in residential
applications such as sunrooms, awnings and solariums. Commercial uses of these
products include large area covered canopies, awnings and covered walkways. The
Aluminum Building Products Group sells to over 10,000 individual customers in
construction, wholesale trade and building material industries.
For additional industry segment information, see Note 10 of Notes
to Consolidated Financial Statements in Item 8. "Financial Statements
and Supplementary Data."
INDUSTRY OVERVIEW
Companies operating in the metals industry can be generally characterized as:
(i) primary metals producers, (ii) metals processors/service centers or (iii)
end-users. The Company believes that both primary metals producers and end-users
are increasingly seeking to have their metals processing and inventory
management requirements met by value-added metals processors/service centers.
Primary metals producers, which manufacture and sell large volumes of steel,
aluminum and specialty metals in standard sizes and configurations, generally
sell only to those large end-users and metals processors/service centers who do
not require processing of the products and who can tolerate relatively long lead
times. Metals processors/service centers, which offer services ranging from
precision, value-added preproduction processing in accordance with specific
customer demands, to storage and distribution of unprocessed metal products,
function as intermediaries between primary metals producers and end-users, such
as contractors and original equipment manufacturers ("OEMs"). End-users
incorporate the processed metal into a product, in some cases without further
modification.
Historically, metals service centers provided few value-added services and
were little more than distribution centers, linking metals producers with all
but the largest end-users of metals. In the past two decades, however, the
metals service center business has evolved significantly, and the most
successful metals service centers have added processing capabilities, thereby
offering an increasingly broad range of value-added services and products both
to primary metals producers and end-users. This evolution has resulted from
several trends in the primary metals industry as well as trends among end-users.
The current trend among primary metals producers is to focus on their core
competency of high-volume production of a limited number of standardized metal
products. This change in focus has been driven by their need to develop and
improve efficient, volume-driven production techniques in order to remain
competitive. As a result, during the past two
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decades, most of the primary producers have sold their service centers.
Accordingly, most end-users are no longer able to obtain processed products
directly from primary metals producers and have recognized the economic
advantages associated with outsourcing their customized metals processing and
inventory management requirements. Outsourcing permits end-users to reduce total
production cost by shifting the responsibility for preproduction processing to
value-added metals processors/service centers, whose higher efficiencies in
performing these processing services make the ownership and operation of the
necessary equipment more financially feasible.
Value-added metals processors/service centers have also benefited from
growing customer demand for inventory management and just-in-time delivery
services. These services, which are not normally available from primary metals
producers, enable end-users to reduce material costs, enhance quality, decrease
capital required for inventory and equipment and save time, labor and other
expenses. In response to customer expectations, the more sophisticated
value-added metals processors/service centers have acquired specialized and
expensive equipment to perform customized processing and have installed
sophisticated computer systems to automate order entry, inventory tracking,
management sourcing and work-order scheduling. Additionally, some value-added
metals processors/service centers have installed electronic data interchange
("EDI") between their computer systems and those of their customers to
facilitate order entry, timely delivery and billing.
These trends have resulted in value-added metals processors/service centers
playing an increasingly important role in all segments of the metals industry.
Metals processors/service centers now serve the needs of over 300,000 OEMs and
fabricators nationwide.
INDUSTRY CONSOLIDATION
Based on industry data, the Company believes that the metals
processor/service center industry is highly fragmented, with as many as 3,500
participants. The Company believes that this industry is consolidating and that
most companies are small, owner-operated businesses with limited access to
capital for modernization and expansion. These owners traditionally have not had
a viable exit strategy, leaving them with few attractive liquidity options.
According to industry data, the metals processor/service center industry
generates over $75 billion in annual net sales.
The necessity for value-added metals processors/service centers to add
specialized processing equipment, manage inventory on behalf of their customers
and use sophisticated computer systems is requiring industry participants to
make substantial capital investments in order to remain competitive. In
addition, many customers are seeking to reduce their operating costs by limiting
the number of suppliers with whom they do business, often eliminating those
suppliers offering limited ranges of products and services. These trends have
placed the substantial number of small, owner-operated businesses at a
competitive disadvantage because their operations are limited as to product
line, processing equipment, inventory and service area, and they have limited
access to the capital resources necessary to increase their capabilities. As a
result, smaller companies are finding it increasingly difficult to compete as
present industry trends continue, and the Company believes these businesses are
potential acquisition candidates.
The Company believes significant acquisition opportunities exist for a
well-capitalized, national value-added metals processor/service center that
employs a decentralized operating strategy in order to make the most efficient,
customer focused utilization of its network of processing/service centers of
each of the acquired businesses. The Company believes that this operating
strategy and the highly fragmented nature of the metals industry should allow it
to be a leader in the industry's consolidation.
STRATEGY
The Company's objective is to become a leading national value-added metals
processor/service center, to manufacture higher-value components from processed
metals and to pursue aggressively the consolidation of the highly-fragmented
metals processing industry. Management plans to achieve this objective by
pursuing the following goals.
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EXPANDING THROUGH ACQUISITIONS
The Company believes that the metals processor/service center industry is
highly fragmented and consolidating, with as many as 3,500 participants,
collectively generating over $75 billion in annual net sales. The key elements
of the Company's acquisition strategy are:
ENTER NEW GEOGRAPHIC MARKETS. The Company intends to expand into geographic
markets not currently served by the Acquired Companies by acquiring
well-established value-added metals processors/service centers that, like the
Acquired Companies, are leaders in their regional markets.
EXPAND WITHIN EXISTING GEOGRAPHIC MARKETS. The Company also plans to acquire
additional value-added metals processors/service centers in many of the markets
in which it currently operates in order to expand the volume and scope of the
Company's operations in a particular market. The Company also intends to pursue
"tuck-in" acquisitions of smaller operations to increase processing capabilities
at existing facilities, thereby improving operating efficiencies and more
effectively use its capital without a proportionate increase in administrative
costs.
ENTER COMPLEMENTARY PROCESSING AND SERVICES MARKETS. The Company intends to
acquire companies offering complementary processes and services to those
industries currently served by the Company as well as new industries. This will
enable existing and future customers to obtain a broader range of value-added
processes and services from the Company. The Company also intends to leverage
its metals processing capabilities by acquiring leading companies who
manufacture higher-value components from processed metals.
OPERATING ON A DECENTRALIZED BASIS
The Company, through its product group management team, will manage the
Acquired Companies and subsequently acquired companies on a decentralized basis,
with local management retaining responsibility for day-to-day operations,
profitability and growth of the business. While maintaining strong operating and
financial controls, the Company believes that a decentralized structure will
retain the entrepreneurial culture present in each of the acquired businesses
and will allow the Company to capitalize on considerable local and regional
market knowledge, goodwill and customer relationships.
ACCELERATING INTERNAL SALES GROWTH
A key component of the Company's strategy is to accelerate internal sales
growth at each processor/service center. The key elements of this internal
growth strategy are:
EXPAND PRODUCTS AND SERVICES TO EXISTING CUSTOMERS. The Company believes it
will be able to expand the products and services it offers to its existing
customers by leveraging the specialized and diverse product, processing and
marketing expertise among the existing processor/service centers. Additionally,
the Company believes that there are significant opportunities to accelerate
internal growth by making capital investments in areas such as inventory
management, logistics systems and processing equipment, thereby expanding the
range of processes and services offered by the Company. The Company intends to
develop and maintain long-term relationships with its customers in response to
their demand for shorter production cycles, outsourcing, just-in-time delivery
and other services that lower customers' total production costs.
ADD NEW CUSTOMERS. The Company believes that there are numerous OEMs not
currently served by the Company that could reduce their production costs by
taking advantage of the Company's processing, inventory management and other
services. Many of these OEMs currently perform in-house metals processing tasks
and maintain significant inventories of metal. During 1998, the Company
appointed three experienced industry professionals, Vice Presidents of the Flat
Rolled, Heavy Carbon and Specialty Metals product groups, to design and
implement a national program to attract significant new accounts and expand the
range of services provided to our larger customers. With their leadership and
the Company's existing well-trained, technically competent sales force, the
Company believes that it can demonstrate to these OEMs the cost savings
achievable through the Company's processing, inventory management and other
services. The Company also intends to implement a Company-wide marketing program
that will use professional marketing services and to adopt "best practices"
throughout its operations to identify, obtain and maintain
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new customers. In addition, the Company intends to increase its visibility
through trade shows, associations, publications and telemarketing.
IMPROVING OPERATING MARGINS
The Company believes there are significant opportunities to realize operating
efficiencies and increase the Company's profitability. The key components of
this strategy are:
INCREASE OPERATING EFFICIENCIES. The Company believes that its position in
the industry presents significant opportunities to achieve operating
efficiencies and cost savings. The Company intends to use its increased
purchasing power to gain volume discounts and to develop more effective
inventory management systems. The Company expects to obtain measurable cost
savings in such areas as vehicle leasing and maintenance, information systems
and purchasing through contractual relationships with key suppliers. Moreover,
the Company intends to review its operating and training programs at the local
and regional levels to identify those "best practices" that can be successfully
implemented throughout its operations. As primary metals producers and end-users
continue to follow the industry trend of outsourcing processing and distribution
services to value-added metals processors/services centers, the Company expects
to increase asset use, particularly of its metals processing machinery, and
realize increased efficiencies and economies of scale.
CENTRALIZE APPROPRIATE ADMINISTRATIVE FUNCTIONS. The Company believes that
there are significant opportunities to improve operating margins by
consolidating administrative functions such as finance, marketing, insurance,
employee benefits, accounting and risk management.
ACQUISITION PROGRAM
The Company believes it will continue to be regarded by acquisition
candidates as an attractive acquiror because of: (i) the Company's strategy for
creating a national, comprehensive and professionally managed value-added metals
processor/service center company; (ii) the Company's decentralized operating
strategy which emphasizes an ongoing role for former owners, management and key
personnel of acquired businesses, as well as meaningful equity positions for
these individuals which will enable them to participate in the Company's growth;
(iii) the Company's increased visibility and access to financial resources as a
public company and (iv) the potential for increased profitability of the
acquired company due to purchasing economies, inventory management,
centralization of administrative functions, enhanced systems capabilities and
access to increased marketing resources.
The Company believes the management of the acquired businesses has been and
will continue to be instrumental in identifying and completing future
acquisitions. Certain of the former owners of the acquired businesses have
recently completed acquisitions, which has given them valuable acquisition
experience. Moreover, several of the principals of the Acquired Companies
currently have leadership roles in industry trade associations, which has
enabled these individuals to become personally acquainted with the owners of
numerous acquisition targets across the country. The Company expects that the
leadership of these individuals and the increased visibility of the Company
within the industry will increase the awareness of, and interest of acquisition
candidates with respect to, the Company and its acquisition program.
As consideration for future acquisitions, the Company intends to use various
combinations of cash, notes and its Common Stock. The consideration for each
future acquisition will vary on a case-by-case basis, with the major factors in
establishing the purchase price being historical operating results, future
prospects of the target and the ability of the target to complement the services
offered by the Company.
PROCESSING SERVICES AND PRODUCTS
The Company engages in preproduction processing of steel, aluminum and
specialty metals and acts as an intermediary between primary metals producers
and end-users. The Company purchases metals from primary producers, maintains an
inventory of various metals to allow rapid fulfillment of customer orders and
performs customized processing services to the specifications provided by
end-users and other customers. By providing these services, as well as offering
inventory management and just-in-time delivery services, the Company enables its
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customers to reduce overall production costs and decrease capital required for
raw materials inventory and metals processing equipment.
The Company buys steel and aluminum from integrated mills and mini-mills and
specialty metals from foundries. The Company purchases its raw materials in
anticipation of projected customer requirements based on interaction with, and
feedback from customers, market conditions, historical usage and industry
research. Primary producers typically find it more cost effective to focus on
large volume production and sale of steel, aluminum and specialty metals in
standard sizes and configurations to large volume purchasers. For example, flat
rolled steel is normally sold by mills in coils typically weighing between forty
and fifty thousand pounds. The Company processes the metals to the precise
thickness, length, width, shape, temper and surface quality specified by its
customers. Value-added processes provided by the Company include:
o SHEARING AND CUTTING TO LENGTH -- the cutting of metals into pieces and
along the width of a coil to create sheets or plates.
o METALLURGY -- the analysis and testing of the physical and chemical
composition of metals.
o PRECISION BLANKING -- the process in which flat rolled metal is cut into
precise two dimensional shapes by passing it through a press employing a
blanking die.
o LASER, FLAME AND PLASMA CUTTING -- the cutting of metals to produce
various shapes according to customer-supplied drawings.
o LEVELING -- the flattening of metals to uniform tolerances for proper
machining.
o SLITTING -- the cutting of coiled metals to specified widths along the
length of the coil.
o SAWING -- the cutting to length of bars, tubular goods and beams.
o PICKLING -- a chemical treatment to improve surface quality by removing
the surface oxidation and scale which develops on the metal shortly after
it is hot-rolled.
o TEE-SPLITTING -- the splitting of metal beams.
o PLATE FORMING AND ROLLING -- the forming and bending of plates to
cylindrical or regular specification.
o EDGE TRIMMING -- a process which removes a specified portion of the
outside edges of coiled metal to produce uniform width and round or smooth
edges.
o CAMBERING -- the bending of structural steel to improve load-bearing
capabilities.
Additional capabilities of the Company include applications engineering and a
variety of other value added processes such as blasting, painting and custom
machining. Using these capabilities, the Company uses processed metals to
manufacture higher-value components, such as finished building products, and
machines specialty metals into such items as bushings, pump parts and hydraulic
cylinder parts.
Once an order is received, the appropriate inventory is selected and
scheduled for processing in accordance with the customer's requirements and
specified delivery date. Orders are monitored by the Company's computer systems,
including, in certain locations, the use of bar coding to aid in and reduce the
cost of tracking material. The Company's computer systems record the source of
all metal shipped to customers. This enables the Company to identify the source
of any metal which later is shown not to meet industry standards or that fails
during or after manufacture. This capability is important to the Company's
customers as it allows them to assign responsibility for non-conforming or
defective metal to the mill or foundry that produced the metal. Many of the
products and services provided by the Company can be ordered and tracked through
EDI, a sophisticated electronic network that directly connects the Company's
computer system to those of its customers.
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A majority of the Company's orders are filled within 24 hours. This is
accomplished through the Company's special inventory management programs which
permit the Company to deliver processed metals in accordance with the
just-in-time inventory programs of its customers. The Company is required to
carry sufficient inventory of raw materials to meet the short lead time and
just-in-time delivery requirements of its customers.
While the Company ships products throughout the United States, most of its
customers are located within a 200-mile radius of the Company's facilities, thus
enabling an efficient delivery system capable of handling a large number of
short lead-time orders. The Company transports most of its products directly to
its customers either through common or contract trucking companies or with its
own trucks for short-distance and/or multi-stop deliveries.
The following are examples of the types of value-added processes and services
offered by the Company:
One of the Company's larger customers is one of the world's largest
elevator and escalator manufacturers. The Company sells a variety of steel
products to this customer in customized lengths and perform the majority of
its preproduction processing and just-in-time inventory management. The
services and preproduction processing includes sawing, shearing, flame
cutting, forming, punching and drilling holes in the metal parts for delivery
within 24 hours of ordering.
The Company achieved substantial total production cost savings for a major
manufacturer of electrical components once the customer purchased all of its
steel directly from one of the Company's service centers rather than an
integrated mill. Management personnel worked with the customer to develop a
just-in-time inventory management program which enabled the customer to
substantially reduce the amount of on-hand inventory as well as reduce the
need for capital intensive processing equipment. The customer realized a
significant cash flow savings as its steel inventory dropped from
approximately a two month supply to approximately a three day supply.
The Company has quality control systems to ensure product quality and
traceability throughout processing. Quality controls include periodic supplier
audits, customer approved quality standards, inspection criteria and metals
source traceability. Thirteen of the Company's subsidiaries have facilities with
International Standards Organization ("ISO") 9002 certification while several
others are actively working on their certification. Management believes that the
Company's emphasis on quality assurance is a distinct competitive advantage and
is increasingly important to customers seeking to establish relationships with
their key suppliers.
SOURCES OF SUPPLY
In recent years, steel and aluminum production in the United States has
fluctuated from period to period as mills attempt to match production to
projected demand. Periodically, this has resulted in shortages of, or increased
ordering lead times for, some steel or aluminum products as well as fluctuations
in price. Typically, metals producers announce price changes only once or twice
per year, often sufficiently in advance to allow the Company to order additional
products prior to the effective date of a price increase or to defer purchases
until a price decrease becomes effective. The Company's purchasing decisions are
based on its forecast of the availability of metal products, ordering lead times
and pricing as well as its prediction of customer demand for specific products.
The Company purchases steel and aluminum from domestic and foreign integrated
mills and mini-mills and specialty metals from foundries. The Company's
principal domestic steel suppliers are Nucor Corp., LTV Steel Co., Bethlehem
Steel Corp. and National Steel Corp. Although most forms of steel and aluminum
produced by mills can be obtained from a number of integrated mills or
mini-mills, both domestically and internationally, there are a few products that
are available from only a limited number of producers. Since most metals are
shipped F.O.B. the mill and the transportation of metals is a significant cost
factor, the Company seeks to purchase metals to the extent possible from the
nearest mill unless a more distant mill has a significantly lower price. The
Company believes that it can purchase raw materials in sufficient quantities to
permit it to realize purchasing economies and discounts from its suppliers. The
Company believes it is not materially dependent on any one of its suppliers for
raw materials and that its relationships with its suppliers are good.
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SALES AND MARKETING; CUSTOMERS
The Company believes that its commitment to consistent quality, service and
just-in-time delivery has enabled it to develop and maintain long-term
relationships with existing customers, while expanding its market penetration
through the use of its sales and marketing program. The Company's sales and
marketing program focuses on the identification of OEMs and other metals
end-users that could achieve significant cost savings through the use of the
Company's inventory management, processing, just-in-time delivery and other
services. The typical target customer carries a significant inventory of
unprocessed metal and performs most of its own processing. The Company uses a
variety of methods to identify these target customers, including the use of
databases, telemarketing, direct mail and participation in manufacturers' trade
shows. Customer referrals and the knowledge of the Company's sales force about
regional end-users also result in the identification of target customers. Once a
target customer is identified, the Company's "outside" salespeople assume
responsibility for visiting the appropriate person at the target, typically the
purchasing manager or manager of operations. The Company's salesperson seeks to
explain the potential cost savings achievable through the Company's services and
the Company's commitment to service and quality.
The Company employs a sales force consisting of "inside" and "outside"
salespeople. "Inside" salespeople are primarily responsible for maintaining
customer relationships, receiving and soliciting individual orders and
responding to service and other inquiries by customers. Increasingly, these
"inside" salespeople have been given responsibility for telemarketing to target
customers. The Company's "outside" sales force is primarily responsible for
identifying target customers and calling on them to explain the Company's
services. The sales force is trained and knowledgeable about the characteristics
and applications of various metals and applications as well as the manufacturing
methods employed by the Company's customers. The Company believes that its high
level of interaction with its customers provides it with meaningful feedback and
information about sales opportunities. For example, the Company has shown
customers that a component of a machine (such as hydraulic cylinder parts) would
be less expensive and more effective if manufactured from Dura-Bar, a continuous
cast iron product which is a registered trademark of Wells Manufacturing
Company, Dura-Bar Division, because Dura-Bar has greater machinability and
improved application performance characteristics.
Nearly all sales by the Company are on a negotiated price basis. In some
cases, sales are the result of a competitive bid process where a customer sends
the Company and several competitors a list of products required and the Company
submits a bid on each product.
The Company has a diverse customer base of more than 60,000 customers, with
no single customer accounting for more than 1 1/2% of the Company's revenues in
1998. The Company believes that its long-term relationships with many of its
customers contribute significantly to its success.
COMPETITION
The Company is engaged in a highly-fragmented and competitive industry.
Competition is based primarily on price, quality, service, timeliness and
geographic proximity. The Company competes with a large number of other metals
processors/service centers on a regional and local basis, some of which may have
greater financial resources than the Company, and several of which are
publicly-held companies. The Company also competes to a lesser extent with
primary metals producers, who typically sell directly only to very large
customers requiring regular shipments of large volumes of metals. The Company
may also face competition for acquisition candidates from these public
companies, most of whom have acquired a number of metals service center
businesses during the past decade. Other smaller metals processors/service
centers may also seek acquisitions from time to time.
The Company believes that it will be able to compete effectively because of
its significant number of locations, geographic dispersion, knowledgeable and
trained sales force, integrated computer systems, modern equipment, broad-based
inventory, combined purchasing volume and operational economies of scale. The
Company intends to seek to differentiate itself from its competition in terms of
service and quality by investing in systems and equipment, training and offering
a broad range of products and services as well as through its entrepreneurial
culture and decentralized operating structure.
8
<PAGE>
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company's operations are subject to a number of federal, state and local
regulations relating to the protection of the environment and to workplace
health and safety. In particular, the Company's operations are subject to
extensive federal, state and local laws and regulations governing waste
disposal, air and water emissions, the handling of hazardous substances,
environmental protection, remediation, workplace exposure and other matters.
Hazardous materials the Company uses in its operations include lubricants,
cleaning solvents and hydrochloric acid (used in pickling operations at two of
its facilities).
The Company's management believes that the Company is in substantial
compliance with all such laws and does not currently anticipate that the Company
will be required to expend any substantial amounts in the foreseeable future in
order to meet current environmental or workplace health and safety requirements.
However, some of the properties owned or leased by the Company are located in
areas with a history of heavy industrial use, three of which are on or near
sites listed on the CERCLA National Priority List. The Company believes that a
number of its leased properties are located in or near industrial or light
industrial use areas; and accordingly, may have been contaminated by pollutants
which would have migrated from neighboring facilities or have been deposited by
prior occupants. Furthermore, the Company is not aware of any notices from
authoritative agencies with respect to clean-up/remediation claims for
contamination at the leased properties. However, there can be no assurance that
the Company may subsequently be notified of such claims with respect to its
existing leased or owned properties in the future.
Prior to entering into any agreements with an acquisition target, the Company
evaluates the properties owned or leased by the target and engages an
independent environmental consulting firm to conduct or review assessments of
environmental conditions at each property. Although no environmental claims have
been made against the Company and it has not been named as a potentially
responsible party by the Environmental Protection Agency or any other party, it
is possible that the Company could be identified by the Environmental Protection
Agency, a state agency or one or more third parties as a potentially responsible
party under CERCLA or under analogous state laws. If so, the Company could incur
substantial litigation costs to prove that it is not responsible for the
environmental damage. The Company has obtained limited indemnities from the
former stockholders of the Acquired Companies whose facilities are located at or
near contaminated sites. The Company believes that these indemnities will be
adequate to protect it from a material adverse effect on its consolidated
financial condition, results of operations or liquidity, should the Company be
held responsible for a share of any clean-up costs. The limited indemnities are
subject to certain deductible amounts, however, and there can be no assurance
that these limited indemnities will fully protect the Company.
MANAGEMENT INFORMATION SYSTEMS
Each of the businesses acquired operates a management information system that
is used to purchase, monitor and allocate inventory throughout its production
facilities. The Company believes that these systems enable it to manage
inventory costs effectively and to achieve appropriate inventory turnover rates.
Many of these systems also include computerized order entry, sales analysis,
inventory status, work-in-process status, bar-code tracking, invoicing and
payment. These systems are designed to improve productivity for both the Company
and its customers. Nine of the Company's subsidiaries use EDI, through which
they offer their customers a paperless process for order entry, shipment
tracking, customer billing, remittance processing and other routine matters. In
addition, several of the Company's subsidiaries have computer-aided drafting
systems that control equipment used to perform some metals processing functions.
EMPLOYEES
As of March 15, 1999, the Company employed a total of approximately 4,000
persons. Approximately 600 employees at 19 sites were members of one of six
unions: the United Steelworkers of America; the International Association of
Bridge, Structural, and Ornamental Ironworkers of America; the International
Brotherhood of Teamsters; Local 40 of the Glass, Molders, Pottery, Plastic &
Allied Workers International Union; United Auto Workers; and the International
Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and
Helpers. The Company's relationship with these unions generally has been
satisfactory, but occasional work stoppages have occurred. Within the last five
years, one work stoppage occurred at one facility, which involved 28 employees
and lasted 10 days. The Company is currently a party to 19 collective bargaining
agreements which expire at various times.
9
<PAGE>
Collective bargaining agreements expiring in 1999, 2000, 2001 and 2002 cover 99,
40, 137 and 222 employees, respectively. Historically, the Company has succeeded
in negotiating new collective bargaining agreements without a strike.
From time to time, there are shortages of qualified operators of metals
processing equipment. In addition, turnover among less skilled workers is
relatively high. The Company intends to adopt "best practices" for its employee
benefits programs and human relations functions. The Company believes that its
relations with its employees are good.
VEHICLES
The Company operates a fleet of owned or leased trucks and trailers as well
as fork lifts and support vehicles. It believes these vehicles generally are
well-maintained and adequate for the Company's current operations. The Company
expects it will be able to purchase or lease vehicles at lower prices due to its
combined purchasing and leasing volume.
RISK MANAGEMENT, INSURANCE AND LITIGATION
The primary risks in the Company's operations are bodily injury, property
damage and injured workers' compensation. The Company maintains general
liability insurance and liability insurance for bodily injury and third-party
property damage and workers' compensation coverage which it considers sufficient
to insure against these risks.
From time to time, the Company is a party to litigation arising in the
ordinary course of its business, most of which involves claims for personal
injury or property damage incurred in connection with its operations. The
Company is not currently involved in any litigation that it believes will have a
material adverse effect on its consolidated financial condition, results of
operations or liquidity.
SAFETY
The Company intends to provide an accident-free workplace and is committed to
continuing and improving upon each facilities' focus and emphasis on safety in
the workplace. The Company currently has a number of safety programs in place,
which include regular weekly or monthly field safety meetings, bonuses based on
an employee's or a team's safety record and training sessions to teach proper
safe work procedures. The Company is actively working on and implementing a
comprehensive "best practices" safety program throughout its operations to
ensure that all employees comply with safety standards established by the
Company, its insurance carriers and federal, state and local laws and
regulations. This program is being led by Mr. Mark Alper, a Vice President and
Director of the Company, with the assistance of each of the Company's product
group presidents, executive officers and industry consultants with expertise in
workplace safety.
10
<PAGE>
ITEM 2. PROPERTIES
The Company operates a number of metals processing facilities in the Heavy
Carbon, Flat Rolled and Specialty Metals Groups that are used to receive,
warehouse, process and ship metals. These facilities use various metals
processing and materials handling machinery and equipment. The Company's
Aluminum Building Products Group operates several facilities where it processes
metals into various building products. These service center facilities are as
follows:
<TABLE>
<CAPTION>
SQUARE OWNED/
LOCATION FOOTAGE LEASED
-------- ------- ------
<S> <C> <C> <C>
HEAVY CARBON GROUP
Faitoute ......................... Newark, New Jersey 81,000 Leased
Interstate ....................... Philadelphia, Pennsylvania 70,000 Leased
Philadelphia, Pennsylvania 120,000 Leased
Baltimore, Maryland 65,000 Leased
Ambridge, Pennsylvania 133,000 Leased
Intsel ........................... Dallas, Texas 104,000 Owned
Houston, Texas 216,000 Owned
Lafayette, Louisiana 32,000 Owned
San Antonio, Texas 89,000 Owned
Tulsa, Oklahoma 53,000 Leased
Jeffreys ......................... Birmingham, Alabama 125,000 Owned
Mobile, Alabama 214,000 Owned
Muscle Shoals, Alabama 104,000 Owned
Attalla, Alabama 53,000 Owned
Columbus, Mississippi 45,000 Owned
Kenner, Louisiana 61,000 Owned
Oakwood, Georgia 206,000 Owned
Jacksonville, Florida 60,000 Owned
Lakeland, Florida 120,000 Owned
Fort Lauderdale, Florida 27,000 Leased
Levinson ........................ Ambridge, Pennsylvania 130,000 Leased
Camden, New Jersey 104,000 Leased
Greenville, Kentucky 33,000 Owned
Seekonk, Massachusetts 115,000 Owned
York, Pennsylvania 109,000 Leased
Queensboro ...................... Wilmington, North Carolina 178,000 Leased
Wilmington, North Carolina* 45,000 Owned
Greensboro, North Carolina* 115,000 Owned
Chesapeake, Virginia 62,000 Leased
RJ Industries ................... Milwaukee, Wisconsin 31,000 Leased
Schofield, Wisconsin 16,000 Leased
Sierra Pacific .................. Haywood, California 64,500 Leased
Steel Manufacturing ............. Kansas City, Missouri 120,000 Leased
Uni-Steel ....................... Enid, Oklahoma 112,000 Leased
Muskogee, Oklahoma 134,000 Leased
Wilkof .......................... Canton, Ohio 100,000 Leased
Williams ........................ Milwaukee, Wisconsin 137,000 Leased
FLAT ROLLED GROUP
Affiliated ...................... Granite City, Illinois 300,000 Leased
Madison, Illinois 150,000 Owned
Butler, Indiana 200,000 Owned
Forest .......................... Forest, Virginia 50,000 Leased
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SQUARE OWNED/
LOCATION FOOTAGE LEASED
-------- ------- ------
<S> <C> <C> <C>
Fullerton ....................... Northbrook, Illinois 182,000 Owned
Minneapolis, Minnesota 20,000 Owned
Geneva .......................... Youngstown, Ohio 83,000 Leased
Krohn ........................... Springfield, Ohio 60,000 Owned
Service Systems ................. Horicon, Wisconsin* 103,000 Leased
Wayne ........................... Wooster, Ohio* 140,000 Owned
Randleman, North Carolina* 110,000 Owned
Jeffersonville, Indiana* 90,000 Owned
Walker, Michigan 50,000 Leased
SPECIALTY METALS GROUP
Federal Bronze .................. Newark, New Jersey 41,000 Leased
Flagg ........................... St. Louis, Missouri 19,000 Leased
Harvey .......................... Santa Monica, California 50,000 Leased
Independent ..................... Germantown, Wisconsin 90,000 Owned
New Hope, Minnesota 19,000 Leased
Broadview, Illinois 61,000 Leased
Orlando, Florida 23,000 Leased
Industrial ...................... Mokena, Illinois 21,000 Leased
Meier ........................... Hazel Park, Michigan 73,000 Owned
Broadview, Illinois 21,000 Owned
Moraine, Ohio 21,000 Owned
Greensboro, North Carolina 52,000 Leased
Kentwood, Michigan 12,000 Leased
Cleveland, Ohio 12,000 Leased
Metalmart ....................... Whittier, California 42,000 Leased
Pacific ......................... Billings, Montana 10,000 Leased
Boise, Idaho 26,000 Leased
Eugene, Oregon 33,000 Owned
Portland, Oregon 111,000 Leased
Spokane, Washington 49,000 Owned
Tukwila, Washington 80,000 Owned
Professional .................... Liberty, Missouri 84,000 Leased
Wichita, Kansas 11,000 Leased
Southern Alloy .................. Salisbury, North Carolina 24,000 Leased
ALUMINUM BUILDING PRODUCTS GROUP
ABS ............................. Leesburg, Florida 60,000 Leased
National ........................ Kansas City, Missouri 58,000 Leased
Royal ........................... Leesburg, Florida 69,000 Owned
Leesburg, Florida 76,000 Leased
Irmo, South Carolina 38,000 Leased
Texas Aluminum/Cornerstone ...... Houston, Texas 165,000 Owned
Houston, Texas 220,000 Leased
Las Vegas, Nevada 42,000 Leased
Ontario, California 11,000 Leased
Tempe, Arizona 24,000 Leased
Rancho Cordova, California 24,000 Leased
Valley .......................... Phoenix, Arizona 111,000 Leased
Las Vegas, Nevada 39,000 Leased
Western ......................... Pacific, Washington 24,000 Leased
</TABLE>
- -----------
* These facilities are subject to liens with respect to certain debt agreements.
12
<PAGE>
In addition to the service center facilities listed above, the Company's
Aluminum Building Products Group also operates 40 sales and distribution centers
throughout the western, southwestern and southeastern United States. These
facilities, which are all leased, range in size from 5,500 square feet to 50,000
square feet. Many of the Company's facilities are capable of being used at
higher capacities, if necessary. The Company is planning to expand two of its
existing facilities over the next 12 months. The Company believes that its
facilities after the planned expansions will be adequate for the expected needs
of its existing businesses over the next several years.
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
THIS SECTION CONTAINS STATEMENTS WHICH CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. SEE DISCLOSURE PRESENTED ON THE INSIDE OF THE FRONT COVER OF THIS
REPORT FOR CAUTIONARY INFORMATION WITH RESPECT TO SUCH FORWARD-LOOKING
STATEMENTS.
Subsidiaries of the Company are involved in a variety of claims, lawsuits and
other disputes arising in the ordinary course of business. The Company believes
the resolution of these matters and the incurrence of their related costs and
expenses should not have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE>
P A R T II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has traded on The New York Stock Exchange since
July 11, 1997. The following table sets forth the high and low sale prices for
the Common Stock for the period from July 11, 1997, the date of the IPO, through
March 23, 1999.
HIGH LOW
---- ---
1997:
July 11, 1997 to September 30, 1997 ........... $16.00 $10.00
October 1, 1997 to December 31, 1997 .......... $16.50 $13.38
1998:
January 1, 1998 to March 31, 1998 ............. $19.25 $14.00
April 1, 1998 to June 30, 1998 ................ $20.13 $16.50
July 1, 1998 to September 30, 1998 ............ $18.00 $ 8.75
October 1, 1998 to December 31, 1998 .......... $11.00 $ 6.56
1999:
January 1, 1999 to March 23, 1999 ............. $10.50 $ 8.13
The Company believes there are approximately 2,100 stockholders of record of
the Company's Common Stock.
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, the Company's Credit Facility
includes restrictions on the ability of the Company to pay dividends without the
consent of the lender.
ITEM 6. SELECTED FINANCIAL DATA
The following historical consolidated financial information should be read in
conjunction with the audited historical Consolidated Financial Statements of
Metals USA, Inc. and Subsidiaries and the Notes thereto included in Item 8.
"Financial Statements and Supplementary Data." The historical consolidated
financial information for the fiscal years ended 1994 through 1998 reflects the
historical financial statements of Metals USA, restated for the effects of the
business combinations with Jeffreys, Wayne and Krohn which were accounted for as
"poolings-of-interests," and the remaining Acquired Companies from their
respective acquisition dates.
The Acquired Companies operated as privately-owned entities prior to their
acquisition by Metals USA and their results of operations reflect varying tax
structures ("S Corporations" or "C Corporations") which have influenced the
level of owners' compensation. The owners of the Acquired Companies have
contractually agreed to certain reductions in both their compensation and
benefits and in certain cases lease payments for their respective facilities in
connection with the acquisitions. These cost savings, which are not reflected in
the historical consolidated financial information presented below, are reflected
in the Unaudited Pro Forma Combined Statements of Operations presented in Item
8. "Financial Statements and Supplementary Data."
15
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,(1)
----------------------------------------------
1998 1997 1996 1995 1994
-------- ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales ................................................. $1,498.8 $537.6 $265.6 $260.9 $235.7
Cost of sales ............................................. 1,135.1 414.9 204.0 204.7 185.0
Operating and delivery .................................... 145.8 53.7 25.4 22.0 19.6
Selling, general and administrative ....................... 104.7 41.1 21.4 15.6 14.0
Depreciation and amortization ............................. 16.4 5.6 3.7 3.0 2.4
Operating income .......................................... 96.8 22.3 11.1 15.6 14.7
Interest expense .......................................... 30.9 5.0 1.8 2.4 1.8
Other income .............................................. (1.6) (.5) (.6) (.5) (.5)
Income before income taxes ................................ 67.5 17.8 9.9 13.7 13.4
Net income ................................................ 40.0 7.5 4.5 8.1 8.2
Earnings per share ........................................ $ 1.09 $ .33 $ .38 $ .86 $ .87
Earnings per share -- assuming dilution ................... $ 1.07 $ .33 $ .38 $ .86 $ .87
Number of common shares used in the per
share calculations:
Earnings per share .................................... 36.7 22.5 11.8 9.4 9.4
Earnings per share -- assuming dilution ............... 37.3 22.9 11.8 9.4 9.4
YEARS ENDED DECEMBER 31,(1)
----------------------------------------------
1998 1997 1996 1995 1994
-------- ------ ------ ------ ------
(IN MILLIONS)
BALANCE SHEET DATA:
Working capital ........................................... $ 407.4 $191.5 $ 51.6 $ 53.2 $ 47.2
Total assets .............................................. 1,019.5 479.1 107.3 100.1 99.0
Long-term debt, less current portion ...................... 502.6 167.1 24.6 31.4 23.2
Stockholders' equity ...................................... 341.6 226.5 57.5 50.1 43.3
Dividends declared(2) ..................................... -- -- -- -- --
</TABLE>
- -------------
(1) As a result of the merger with Metals USA, Jeffreys changed its fiscal year
to December 31 beginning January 1, 1996, to conform to the fiscal periods
of Metals USA and the other Acquired Companies. The historical financial
information of Jeffreys for the years ended July 31, 1995 and 1994 have been
included in the Company's consolidated financial statements for the years
ended December 31, 1995 and 1994.
(2) Exclusive of pre-acquisition distributions of S Corporations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BACKGROUND
THIS SECTION CONTAINS STATEMENTS WHICH CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. SEE DISCLOSURE PRESENTED ON THE INSIDE OF THE FRONT COVER OF THIS
REPORT FOR CAUTIONARY INFORMATION WITH RESPECT TO SUCH FORWARD-LOOKING
STATEMENTS.
The following discussion should be read in conjunction with Item
6. "Selected Financial Data" and the Company's Consolidated Financial
Statements and related Notes thereto in Item 8. "Financial Statements
and Supplementary Data."
INTRODUCTION
The Company's net sales are derived from the processing of steel, aluminum
and other specialty metals and the use of processed metals to manufacture
high-value end-use products. Most of the metal sold by the Company is processed
in some form. The Company processes various metals to specified thickness,
length, width, shape and surface quality pursuant to specific customer orders.
Additionally, certain of the Acquired Companies manufacture finished building
products for commercial and residential applications and machine certain
specialty metals. See Item 1."Business" for further discussion of the Company's
organization and business plan.
16
<PAGE>
During 1996 and the first half of 1997, the Company sold an aggregate of
1,385,500 shares of Common Stock to management of and consultants to the Company
for $0.01 per share. Accordingly, the Company recorded a compensation charge of
$3.6 million in 1996 and $6.0 million in the first half of 1997 representing the
difference between the amount paid for the shares and the estimated fair value
of the shares on the date of sale, as if the Founding Companies were combined,
(the "Compensation Charge"). The Compensation Charge has not been allocated to
the Company's segments; accordingly, it is included in the following table in
"Corporate, Eliminations and Other."
RESULTS OF OPERATIONS
SEGMENT RESULTS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
OPERATING OPERATING
NET COSTS AND INCOME CAPITAL
SALES % EXPENSES % (LOSS) % EXPENDITURES %
-------- ------ -------- ------ ------ -------- ------------ ------
1998: (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Heavy Carbon .............................. $ 598.8 40.0% $ 555.1 39.6% $ 43.7 45.1% $ 11.9 47.1%
Flat Rolled ............................... 445.4 29.7% 419.8 29.9% 25.6 26.4% 8.2 32.4%
Specialty Metals .......................... 371.2 24.8% 343.8 24.5% 27.4 28.3% 3.4 13.4%
Aluminum Building Products ................ 93.4 6.2% 84.1 6.0% 9.3 9.6% 1.7 6.7%
Corporate, eliminations and other ......... (10.0) (.7)% (.8) --% (9.2) (9.4)% .1 .4%
-------- ------ -------- ------ ------ -------- ------ ------
Total .................................. $1,498.8 100.0% $1,402.0 100.0% $ 96.8 100.0% $ 25.3 100.0%
======== ====== ======== ====== ====== ======== ====== ======
1997:
Heavy Carbon .............................. $ 234.2 43.6% $ 221.2 42.9% $ 13.0 58.3% $ 4.8 25.7%
Flat Rolled ............................... 237.8 44.2% 223.9 43.5% 13.9 62.3% 12.1 64.7%
Specialty Metals .......................... 41.5 7.7% 37.8 7.3% 3.7 16.6% 1.0 5.3%
Aluminum Building Products ................ 24.1 4.5% 21.7 4.2% 2.4 10.8% .5 2.7%
Corporate, eliminations and other ......... -- --% 10.7 2.1% (10.7) (48.0)% .3 1.6%
-------- ------ -------- ------ ------ -------- ------ ------
Total .................................. $ 537.6 100.0% $ 515.3 100.0% $ 22.3 100.0% $ 18.7 100.0%
======== ====== ======== ====== ====== ======== ====== ======
1996:
Heavy Carbon .............................. $ 134.4 50.6% $ 127.8 50.2% $ 6.6 59.5% $ 3.7 55.2%
Flat Rolled ............................... 131.2 49.4% 123.1 48.4% 8.1 73.0% 3.0 44.8%
Corporate, eliminations and other ......... -- --% 3.6 1.4% (3.6) (32.5)% -- --%
-------- ------ -------- ------ ------ -------- ------ ------
Total ................................. $ 265.6 100.0% $ 254.5 100.0% $ 11.1 100.0% $ 6.7 100.0%
======== ====== ======== ====== ====== ======== ====== ======
</TABLE>
SEGMENT RESULTS -- 1998 COMPARED TO 1997
HEAVY CARBON STEEL GROUP. Net sales increased $364.6 million, or 155.7%, from
$234.2 million in 1997 to $598.8 million in 1998. The net sales attributable to
the 1998 acquisitions contributed $199.7 million of the increase. Average
realized prices for steel products increased approximately 1.0% in 1998 compared
to 1997. Material shipments increased 153.3% in 1998 compared to 1997.
Acquisitions completed during 1998 accounted for 56.9% of the increase.
Operating costs and expenses increased $333.9 million, or 150.9%, from $221.2
million in 1997 to $555.1 million in 1998. Operating costs and expenses as a
percentage of net sales decreased from 94.4% in 1997 to 92.7% in 1998. This
percentage decrease was primarily the allocation of fixed costs over a higher
volume of net sales. Operating income increased by $30.7 million, or 236.2%,
from $13.0 million in 1997 to $43.7 million in 1998. Operating income as a
percentage of net sales increased from 5.6% in 1997 to 7.3% in 1998. This
percentage increase was due to higher average realized prices and the allocation
of fixed costs over a higher volume of net sales.
FLAT ROLLED STEEL GROUP. Net sales increased $207.6 million, or 87.3%, from
$237.8 million in 1997 to $445.4 million in 1998. The net sales attributable to
the 1998 acquisitions contributed $88.7 million of the increase. Average
realized prices for steel products increased approximately 2.6% in 1998 compared
to 1997. Material shipments increased 82.3% in 1998 compared to 1997.
Acquisitions completed during 1998 accounted for 29.6% of the increase. Costs
and expenses increased $195.9 million, or 87.5%, from $223.9 million in 1997 to
$419.8 million in 1998. Operating costs and expenses were stable as a percentage
of net sales, increasing marginally from 94.2% in 1997 to 94.3% in 1998.
17
<PAGE>
Operating income increased by $11.7 million, or 84.2%, from $13.9 million in
1997 to $25.6 million in 1998. Operating income as a percentage of net sales
decreased marginally from 5.8% in 1997 to 5.7% in 1998.
SPECIALTY METALS GROUP. Net sales increased $329.7 million, or 794.5%, from
$41.5 million in 1997 to $371.2 million in 1998. The net sales attributable to
the 1998 acquisitions contributed $202.9 million of the increase. Costs and
expenses increased $306.0 million, or 809.5%, from $37.8 million in 1997 to
$343.8 million in 1998. Operating costs and expenses as a percentage of net
sales increased from 91.1% in 1997 to 92.6% in 1998. This percentage increase
was primarily due to lower realized prices in certain product groups. Operating
income increased by $23.7 million, or 640.5%, from $3.7 million in 1997 to $27.4
million in 1998. This increase was principally due to the majority of the 1998
acquisitions having been acquired during the first half of the year. Operating
income as a percentage of net sales decreased from 8.9% in 1997 to 7.4% in 1998.
This percentage decrease was due to lower realized prices in certain product
groups.
ALUMINUM BUILDING PRODUCTS. Net sales increased $69.3 million, or 287.6%,
from $24.1 million in 1997 to $93.4 million in 1998. The increase in net sales
is principally due to the 1998 Acquisitions. Operating costs and expenses
increased $62.4 million, or 287.6%, from $21.7 million in 1997 to $84.1 million
in 1998. Operating costs and expenses as a percentage of net sales was unchanged
at 90.0% for both periods. Operating income increased by $6.9 million, or
287.5%, from $2.4 million in 1997 to $9.3 million in 1998. This increase was
principally due to 1998 acquisitions and to 1998 being a full year of operations
for the 1997 acquired companies. Operating income as a percentage of net sales
was unchanged at 10.0% for both periods.
CORPORATE AND OTHER. This category reflects certain administrative costs and
expenses management has not allocated to its industry segments. The negative net
sales amount represents the elimination of intercompany sales. Operating loss
decreased by $1.5 million, or 14.0%, from $10.7 million in 1997 to $9.2 million
in 1998. This decrease was principally due to a reduction in general and
administrative expense attributable to the elimination of the $6.0 million
Compensation Charge the Company incurred in 1997, offset by the additional
general and administrative costs for a full year in 1998 compared to the period
from July 11, 1997 (date of the IPO) through December 31, 1997 together with the
$2.6 million non-recurring charge associated with the termination of the
Jeffrey's Employee Stock Ownership Plan ("ESOP") in 1998.
SEGMENT RESULTS --1997 COMPARED TO 1996
HEAVY CARBON STEEL GROUP. Net sales increased $99.8 million, or 74.3%, from
$134.4 million in 1996 to $234.2 million in 1997. The net sales attributable to
the 1997 acquisitions contributed $110.9 million of the increase. Average
realized prices for steel products increased approximately 5.0% in 1997 compared
to 1996. Material shipments increased 65.8% in 1997 compared to 1996.
Acquisitions completed during 1997 accounted for all of the increase. Costs and
expenses increased $93.4 million, or 73.1%, from $127.8 million in 1996 to
$221.2 million in 1997. Operating costs and expenses as a percentage of net
sales decreased from 95.1% in 1996 to 94.4% in 1997. Operating income increased
by $6.4 million, or 97.0%, from $6.6 million in 1996 to $13.0 million in 1997.
Operating income as a percentage of net sales increased from 4.9% in 1996 to
5.6% in 1997. This percentage increase was due to higher average realized prices
and the allocation of fixed costs over a higher volume of net sales.
FLAT ROLLED STEEL GROUP. Net sales increased $106.6 million, or 81.3%, from
$131.2 million in 1996 to $237.8 million in 1997. The net sales attributable to
the 1997 acquisitions contributed $74.1 million of the increase. Material
shipments increased 99.5% in 1997 compared to 1996. Acquisitions completed
during 1997 accounted for 67.6% of the increase. Costs and expenses increased
$100.8 million, or 81.9%, from $123.1 million in 1996 to $223.9 million in 1997.
Operating costs and expenses as a percentage of net sales increased from 93.8%
in 1996 to 94.2% in 1997. This percentage increase was primarily due to higher
cost of raw materials. Operating income increased by $5.8 million, or 71.6%,
from $8.1 million in 1996 to $13.9 million in 1997. Operating income as a
percentage of net sales decreased from 6.2% in 1996 to 5.8% in 1997. This
percentage decrease was due to higher raw material costs.
SPECIALTY METALS GROUP. Prior to the IPO in July 1997 the Company did not
have any operations attributable to the Specialty Metals Group.
18
<PAGE>
ALUMINUM BUILDING PRODUCTS. Prior to the IPO in July 1997 the Company did not
have any operations attributable to the Aluminum Building Products.
CORPORATE AND OTHER. This category reflects certain administrative costs and
expenses management has not allocated to its industry segments. Operating loss
increased by $7.1 million, or 197.2%, from $3.6 million in 1996 to $10.7 million
in 1997. This increase was principally due to an increased Compensation Charge
the Company incurred in 1997 of $6.0 million compared to $3.6 million in 1996
together with the additional general and administrative costs for the period
from July 11, 1997 (date of the IPO) through December 31, 1997.
CONSOLIDATED RESULTS
The following historical financial information reflects the historical
financial statements of Metals USA, restated for the effects of the business
combinations with Jeffreys, Wayne and Krohn accounted for as "poolings-
of-interests" and the remaining Acquired Companies from their respective
acquisition dates.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1998 % 1997 % 1996 %
-------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales ................................ $1,498.8 100.0% $ 537.6 100.0% $ 265.6 100.0%
Operating costs and expenses:
Cost of sales ............................ 1,135.1 75.7% 414.9 77.2% 204.0 76.8%
Operating and delivery ................... 145.8 9.7% 53.7 10.0% 25.4 9.6%
Selling, general and administrative ...... 104.7 7.0% 41.1 7.6% 21.4 8.1%
Depreciation and amortization ............ 16.4 1.1% 5.6 1.0% 3.7 1.4%
-------- -------- -------- -------- -------- --------
Operating income ......................... 96.8 6.5% 22.3 4.2% 11.1 4.1%
Interest expense ......................... 30.9 2.1% 5.0 1.0% 1.8 .6%
Other (income) expense ................... (1.6) (.1)% (.5) (.1)% (.6) (.2)%
-------- -------- -------- -------- -------- --------
Income before income taxes ............... 67.5 4.5% 17.8 3.3% 9.9 3.7%
======== ======== ======== ======== ======== ========
</TABLE>
RESULTS FOR 1998 COMPARED TO 1997
NET SALES. Net sales increased $961.2 million, or 178.8%, from $537.6 million
in 1997 to $1,498.8 million in 1998. The increase in net sales was principally
due to acquisitions. Average realized prices for steel products increased in
1998 compared to 1997. See "-- Segment Results" for additional information.
COST OF SALES. Cost of sales increased $720.2 million, or 173.6%, from $414.9
million in 1997 to $1,135.1 million in 1998. The increase in cost of sales was
principally due to the business acquisitions described above. As a percentage of
net sales, cost of sales decreased from 77.2% in 1997 to 75.7% in 1998. This
percentage decrease was principally due to lower cost of raw materials.
OPERATING AND DELIVERY. Operating and delivery expenses increased $92.1
million, or 171.5%, from $53.7 million in 1997 to $145.8 million in 1998. The
increase in operating and delivery expenses was principally due to the business
acquisitions described above. As a percentage of net sales, operating and
delivery expenses decreased from 10.0% in 1997 to 9.7% in 1998. This percentage
decrease was primarily due to the allocation of fixed costs over a higher volume
of net sales.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $63.6 million, or 154.7%, from $41.1 million in 1997 to
$104.7 million in 1998. This increase in selling, general and administrative
expenses was primarily attributable to the business acquisitions described
above. As a percentage of net sales, selling, general and administrative
expenses decreased from 7.6% in 1997 to 7.0% in 1998. Excluding the effect of
the non-recurring, non-cash Compensation Charge of $6.0 million in 1997 and the
non-recurring charge of $2.6 million attributable to the termination of the ESOP
in 1998, as a percentage of net sales, selling, general and administration
expenses increased from 6.5% in 1997 to 6.8% in 1998. This percentage increase
was primarily due to increased compensation and other costs associated with a
full year of corporate expense in 1998.
19
<PAGE>
OPERATING INCOME. Operating income increased $74.5 million, or 334.1%, from
$22.3 million in 1997 to $96.8 million in 1998. The increase in operating income
was primarily attributable to the business acquisitions described above, offset
by the $6.0 million Compensation Charge described in the preceding paragraph. As
a percentage of net sales, operating income increased from 4.2% in 1997 to 6.5%
in 1998.
INTEREST EXPENSE. Interest expense increased $25.9 million, from $5.0 million
in 1997 to $30.9 million in 1998. The increase in interest expense was due to
increased borrowings in connection with the business acquisitions described
above and the increased interest expense associated with the Company's 8 5/8%
$200.0 Senior Subordinated Notes due 2008 (the "Notes").
PROVISION FOR INCOME TAXES. The Company's provision for income taxes differs
from the federal statutory rate principally due to state income taxes (net of
federal income tax benefit) and the non-deductibility of the amortization of
goodwill attributable to certain acquisitions.
RESULTS FOR 1997 COMPARED TO 1996
NET SALES. Net sales increased $272.0 million, or 102.4%, from $265.6 million
in 1996 to $537.6 million in 1997. The increase in net sales was principally due
to acquisitions of the Founding Companies on July 11, 1997 and the purchase
acquisitions of Harvey, Meier and Federal Bronze on September 26, 1997. Average
realized prices for steel products declined in 1997 compared to 1996. See "--
Segment Results" for additional information.
COST OF SALES. Cost of sales increased $210.9 million, or 103.4%, from $204.0
million in 1996 to $414.9 million in 1997. The increase in cost of sales was
principally due to the business acquisitions described above. As a percentage of
net sales, cost of sales increased from 76.8% in 1996 to 77.2% in 1997. This
percentage increase was due to higher cost of raw materials.
OPERATING AND DELIVERY. Operating and delivery expenses increased $28.3
million, or 111.4%, from $25.4 million in 1996 to $53.7 million in 1997. The
increase in operating and delivery expenses was principally due to the business
acquisitions described above. As a percentage of net sales, operating and
delivery expenses increased from 9.6% in 1996 to 10.0% in 1997. This percentage
increase was primarily due to higher transportation costs to support an
expanding market area.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $19.7 million, or 92.1%, from $21.4 million in 1996 to $41.1
million in 1997. This increase in selling, general and administrative expenses
was primarily attributable to the business acquisitions described above.
Additionally, the Company recorded a Compensation Charge of $3.6 million and
$6.0 million in 1996 and 1997, respectively. As a percentage of net sales,
selling, general and administrative expenses decreased from 8.1% in 1996 to 7.6%
in 1997. This percentage decrease was primarily due to the Compensation Charge
as a percentage of net sales being less for 1997 than for 1996. Excluding the
effect of the Compensation Charges recorded in 1996 and 1997, as a percentage of
net sales, selling, general and administrative expenses decreased from 6.7% in
1996 to 6.5% in 1997. This percentage decrease was primarily due to the
allocation of fixed costs over a higher volume of net sales.
OPERATING INCOME. Operating income increased $11.2 million, or 100.9%, from
$11.1 million in 1996 to $22.3 million in 1997. The increase in operating income
was primarily attributable to the business acquisitions described above, offset
by the $6.0 million Compensation Charge described in the preceding paragraph. As
a percentage of net sales, operating income increased from 4.1% in 1996 to 4.2%
in 1997.
INTEREST EXPENSE. Interest expense increased $3.2 million, or 177.8%, from
$1.8 million in 1996 to $5.0 million in 1997. The increase in interest expense
was due to increased borrowings in connection with the business acquisitions
described above.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes differs
from the federal statutory rate principally due to state income taxes (net of
federal income tax benefit), the non-deductibility of the Compensation Charge
and the amortization of goodwill attributable to certain acquisitions.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Beginning with the IPO on July 11, 1997, and through March 23, 1999, the
Company has completed a number of financing transactions designed to enhance the
Company's liquidity, reduce incremental interest expense and extend debt
maturities. The transactions included a public equity offering of Common Stock
which resulted in net proceeds of $58.3 million, the sale of $200.0 million
aggregate principal amount of 8 5/8% Senior Subordinated Notes due 2008 (the
"Notes"), the establishment of a $350.0 million revolving credit facility with a
group of commercial banks (the "Credit Facility") and the implementation of a
$100.0 million trade receivable securitization facility.
At December 31, 1998, the Company had cash of $9.3 million, working capital
of $407.4 million and total debt of $506.6 million. At December 31, 1997, the
Company had cash of $7.3 million, working capital of $191.5 million and total
debt of $174.3 million. As of December 31, 1998 and March 23, 1999, the Company
had $80.0 million and $155.0 million, respectively, of borrowing availability
under the Credit Facility. The Company anticipates that its cash flow from
operations will be sufficient to meet the Company's normal working capital and
debt service requirements for at least the next several years, exclusive of
acquisition requirements. The Company intends to retain all its earnings to
finance the expansion of its business and for general corporate purposes,
including future acquisitions, and does not anticipate paying any cash dividends
on its Common Stock for the next several years. In addition, the Company's
Credit Facility and the indenture governing the Notes (the "Indenture") include
restrictions on the ability of the Company to pay dividends.
The Company used $10.8 million and generated $4.3 million in net cash from
operating activities for 1998 and 1997, respectively. Net cash used in investing
activities was $211.2 million and $85.9 million for 1998 and 1997, respectively.
The principal use of cash during 1998 and 1997 was to fund the cash portion of
the acquisition cost for the Acquired Companies. Net cash provided by financing
activities was $224.0 million and $86.5 million for 1998 and 1997, respectively.
Cash provided by financing activities during 1998 was $200.0 million from the
sale of the Notes and borrowings under the Credit Facility. The cash provided by
financing activities consisted primarily of the net proceeds from the sale of
Common Stock of $58.3 million in 1997 and borrowings under the revolving credit
facility in 1997.
INVESTING ACTIVITIES
Concurrent with the completion of the IPO, Metals USA acquired the Founding
Companies for approximately $27.8 million in cash, 10,128,609 shares of Common
Stock and the assumption of indebtedness of $92.6 million. Following the IPO,
the Company acquired seven additional metal processing companies during 1997, of
which Jeffreys and Wayne were accounted for using the "pooling-of-interests"
method of accounting for business combinations. During 1998, the Company
acquired twenty-six additional businesses all of which were accounted for using
the "purchase" method of accounting, except for Krohn which was accounted for
using the "pooling-of-interests" method. The aggregate consideration paid in
connection with these acquisitions was approximately $244.3 million in cash,
16,513,989 shares of Common Stock, the issuance of notes of approximately $3.6
million and the assumption of indebtedness of approximately $143.6 million.
The Company intends to continue to actively pursue acquisition opportunities.
The Company expects to fund future acquisitions through the issuance of
additional Common Stock, borrowings, including use of amounts available under
its Credit Facility, accounts receivable securitization facility and cash flow
from operations. Capital expenditures for equipment and expansion of facilities
are expected to be funded from cash flow from operations and supplemented as
necessary by borrowings from the Credit Facility or other sources of financing.
To the extent the Company funds a significant portion of the consideration for
future acquisitions with cash, it may have to increase the amount of the Credit
Facility or obtain other sources of financing.
FINANCING ACTIVITIES
In July 1997, the Company completed its IPO of 5,900,000 shares of Common
Stock for which it received net proceeds of approximately $50.1 million. The
Company used a portion of the Credit Facility together with the net proceeds
from the IPO to retire substantially all of the indebtedness of the Founding
Companies. Additionally, on August 12, 1997, the Company sold 885,000 shares of
its Common Stock pursuant to the overallotment option granted to the
underwriters in connection with the IPO for net proceeds of $8.2 million. The
Company used the net proceeds
21
<PAGE>
from the exercise of the overallotment option to repay borrowings on its
revolving credit facility and for other corporate purposes.
Concurrent with the IPO, the Company obtained a $150.0 million revolving
credit facility which was used to fund acquisitions, refinance certain
indebtedness of the acquired companies and for general corporate and working
capital requirements. The closing of an extension and modification of the Credit
Facility on February 11, 1998 provided for up to $300.0 million of borrowings.
On November 25, 1998 the Company amended the Credit Facility to provide for an
additional $50.0 million of borrowings to an aggregate of $350.0 million. The
Credit Facility matures in February 2003 and will be used to fund acquisitions,
make capital expenditures, refinance debt of the companies acquired and for
general corporate and working capital requirements. The Credit Facility requires
the Company to comply with various affirmative and negative covenants including:
(i) the maintenance of certain financial ratios, (ii) restrictions on additional
indebtedness, (iii) restrictions on liens, guarantees and dividends, (iv)
obtaining the lenders' consent with respect to certain individual acquisitions
and (v) maintenance of a specified level of consolidated net worth. Borrowings
under the Credit Facility are secured by the pledge of all of the capital stock
of each of the Company's material subsidiaries.
On February 11, 1998, the Company received $194.5 million of net cash
proceeds (before expenses of $.8 million) from the sale of the Notes. The Notes
call for semi-annual interest payments on February 15 and August 15 of each
year, beginning August 15, 1998 and mature on February 15, 2008. The Notes are
guaranteed by substantially all of the Company's current and future
subsidiaries, and contain certain covenants restricting additional indebtedness,
liens, transactions with affiliates, asset sales, investments, payment
restrictions affecting subsidiaries and mergers and acquisitions of
subsidiaries. The Notes are subordinate to borrowings under the Credit Facility
and will rank PARI PASSU in right of payment with all other future subordinated
debt of the Company and will rank senior to other indebtedness that expressly
provides that it is subordinated in right of payment to the Notes. The Company
used $179.3 million of such proceeds to repay the borrowings outstanding under
its revolving credit facilities on February 11, 1998.
On January 21, 1999, the Company entered into a three-year agreement (the
"Receivable Securitization Agreement") to sell, on a revolving basis, through
its wholly-owned subsidiary, Metals Receivable Corporation ("MRC"), an undivided
interest in a designated pool of its trade accounts receivable to a commercial
bank ("Purchaser"). The maximum undivided interest in MRC's receivable portfolio
that may be purchased pursuant to this agreement is $100.0 million. The Company,
as agent for Purchaser, retains collection and administrative responsibilities
for the participating interests sold. As collections reduce the receivables
included in MRC's receivable portfolio, the Company may sell additional
undivided interests in new receivables to MRC. The amount of the undivided
interest in MRC's receivable portfolio that is sold typically will change
monthly depending upon the level of defined eligible receivables available for
sale each month adjusted by certain defined ratios. From month to month, the
amount by which MRC's receivable portfolio exceeds the undivided interest
purchased will vary. The Company expects such amount will range between $20.0
million and $30.0 million. The unpurchased portion of the MRC receivable
portfolio is effectively collateral for the benefit of the Purchaser.
In connection with the initial sale pursuant to the Receivable Securitization
Agreement in January 1999, MRC sold an undivided interest in the first $93.0
million in its aggregate receivable portfolio of $117.0 million. The proceeds
from this sale were used to reduce borrowings under the Company's Credit
Facility. On March 23, 1999, MRC sold an undivided interest in the first $83.0
million of its $112.7 million receivable portfolio.
TRENDS
The Company expects that domestic steel prices, for plate and wide flange
beams in particular, will remain depressed during the first half of 1999,
principally due to the higher than normal domestic inventories and the higher
than normal volumes of imported steel. Should domestic steel producers institute
"dumping" suits against the foreign steel importers, price increases for
domestic steel could result during the second half of 1999 assuming no adverse
changes in the United States economy. Such potential price increases could be
deferred, or fail to materialize if the "dumping" suits are deferred or fail to
materialize and the level of foreign steel imports continues at the recent high
levels. The increased level of imports is attributable to the reduction in
consumption resulting from the current economic environment in Asia, Eastern
Europe and South America.
22
<PAGE>
Although the Company's net sales for certain of its subsidiaries are
influenced by steel prices, its results of operations are primarily dependent
upon the volume and mix of value-added services and products provided to its
customers. The Company expects approximately 40% of its net sales would be
affected by any further decline in steel prices. With respect to flat-rolled
steel products, a majority of the net sales are made pursuant to advance pricing
arrangements that range from six to twelve months, which effectively mitigate
the adverse impact of short-term price declines on those products. Additionally,
approximately 30% of the Company's net sales are attributable to aluminum,
titanium and other specialty metals, which have also experienced price
reductions. In general, however, the price reductions for these other metals
have been much less than for steel.
The Company purchases the majority of its raw materials, including steel,
from domestic suppliers; however, the Company has increased its purchases of
steel from foreign suppliers during the past nine months to take advantage of
lower cost imported steel. Accordingly, for the reasons stated in the preceding
paragraph, together with the diversity of its product mix, customer and industry
base, and a pro active monitoring of its raw material inventories with the goal
of significantly improving its current inventory turnover ratios, the Company
does not expect that the present depressed domestic steel prices will have a
material adverse effect on its consolidated financial position, results of
operations or liquidity.
YEAR 2000 ISSUE
IMPACT OF YEAR 2000. As the century date occurs, computer programs, computers
and embedded microprocessors controlling equipment with date-sensitive systems
may recognize Year 2000 as 1900 or not at all. This inability to recognize or
properly handle the year 2000 date may result in computer system failures or
miscalculations of critical information as well as failures of equipment using
date-sensitive microprocessors. The Company's various financial and operational
information systems and, in some cases, embedded microprocessors in certain
machinery and equipment that have computer systems and applications could be
affected by the Year 2000 issue.
STATE OF READINESS. In early 1998, the Company formulated a plan to address
the Year 2000 issue. To date, the Company's primary focus has been on its own
internal systems, including all types of systems used by its subsidiaries in
their operations, dealing with the most critical systems first.
The Company is nearing completion of an assessment of its own systems,
including embedded microprocessors in certain machinery and equipment.
Currently, the Company is establishing timetables for the renovation of its
information systems, including modifying and upgrading software and developing
and purchasing new software, as necessary. The Company expects to complete the
testing and implementation phases by September 30, 1999.
During 1998, the Company began sending questionnaires to its customers,
vendors and other third parties with which the Company has material
relationships and expects to complete the assessment of such parties by June 30,
1999. The Company is unable to estimate the costs that it may incur to remedy
the Year 2000 issues relating to such parties.
COSTS TO ADDRESS THE YEAR 2000 ISSUE. The Company's preliminary estimate is
that the cost of assessment, renovation and implementation of its internal
systems will range from approximately $.2 million to $.4 million of which
approximately $.1 million has been incurred. These costs will consist primarily
of consultants and additional personnel costs. In addition, the Company expects
to incur capital expenditures of approximately $6.0 million for new hardware and
software to integrate and upgrade certain of its existing management information
systems. The Company expects that such costs will be funded through operating
cash flows. These estimates, based on currently available information, will be
updated as the Company continues its assessment and proceeds with renovation,
testing and implementation of its systems. These estimates may be adjusted upon
receipt of more information from the Company's vendors, customers and third
parties and upon design and implementation of the Company's contingency plan. In
addition, the availability and cost of consultants and other personnel trained
in this area could materially affect the estimated costs.
RISKS TO THE COMPANY. Many of the larger operations of the Company have
upgraded their primary operating systems to be Year 2000 compliant; however,
there can be no assurance that the Company will succeed in eliminating all Year
2000 issues. The following disclosure illustrates the Companys' "most reasonably
likely, worst-case scenario," given current uncertainties. If the Company's
renovated or replaced information technology systems fail the testing phase, or
any software applications central to the Company's operations are overlooked in
the assessment or
23
<PAGE>
implementation phases, the Company could incur higher administrative costs as a
result of having to process financial information, such as payroll, accounts
payable and billings, manually or through alternative microcomputer systems. If
the Company's embedded microprocessors in certain machinery and equipment are
not made Year 2000 compliant, the Company could experience additional costs by
having to outsource certain metal processing for its customers. If suppliers of
commercial infrastructure such as electrical power, natural gas,
telecommunications, rail and marine transportation fail to provide the Company
with such services, the Company may be unable to provide its normal full
complement of services to its customers. If any one or a combination of the
foregoing uncertainties were to occur, the Company's business and consolidated
results of operations, financial condition and liquidity could be adversely
affected.
Furthermore, as a result of the Company's ongoing acquisition program, the
Company's assessment of its Year 2000 issue may change. As such, there can be no
assurance that the systems of newly acquired companies, vendors and other third
party relationships on which the Company's future acquisitions may rely will be
made Year 2000 compliant in a timely manner.
CONTINGENCY PLAN. The Company is developing a comprehensive contingency plan
to address Year 2000 issues with respect to the Company's internal information
technology systems and those of its customers, vendors and other third parties.
The Company's contingency plans will include the use of vendors and other third
parties that are Year 2000 compliant and the use of alternative data processing
systems or temporary manual information systems as necessary. The contingency
plan is expected to be completed and approved by management by June 30, 1999.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is exposed to market risk,
primarily from changes in interest rates. The Company continually monitors
exposure to market risk and develops appropriate strategies to manage this risk.
Accordingly, the Company may enter into certain derivative financial instruments
such as interest rate swap agreements. The Company does not use derivative
financial instruments for trading or to speculate on changes in interest rates.
INTEREST RATE EXPOSURE
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's long-term debt. At December 31, 1998, approximately
53.3% ($270.0 million) of the long-term debt was subject to variable interest
rates. The Company entered into two interest rate swap agreements in 1998 to
reduce exposure to interest rate changes. These agreements fixed interest rates
for two years on $125.0 million of the $270.0 million of variable interest
long-term debt. The effect of these agreements was to decrease the Company's
exposure to variable interest rates to $145.0 million of long-term debt. The
detrimental effect of a hypothetical 100 basis point increase in interest rates
would be to reduce income before taxes by $1.5 million. At December 31, 1998,
the fair value of the Company's fixed rate debt is approximately $226.7 million
based upon discounted future cash flows using current market prices and the fair
value of the interest rate swap agreements was $.2 million.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
METALS USA, INC. AND SUBSIDIARIES
Unaudited Pro Forma Combined Statements of Operations............. 26
Report of Independent Public Accountants.......................... 27
Consolidated Balance Sheets....................................... 28
Consolidated Statements of Operations............................. 29
Consolidated Statements of Stockholders' Equity................... 30
Consolidated Statements of Cash Flows............................. 31
Notes to Consolidated Financial Statements........................ 32
25
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1998 1997
--------- ---------
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
Net sales ........................................ $ 1,498.8 $ 769.7
Operating costs and expenses:
Cost of sales .................................. 1,135.1 593.4
Operating and delivery ......................... 145.8 79.3
Selling, general and administrative ............ 102.1 46.1
Depreciation and amortization .................. 16.4 8.6
--------- ---------
Operating income ................................. 99.4 42.3
Other (income) expense:
Interest expense ............................... 30.9 8.0
Other income ................................... (1.6) (.6)
--------- ---------
Income before income taxes ....................... 70.1 34.9
Provision for income taxes ....................... 28.5 14.5
--------- ---------
Net income ....................................... $ 41.6 $ 20.4
========= =========
Earnings per share ............................... $ 1.13 $ .65
========= =========
Earnings per share -- assuming dilution .......... $ 1.12 $ .64
========= =========
Number of common shares used in the per
share calculations:
Earnings per share ............................. 36.7 31.5
========= =========
Earnings per share -- assuming dilution ........ 37.3 31.7
========= =========
This financial statement should be read in conjunction with the audited
historical Consolidated Financial Statements of Metals USA, Inc. and
Subsidiaries included elsewhere in this report.
The unaudited pro forma combined statements of operations for the years ended
December 31, 1998 and 1997 include the accounts of Metals USA and the Founding
Companies from January 1, 1997 together with acquisitions accounted for using
the "pooling-of-interests" method of accounting. The acquisitions accounted for
using the "purchase" method of accounting are included from their respective
dates of acquisition. Additionally, the unaudited pro forma combined statements
of operations reflect (a) the reduction in certain related party rental and
lease expenses which has been agreed to prospectively; (b) the reduction in
salaries, bonuses and benefits to the owners of the acquired companies to which
they have agreed prospectively and the reversal of the non-recurring and
non-cash compensation charge related to the issuance of 985,500 shares of common
stock to management of and consultants to Metals USA in 1997, partially offset
by a charge for recurring salary expenses of management; (c) the amortization of
goodwill recorded as a result of the acquisition of the Founding Companies over
a forty-year estimated life plus additional depreciation expense due to the
allocation of a portion of the excess purchase price to property and equipment;
(d) the assumed reductions in interest expense due to the refinancing of the
outstanding indebtedness in conjunction with the acquisition of the Founding
Companies; (e) the pre-acquisition results of operations for subsidiaries or
affiliates of the Founding Companies which were acquired by the Founding
Companies prior to the related acquisition by Metals USA, as if those previous
acquisitions were completed as of January 1, 1997; (f) a charge eliminating the
gains recorded as historical LIFO adjustments to cost of sales as a result of
the restatement of base year LIFO costs to the appropriate replacement costs as
if the acquisitions occurred on January 1, 1997; (g) certain other nonrecurring
expenses, such as expenses associated with compensation plans which were
terminated in conjunction with the acquisitions of their respective companies
and (h) the adjustment to the provision for federal and state income taxes for
all entities being combined relating to the entries noted above and as if all
entities were C Corporations.
26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metals USA, Inc.:
We have audited the accompanying consolidated balance sheets of Metals USA, Inc.
(a Delaware corporation) and subsidiaries (the "Company") as of December 31,
1998 and 1997, and the related consolidated statements of operations, cash flows
and stockholders' equity for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Metals
USA, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 16, 1999
27
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash .................................................................... $ 9.3 $ 7.3
Accounts receivable, net of allowance of $7.1 and $3.6 .................. 189.8 95.1
Inventories ............................................................. 343.7 159.4
Prepaid expenses and other .............................................. 16.2 4.1
-------- --------
Total current assets ................................................ 559.0 265.9
Property and equipment, net ................................................. 173.2 86.5
Goodwill, net ............................................................... 267.2 120.1
Other assets, net ........................................................... 20.1 6.6
-------- --------
Total assets ........................................................ $1,019.5 $ 479.1
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................ $ 107.5 $ 52.5
Accrued liabilities ..................................................... 40.1 13.1
Current portion of long-term debt ....................................... 4.0 7.2
Income taxes payable .................................................... -- 1.6
-------- --------
Total current liabilities ........................................... 151.6 74.4
Long-term debt, less current portion ........................................ 502.6 167.1
Deferred income taxes ....................................................... 15.8 6.6
Other long-term liabilities ................................................. 7.9 4.5
-------- --------
Total liabilities ................................................... 677.9 252.6
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued
and outstanding ....................................................... -- --
Common stock, $.01 par value, 203,122,914 shares authorized,
38,156,404 and 32,680,226 shares outstanding, respectively ............ .4 .3
Additional paid-in capital .............................................. 261.2 184.6
Unearned compensation ................................................... -- (1.5)
Retained earnings ....................................................... 80.0 43.1
-------- --------
Total stockholders' equity .......................................... 341.6 226.5
-------- --------
Total liabilities and stockholders' equity .......................... $1,019.5 $ 479.1
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
28
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales ................................................. $ 1,498.8 $ 537.6 $ 265.6
Operating costs and expenses:
Cost of sales ......................................... 1,135.1 414.9 204.0
Operating and delivery ................................ 145.8 53.7 25.4
Selling, general and administrative ................... 104.7 41.1 21.4
Depreciation and amortization ......................... 16.4 5.6 3.7
--------- --------- ---------
Operating income .......................................... 96.8 22.3 11.1
Other (income) expense:
Interest expense ...................................... 30.9 5.0 1.8
Other income .......................................... (1.6) (.5) (.6)
--------- --------- ---------
Income before income taxes ................................ 67.5 17.8 9.9
Provision for income taxes ................................ 27.5 10.3 5.4
--------- --------- ---------
Net income ................................................ $ 40.0 $ 7.5 4.5
========= ========= =========
Earnings per share .................................... $ 1.09 $ .33 $ .38
========= ========= =========
Earnings per share -- assuming dilution ............... $ 1.07 $ .33 $ .38
========= ========= =========
Number of common shares used in the per share calculations:
Earnings per share ........................................ 36.7 22.5 11.8
========= ========= =========
Earnings per share -- assuming dilution ................... 37.3 22.9 11.8
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
29
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN UNEARNED RETAINED
STOCK CAPITAL COMPENSATION EARNINGS TOTAL
------ ------ ------------ ------ ------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 .................... $ .1 $ 10.1 $ (2.4) $ 42.4 $ 50.2
Adjustment to conform fiscal year-ends ...... -- .1 .2 1.0 1.3
Shares released under leveraged ESOP Plan ... -- .2 .4 -- .6
Other adjustments ........................... -- .1 -- -- .1
Shares issued to members of management ...... -- 3.6 -- -- 3.6
Capital contributions attributable to deemed
tax payments of S Corporations ....... -- 3.2 -- -- 3.2
Distributions by pooled companies prior
to acquisition ....................... -- -- -- (6.0) (6.0)
Net income .................................. -- -- -- 4.5 4.5
------ ------ ------ ------ ------
BALANCE, December 31, 1996 .................... .1 17.3 (1.8) 41.9 57.5
Shares issued to members of management ...... -- 6.0 -- -- 6.0
Shares sold in connection with the IPO ...... .1 58.2 -- -- 58.3
Shares issued in connection with the
acquisition of the Founding Companies .1 80.1 -- -- 80.2
Shares issued in connection with the 1997
Subsequent Acquisitions .............. -- 18.6 -- -- 18.6
Shares released under leveraged ESOP Plan ... -- .1 .3 -- .4
Other adjustments ........................... -- .3 -- -- .3
Capital contributions attributable to deemed
tax payments of S Corporations ....... -- 4.0 -- -- 4.0
Distributions by pooled companies prior
to acquisition ....................... -- -- -- (6.3) (6.3)
Net income .................................. -- -- -- 7.5 7.5
------ ------ ------ ------ ------
BALANCE, December 31, 1997 .................... .3 184.6 (1.5) 43.1 226.5
Shares issued in connection with the
1998 Acquisitions .................... .1 73.8 -- -- 73.9
Shares released under leveraged ESOP Plan ... 2.1 1.5 -- 3.6
Stock options exercised and other adjustments -- .2 -- -- .2
Capital contributions attributable to deemed
tax payments of S Corporations ....... -- .5 -- -- .5
Distributions by pooled companies prior
to acquisition ....................... -- -- -- (3.1) (3.1)
Net income .................................. -- -- -- 40.0 40.0
------ ------ ------ ------ ------
BALANCE, December 31, 1998 .................... $ .4 $261.2 $ -- $ 80.0 $341.6
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
30
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................... $ 40.0 $ 7.5 $ 4.5
Adjustments to reconcile net income to net cash (used in) provided by operating
activities --
Capital contributions attributable to deemed tax payments of S Corporations . .5 4.0 3.2
Provision for bad debts ..................................................... 1.7 .6 .2
Depreciation and amortization ............................................... 16.4 5.6 3.7
Deferred income taxes ....................................................... 4.3 .7 (.2)
Compensation expense -- non-cash ............................................ 2.6 6.4 4.2
Changes in operating assets and liabilities, net of business acquisitions
and non-cash transactions --
Accounts receivable ....................................................... (2.7) 1.3 --
Inventories ............................................................... (49.0) (7.4) (11.2)
Prepaid expenses and other assets ......................................... (11.8) (.3) (.2)
Accounts payable and accrued liabilities .................................. (6.4) (14.0) 5.5
Income taxes payable ...................................................... (7.7) .4 .2
Other operating ............................................................. 1.3 (.5) (.4)
------ ------ ------
Net cash (used in) provided by operating activities ....................... (10.8) 4.3 9.5
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............................................ (25.3) (18.7) (6.7)
Purchase of businesses, net of acquired cash .................................. (186.2) (68.6) --
Other investing ............................................................... .3 1.4 .2
------ ------ ------
Net cash used in investing activities ..................................... (211.2) (85.9) (6.5)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock ............................................................. .3 58.3 --
Distributions by pooled companies prior to acquisition ........................ (3.1) (6.3) (6.0)
Issuance of notes ............................................................. 200.0 -- --
Deferred financing costs incurred ............................................. (7.9) (1.0) --
Net borrowings (repayments) on long-term debt ................................. .6 (4.0) (2.0)
Net borrowings (repayments) on revolving credit facilities .................... 34.7 39.7 3.1
Net payments on notes payable to affiliates ................................... -- (.3) (.3)
Other financing ............................................................... (.6) .1 .2
------ ------ ------
Net cash provided by (used in) financing activities ....................... 224.0 86.5 (5.0)
------ ------ ------
NET INCREASE (DECREASE) IN CASH ................................................... 2.0 4.9 (2.0)
CASH, beginning of year ........................................................... 7.3 2.4 4.4
------ ------ ------
CASH, end of year ................................................................. $ 9.3 $ 7.3 $ 2.4
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Metals USA, Inc., a Delaware corporation, ("Metals USA") was founded on July
3, 1996 to become a leading national value-added metals processor service
center, to manufacture higher-value components from processed metals and to
pursue aggressively the consolidation of the highly fragmented metals processing
industry. Prior to its initial public offering ("IPO"), Metals USA had conducted
no operations. Concurrent with the consummation of its IPO on July 11, 1997,
Metals USA acquired, in separate transactions (the "Mergers") eight companies
(the "Founding Companies") engaged in the processing of steel, aluminum and
specialty metals, as well as the manufacture of metal components. Following the
IPO and through December 31, 1998, Metals USA acquired numerous additional metal
processing companies and businesses (See Note 2). Certain of the companies
acquired after the IPO were accounted for using the "pooling-of-interests"
method, resulting in a restatement of the Company's financial statements for all
periods presented (See Note 2). References herein to the "Company" include
Metals USA and its subsidiaries.
The Company sells to businesses such as the machining, furniture,
transportation equipment, power and process equipment, industrial/commercial
construction, consumer durables and electrical equipment industries, and
machinery and equipment manufacturers. The Company believes that its broad
customer base and its wide array of metals processing capabilities, products and
services, coupled with its broad geographic coverage of the United States,
reduce the Company's susceptibility to economic fluctuations affecting any one
industry or geographical area.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect (i) the reported amounts of assets and liabilities, (ii) the disclosure
of contingent assets and liabilities known to exist as of the date the financial
statements are published and (iii) the reported amount of revenues and expenses
recognized during the periods presented. The Company reviews all significant
estimates affecting its consolidated financial statements on a recurring basis
and records the effect of any necessary adjustments prior to their publication.
Adjustments made with respect to the use of estimates often relate to improved
information not previously available. Uncertainties with respect to such
estimates and assumptions are inherent in the preparation of financial
statements.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of Metals USA and its subsidiaries. All intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
Certain reclassifications have been made to prior years' financial statements to
be consistent with the current year's presentation.
INVENTORIES -- Inventories are stated at the lower of cost or market. Certain
of the Company's subsidiaries use the last-in first-out ("LIFO") method of
accounting for inventories and other subsidiaries use a variety of methods
including specific identification, average cost and the first-in first-out
("FIFO") method of accounting. As of December 31, 1998 and 1997, approximately
29.5% and 47.4%, respectively, of the consolidated inventories were accounted
for using the LIFO method of accounting.
PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost, net of
accumulated depreciation. Depreciation is computed using the straight-line
method at rates based upon the estimated useful lives of the various classes of
assets.
32
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
GOODWILL -- Goodwill represents the excess of cost over the estimated fair
value of identifiable assets of the businesses acquired using the "purchase"
method of accounting. Goodwill is stated at cost, net of accumulated
amortization, and is being amortized over a forty-year life using the
straight-line method. The Company reviews the recoverability of goodwill and
other long-lived assets including other intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset may be impaired. The Company has not recorded any impairment losses
with respect to goodwill, other long-lived assets or other intangible assets as
of December 31, 1998 and 1997. Accumulated amortization totaled $6.8 and $1.2 as
of December 31, 1998 and 1997, respectively. Amortization expense for the years
ended December 31, 1998, 1997 and 1996 was $5.6, $1.2 and $0, respectively.
OTHER ASSETS -- Other assets include deferred financing costs and other
intangible assets, which are being amortized over the estimated useful life of
the related borrowing or intangible asset. Accumulated amortization of other
assets totaled $2.4 and $1.1 as of December 31, 1998 and 1997, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying values of cash, accounts
receivable and accounts payable approximate fair value. The fair value of the
long-term debt is estimated based on interest rates for the same or similar debt
offered to the Company having the same or similar remaining maturities and
collateral requirements. At December 31, 1998, the fair value of the Company's
fixed rate long-term debt of $236.6 was $226.7. The carrying amount of the
Company's variable rate long-term debt of $270.0 approximates fair value.
INTEREST RATE SWAP AGREEMENTS -- The Company has entered into interest rate
swap agreements to fix interest rates on variable rate debt and reduce exposure
to interest rate fluctuations. Such agreements involve the exchange of amounts
based on fixed interest rates for amounts based on variable interest rates over
the life of the agreement without an exchange of the notional amount upon which
payments are based. The differential to be paid or received as interest rates
change is accounted for on the accrual method of accounting. The related amount
payable or receivable from counterparties is included as an adjustment to
accrued interest in other accrued liabilities. In the event of early
extinguishment, any gain or loss would be recognized in income at the time of
extinguishment. At December 31, 1998, the fair value of the interest rate swap
agreements was $.2.
CONCENTRATION OF CREDIT RISK -- Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist principally of
cash deposits, trade accounts and notes receivable. Concentrations of credit
risk with respect to trade accounts are within the machining, furniture,
transportation equipment, power and process equipment, industrial/commercial
construction, consumer durables and electrical equipment industries, and
machinery and equipment manufacturers. Generally, credit is extended once
appropriate credit history and references have been obtained. Adjustments to the
allowance for doubtful accounts are made periodically (as circumstances warrant)
based upon the expected collectibility of all such accounts. The Company
periodically reviews the credit history of its customers and generally does not
require collateral for the extension of credit.
INCOME TAXES -- The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), ACCOUNTING
FOR INCOME TAXEs. Under SFAS No. 109, deferred income taxes are recognized for
the future tax consequences of differences between the tax bases of assets and
liabilities and their financial reporting amounts based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Provision for income taxes represents the amount of taxes payable and the
applicable changes in deferred tax assets and liabilities.
COMPREHENSIVE INCOME -- In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130 ("SFAS No.
130") COMPREHENSIVE INCOME. SFAS No. 130 establishes rules for the reporting of
comprehensive income and its components, including foreign currency translation
adjustments, unrealized gains and losses on certain investments in debt and
equity securities and minimum pension liability adjustments. The Company adopted
SFAS No. 130 for the year ended December 31, 1998, however, the adoption of this
statement had no impact on the Company's net income or stockholders' equity.
33
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
EARNINGS PER SHARE -- In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128 ("SFAS No.
128"), EARNINGS PER SHARE. The Company has adopted SFAS No. 128 which simplifies
the standards required under current accounting rules for computing earnings per
share and replaces the presentation of primary earnings per share and fully
diluted earnings per share with a presentation of basic earnings per share
("Earnings per Share") and diluted earnings per share ("Earnings per Share --
Assuming Dilution"). Earnings per Share excludes dilution and is determined by
dividing income available to common stockholders by the weighted average number
of common shares outstanding during the period. Earnings per Share -- Assuming
Dilution reflects the potential dilution that could occur if securities and
other contracts to issue common stock were exercised or converted into common
stock. Earnings per Share -- Assuming Dilution is computed similarly to fully
diluted earnings per share under previous accounting rules.
The number of shares used in the per share calculations consists of the
following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------
1998 1997 1996
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Number of shares used in computing earnings per share (weighted
average shares) ............................................... 36.7 22.5 11.8
Effect of dilutive securities
Stock Options ............................................... .5 .4 --
Convertible securities ...................................... .1 -- --
---- ---- ----
Number of shares used in computing earnings per share -- assuming
dilution (weighted average shares) ............................ 37.3 22.9 11.8
==== ==== ====
</TABLE>
STOCK BASED COMPENSATION -- Statement of Financial Accounting Standards No.
123 ("SFAS No. 123"), ACCOUNTING FOR STOCK-BASED COMPENSATION, allows entities
to choose between the fair value based method of accounting for employee stock
options or similar equity instruments and the intrinsic, value-based method of
accounting prescribed by Accounting Principles Board Opinion No. 25 ("APB No.
25"), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. The Company has elected to
account for stock options or similar equity instruments using the intrinsic,
value-based method of accounting prescribed in APB No. 25.
2. BUSINESS COMBINATIONS
POOLING TRANSACTIONS
On September 26, 1997, Metals USA completed the acquisition of all the
capital stock of Jeffreys Steel Company, Inc. ("Jeffreys") in a business
combination accounted for as a "pooling-of-interests" transaction in accordance
with the requirements of Accounting Principles Board Opinion No. 16 ("APB No.
16"), BUSINESS Combinations. Jeffreys is headquartered in Mobile, Alabama, and
is engaged in the wholesale and retail sale of steel.
On November 20, 1997, Metals USA completed the acquisition of all the capital
stock of Wayne Steel, Inc. ("Wayne") in a business combination accounted for as
a "pooling-of-interests" transaction in accordance with the requirements of APB
No. 16. Wayne operates as a wholesaler and processor of steel and aluminum flat
rolled products and is headquartered in Wooster, Ohio.
On May 29, 1998, Metals USA completed the acquisition of all the capital
stock of Krohn Steel Service Center, Inc. ("Krohn") in a business combination
accounted for as a "pooling-of-interests" transaction in accordance with the
requirements of APB No. 16. Krohn is a processor of flat rolled steel and is
headquartered in Springfield, Ohio.
34
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Prior to the acquisition by Metals USA, the shareholders of Wayne and Krohn
had elected to be taxed as S Corporations; accordingly, any federal income tax
liabilities for the periods prior to the acquisition dates were the
responsibility of the respective stockholders. For the purposes of these
consolidated financial statements, federal income taxes have been provided as if
Wayne and Krohn had filed C Corporation tax returns for the pre-acquisition
periods, with the current income tax provisions reflected in the consolidated
financial statements as increases to additional paid-in capital. Collectively,
Metals USA issued 9,490,458 shares of common stock in exchange for all of the
capital stock of Jeffreys, Wayne and Krohn. The unaudited aggregate
pre-acquisition net sales and net income for Jeffreys, Wayne and Krohn during
1997 were $239.9 and $8.9, respectively. The unaudited aggregate pre-acquisition
net sales and net income for Krohn during 1998 were $13.5 and $.9, respectively.
There were no transactions between Metals USA, Jeffreys, Wayne or Krohn during
periods prior to these business combinations.
PURCHASE TRANSACTIONS
Concurrent with the completion of its IPO on July 11, 1997, Metals USA
acquired the eight Founding Companies, which are in the metal processing and
distribution business. The acquisition of each of the Founding Companies was
accounted for using the "purchase" method of accounting. The aggregate
consideration paid by Metals USA to acquire the Founding Companies was
approximately $27.8 in cash, 10,128,609 shares of common stock and the
assumption of $92.6 of debt.
Subsequent to the IPO and prior to December 31, 1997, Metals USA acquired
several additional companies using the "purchase" method of accounting. These
companies are referred to collectively as the "1997 Subsequent Acquisitions."
The aggregate consideration paid by Metals USA for the 1997 Subsequent
Acquisitions was approximately $46.0 in cash, 1,564,890 shares of common stock
and the assumption of indebtedness of approximately $19.0.
During the year ended December 31, 1998, the Company acquired a number of
additional metal processing companies and businesses using the "purchase" method
of accounting. These companies and businesses are collectively referred to as
the "1998 Acquisitions." The most significant of the 1998 Acquisitions (those
with 1997 annual revenues in excess of $50.0) are as follows: Independent Metals
Co., Inc. ("Independent"), Pacific Metal Company ("Pacific"), The Levinson Steel
Company ("Levinson"), Fullerton Industries, Inc. ("Fullerton") and Intsel
Southwest Limited Partnership ("Intsel"). The aggregate consideration paid by
Metals USA for the 1998 Acquisitions was approximately $198.3 in cash, 5,458,641
shares of common stock, the issuance of notes of approximately $3.6 and the
assumption of indebtedness of approximately $90.1.
The Company has recorded the excess of the purchase price over the estimated
fair value of identifiable assets acquired in connection with the Founding
Companies, the 1997 Subsequent Acquisitions and the 1998 Acquisitions as
"goodwill" in the accompanying consolidated balance sheet.
The following summarized unaudited pro forma financial information adjusts
the historical financial information by assuming the acquisition of the Founding
Companies, the 1997 Subsequent Acquisitions, the 1998 Acquisitions and the
issuance of the Notes (as defined in Note 6) occurred on January 1, 1997.
35
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
Net sales ............................................................... $ 1,778.4 $ 1,644.2
Operating costs and expenses:
Cost of sales ....................................................... 1,341.4 1,264.5
Operating and delivery .............................................. 169.4 150.8
Selling, general and administrative ................................. 122.5 112.9
Depreciation and amortization ....................................... 20.1 21.1
--------- ---------
Operating income ........................................................ 125.0 94.9
Interest expense ........................................................ 39.3 36.2
Other (income) expense .................................................. (1.7) (2.5)
--------- ---------
Income before income taxes .............................................. 87.4 61.2
Provision for income taxes .............................................. 35.8 25.8
--------- ---------
Net income .............................................................. $ 51.6 $ 35.4
========= =========
Earnings per share ...................................................... $ 1.35 $ .93
========= =========
Earnings per share -- assuming dilution ................................. $ 1.33 $ .92
========= =========
Number of common shares used in the per share calculations (in millions):
Earnings per share .................................................. 38.2 38.2
========= =========
Earnings per share -- assuming dilution ............................. 38.8 38.4
========= =========
</TABLE>
The preceding pro forma amounts reflect the results of operations of Metals
USA, the Founding Companies, the 1997 Subsequent Acquisitions and the 1998
Acquisitions, assuming the transactions were completed on January 1, 1997.
Additionally, the amounts shown in the table reflect (a) the reduction in
certain related party rental and lease expenses which has been agreed to
prospectively; (b) the reduction in salaries, bonuses and benefits to the owners
of the acquired companies which they have agreed to prospectively and the
reversal of the non-cash compensation charge related to the issuance of 985,500
shares of common stock to management of and consultants to Metals USA in 1997,
partially offset by a charge for recurring salary expenses of management; (c)
the amortization of goodwill recorded as a result of the acquisition of the
Founding Companies, 1997 Subsequent Acquisitions and 1998 Acquisitions over a
forty-year estimated life plus additional depreciation expense due to the
allocation of a portion of the excess purchase price to property and equipment;
(d) the assumed reductions in interest expense due to the refinancing of the
outstanding indebtedness in conjunction with the acquisition of the Founding
Companies, 1997 Subsequent Acquisitions and 1998 Acquisitions, offset by an
assumed increase in interest expense incurred in connection with financing the
acquisitions; (e) the pre-acquisition results of operations for subsidiaries or
affiliates of the Founding Companies which were acquired by the Founding
Companies prior to the related acquisition by Metals USA, as if those previous
acquisitions were completed as of January 1, 1997; (f) a charge eliminating the
gains recorded as historical LIFO adjustments to cost of sales as a result of
the restatement of base year LIFO costs to the appropriate replacement costs as
if the acquisitions occurred on January 1, 1997; (g) certain other nonrecurring
expenses with respect to the 1997 Subsequent Acquisitions and 1998 Acquisitions,
such as expenses associated with compensation plans which were terminated in
conjunction with the acquisitions of their respective companies; (h) the
incremental interest expense and amortization of deferred financing costs
incurred as a result of the issuance of the Notes and the Credit Facility (as
defined in Note 6), net of the repayment of outstanding indebtedness of the
Company and (i) the adjustment to the provision for federal and state income
taxes for all entities being combined relating to the entries noted above and as
if all entities were C Corporations.
36
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
3. INVENTORIES
Inventories consist of the following:
DECEMBER 31,
------------------
1998 1997
------ ------
Raw materials --
Aluminum building products segment ......... $ 12.3 $ 10.4
Flat rolled segment ........................ 69.4 39.7
Heavy carbon segment ....................... 156.3 58.8
Specialty metals segment ................... 68.2 29.1
------ ------
Total raw materials .................... 306.2 138.0
------ ------
Work-in-process and finished goods --
Aluminum building products segment ......... 16.8 6.7
Flat rolled segment ........................ 17.7 11.8
Heavy carbon segment ....................... .4 .1
Specialty metals segment ................... 3.5 4.7
------ ------
Total work-in-process and finished goods 38.4 23.3
------ ------
Less -- LIFO reserve ........................... (.9) (1.9)
------ ------
Total .................................. $343.7 $159.4
====== ======
The replacement cost of the Company's inventory exceeds the historical cost
of the inventory, computed using the LIFO method of valuation, as reported in
the accompanying consolidated financial statements. If the FIFO method had been
used for all inventories, the carrying value would have been $344.6 and $161.3
at December 31, 1998 and 1997, respectively. Additionally, net income would have
been $39.4, $7.5 and $4.5 for the years ended December 31, 1998, 1997 and 1996,
respectively.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
ESTIMATED -----------------------
USEFUL LIVES 1998 1997
---------- ---------- ----------
Land ................................ -- $ 10.8 $ 3.8
Building and improvements ........... 5-40 years 63.5 31.3
Machinery and equipment ............. 7-25 years 114.0 61.1
Automobiles and trucks .............. 3-12 years 10.4 7.0
Construction in progress ............ -- 5.5 4.2
---------- ----------
204.2 107.4
Less -- Accumulated depreciation .... (31.0) (20.9)
---------- ----------
Total ........................... $ 173.2 $ 86.5
========== ==========
Depreciation expense for the years ended December 31, 1998, 1997 and 1996 was
$10.5, $4.1 and $3.5, respectively. Additionally, following the acquisitions of
Wayne and Jeffreys, the Company revised the estimated useful lives of the
depreciable assets of Wayne and Jeffreys to conform to the conventions adopted
by the Founding Companies. This revision reduced depreciation expense in 1997 as
compared to 1996 by approximately $1.2.
37
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
-------------------
1998 1997
----- -----
Accrued salaries and employee benefits ............. $11.4 $ 5.0
Accrued taxes other than income .................... 2.8 1.9
Accrued interest ................................... 7.2 1.0
Accrued insurance .................................. 6.2 .3
Accrued profit sharing ............................. 2.2 1.3
Accrued escrow ..................................... 2.1 --
Other .............................................. 8.2 3.6
----- -----
Total .......................................... $40.1 $13.1
===== =====
6. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
--------------------
1998 1997
------ ------
Borrowings under the Credit Facility ............... $270.0 $144.8
8 5/8% Senior Subordinated Notes ................... 200.0 --
Various Issues of Industrial Revenue Bonds ......... 26.1 21.6
Obligations under capital leases and other ......... 10.5 7.9
------ ------
506.6 174.3
Less -- Current portion ............................ (4.0) (7.2)
------ ------
$502.6 $167.1
====== ======
Scheduled maturities of long-term debt for the years ending December 31 are
as follows: 1999 -- $4.0; 2000 -- $3.2; 2001 -- $4.0; 2002 -- $3.1; 2003 --
$276.3; thereafter -- $216.0.
BORROWINGS UNDER THE CREDIT FACILITY
Concurrent with the IPO, the Company obtained an initial $150.0 unsecured
revolving credit facility (the "Original Credit Facility") which was used to
fund acquisitions, refinance certain indebtedness of the acquired companies and
for general corporate and working capital requirements. In January 1998, the
Company obtained a $50.0 unsecured revolving credit facility (the "Interim
Credit Facility") to meet its acquisition related cash requirements pending the
completion of an extension and modification of the Original Credit Facility to
provide for up to $300.0 of borrowing availability. The closing of the extension
and modification of the $300.0 credit facility (the "Credit Facility") on
February 11, 1998 stipulated the termination of the Interim Credit Facility. On
November 25, 1998 the Company further amended the Credit Facility to provide for
borrowings of $350.0. On December 31, 1998, the Company had $80.0 million of
borrowing availability under the Credit Facility.
The Credit Facility matures in February 2003, bears interest at the bank's
prime rate or LIBOR, at Metals USA's option, plus an applicable margin based on
the ratio of funded debt to cash flows (as defined). An annual commitment fee is
payable on any unused portion of the Credit Facility. The commitment fee varies
between 1/2% and 1/4% per annum, based on certain leverage ratios as defined in
the agreement. The Company will use the Credit Facility to fund acquisitions,
make capital expenditures, refinance debt of the companies acquired and for
general working capital requirements. Borrowings under the Credit Facility are
guaranteed by each of the Company's material subsidiaries (as defined) and
secured by the pledge of all of the capital stock of such subsidiaries.
38
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Credit Facility requires the Company to comply with various affirmative
and negative covenants including: (i) the maintenance of certain financial
ratios, (ii) restrictions on additional indebtedness, (iii) restrictions on
liens, guarantees and dividends, (iv) obtaining the lenders' consent with
respect to certain individual acquisitions, and (v) maintenance of a specified
level of consolidated net worth. At December 31, 1998, the Company was precluded
from the payment of dividends under the terms of the Credit Facility.
The Company has entered into two interest rate swap agreements designed as a
partial hedge to the Company's variable rate borrowings under the Credit
Facility. The purpose of these swap agreements is to fix interest rates on a
portion of its borrowings under the Credit Facility, thereby reducing exposure
to interest rate fluctuations. At December 31, 1998, the Company had interest
rate swap agreements with a notional amount of $125.0 compared to the total
borrowings under the Credit Facility of $270.0. Under these agreements, the
Company will pay the counterparties interest at a weighted average fixed rate of
5.08% and the counterparties will pay the Company interest at a variable rate
equal to LIBOR. The weighted average LIBOR rate applicable to these agreements
was 5.26% at December 31, 1998. The notional amounts do not represent amounts
exchanged by the parties, and thus are not a measure of exposure of the Company.
The weighted average variable rates are subject to change over time based on
fluctuations in the 90 day LIBOR rate. Terms for the agreements expire on
November 30, 2000 and December 4, 2000.
Neither the Company nor the counterparties, which are prominent financial
institutions, are required to collateralize their respective obligations under
these agreements. The Company is exposed to loss if one or both of the
counterparties default. At December 31, 1998, the Company had no exposure to
credit loss on the interest rate swaps. The Company does not believe that any
reasonably likely change in interest rates would have a material adverse effect
on the financial position, the results of operations or cash flows of the
Company.
8 5/8% SENIOR SUBORDINATED NOTES
On February 11, 1998, the Company completed the sale of $200.0 aggregate
principal amount of the Company's 8 5/8% Senior Subordinated Notes due 2008 (the
"Notes"). The Company received $194.5 of net cash proceeds (before expenses of
$.8 at closing). The Company used $179.3 of such proceeds to repay all the
borrowings outstanding under the Original Credit Facility and Interim Credit
Facility on February 11, 1998.
The Notes call for semi-annual interest payments on February 15 and August 15
of each year, beginning August 15, 1998 and mature on February 15, 2008. The
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after February 15, 2003, at the following redemption prices: 2003 --
104.313%; 2004 -- 102.875%; 2005 -- 101.438%; thereafter -- 100.00%, together
with accrued and unpaid interest to the date of redemption. Notwithstanding the
foregoing, at any time on or prior to February 15, 2001, the Company may redeem
up to 35% of the aggregate principal amount of the Notes originally issued with
the net proceeds of one or more offerings of the common stock of the Company, at
a redemption price equal to 108.625% of the principal amount thereof, plus
accrued and unpaid interest to the date of such redemption; provided that at
least 65% of the aggregate principal amount of Notes originally issued remains
outstanding immediately after such redemption. The Notes are guaranteed by
substantially all of the Company's current and future subsidiaries.
Additionally, the indenture governing the Notes contains customary restrictions
relating to additional indebtedness, liens, transactions with affiliates, asset
sales, investments, restricted payments and mergers and acquisitions of
subsidiaries. The Notes are subordinate to borrowings under the Credit Facility
and will rank PARI PASSU in right of payment with all other future subordinated
debt of the Company and will rank senior to other indebtedness that expressly
provides that it is subordinated in right of payment to the Notes.
VARIOUS ISSUES OF INDUSTRIAL REVENUE BONDS
The Industrial Revenue Bonds (the "IRBs") are payable in installments ranging
from monthly to annual with variable interest ranging from 3.05% to 5.98% per
annum at December 31, 1998 and mature from March 1, 2003 to May 1, 2023. The
IRBs are secured by real estate and equipment acquired with proceeds from these
bonds with a net book value of $28.7 at December 31, 1998. The IRBs place
various restrictions on certain of the Company's
39
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
subsidiaries, including but not limited to maintenance of required insurance
coverage, maintenance of certain financial ratios, limits on capital
expenditures and maintenance of tangible net worth and are supported by letters
of credit.
7. INCOME TAXES
The components of the provision for income taxes are as follows:
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
------- ------- -------
Federal --
Current ..................... $ 21.4 $ 8.7 $ 4.5
Deferred .................... 3.1 (.2) (.1)
------- ------- -------
24.5 8.5 4.4
State --
Current ..................... 1.3 1.9 1.1
Deferred ................... 1.2 (.1) (.1)
------- ------- -------
2.5 1.8 1.0
Foreign --
Current ..................... .5 -- --
Deferred .................... -- -- --
------- ------- -------
.5 -- --
------- ------- -------
Total provision ......... $ 27.5 $ 10.3 $ 5.4
======= ======= =======
The provision for income taxes differs from an amount computed at the
statutory rates as follows:
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
------- ------- -------
Federal income tax at statutory rates ...... $ 23.6 $ 6.2 $ 3.5
State income taxes, net of federal
income tax benefit ....................... 3.0 1.2 .5
Nondeductible expenses:
Stock compensation ..................... .3 2.1 1.3
Amortization of goodwill ............... 1.4 .4 --
Other .................................. -- .4 .1
------- ------- -------
$ 27.5 $ 10.3 $ 5.4
======= ======= =======
40
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The significant items giving rise to the deferred tax assets (liabilities)
are as follows:
DECEMBER 31,
----------------------
1998 1997
------- -------
Deferred tax assets --
Accounts receivable .......................... $ 1.5 $ 1.0
Inventories .................................. 1.3 --
Accrued liabilities .......................... 2.4 1.7
Net operating loss carryforward .............. 1.6 .3
Deferred compensation and other .............. .1 .8
------- -------
Total deferred tax assets ................ 6.9 3.8
------- -------
Deferred tax liabilities --
Property and equipment ....................... (20.7) (7.6)
Inventories .................................. -- (1.5)
Foreign investments .......................... (1.0) (.9)
Other ........................................ (.7) (.1)
------- -------
Total deferred tax liabilities ........... (22.4) (10.1)
Valuation allowance .............................. (.3) (.3)
------- -------
Net deferred tax assets (liabilities) .... $ (15.8) (6.6)
======= =======
A subsidiary of the Company has a net operating loss carryforward which is
available to reduce the Company's future regular federal income taxes payable
and expire in 2005. A valuation allowance has been established to offset the
portion of the deferred tax asset related to the loss carryforward expected to
expire before their utilization and for other deferred tax assets which the
Company does not expect to realize through future operations.
8. STOCKHOLDERS' EQUITY
COMMON STOCK AND PREFERRED STOCK
Metals USA effected a 135.81-for-one stock split on April 21, 1997 for each
share of $.01 par value common stock ("Common Stock") then outstanding. In
addition, Metals USA increased the number of authorized shares of Common Stock
to 50,000,000 and the authorized shares of Restricted Common Stock, as defined
below, to 3,122,914 and authorized 5,000,000 shares of $.01 par value preferred
stock, which may be designated in the future. The effects of the Common Stock
split and the increase in the shares of authorized Common Stock have been
retroactively reflected in the consolidated balance sheets and in the
accompanying notes.
In connection with its organization and initial capitalization, Metals USA
issued 135,810 shares of Common Stock at $.01 per share to Notre Capital
Ventures II, L.L.C. ("Notre"). Notre received 3,232,104 additional shares (at
approximately $.01 per share) in exchange for the contribution of incurred
expenses in December 1996.
In December 1996, 400,000 shares of Common Stock were sold to management at
$.01 per share. During the first and second quarters of 1997, Metals USA issued
a total of 985,500 shares of Common Stock to management of and consultants to
Metals USA at a price of $.01 per share. As a result, Metals USA has recorded a
non-recurring, non-cash compensation charge of $3.6 in 1996 and $6.0 in 1997,
representing the difference between the amount paid for the shares and the
estimated fair value of the shares on the date of sale, as if the Founding
Companies were combined.
RESTRICTED COMMON STOCK
In April 1997, Notre exchanged 3,122,914 shares of Common Stock for an equal
number of shares of restricted voting common stock ("Restricted Common Stock").
The holder of Restricted Common Stock is entitled to elect one member of Metals
USA's Board of Directors and to .55 of one vote for each share held on all other
matters on which they are entitled to vote.
41
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Each share of Restricted Common Stock will automatically convert into Common
Stock on a share-for-share basis (a) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a disposition which
is a distribution by a holder to its partners or beneficial owners or a transfer
to a related party of such holder (as defined)), (b) in the event any person
acquires beneficial ownership of 15% or more of the outstanding shares of Common
Stock, or (c) in the event any person offers to acquire 15% or more of the total
number of outstanding shares of Common Stock.
After July 1, 1998, Metals USA may elect to convert any outstanding shares of
Restricted Common Stock into shares of Common Stock in the event 80% or more of
the outstanding shares of Restricted Common Stock have been converted into
shares of Common Stock.
INITIAL PUBLIC OFFERING
On July 11, 1997 the Company completed its IPO, issuing to the public
5,900,000 shares of its common stock at a price of $10.00 per share, resulting
in net proceeds to the Company of $50.1 after deducting underwriting commissions
and discounts. On August 12, 1997, the Company sold 885,000 shares of Common
Stock pursuant to the over-allotment option granted to the underwriters. The
Company realized net proceeds from the sale of $8.2.
9. STOCK BASED COMPENSATION
LONG-TERM INCENTIVE PLAN
In April 1997, Metals USA's stockholders approved the Company's 1997
Long-Term Incentive Plan (the "Plan"), which provides for the granting or
awarding of incentive or non-qualified stock options ("NQSOs"), stock
appreciation rights, restricted or deferred stock, dividend equivalents and
other incentive awards to officers, key employees and consultants to Metals USA.
The number of shares authorized and reserved for issuance under the Plan is
limited to 13% of the aggregate number of shares of Common Stock outstanding.
These options will vest at the rate of 20% per year, commencing on the first
anniversary of date of grant and will expire ten years from the date of grant or
three months following termination of employment. The Company did not issue any
stock options prior to January 1, 1996. Options granted in 1996 were
attributable to an acquired company that was accounted for as a
"pooling-of-interest" business combination. Those options were converted at the
applicable share conversion ratio specified in the merger agreement and
exchanged for Company options issued under the Plan.
NON-EMPLOYEE DIRECTORS' STOCK PLAN
Metals USA's 1997 Non-Employee Directors' Stock Plan (the "Directors' Plan"),
which was adopted by the Board of Directors and approved by Metals USA's
stockholders in April 1997, provides for (i) the automatic grant to each
non-employee director serving at the consummation of the IPO of an option to
purchase 10,000 shares, (ii) the automatic grant to each non-employee director
of an option to purchase 10,000 shares upon such person's initial election as a
director and (iii) an automatic annual grant at each annual meeting of
stockholders thereafter of an option to purchase 5,000 shares to each
non-employee director at which meeting such director is re-elected or remains a
director, unless such annual meeting is held within three months of such
person's initial election as a director. All options will have an exercise price
per share equal to the fair market value of the Common Stock on the date of
grant and are immediately vested and expire on the earlier of ten years from the
date of grant or one year after termination of service as a director. The
Directors' Plan also permits non-employee directors to elect to receive, in lieu
of cash directors' fees, shares or credits representing "deferred shares" at
future settlement dates, as selected by the director. The number of shares or
deferred shares received will equal the number of shares of Common Stock which,
at the date the fees would otherwise be payable, will have an aggregate fair
market value equal to the amount of such fees.
42
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following is a summary of stock option activity:
WEIGHTED
AVERAGE
"FAIR VALUE" OPTIONS FOR
PER SHARE WEIGHTED SHARES OF
OF OPTIONS AVERAGE PRICE COMMON
GRANTED PER SHARE STOCK
------- ------- -----------
Balance January 1, 1996 .......... --
Granted .......................... $ 10.06 $ 6.81 172,788
Exercised ........................ (42,237)
Canceled or expired .............. --
-----------
Balance December 31, 1996 ........ 130,551
Granted in connection with the IPO 6.30 10.00 2,131,024
Granted to directors ............. 6.30 10.00 40,000
Granted .......................... 8.22 14.41 952,683
Exercised ........................ --
Canceled or expired .............. --
-----------
Balance December 31, 1997 ........ 3,254,258
Granted to directors ............. 13.08 19.25 20,000
Granted .......................... 10.26 15.50 843,464
Exercised ........................ 6.30 10.00 (25,392)
Canceled or expired .............. 7.16 11.66 (123,680)
-----------
Balance December 31, 1998 ........ 3,968,650
===========
At December 31, 1998, exercisable options for shares of Common Stock were
595,600 at a weighted average price of $11.63 per share.
The Company used the Black-Scholes model to calculate the estimated
"fair-value" of stock options and similar awards. The model requires the use of
a number of subjective assumptions including: (i) risk free rate of return, (ii)
expected price volatility of the Common Stock, (iii) expected dividend yield and
(iv) estimated life of the option. Principal assumptions used in estimating the
"fair-value" of the Company's stock options using the Black-Scholes model were
as follows:
DECEMBER 31,
-----------------------
1998 1997
------- -------
Risk free rate of return ....................... 5.91% 6.18%
Expected price volatility ...................... 46.06% 43.3%
Expected dividend yield ........................ -- --
Expected life of the option (in years) ......... 7.5 7.5
The Company applies APB No. 25 and related interpretations in accounting for
its stock option plans. Had compensation cost for the Company's stock option
plans been determined based upon the fair value at the grant rate, consistent
with the methodology prescribed under the SFAS No. 123, the Company's net income
and earnings per share would have been reduced by the amortization of the
estimated fair value of stock options over the applicable vesting period of such
awards. The following pro forma disclosures may not be representative of similar
future disclosures because: (i) additional options may be granted in future
years and (ii) the computations used to estimate the "fair value" of the stock
options are subject to significant subjective assumptions, any one or all of
which may differ in material respects from actual amounts.
43
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income as reported ......................... $ 40.0 $ 7.5 $ 4.5
Estimated "fair value" of stock options
vesting during the period, net of
federal income tax benefit ................. (3.4) (1.1) (.1)
-------- -------- --------
Adjusted net income ............................ $ 36.5 $ 6.4 $ 4.4
-------- -------- --------
Adjusted earnings per share .................... $ 1.00 $ .28 $ .37
======== ======== ========
Adjusted earnings per share -- assuming dilution $ .98 $ .28 $ .37
======== ======== ========
Number of common shares used in the
per share calculations:
Adjusted earnings per share .................... 36.7 22.5 11.8
======== ======== ========
Adjusted earnings per share -- assuming dilution 37.3 22.9 11.8
======== ======== ========
</TABLE>
10. SEGMENT AND RELATED INFORMATION
The Company has four reportable segments with each segment processing and
distributing distinct products for different customer bases. Each segment is
managed separately by product group teams focused on improving and expanding
each segment's operations. The four segments are: the Heavy Carbon Steel Group,
the Flat Rolled Steel Group, the Specialty Metals Group and the Aluminum
Building Products Group.
- - THE HEAVY CARBON STEEL GROUP consists of 13 operating units that maintain an
inventory focusing on carbon products such as structural plate, beams, bars
and tubing and provide such processing services to their customers including
cutting, cambering/leveling, punching, bending, shearing, cut-to-length and
T-splitting.
- - THE FLAT ROLLED STEEL GROUP consists of eight operating units that maintain
an inventory of cold rolled and hot rolled steel products and provide
processing services for their customers such as slitting, precision blanking,
leveling, cut-to-length, laser cutting, leveling, punching, bending and
shearing.
- - THE SPECIALTY METALS GROUP consists of 11 operating units that concentrate on
specialty metals such as aluminum, stainless steel, titanium, copper, nickel
and tool steels. Processing services provided to customers include cutting,
leveling, punching, bending, shearing and cut-to-length.
- - THE ALUMINUM BUILDING PRODUCTS GROUP consists of six operating units that
produce and distribute aluminum and steel building products consisting of
covered canopies and walkways, awnings, sunrooms, solariums and other
products primarily for the commercial and residential building products
industries.
The accounting policies of the reportable segments are the same as those
described in Note 1 of "Notes to Consolidated Financial Statements." The Company
evaluates the performance of its operating segments based on operating income.
44
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following table shows summarized financial information concerning the
Company's reportable segments.
<TABLE>
<CAPTION>
AS OF AND FOR THE FISCAL YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
HEAVY ALUMINUM CORPORATE,
CARBON FLAT ROLLED SPECIALTY BUILDING ELIMINATIONS
STEEL STEEL METALS PRODUCTS AND OTHER TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1998:
Net sales .............................. $ 598.8 $ 445.4 $ 371.2 $ 93.4 $ (10.0) $1,498.8
Operating income (loss) ................ 43.7 25.6 27.4 9.3 (9.2) 96.8
Total assets ........................... 367.9 214.1 168.9 82.7 185.9 1,019.5
Capital expenditures ................... 11.9 8.2 3.4 1.7 .1 25.3
Depreciation and amortization .......... 5.6 2.8 2.4 1.4 4.2 16.4
1997:
Net sales .............................. $ 234.2 $ 237.8 $ 41.5 $ 24.1 $ -- $ 537.6
Operating income (loss) ................ 13.0 13.9 3.7 2.4 (10.7) 22.3
Total assets ........................... 133.1 120.7 75.5 35.2 114.6 479.1
Capital expenditures ................... 4.8 12.1 1.0 .5 .3 18.7
Depreciation and amortization .......... 2.6 1.2 .4 .3 1.1 5.6
1996:
Net sales .............................. $ 134.4 $ 131.2 $ -- $ -- $ -- $ 265.6
Operating income (loss) ................ 6.6 8.1 -- -- (3.6) 11.1
Total assets ........................... 54.5 52.7 -- -- .1 107.3
Capital expenditures ................... 3.7 3.0 -- -- -- 6.7
Depreciation and amortization .......... 2.4 1.3 -- -- -- 3.7
</TABLE>
The amounts shown as an operating loss under the column heading "Corporate,
Eliminations and Other" consist primarily of general and administrative costs
that are not allocated to the segments and the amortization of goodwill
associated with certain of the Company's acquisitions. Assets not specifically
associated with a specific segment consist primarily of goodwill.
The reconciliation from total operating income to the Company's income before
income taxes is shown on the accompanying consolidated statement of operations.
The Company's areas of operations are principally in the United States. No
single foreign country or geographic area is significant to the consolidated
operations. Foreign sales represent less than 3% of consolidated sales and the
Company has no long-lived assets in any foreign country.
The Company has a broad customer base within the United States with no single
customer being significant to consolidated operations.
45
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
11. EMPLOYEE BENEFIT PLANS
PROFIT-SHARING PLANS
Certain subsidiaries of the Company provide various defined contributions
savings plans for their employees (the "Plans"). The Plans cover substantially
all full-time employees of such subsidiaries. Participants vest at varying rates
ranging from full vesting upon participation to those that provide for vesting
to begin after three years of service and are fully vested after seven years.
Certain Plans provide for a deferral option that allows employees to elect to
contribute a portion of their pay into the plan and provide for a discretionary
profit sharing contribution by the individual subsidiary. Generally the
subsidiaries match a portion of the amount deferred by participating employees.
Contributions for the profit sharing portion of the plan are generally at the
discretion of the individual subsidiary board of directors. The aggregate
contributions to the Plans were $2.8, $.9 and $.3 for the years ended December
31, 1998, 1997 and 1996, respectively. The Company is in the process of merging
these separate plans into the Metals USA 401(k) Plan.
LEVERAGED ESOP ARRANGEMENT
Under the provisions of an employee stock ownership plan ("ESOP") and its
related trust, Jeffreys made annual contributions to the ESOP which were
invested in stock of Jeffreys and other qualifying securities for the benefit of
Jeffreys' employees. The ESOP provided for Jeffreys' purchases of employee
shares to be paid in cash and with the issuance of a note payable. Effective
September 26, 1997, the participation was frozen. Concurrent with the merger
with Metals USA, ESOP shares were exchanged for shares of Metals USA common
stock. The following disclosure has been restated to reflect the equivalent
shares of Metals USA common stock that were issued in connection with the
acquisition of Jeffreys.
Jeffreys' ESOP held 434,616 shares of stock prior to the purchase of 735,384
shares of outstanding stock from a majority stockholder for $5.31 per share. The
ESOP borrowed the funds to purchase such stock and Jeffreys guaranteed the
repayment of this loan. Jeffreys repaid this loan, plus interest, through
deductible contributions to the plan. As Jeffreys made contributions to the
plan, which reduced the principal on the note, the plan released the
corresponding shares related to the reduction in the note principal. At the
point when these shares were no longer specifically secured by the note payable,
they were allocated to the individual participants of the plan and considered
earned by those employees at that time. Jeffreys accounted for its ESOP in
accordance with Statement of Position 93-6 ("SOP 93-6"), EMPLOYERS' ACCOUNTING
FOR EMPLOYEE STOCK OWNERSHIP PLANS. Accordingly, the debt of the ESOP was
recorded as long-term debt and the shares pledged as collateral were reported as
unearned compensation. As shares were released from collateral, Jeffreys
reported compensation expense equal to estimated market price of the shares at
that time. ESOP share compensation expense was $2.6, $.4 and $.6 for the years
ended December 31, 1998, 1997 and 1996, respectively.
Since the obligation was secured by the shares purchased and the note was
guaranteed by Jeffreys, all amounts relating to this transaction were considered
unearned compensation of the employees until such time as the note was repaid
and the corresponding shares are released to the individual participants of the
plan. The balance in unearned compensation at December 31, 1997 of $1.5 results
from the leveraged ESOP stock purchase less the deemed release of shares at
cost. With the termination of the ESOP in August 1998, subsequent to the payment
of the note to Jeffreys and the distribution of the ESOP shares to the
individual participants, all unearned compensation was charged to expense in
1998.
46
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The activity relating to the ESOP shares was as follows:
YEARS ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
---------- --------- ---------
Allocated shares at beginning of year . 882,804 795,639 710,970
Shares deemed released for the period . 287,196 87,165 84,669
Shares sold ........................... (125,000) -- --
Shares distributed to employees ....... (1,045,000) -- --
Unallocated shares .................... -- 218,196 374,361
---------- --------- ---------
Total ESOP shares ................. -- 1,170,000 1,170,000
========== ========= =========
In accordance with SOP 93-6, additional paid-in capital was adjusted whenever
the market value of the shares released was more or less than the cost of the
shares released. The increase in additional paid-in capital attributable to this
difference in market value and cost was $2.1 and $.1 for the years ended
December 31, 1998 and 1997, respectively.
12. SUPPLEMENTAL INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
Supplemental cash flow information:
Cash paid for interest ...................... $ 23.7 $ 5.1 $ 1.8
Cash paid for income taxes .................. 29.7 5.5 2.1
Non-cash investing and financing activities:
Acquisition of businesses:
Fair value of assets acquired ............... $ 465.3 $ 364.3 $ --
Consideration given:
Cash paid ................................. 198.3 73.8 --
Stock issued .............................. 73.5 98.7 --
Notes issued .............................. 3.6 -- --
------- ------- -------
Liabilities assumed ......................... $ 189.9 $ 191.8 $ --
======= ======= =======
13. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE AGREEMENTS
The Company's minimum lease obligations under certain long-term
non-cancelable lease agreements for office space, warehouse space and equipment
are as follows: 1999 -- $14.4; 2000 -- $12.8; 2001 -- $11.3; 2002 -- $8.6; 2003
- -- $6.6; thereafter -- $34.9.
The Company paid approximately $11.9, $3.2 and $.6 in rent expense during the
years ended December 31, 1998, 1997 and 1996, respectively, under operating
leases. Certain of these leases are with affiliated individuals and companies
(see Note 14).
47
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CONTINGENCIES
The Company and its subsidiaries are involved in a variety of claims,
lawsuits and other disputes arising in the ordinary course of business. The
Company believes the resolution of these matters and the incurrence of their
related costs and expenses should not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
14. RELATED-PARTY TRANSACTIONS
Transactions with directors, officers, employees (including affiliates of the
foregoing) or affiliates of the Company must be at terms that are no less
favorable to the Company than those available from third parties and must be
approved in advance by a majority of disinterested members of the Board of
Directors.
In connection with the Mergers and certain of the subsequent acquisitions,
subsidiaries of the Company have entered into a number of lease arrangements for
facilities and equipment. These lease arrangements are for periods ranging from
10 to 20 years. Lease payments for these items with respect to years ended
December 31, 1998, 1997 and 1996 were $3.1, $1.4 and $.3, respectively. Future
commitments in respect of these leases are included in the schedule of minimum
lease payments in Note 13.
At December 31, 1998 and 1997 the aggregate principal amount of notes
receivable held by the Company were $.7 and $.8, respectively. Interest accrues
on the notes at rates ranging from 7.5% to 8.0% per annum. The notes call for
regular periodic payments of principal and interest and mature at varying dates
through March 1, 2007. The notes are secured by liens on specific assets of the
affiliates and personnel guarantees of the individuals. As of December 31, 1998,
the notes were current as to payment terms.
15. SUBSEQUENT EVENT
ACCOUNTS RECEIVABLE SECURITIZATION FACILITY
On January 21, 1999, the Company entered into a three-year agreement (the
"Receivable Securitization Agreement") to sell, on a revolving basis, through
its wholly-owned subsidiary, Metals Receivable Corporation ("MRC"), an undivided
interest in a designated pool of its trade accounts receivable to a commercial
bank ("Purchaser"). The maximum undivided interest in MRC's receivable portfolio
that may be purchased pursuant to this agreement is $100.0. The Company, as
agent for Purchaser, retains collection and administrative responsibilities for
the participating interests sold. As collections reduce the receivables included
in MRC's receivable portfolio, the Company may sell additional undivided
interests in new receivables to MRC. The amount of the undivided interest in
MRC's receivable portfolio that is sold typically will change monthly depending
upon the level of defined eligible receivables available for sale each month
adjusted by certain defined ratios. From month to month, the amount by which
MRC's receivable portfolio exceeds the undivided interest purchased will vary.
The Company expects such amount will range between $20.0 and $30.0. The
unpurchased portion of the MRC receivable portfolio is effectively collateral
for the benefit of the Purchaser.
In connection with the initial sale pursuant to the Receivable Securitization
Agreement in January, 1999, MRC sold an undivided interest in the first $93.0 in
its aggregate receivable portfolio of $117.0. The proceeds from this sale were
used to reduce borrowings under the Company's Credit Facility.
48
<PAGE>
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for the years ended December 31,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------
March 31 June 30 September 30 December 31
------- ------- ------------ --=--------
<S> <C> <C> <C> <C>
1998:
Net sales ............... $ 278.5 $ 377.2 $ 438.4 $ 404.7
Operating income ........ 16.8 25.3 27.2 27.5
Net income .............. 7.2 12.2 10.4 10.2
Earnings per share --
assuming dilution(1) .. .21 .32 .27 .27
1997:
Net Sales ............... $ 72.0 $ 73.1 $ 173.5 $ 219.0
Operating income ........ 1.7 .6 8.9 11.1
Net income (loss) ....... (.4) (1.4) 4.2 5.1
Earnings (loss) per
share -- assuming
dilution(1) ........... (.03) (.10) .14 .15
</TABLE>
- ----------
(1) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not
equal the total computed for the year.
49
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
P A R T I I I
Information required under Part III (Items 10, 11, 12 and 13) has been
omitted from this report since the Company intends to file with the Securities
and Exchange Commission, not later than 120 days after the close of its fiscal
year, a definitive proxy statement pursuant to Regulation 14A which involves the
election of directors.
P A R T I V
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) INDEX TO FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS (INCLUDED UNDER ITEM 8):
The Index to the Financial Statements is included on page 25 of this
report and is incorporated herein by reference.
2. FINANCIAL STATEMENT SCHEDULES:
The schedules are inapplicable or the required information is included in
the Company's Consolidated Financial Statements or the Notes thereto.
(b) REPORTS ON FORM 8-K
None.
(c) EXHIBITS
Reference is made to the Index of Exhibits immediately preceding the
exhibits hereto (beginning on page 52), which index is incorporated herein
by reference.
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 29, 1999.
METALS USA, INC.
By: /s/ ARTHUR L. FRENCH
Arthur L. French
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 29, 1999.
SIGNATURE TITLE
--------- -----
/s/ ARTHUR L. FRENCH Chairman of the Board; Chief Executive
Arthur L. French Officer and President
/s/ J. MICHAEL KIRKSEY Senior Vice President; Chief Financial
J. Michael Kirksey Officer and Director
/s/ TERRY L. FREEMAN Vice President, Corporate Controller and
Terry L. Freeman Chief Accounting Officer
STEVEN S. HARTER* Director
ARNOLD W. BRADBURD* Vice Chairman of the Board and Director
MICHAEL E. CHRISTOPHER* Senior Vice President and Director
MARK ALPER* Director
A. LEON JEFFREYS* Director
PATRICK S. NOTESTINE* Director
RICHARD A. SINGER* Director
LESTER G. PETERSON* Director
CRAIG R. DOVEALA* Director
WILLIAM B. EDGE* Director
T. WILLIAM PORTER* Director
RICHARD H. KRISTINIK* Director
TOMMY E. KNIGHT* Director
*By: /s/ ARTHUR L. FRENCH Director
Arthur L. French
Attorney-in-Fact
51
<PAGE>
INDEX OF EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 -- Amended and Restated Certificate of Incorporation of Metals
USA, Inc. (the "Company"), as amended, incorporated by reference
to the Company's registration statement on Form S-1,
Registration No. 333-26601 dated June 17, 1997.
3.2 -- Bylaws of the Company, as amended, incorporated by reference
to the Company's registration statement on Form S-1,
Registration No. 333-26601 dated May 7, 1997.
4.1 -- Form of certificate evidencing ownership of Common Stock of
the Company, incorporated by reference to the Company's
registration statement on Form S-1, Registration No. 333-26601
dated July 9, 1997.
4.2 -- Indenture, dated February 11, 1998, by and among the Company
as issuer and the Guarantors named therein, and U.S. Trust
Company of California, N.A., as Trustee regarding the Company's
8 5/8% Senior Subordinated Notes due 2008, incorporated by
reference to the Company's registration statement on Form S-1,
Registration No. 333-35575 dated February 20, 1998.
10.1 -- The Company's 1997 Long-Term Incentive Plan, incorporated by
reference to the Company's registration statement on Form S-1,
Registration No. 333-26601 dated May 7, 1997.
10.2 -- The Company's 1997 Non-Employee Directors' Stock Plan,
incorporated by reference to the Company's registration
statement on Form S-1, Registration No. 333-26601 dated May 7,
1997.
10.3 -- Form of Employment Agreement between the Company and Arthur
L. French, incorporated by reference to the Company's
registration statement on Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.4 -- Form of Employment Agreement between the Company and J.
Michael Kirksey, incorporated by reference to the Company's
registration statement on Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.5 -- Form of Employment Agreement between the Company and Stephen
R. Baur, incorporated by reference to the Company's registration
statement on Form S-1, Registration No. 333-26601 dated July 9,
1997.
10.6 -- Form of Employment Agreement between the Company and John A.
Hageman, incorporated by reference to the Company's registration
statement on Form S-1, Registration No. 333-26601 dated July 9,
1997.
10.7 -- Form of Employment Agreement between the Company and Terry L.
Freeman, incorporated by reference to the Company's registration
statement on Form S-1, Registration No. 333-26601 dated July 9,
1997.
10.8 -- Form of Employment Agreement between the Company and Keith E.
St. Clair, incorporated by reference to the Company's
registration statement on Form S-1, Registration No. 333-26601
dated July 9, 1997.
10.9 -- Form of Founders' Employment Agreement between Interstate
Steel Supply Company of Maryland and Interstate Steel Processing
Company and Arnold W. Bradburd, incorporated by reference to the
Company's registration statement on Form S-1, Registration No.
333-26601 dated June 17, 1997.
10.10 -- Form of Founders' Employment Agreement between Steel Service
Systems, Inc. and Craig R. Doveala, incorporated by reference to
the Company's registration statement on Form S-1, Registration
No. 333-26601 dated June 17, 1997.
10.11 -- Form of Founders' Employment Agreement between Southern Alloy
of America, Inc. and William Bartley Edge, incorporated by
reference to the Company's registration statement on Form S-1,
Registration No. 333-26601 dated June 17, 1997.
52
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.12 -- Form of Founders' Employment Agreement between Queensboro
Steel Corporation and Mark Alper, incorporated by reference to
the Company's registration statement on Form S-1, Registration
No. 333-26601 dated June 17, 1997.
10.13 -- Form of Founders' Employment Agreement between Uni-Steel,
Inc. and Richard A. Singer, incorporated by reference to the
Company's registration statement on Form S-1, Registration No.
333-26601 dated June 17, 1997.
10.14 -- Form of Founders' Employment Agreement between Williams Steel
& Supply Co., Inc. and Lester G. Peterson, incorporated by
reference to the Company's registration statement on Form S-1,
Registration No. 333-26601 dated June 17, 1997.
10.15 -- Form of Founders' Employment Agreement between Texas Aluminum
Industries, Inc., Cornerstone Metals Corporation, Cornerstone
Building Products, Inc., Cornerstone Aluminum Company, Inc.,
Cornerstone Patio Concepts, L.L.C. and Michael E. Christopher,
incorporated by reference to the Company's registration
statement on Form S-1, Registration No. 333-26601 dated June 17,
1997.
10.16 -- Form of Founders' Employment Agreement between Affiliated
Metals Company and Patrick A. Notestine, incorporated by
reference to the Company's registration statement on Form S-1,
Registration No. 333-26601 dated June 17, 1997.
10.17 -- Form of Employment Agreement between Jeffreys Steel Company,
Inc. and Leon Jeffreys, Incorporated by reference to the
Company's registration statement on Form S-1, Registration No.
333-35575 dated February 20, 1998.
10.18 -- Form of Agreement among certain stockholders, incorporated by
reference to the Company's registration statement on Form S-1,
Registration No. 333-26601 dated July 9, 1997.
10.19 -- Indemnity Agreement with Notre Capital Ventures II, L.L.C.,
incorporated by reference to the Company's registration
statement on Form S-1, Registration No. 333-26601 dated July 9,
1997.
10.20 -- Amended and Restated Credit Agreement dated February 11,
1998, by and among the Company and The First National Bank of
Chicago, as agent, (the "Credit Facility") incorporated by
reference to the Company's registration statement on Form S-1,
Registration No. 333-35575 dated February 20, 1998.
10.21+ -- Receivables Purchase Agreement dated January 21, 1999, by and
among Metals Receivables Corporation, (a wholly owned subsidiary
of the Company) and Falcon Asset Securitization Corporation and
The First National Bank of Chicago as agent.
10.22+ -- Amendment No. 1 to the Credit Facility dated November 25,
1998, by and among the Company and The First National Bank of
Chicago as agent.
21+ -- List of subsidiaries of the Company
23.1+ -- Consent of Arthur Andersen LLP
27+ -- Financial Data Schedule
- -------------
+ Included with this filing.
53
EXHIBIT 10.21
RECEIVABLES PURCHASE AGREEMENT
Dated as of January 21, 1999
Among
METALS RECEIVABLES CORPORATION
as Seller
and
FALCON ASSET SECURITIZATION CORPORATION,
and
THE FINANCIAL INSTITUTIONS PARTY HERETO,
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
METALS RECEIVABLES CORPORATION
RECEIVABLES PURCHASE AGREEMENT
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. AMOUNTS AND TERMS OF THE PURCHASES...........................Page 1
Section 1.1. PURCHASE FACILITY...................................Page 1
Section 1.2. MAKING PURCHASES....................................Page 2
Section 1.3. SELECTION OF TRANCHE PERIODS AND DISCOUNT RATES.....Page 2
Section 1.4. PERCENTAGE EVIDENCED BY RECEIVABLE INTERESTS........Page 3
Section 1.5. DIVIDING OR COMBINING RECEIVABLE INTERESTS..........Page 3
Section 1.6. REINVESTMENT PURCHASES..............................Page 3
Section 1.7. LIQUIDATION SETTLEMENT PROCEDURES...................Page 3
Section 1.8. DEEMED COLLECTIONS..................................Page 4
Section 1.9. DISCOUNT AND FUNDING CHARGES; PAYMENTS AND
COMPUTATIONS, ETC...................................Page 5
Section 1.10. SELLER INTEREST.....................................Page 5
ARTICLE II. LIQUIDITY FACILITY..........................................Page 6
Section 2.1. TRANSFER TO INVESTORS...............................Page 6
Section 2.2. TRANSFER PRICE REDUCTION DISCOUNT...................Page 6
Section 2.3. PAYMENTS TO FALCON..................................Page 6
Section 2.4. LIMITATION ON COMMITMENT TO PURCHASE FROM FALCON....Page 7
Section 2.5. DEFAULTING INVESTORS................................Page 7
ARTICLE III. REPRESENTATIONS AND WARRANTIES.............................Page 7
Section 3.1. SELLER REPRESENTATIONS AND WARRANTIES...............Page 7
Section 3.2. INVESTOR REPRESENTATIONS AND WARRANTIES.............Page 11
ARTICLE IV. CONDITIONS OF PURCHASES....................................Page 12
Section 4.1. CONDITIONS PRECEDENT TO INITIAL PURCHASE...........Page 12
Section 4.2. CONDITIONS PRECEDENT TO ALL PURCHASES AND
REINVESTMENTS......................................Page 12
ARTICLE V. COVENANTS...................................................Page 12
Section 5.1. AFFIRMATIVE COVENANTS OF SELLER....................Page 12
Section 5.2. NEGATIVE COVENANTS OF SELLER.......................Page 18
ARTICLE VI. ADMINISTRATION AND COLLECTION..............................Page 20
Section 6.1. DESIGNATION OF SERVICER............................Page 20
Section 6.2. DUTIES OF SERVICER.................................Page 21
Section 6.3. COLLECTION NOTICES.................................Page 22
Section 6.4. RESPONSIBILITIES OF THE SELLER.....................Page 22
Section 6.5. REPORTS............................................Page 22
Section 6.6. SERVICER FEE.......................................Page 22
<PAGE>
ARTICLE VII. SERVICER DEFAULTS.........................................Page 23
Section 7.1. SERVICER DEFAULT...................................Page 23
Section 7.2. ORIGINATOR LIQUIDATION EVENTS......................Page 25
ARTICLE VIII. INDEMNIFICATION..........................................Page 26
Section 8.1. INDEMNITIES BY THE SELLER..........................Page 26
Section 8.2. INCREASED COST AND REDUCED RETURN..................Page 29
Section 8.3. OTHER COSTS AND EXPENSES...........................Page 29
Section 8.4. ALLOCATIONS........................................Page 30
ARTICLE IX. THE AGENT..................................................Page 30
Section 9.1. AUTHORIZATION AND ACTION...........................Page 30
Section 9.2. DELEGATION OF DUTIES...............................Page 31
Section 9.3. EXCULPATORY PROVISIONS.............................Page 31
Section 9.4. RELIANCE BY AGENT..................................Page 31
Section 9.5. NON-RELIANCE ON AGENT AND OTHER PURCHASERS.........Page 32
Section 9.6. REIMBURSEMENT AND INDEMNIFICATION..................Page 32
Section 9.7. AGENT IN ITS INDIVIDUAL CAPACITY...................Page 32
Section 9.8. SUCCESSOR AGENT....................................Page 32
ARTICLE X. ASSIGNMENTS; PARTICIPATIONS.................................Page 33
Section 10.1. ASSIGNMENTS.......................................Page 33
Section 10.2. PARTICIPATIONS....................................Page 34
ARTICLE XI. MISCELLANEOUS..............................................Page 34
Section 11.1. WAIVERS AND AMENDMENTS.............................Page 34
Section 11.2 NOTICES............................................Page 35
Section 11.3. RATABLE PAYMENTS..................................Page 35
Section 11.4. PROTECTION OF OWNERSHIP INTERESTS OF THE
PURCHASERS........................................Page 36
Section 11.5. CONFIDENTIALITY...................................Page 36
Section 11.6. BANKRUPTCY PETITION...............................Page 37
Section 11.7. LIMITATION OF LIABILITY...........................Page 37
SECTION 11.8. CHOICE OF LAW.....................................Page 37
SECTION 11.9. CONSENT TO JURISDICTION...........................Page 37
SECTION 11.10. WAIVER OF JURY TRIAL.............................Page 38
Section 11.11. INTEGRATION; SURVIVAL OF TERMS...................Page 38
Section 11.12. COUNTERPARTS; SEVERABILITY.......................Page 38
Section 11.13. FIRST CHICAGO ROLES..............................Page 38
Section 11.14. CHARACTERIZATION.................................Page 38
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBIT I DEFINITIONS
EXHIBIT II PRINCIPAL PLACE OF BUSINESS OF THE SELLER; LOCATION(S) OF
RECORDS; FEDERAL EMPLOYER IDENTIFICATION NUMBERS
EXHIBIT III LOCK-BOXES; CONCENTRATION ACCOUNTS; DEPOSITARY ACCOUNTS
EXHIBIT IV FORM OF COMPLIANCE CERTIFICATE
EXHIBIT V FORM OF COLLECTION ACCOUNT AGREEMENT
EXHIBIT VI CREDIT AND COLLECTION POLICY
EXHIBIT VII FORM OF MONTHLY REPORT
EXHIBIT VIII FORM OF PURCHASE NOTICE
EXHIBIT IX ORIGINATORS
SCHEDULE A LIST OF DOCUMENTS TO BE DELIVERED TO THE AGENT PRIOR TO THE
INITIAL PURCHASE
<PAGE>
This Receivables Purchase Agreement dated as of January 21, 1999 is among
Metals Receivables Corporation, a Delaware corporation (the "Seller"), the
Investors, Falcon Asset Securitization Corporation ("Falcon") and The First
National Bank of Chicago, as Agent. Unless defined elsewhere herein, capitalized
terms used in this Agreement shall have the meanings assigned to such terms in
Exhibit I hereto.
PRELIMINARY STATEMENTS
The Seller desires to transfer and assign Receivable Interests to the
Purchasers from time to time.
Falcon may, in its absolute and sole discretion, purchase Receivable
Interests from the Seller from time to time.
The Investors shall, at the request of the Seller, purchase Receivable
Interests from time to time. In addition, the Investors have agreed to provide a
liquidity facility to Falcon.
The First National Bank of Chicago has been requested and is willing to
act as Agent on behalf of Falcon and the Investors in accordance with the terms
hereof.
ARTICLE I
AMOUNTS AND TERMS OF THE PURCHASES
Section 1.1. PURCHASE FACILITY. (a) Upon the terms and subject to the
conditions hereof, the Seller may, at its option, sell and assign Receivable
Interests to the Agent for the benefit of the Purchasers. Falcon may, at its
option, instruct the Agent to purchase on behalf of Falcon, or if Falcon shall
decline to purchase, the Agent shall purchase on behalf of the Investors,
Receivable Interests from time to time during the period from the date hereof to
but not including the Termination Date. The Seller hereby assigns, transfers and
conveys to the Agent for the benefit of the relevant Purchaser or Purchasers,
and the Agent hereby acquires, all of the Seller's right, title and interest in
and to the Receivable Interests as more particularly described herein.
(b) The Seller may, upon at least ten days' prior notice to the Agent,
terminate in whole or reduce in part ratably among the Investors the unused
portion of the Purchase Limit; PROVIDED that each partial reduction of the
Purchase Limit shall be in an amount equal to $5,000,000 or an integral multiple
thereof.
Section 1.2. MAKING PURCHASES. (a) The Seller shall provide the Agent with
a purchase notice, in substantially the form of Exhibit VIII hereto (each a
"Purchase Notice"), at least (i) three
Page 2
<PAGE>
Business Days prior to the date of an Incremental Purchase in the event the
applicable Discount Rate is requested to be the LIBO Rate, (ii) two Business
Days prior to the date of an Incremental Purchase in the event the applicable
Discount Rate is requested to be the CP Rate and (iii) one Business Day prior to
the date of an Incremental Purchase in the event the applicable Discount Rate is
requested to be the Base Rate. Each Purchase Notice shall, except as set forth
below, be irrevocable and shall specify the requested Purchase Price (which
shall not be less than, and shall be an integral multiple of, $1,000,000) and
date of purchase, together with the duration of the initial Tranche Period and
the initial Discount Rate related thereto. Following receipt of a Purchase
Notice, the Agent will determine whether Falcon agrees to make the purchase. If
Falcon declines to make a proposed purchase, the Seller may cancel the Purchase
Notice or the Incremental Purchase of the Receivable Interests will be made by
the Investors.
(b) On the date of each Incremental Purchase, upon satisfaction of
the applicable conditions precedent set forth in Article IV, Falcon or each
Investor, as applicable, shall deposit to the Facility Account, in immediately
available funds, no later than 12:00 noon (Chicago time), an amount equal to (i)
in the case of Falcon, the aggregate Purchase Price of each Receivable Interests
Falcon is then purchasing or (ii) in the case of an Investor, such Investor's
Pro Rata Share of the aggregate Purchase Price of each of the Receivable
Interests the Investors are purchasing.
Section 1.3. SELECTION OF TRANCHE PERIODS AND DISCOUNT RATES. (a) Each
Receivable Interest shall at all times have an associated amount of Capital, a
Discount Rate and Tranche Period applicable to it. Not less than $10,000,000 of
Capital may be allocated to any single Receivable Interest. The Seller shall
request Discount Rates and Tranche Periods for the Receivable Interests of the
Purchasers. The Seller may select the CP Rate (with the concurrence of the
Agent) or the Base Rate for the Receivable Interests of Falcon and the LIBO Rate
or the Base Rate for the Receivable Interests of the Investors. In the case of
any Tranche Period with respect to which either the LIBO Rate or the Base Rate
applies, the Seller shall by 9:00 a.m. (Chicago time), (i) at least three
Business Days prior to the expiration of any then existing Tranche Period with
respect to which the LIBO Rate is being requested as a new Discount Rate and
(ii) at least one Business Day prior to the expiration of any Tranche Period
with respect to which the Base Rate is being requested as a new Discount Rate,
give the Agent irrevocable notice of the new Tranche Period and Discount Rate
for the Receivable Interest associated with such expiring Tranche Period. In the
case of any Tranche Period with respect to which the CP Rate applies, unless the
Agent shall otherwise direct, or the Seller shall otherwise request (i) at least
three Business Days prior to the expiration of such Tranche Period with respect
to which the LIBO Rate is being requested as a new Discount Rate and (ii) at
least one Business Day prior to the expiration of such Tranche Period with
respect to which the Base Rate is being requested as a new Discount Rate, a new
Tranche Period with respect to which the CP Rate applies shall automatically
commence at the expiration of such existing Tranche Period. Until the Seller
gives notice to the Agent of another Discount Rate, the initial Discount Rate
for any Receivable Interest transferred to the Investors pursuant to Section 2.1
shall be the Base Rate.
Page 3
<PAGE>
(b) If any Purchaser notifies the Agent that it has determined that
funding all or any portion of any Receivable Interest at a LIBO Rate would
violate any applicable law, rule, regulation, or directive, whether or not
having the force of law, or that (i) deposits of a type and maturity appropriate
to match fund its Receivable Interests at such LIBO Rate are not available or
(ii) such LIBO Rate does not accurately reflect the cost of acquiring or
maintaining a Receivable Interest at such LIBO Rate, then the Agent shall
suspend the availability of such LIBO Rate and require the Seller to select a
new Discount Rate for any Receivable Interest accruing Discount at such LIBO
Rate.
Section 1.4. PERCENTAGE EVIDENCED BY RECEIVABLE INTERESTS. Each Receivable
Interest shall be initially computed on its date of purchase. Thereafter, until
its Liquidation Day, each Receivable Interest shall be automatically recomputed
(or deemed to be recomputed) on each day prior to its Liquidation Day. The
variable percentage represented by any Receivable Interest as computed (or
deemed recomputed) as of the close of business on the day immediately preceding
its Liquidation Day shall remain constant at all times after such Liquidation
Day.
Section 1.5. DIVIDING OR COMBINING RECEIVABLE INTERESTS. The Seller or the
Agent may, upon notice to and consent by the other received at least three
Business Days prior to the end of a Tranche Period for any Receivable Interest,
take any of the following actions with respect to such Receivable Interest: (i)
divide the Receivable Interest into two or more Receivable Interests having
aggregate Capital equal to the Capital of such divided Receivable Interest, (ii)
combine the Receivable Interest with another Receivable Interest with a Tranche
Period ending on the same day, creating a new Receivable Interest having Capital
equal to the Capital of the two Receivable Interests combined or (iii) combine
the Receivable Interest with a Receivable Interest to be purchased on such day
by such Purchaser, creating a new Receivable Interest having Capital equal to
the Capital of the two Receivable Interests combined, PROVIDED THAT, a
Receivable Interest of Falcon may not be combined with a Receivable Interest of
the Investors.
Section 1.6. REINVESTMENT PURCHASES. At any time that any Collection or
Collections are received by the Servicer after the initial purchase of a
Receivable Interest hereunder and on or prior to the Liquidation Day of such
Receivable Interest, the Seller hereby requests and the Purchasers hereby agree
to make, simultaneously with such receipt, a reinvestment (each a
"Reinvestment") with that portion of each and every Collection received by the
Servicer that is part of such Receivable Interest, such that after giving effect
to such Reinvestment, the amount of the Capital of such Receivable Interest
immediately after any such receipt and corresponding Reinvestment shall be equal
to the amount of the Capital immediately prior to such receipt.
Section 1.7. LIQUIDATION SETTLEMENT PROCEDURES. On the Liquidation Day of
a Receivable Interest and on each day thereafter, the Servicer shall set aside
and hold in trust for the holder of such Receivable Interest, the percentage
evidenced by such Receivable Interest of Collections received on such day. On
each Settlement Date after the occurrence of the Liquidation Day in respect of
such Receivable Interest, the Servicer shall remit to the Agent's account the
amounts set aside pursuant to the preceding sentence, together with any
remaining amounts set aside
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pursuant to Section 1.8 prior to such day, but not to exceed the sum of (i) the
accrued Discount or Funding Charges for, and Servicing Fee allocable to, such
Receivable Interest, (ii) the Capital of such Receivable Interest, and (iii) the
aggregate of all other amounts then owed hereunder by Seller to the Purchasers.
If there shall be insufficient funds on deposit for the Servicer to distribute
funds in payment in full of the aforementioned amounts, the Servicer shall
distribute funds FIRST, to reimbursement of the Agent's costs of collection and
enforcement of this Agreement, SECOND, if the Servicer is not the Seller or any
Affiliate of the Seller, to enable the applicable Purchasers to pay their
allocable portion of the accrued Servicing Fee, THIRD, in reduction of the
Capital of the Receivable Interests, FOURTH, in payment of all accrued Discount
and Funding Charges for the Receivable Interests, FIFTH, in payment of all other
amounts payable to the Purchasers, and SIXTH, if the Seller or any Affiliate of
the Seller is the Servicer, to enable the applicable Purchasers to pay their
allocable portion of the accrued Servicing Fee. Collections allocated to the
Receivable Interests of the Investors shall be shared ratably by the Investors
in accordance with their Pro Rata Shares. Collections applied to the payment of
fees, expenses, Discount, Funding Charges and all other amounts payable by the
Seller to the Agent and the Purchasers hereunder shall be allocated ratably
among the Agent and the Purchasers in accordance with such amounts owing to each
of them. Following the date on which the Aggregate Unpaids are reduced to zero,
the Servicer shall pay to Seller any remaining Collections set aside and held by
the Servicer pursuant to this Section 1.7.
Section 1.8. DEEMED COLLECTIONS. If on any day the Outstanding Balance of
a Receivable is either (x) reduced as a result of any defective or rejected
goods or services, any cash discount or any adjustment by the Seller, the
applicable Originator, the Transferor or the Servicer, (y) reduced or canceled
as a result of a setoff in respect of any claim by any Person (whether such
claim arises out of the same or a related transaction or an unrelated
transaction) or (z) canceled or amended and re-billed (not including corrections
to bills occurring on the same day of the original invoice), the Seller shall be
deemed to have received on such day a Collection of such Receivable in the
amount of such reduction or cancellation; PROVIDED that in the case of a
Receivable that is canceled or amended and re-billed, if the Seller's records
show the connection between the original invoice and the re-billed invoice such
that both invoices represent one and the same Receivable, the Seller shall be
deemed to have received on such day a Collection of such Receivable in the
amount equal to the difference between the amount due under such original
invoice and the amount due under re-billed invoice. If on any day any of the
representations or warranties in Article III are no longer true with respect to
a Receivable, the Seller shall be deemed to have received on such day a
Collection of such Receivable in full. If the Seller receives any Collections or
is deemed to receive Collections pursuant to this Section 1.8 or otherwise, the
Seller shall immediately pay such Collections or deemed Collections to the
Servicer and, at all times prior to such payment, such Collections shall be held
in trust by the Seller for the exclusive benefit of the Purchasers and the
Agent.
Section 1.9. DISCOUNT AND FUNDING CHARGES; PAYMENTS AND COMPUTATIONS, ETC.
(a) Funding Charges shall accrue for each Receivable Interest for which the CP
Rate applies for each day occurring during the Tranche Period for such
Receivable Interest. Each Receivable Interest
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for which the CP Rate applies shall be funded substantially with Pooled
Commercial Paper and will accrue Funding Charges each day based on the Pooled
Allocation; PROVIDED, however, that each Receivable Interest funded
substantially with Specially Pooled Paper (in accordance with Section 1.9(b)
hereof) will accrue Funding Charges each day based on the Specially Pooled
Allocation. Discount shall accrue for each Receivable Interest for which either
the LIBO Rate or Base Rate applies for each day occurring during the Tranche
Period for such Receivable Interest. On each Settlement Date, the Seller shall
pay to the Agent an amount equal to the accrued and unpaid Discount and Funding
Charges for the immediately preceding Accrual Period in respect of all
Receivable Interests at such time.
(b) If the Seller shall request any Incremental Purchase with respect to
which the applicable Discount Rate is the CP Rate during any Special Pooled
Period, the Capital associated with any such Incremental Purchase shall be
deemed to be funded by Falcon with Specially Pooled Paper, and shall be
aggregated by Falcon with any other Specially Pooled Paper outstanding at the
time of such Incremental Purchase for purposes of determining the Funding
Charges applicable to such Incremental Purchase. Each such Incremental Purchase
shall be deemed to be funded with Specially Pooled Paper until the end of the
Special Pooled Period during which any such Incremental Purchase occurred.
(c) Notwithstanding any limitation on recourse contained in this
Agreement, the Seller shall pay to the Agent, for the account of the relevant
Purchasers, such fees as set forth in the Fee Letter, all amounts payable as
Discount, all amounts payable as Funding Charges, all amounts payable pursuant
to Article VIII, if any, all Servicer costs, if any, payable pursuant to Section
6.2 and on demand therefor, any Early Collection Fee. If any Person fails to pay
any amount when due hereunder, such Person agrees to pay, on demand, the Default
Fee.
(d) All amounts to be paid or deposited by any Person hereunder shall be
paid or deposited in accordance with the terms hereof no later than 12:00 noon
(Chicago time) on the day when due in immediately available funds; if such
amounts are payable to a Purchaser they shall be paid to the Agent, for the
account of such Purchaser, at One First National Plaza, Chicago, Illinois 60670
until otherwise notified by the Agent. Upon notice to the Seller, the Agent may
debit the Facility Account for all amounts due and payable hereunder. All
computations of Discount, Funding Charges and per annum fees hereunder and under
the Fee Letter shall be made on the basis of a year of 360 days for the actual
number of days elapsed (including the first but excluding the last day). All per
annum fees shall be payable monthly in arrears. If any amount hereunder shall be
payable on a day which is not a Business Day, such amount shall be payable on
the next succeeding Business Day.
Section 1.10. SELLER INTEREST. The Seller shall ensure that the Receivable
Interests of the Purchasers shall at no time exceed in the aggregate 100%. If on
the Liquidation Day of a Receivable Interest, the aggregate of the Receivable
Interests of the Purchasers exceeds 100%, the Seller shall immediately pay to
the Agent an amount to be applied to reduce the Capital of the Receivable
Interests, such that after giving effect to such payment the aggregate of the
Receivable
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Interest equals or is less than 100%. Such amount shall be applied to the
reduction of the Capital of the Receivable Interests ratably in accordance with
the percentages of the Receivable Interests. Any amounts received by the
Investors pursuant to the preceding sentence shall be applied ratably in
accordance with their Pro Rata Shares. The Seller hereby grants to the Agent for
the ratable benefit of the Purchasers a security interest in all of its interest
in the Receivables, Related Security, Collections and proceeds thereof to secure
payment of the Aggregate Unpaids, including its indemnity obligations under
Article VIII and all other obligations owed hereunder to the Purchasers.
ARTICLE II
LIQUIDITY FACILITY
Section 2.1. TRANSFER TO INVESTORS. Each Investor hereby agrees, subject
to Section 2.4, that immediately upon written notice from Falcon delivered on or
prior to the Liquidity Termination Date, it shall acquire by assignment from
Falcon, without recourse or warranty, its Pro Rata Share of one or more of the
Receivable Interests of Falcon as specified by Falcon. Each Investor shall
promptly pay to the Agent at an account designated by the Agent, for the benefit
of Falcon, its Acquisition Amount. Unless an Investor has notified the Agent
that it does not intend to pay its Acquisition Amount, the Agent may assume that
such payment has been made and may, but shall not be obligated to, make the
amount of such payment available to Falcon in reliance upon such assumption.
Falcon hereby sells and assigns to the Agent for the ratable benefit of the
Investors, and the Agent hereby purchases and assumes from Falcon, effective
upon the receipt by Falcon of the Falcon Transfer Price, the Receivable
Interests of Falcon which are the subject of any transfer pursuant to this
Article II.
Section 2.2. TRANSFER PRICE REDUCTION DISCOUNT. If the Adjusted Liquidity
Price is included in the calculation of the Falcon Transfer Price for any
Receivable Interest, each Investor agrees that the Agent shall pay to Falcon the
Reduction Percentage of any Discount or Funding Charges received by the Agent
with respect to such Receivable Interest.
Section 2.3. PAYMENTS TO FALCON. In consideration for the reduction of the
Falcon Transfer Prices by the Falcon Transfer Price Reductions, effective only
at such time as the aggregate amount of the Capital of the Receivable Interests
of the Investors equals the Falcon Residual, each Investor hereby agrees that
the Agent shall not distribute to the Investors and shall immediately remit to
Falcon any Discount, Funding Charges, Collections or other payments received by
it to be applied pursuant to the terms hereof or otherwise to reduce the Capital
of the Receivable Interests of the Investors.
Section 2.4. LIMITATION ON COMMITMENT TO PURCHASE FROM FALCON.
Notwithstanding anything to the contrary in this Agreement, no Investor shall
have any obligation to purchase any Receivable Interest from Falcon, pursuant to
Section 2.1 or otherwise, if:
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(i) Falcon shall have voluntarily commenced any proceeding or filed
any petition under any bankruptcy, insolvency or similar law seeking the
dissolution, liquidation or reorganization of Falcon or taken any corporate
action for the purpose of effectuating any of the foregoing; or
(ii) involuntary proceedings or an involuntary petition shall have
been commenced or filed against Falcon by any Person under any bankruptcy,
insolvency or similar law seeking the dissolution, liquidation or reorganization
of Falcon and such proceeding or petition shall have not been dismissed.
Section 2.5. DEFAULTING INVESTORS. If one or more Investors defaults in
its obligation to pay its Acquisition Amount pursuant to Section 2.1 (each such
Investor shall be called a "Defaulting Investor" and the aggregate amount of
such defaulted obligations being herein called the "Falcon Transfer Price
Deficit"), then upon notice from the Agent, each Investor other than the
Defaulting Investors (a "Non-Defaulting Investor") shall promptly pay to the
Agent, in immediately available funds, an amount equal to the lesser of (x) such
Non-Defaulting Investor's proportionate share (based upon the relative
Commitments of the Non-Defaulting Investors) of the Falcon Transfer Price
Deficit and (y) the unused portion of such Non-Defaulting Investor's Commitment.
A Defaulting Investor shall forthwith upon demand pay to the Agent for the
account of the Non-Defaulting Investors all amounts paid by each Non-Defaulting
Investor on behalf of such Defaulting Investor, together with interest thereon,
for each day from the date a payment was made by a Non-Defaulting Investor until
the date such Non-Defaulting Investor has been paid such amounts in full, at a
rate per annum equal to the Federal Funds Effective Rate plus 2%. In addition,
without prejudice to any other rights that Falcon may have under applicable law,
each Defaulting Investor shall pay to Falcon forthwith upon demand, the
difference between such Defaulting Investor's unpaid Acquisition Amount and the
amount paid with respect thereto by the non-Defaulting Investors, together with
interest thereon, for each day from the date of the Agent's request for such
Defaulting Investor's Acquisition Amount pursuant to Section 2.1 until the date
the requisite amount is paid to Falcon in full, at a rate per annum equal to the
Federal Funds Effective Rate plus 2%.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. SELLER REPRESENTATIONS AND WARRANTIES. The Seller,
individually and in its capacity as Servicer, hereby represents and warrants to
the Purchasers that:
(a) CORPORATE EXISTENCE AND POWER. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation, and has all corporate power and all governmental licenses,
authorizations, consents and approvals required to carry on its business in each
jurisdiction in which the nature of its business requires such authorization.
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(b) NO CONFLICT. The execution, delivery and performance by the Seller of
this Agreement and each other Transaction Document, and the Seller's use of the
proceeds of purchases made hereunder, are within its corporate powers, have been
duly authorized by all necessary corporate action, do not contravene or violate
(i) its certificate or articles of incorporation or by-laws, (ii) any law, rule
or regulation applicable to it, (iii) any restrictions under any agreement,
contract or instrument to which it is a party or by which it or any of its
property is bound, or (iv) any order, writ, judgment, award, injunction or
decree binding on or affecting it or its property, and do not result in the
creation or imposition of any Adverse Claim on assets of the Seller or its
Subsidiaries (except as created hereunder); and no transaction contemplated
hereby requires compliance with any bulk sales act or similar law. This
Agreement and each other Transaction Document has been duly authorized, executed
and delivered by the Seller.
(c) GOVERNMENTAL AUTHORIZATION. Other than the filing of the financing
statements required hereunder, no authorization or approval or other action by,
and no notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by the Seller of the
Transaction Documents.
(d) BINDING EFFECT. The Transaction Documents constitute the legal, valid
and binding obligations of the Seller enforceable against the Seller in
accordance with their respective terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization or other similar
laws relating to or limiting creditors' rights generally.
(e) ACCURACY OF INFORMATION. All information heretofore furnished by the
Seller, the Transferor, any Originator or the Servicer to the Agent or the
Purchasers for purposes of or in connection with this Agreement, any of the
other Transaction Documents or any transaction contemplated hereby or thereby
is, and all such information hereafter furnished by the Seller, the Transferor,
any Originator or the Servicer to the Agent or the Purchasers will be true and
accurate in every material respect, and with respect to any information
delivered pursuant to Section 5.1(a)(i) and (ii) will be, when taken as a whole,
true and accurate in every material respect, on the date such information is
stated or certified and does not and will not contain any material misstatement
of fact or omit to state a material fact or any fact necessary to make the
statements contained as of the date furnished therein not misleading, and with
respect to any information delivered pursuant to Section 5.1(a)(i) and (ii),
does not and will not contain any material misstatement of fact or omit to state
a material fact or any fact necessary to make the statements contained therein,
when taken as a whole, not misleading.
(f) USE OF PROCEEDS. No proceeds of any purchase hereunder will be used
(i) for a purpose which violates, or would be inconsistent with, Regulation T, U
or X promulgated by the Board of Governors of the Federal Reserve System from
time to time or (ii) to acquire any security in any transaction which is subject
to Section 13 or 14 of the Securities Exchange Act of 1934, as amended.
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(g) TITLE TO RECEIVABLES PURCHASED FROM THE ORIGINATORS. Each Receivable
transferred to the Seller has been (i) purchased by the Transferor from an
Originator in accordance with the terms of the Originator Transfer Agreement,
and the Transferor has thereby irrevocably obtained all legal and equitable
title to, and has the legal right to sell and encumber, such Receivable and the
Related Security and (ii) purchased by the Seller from the Transferor in
accordance with the terms of the Transfer Agreement, and the Seller has thereby
irrevocably obtained all legal and equitable title to, and has the legal right
to sell and encumber, such Receivable and the Related Security. Each such
Receivable has been transferred to the Transferor free and clear of any Adverse
Claim, and in turn, transferred to the Seller free and clear of any Adverse
Claim. Without limiting the foregoing, there has been duly filed all financing
statements or other similar instruments or documents necessary under the UCC of
all appropriate jurisdictions (or any comparable law) to perfect the Seller's
ownership interest in such Receivable.
(h) GOOD TITLE; PERFECTION. Immediately prior to each purchase hereunder,
the Seller shall be the legal and beneficial owner of the Receivables and
Related Security with respect thereto, free and clear of any Adverse Claim,
except as created by the Transaction Documents. This Agreement is effective to,
and shall, upon each purchase hereunder, transfer to the relevant Purchaser or
Purchasers (and such Purchaser or Purchasers shall acquire from the Seller) a
valid and perfected first priority undivided percentage ownership interest in
each Receivable existing or hereafter arising and in the Related Security and
Collections with respect thereto, free and clear of any Adverse Claim, except as
created by the Transactions Documents.
(i) PLACES OF BUSINESS. The principal places of business and chief
executive office of the Seller and the offices where the Seller keeps all its
Records are located at the address(es) listed on Exhibit II or such other
locations notified to the Agent in accordance with Section 5.2(a) in
jurisdictions where all action required by Section 5.2(a) has been taken and
completed. The Seller's Federal Employer Identification Number is correctly set
forth on Exhibit II.
(j) COLLECTION BANKS; ETC. Except as otherwise notified to the Agent in
accordance with Section 5.2(b), (i) the Seller has instructed, or
has caused each Originator and the Transferor to instruct, all
Obligors to pay all Collections directly to a lock-box or a
depository account listed on Exhibit III, (ii) all proceeds from
such lock-boxes are deposited directly by a Collection Bank into a
depository account listed on Exhibit III, (iii) the names and
addresses of all Collection Banks, together with the account numbers
of the Collection Accounts of the Seller at each Collection Bank,
are listed on Exhibit III, and (iv) each Collection Account to which
Collections are remitted is, or will be within 60 days of the date
hereof, subject to a Collection Account Agreement that is in full
force and effect. The Seller has not granted any Person, other than
the Agent as contemplated by this Agreement, dominion and control of
any Collection Account, or the right to take dominion and control of
any Collection Account at a future time or upon the occurrence of a
future event.
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(k) MATERIAL ADVERSE EFFECT. Since the date of the Seller's incorporation
no event has occurred which would have a Material Adverse Effect.
(l) NAMES. In the past five years, the Seller has not used any corporate
names, trade names or assumed names other than those listed on Exhibit II.
(m) ACTIONS, SUITS. There are no actions, suits or proceedings pending or
threatened against or affecting the Seller or any of its properties. There are
no actions, suits or proceedings pending or to the Seller's knowledge,
threatened, against or affecting, the Transferor or any Originator, or any of
the respective properties of the Transferor or any Originator, in or before any
court, arbitrator or other body, which are reasonably likely to (i) adversely
affect the collectibility of the Receivables, (ii) materially adversely affect
the financial condition of the Seller, the Transferor or any Originator or (iii)
materially adversely affect the ability of the Seller, the Transferor or any
Originator to perform its obligations under the Transaction Documents. The
Seller is not in default with respect to any order of any court, arbitrator or
governmental body. None of the Transferor or any Originator is in default with
respect to any order of any court, arbitrator or governmental body which default
would cause a Material Adverse Effect.
(n) CREDIT AND COLLECTION POLICIES. With respect to each Receivable, each
of the Seller, the Transferor, each Originator, and the Servicer has complied in
all material respects with the Credit and Collection Policy.
(o) PAYMENTS TO TRANSFEROR AND ORIGINATORS. With respect to each
Receivable transferred to the Seller, the Seller has given reasonably equivalent
value to the Transferor in consideration for such transfer of such Receivable
and the Related Security with respect thereto under the Transfer Agreement and
such transfer was not made for or on account of an antecedent debt. No transfer
by the Transferor to the Seller of any Receivable is or may be voidable under
any section of the Bankruptcy Code. With respect to each Receivable transferred
to the Transferor, the Transferor has given reasonably equivalent value to the
applicable Originator in consideration for such transfer of such Receivable and
the Related Security with respect thereto under the Originator Transfer
Agreement and such transfer was not made for or on account of an antecedent
debt. No transfer by any Originator to the Transferor of any Receivable is or
may be voidable under any section of the Bankruptcy Code.
(p) OWNERSHIP OF THE SELLER. The Transferor owns one hundred percent
(100%) of the issued and outstanding capital stock of the Seller. Such capital
stock is validly issued, fully paid and nonassessable and there are no options,
warrants or other rights to acquire securities of the Seller.
(q) NOT AN INVESTMENT COMPANY. The Seller is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended from time
to time, or any successor statute.
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(r) PURPOSE. The Seller has determined that, from a business viewpoint,
the purchase of the Receivables and related interests thereto from the
Transferor under the Transfer Agreement, and the sale of Receivable Interests to
the Purchasers and the other transactions contemplated herein, are in the best
interests of the Seller.
(s) OTHER REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of each Originator and the Transferor under each of the other
Transaction Documents is true and correct in all material respects on and as of
the date when made under such Transaction Document.
(t) YEAR 2000 ISSUES. The Seller has made a full and complete assessment
of the Year 2000 Issues and has a realistic and achievable program for
remediating the Year 2000 Issues on a timely basis. Based on such assessment and
program, the Seller does not reasonably anticipate that Year 2000 Issues will
have a Material Adverse Effect.
(u) MINIMUM RECEIVABLES BALANCE. The Net Receivables Balance is equal to
or greater than the Minimum Receivables Balance.
Section 3.2. INVESTOR REPRESENTATIONS AND WARRANTIES. Each Investor hereby
represents and warrants to the Agent and Falcon that:
(a) EXISTENCE AND POWER. Such Investor is a corporation or a banking
association duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization, and has all corporate
power to perform its obligations hereunder.
(b) NO CONFLICT. The execution, delivery and performance by such Investor
of this Agreement are within its corporate powers, have been duly authorized by
all necessary corporate action, do not contravene or violate (i) its certificate
or articles of incorporation or association or by-laws, (ii) any law, rule or
regulation applicable to it, (iii) any restrictions under any agreement,
contract or instrument to which it is a party or any of its property is bound,
or (iv) any order, writ, judgment, award, injunction or decree binding on or
affecting it or its property, and do not result in the creation or imposition of
any Adverse Claim on its assets. This Agreement has been duly authorized,
executed and delivered by such Investor.
(c) GOVERNMENTAL AUTHORIZATION. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
such Investor of this Agreement.
(d) BINDING EFFECT. This Agreement constitutes the legal, valid and
binding obligation of such Investor enforceable against such Investor in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws relating
to or limiting creditors' rights generally.
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ARTICLE IV
CONDITIONS OF PURCHASES
Section 4.1. CONDITIONS PRECEDENT TO INITIAL PURCHASE. The initial
purchase of a Receivable Interest under this Agreement is subject to the
conditions precedent that the Agent shall have received on or before the date of
such purchase those documents listed on Schedule A hereto.
Section 4.2. CONDITIONS PRECEDENT TO ALL PURCHASES AND REINVESTMENTS. Each
purchase of a Receivable Interest (other than pursuant to Section 2.1) and each
Reinvestment shall be subject to the further conditions precedent that (a) in
the case of each such purchase, the Servicer shall have delivered to the Agent
on or prior to the date of such purchase, in form and substance satisfactory to
the Agent, all Monthly Reports as and when due under Section 6.5; (b) on the
date of each such purchase or Reinvestment, the following statements shall be
true (and acceptance of the proceeds of such purchase or Reinvestment shall be
deemed a representation and warranty by the Seller that such statements are then
true):
(i) the representations and warranties set forth in Article III are
correct in all material respects on and as of the date of such
purchase or Reinvestment as though made on and as of such date;
(ii) no event has occurred, or would result from such purchase or
Reinvestment, that will constitute a Servicer Default, and no event
has occurred and is continuing, or would result from such purchase
or Reinvestment, that would constitute a Potential Servicer Default;
and
(iii) the Liquidity Termination Date shall not have occurred, the
aggregate Capital of all Receivable Interests does not exceed the
Purchase Limit and the aggregate Receivable Interests do not exceed
xx%;
and (c) the Agent shall have received such other approvals, opinions or
documents as it may reasonably request.
ARTICLE V
COVENANTS
Section 5.1. AFFIRMATIVE COVENANTS OF SELLER. Until the date on which the
Aggregate Unpaids have been indefeasibly paid in full, the Seller, individually
and in its capacity as Servicer, hereby covenants that:
(a) FINANCIAL REPORTING. The Seller will maintain, for itself and each of
its Subsidiaries, a system of accounting established and administered in
accordance with generally accepted accounting principles, and furnish to the
Agent:
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(i) ANNUAL REPORTINg. Within 90 days after the close of each of its
fiscal years, financial statements for such fiscal year certified in a
manner acceptable to the Agent by the senior financial officer of the
Seller or such other Person as may be acceptable to the Agent.
(ii) COMPLIANCE CERTIFICATE; QUARTERLY REPORTING. Within 90 days
after the close of each of its fiscal years and within 45 days after the
close of each of the first three quarterly periods of each fiscal year, a
compliance certificate in substantially the form of Exhibit IV, together
with financial statements for such quarterly periods, signed by the senior
financial officer of the Seller or such other Person as may be acceptable
to the Agent.
(iii) NOTICES UNDER TRANSACTION DOCUMENTS. Forthwith upon its
receipt of any notice, request for consent, financial statements,
certification, report or other communication under or in connection with
any Transaction Document from any Person other than the Agent or any
Purchaser, copies of the same.
(iv) CHANGE IN CREDIT AND COLLECTION POLICY. At least 30 days prior
to the effectiveness of any material change in or amendment to the Credit
and Collection Policy, a copy of the Credit and Collection Policy then in
effect and a notice indicating such change or amendment.
(v) OTHER INFORMATION. Such other information (including
non-financial information) as the Agent or any Purchaser may from time to
time reasonably request.
(b) NOTICES. The Seller will notify the Agent in writing of any of the
following immediately upon learning of the occurrence thereof, describing the
same and, if applicable, the steps being taken with respect thereto:
(i) SERVICER DEFAULTS OR POTENTIAL SERVICER DEFAULTS. The occurrence
of each Servicer Default or each Potential Servicer Default, by a
statement of the treasurer, the corporate comptroller or senior financial
officer of the Seller.
(ii) JUDGMENT. The entry of any judgment or decree against the
Seller.
(iii) LITIGATION. The institution of any litigation, arbitration
proceeding or governmental proceeding against the Seller or which the
Seller becomes a party.
(c) COMPLIANCE WITH LAWS. The Seller will comply in all respects with all
applicable laws, rules, regulations, orders, writs, judgments, injunctions,
decrees or awards to which it may be subject for which a failure to comply would
have a Material Adverse Effect.
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(d) AUDITS. The Seller will furnish to the Agent from time to time such
information with respect to it and the Receivables as the Agent may reasonably
request. The Seller shall, from time to time during regular business hours as
requested by the Agent upon reasonable notice, permit the Agent, or its agents
or representatives (and shall cause the Transferor and each Originator to permit
the Agent or its agents or representatives), (i) to examine and make copies of
and abstracts from all Records in the possession or under the control of the
Seller, the Transferor, or any Originator relating to Receivables and the
Related Security, including, without limitation, the related Contracts, and (ii)
to visit the offices and properties of the Seller, the Transferor or any
Originator for the purpose of examining such materials described in clause (i)
above, and to discuss matters relating to the Seller's, the Transferor's or any
Originator's financial condition or the Receivables and the Related Security or
the Seller's performance hereunder, or the Transferor's or any Originator's
performance under any of the other Transaction Documents, or the Seller's, the
Transferor's or any Originator's performance under the Contracts with any of the
officers or employees of the Seller, the Transferor or any Originator having
knowledge of such matters.
(e) KEEPING AND MARKING OF RECORDS AND BOOKS.
(i) The Seller will, and will cause the Transferor and each
Originator to, maintain and implement administrative and operating
procedures (including, without limitation, an ability to recreate records
evidencing Receivables in the event of the destruction of the originals
thereof), and keep and maintain all documents, books, records and other
information reasonably necessary or advisable for the collection of all
Receivables (including, without limitation, records adequate to permit the
immediate identification of each new Receivable and all Collections of and
adjustments to each existing Receivable). The Seller will, and will cause
the Transferor and each Originator to, give the Agent notice of any
material change in the administrative and operating procedures referred to
in the previous sentence.
(ii) The Seller will, and will cause the Transferor and each
Originator to, (a) on or prior to the date hereof, if possible, or as soon
as practicable thereafter, mark its master data processing records
relating to the Receivable Interests with a legend, acceptable to the
Agent, describing the Receivable Interests, (b) upon the request of the
Agent take such other action reasonably requested by the Agent to make
evident the Purchasers' interests in the Receivables and (c) after the
occurrence of a Servicer Default, upon the request of the Agent, deliver
to the Agent all Contracts (including, without limitation, all multiple
originals of any such Contract) relating to the Receivables.
(f) COMPLIANCE WITH CONTRACTS AND CREDIT AND COLLECTION POLICY. The Seller
will, and will cause the Transferor and each Originator to, timely and fully (i)
perform and comply in all material respects with all provisions, covenants and
other promises required to be observed by it under the Contracts related to the
Receivables, and (ii) comply in all material respects with the Credit and
Collection Policy in regard to each Receivable and the related Contract. The
Seller
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will, and will cause the Transferor and each Originator to, pay when due any
taxes payable in connection with the Receivables.
(g) PURCHASE OF RECEIVABLES FROM THE TRANSFEROR. With respect to each
Receivable purchased under the Transfer Agreement, the Seller shall (or shall
cause the Transferor to) take all actions necessary to vest legal and equitable
title to such Receivable and the Related Security irrevocably in the Seller,
including, without limitation, the filing of all financing statements or other
similar instruments or documents necessary under the UCC of all appropriate
jurisdictions (or any comparable law) to perfect the Seller's interest in such
Receivable and such other actions to perfect, protect or more fully evidence the
interest of the Seller as the Agent may reasonable request.
(h) RECEIVABLE INTEREST. The Seller shall take all necessary actions to
establish and maintain a valid and perfected first priority undivided percentage
ownership interest in the Receivables and the Related Security and Collections
with respect thereto, to the full extent contemplated herein, in favor of the
Agent and the Purchasers, including, without limitation, taking such actions to
perfect, protect or more fully evidence the interest of the Agent and the
Purchasers hereunder as the Agent may reasonably request.
(i) PAYMENT TO THE TRANSFEROR AND ORIGINATORS. With respect to any
Receivable purchased by the Seller from the Transferor, such sale shall be
effected under, and in strict compliance with the terms of, the Transfer
Agreement, including, without limitation, the terms relating to the amount and
timing of payments to be made to the Transferor in respect of the purchase price
for such Receivable. With respect to any Receivable purchased by the Transferor
from any Originator, such sale shall be effected under, and in strict compliance
with the terms of, the Originator Transfer Agreement, including, without
limitation, the terms relating to the amount and timing of payments to be made
to the applicable Originator in respect of the purchase price for such
Receivable.
(j) PERFORMANCE AND ENFORCEMENT OF THE TRANSFER AGREEMENT. The Seller
shall timely perform the obligations required to be performed by the Seller, and
shall vigorously enforce the rights and remedies accorded to the Seller, under
the Transfer Agreement. The Seller shall take all actions to perfect and enforce
its rights and interests (and the rights and interests of the Purchasers and the
Agents, as assignees of the Seller) under the Transfer Agreement as the Agent
may from time to time reasonably request, including, without limitation, making
claims to which it may be entitled under any indemnity, reimbursement or similar
provision contained in the Transfer Agreement.
(k) PURCHASERS' RELIANCE. The Seller acknowledges that the Purchasers are
entering into the transactions contemplated by this Agreement in reliance upon
the Seller's identity as a separate legal entity from the Transferor. Therefore,
from and after the date of execution and delivery of this Agreement, the Seller
shall take all reasonable steps including, without limitation, all steps that
the Agent or any Purchaser may from time to time reasonably request to maintain
the Seller's
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identity as a separate legal entity and to make it manifest to third parties
that the Seller is an entity with assets and liabilities distinct from those of
the Transferor and any Affiliates thereof and not just a division of the
Transferor. Without limiting the generality of the foregoing and in addition to
the other covenants set forth herein, the Seller shall:
(i) conduct its own business in its own name and require that all
full-time employees of the Seller identify themselves as such and not as
employees of the Transferor (including, without limitation, by means of
providing appropriate employees with business or identification cards
identifying such employees as the Seller's employees);
(ii) compensate all employees, consultants and agents directly, from
the Seller's bank accounts, for services provided to the Seller by such
employees, consultants and agents and, to the extent any employee,
consultant or agent of the Seller is also an employee, consultant or agent
of the Transferor, allocate the compensation of such employee, consultant
or agent between the Seller and the Transferor on a basis which reflects
the services rendered to the Seller and the Transferor;
(iii) clearly identify its offices (by signage or otherwise) as its
offices and, if such office is located in the offices of the Transferor,
the Seller shall lease such office at a fair market rent;
(iv) have a separate telephone number and separate stationary,
invoices and checks in its own name;
(v) conduct all transactions with the Transferor (including, without
limitation, any delegation of its obligations hereunder as Servicer)
strictly on an arm's-length basis, allocate all overhead expenses
(including, without limitation, telephone and other utility charges) for
items shared between the Seller and the Transferor on the basis of actual
use to the extent practicable and, to the extent such allocation is not
practicable, on a basis reasonably related to actual use;
(vi) at all times have at least one member of its Board of Directors
(an "Independent Director") who is not (A) a director, officer or employee
of the Transferor or an Affiliate thereof, (B) a Person related to any
officer or director of the Transferor, (C) a holder (directly or
indirectly) of any securities of the Transferor, or (D) a Person related
to a holder (directly or indirectly) of any voting securities of the
Transferor; and promptly reimburse the Transferor in respect of any losses
or expenses which are claimed by such Independent Director in his or her
capacity as Independent Director and which are paid by the Transferor;
(vii) observe all corporate formalities as a distinct entity, and
ensure that all corporate actions relating to (A) the selection,
maintenance or replacement of the Independent Director, (B) the
dissolution or liquidation of the Seller or (C) the initiation
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or participation in, acquiescence in or consent to any bankruptcy,
insolvency, reorganization or similar proceeding involving the Seller, are
duly authorized by unanimous vote of its Board of Directors (including the
Independent Director);
(viii) maintain the Seller's books and records separate from those
of the Transferor and otherwise readily identifiable as its own assets
rather than assets of the Transferor;
(ix) prepare its financial statements separately from those of the
Transferor and insure that any consolidated financial statements of the
Transferor or any Affiliate thereof that include Seller have detailed
notes clearly stating that the Seller is a separate corporate entity and
that its assets will be available first and foremost to satisfy the claims
of the creditors of the Seller;
(x) except as herein specifically otherwise provided, not commingle
funds or other assets of the Seller with those of the Transferor and not
maintain bank accounts or other depository accounts to which the
Transferor is an account party, into which the Transferor makes deposits
or from which the Transferor has the power to make withdrawals;
(xi) not permit the Transferor to pay any of the Seller's operating
expenses (except pursuant to allocation arrangements that comply with the
requirements of this Section 5.1(k));
(xii) not permit the Seller to be named as an insured on the
insurance policy covering the property of the Transferor or enter into an
agreement with the holder of such policy whereby in the event of a loss in
connection with such property, proceeds are paid to the Seller; and
(xiii) take such other actions as are necessary on its part to
ensure that the facts and assumptions set forth in the opinion issued by
Bracewell & Patterson as counsel for the Seller, in connection with the
closing or initial purchase under this Agreement and relating to
substantive consolidation issues, and in the certificates accompanying
such opinion, remain true and correct in all material respects at all
times.
(l) COLLECTIONS. The Seller or the Servicer shall instruct, or cause the
Transferor and each Originator to instruct, all Obligors to pay all Collections
directly to a lock-box or depository account listed on Exhibit III or maintained
in compliance with Section 5.2(b). In the case of payments remitted to any such
lock-box, the Seller or the Servicer shall cause all proceeds from such lock-box
to be deposited directly by a Collection Bank into a depositary account listed
on Exhibit III or maintained in compliance with Section 5.2(b). Within 60 days
of the date hereof, the Seller shall cause each lock-box and Collection Account
to be subject to a Collection Account Agreement that is in full force and
effect. The Seller shall, subject to the terms of a Collection Account Agreement
and the terms of this Agreement, maintain exclusive dominion and control to each
such lock-box, concentration account and depositary account; neither the
Transferor nor the
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applicable Originator shall have any interest in, or any dominion or control
over, any such lock-box, concentration account or depositary account. In the
case of any Collections received by the Seller, the Transferor or any
Originator, the Seller shall remit (or shall cause the Transferor or such
Originator to remit) such Collections to a Collection Account not later than the
Business Day immediately following the date of receipt of such Collections, and,
at all times prior to such remittance, the Seller shall itself hold (or, if
applicable, shall cause the Transferor or such Originator to hold) such
Collections in trust, for the exclusive benefit of the Purchasers and the Agent.
The Seller shall not (and shall cause the Transferor and each Originator to not)
deposit or otherwise credit to any Collection Account any check or payment item
other than Collections and payments on the Receivables and Related Security. The
Agent may at any time request that the Seller, and the Seller thereupon promptly
shall, direct all Obligors on Receivables to remit all payments thereon to a new
depository account specified by the Agent.
(m) The Seller shall at all times maintain net worth of not less than
three percent (3%) of the aggregate Capital at such time.
(n) The Seller will take all actions reasonably necessary to assure that
the Year 2000 Issues will not have a Material Adverse Effect. Upon the Agent's
request, the Seller will provide to the Agent a description of its Year 2000
program, including updates and progress reports. The Seller will advise the
Agent of any reasonably anticipated Material Adverse Effect as a result of Year
2000 Issues.
(o) The Seller shall notify the Agent within 35 days following any decline
in or withdrawal of the long-term debt rating of the Transferor.
Section 5.2. NEGATIVE COVENANTS OF SELLER. Until the date on which the
Aggregate Unpaids have been indefeasibly paid in full, the Seller, individually
and in its capacity as Servicer, hereby covenants that:
(a) NAME CHANGE, OFFICES, RECORDS AND BOOKS OF ACCOUNTS. The Seller will
not change its name, identity or corporate structure (within the meaning of
Section 9-402(7) of any applicable enactment of the UCC) or relocate its chief
executive office or any office where Records are kept unless it shall have: (i)
given the Agent at least 45 days prior notice thereof and (ii) delivered to the
Agent all financing statements, instruments and other documents requested by the
Agent in connection with such change or relocation.
(b) CHANGE IN PAYMENT INSTRUCTIONS TO OBLIGORS. The Seller will not add or
terminate any bank as a Collection Bank from those listed in Exhibit III, or
make any change in its instructions to Obligors regarding payments to be made to
the Seller or payments to be made to any Collection Account or Collection Bank,
unless the Agent shall have received, at least 10 days before the proposed
effective date therefor, (i) written notice of such addition, termination or
change, (ii) with respect to the addition of a Collection Account or a
Collection Bank, an executed account agreement and an executed Collection
Account Agreement from such Collection Bank relating
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thereto and (iii) with respect to any terminated Collection Bank, evidence of
such termination and evidence that such terminated Collection Bank has been
instructed to forward any payments received by it to an account which is
governed by an executed Collection Account Agreement; PROVIDED, HOWEVER, that
the Seller may make changes in instructions to Obligors regarding payments if
such new instructions require such Obligor to make payments to another existing
Collection Account that is subject to a Collection Account Agreement then in
effect.
(c) MODIFICATIONS TO CONTRACTS AND CREDIT AND COLLECTION POLICY The Seller
will not, and will not permit the Transferor or any Originator to, make any
change to the Credit and Collection Policy which would be reasonably likely to
adversely affect the collectibility of the Receivables or decrease the credit
quality of any newly created Receivables. Except as provided in Section 6.2(c),
the Seller will not (and will not permit the Servicer, the Transferor or any
Originator to) extend, amend or otherwise modify the terms of any Receivable or
any Contract related thereto other than in accordance with the Credit and
Collection Policy.
(d) SALES, LIENS, ETC. The Seller shall not sell, assign (by operation of
law or otherwise) or otherwise dispose of, or grant any option with respect to,
or create or suffer to exist any Adverse Claim upon (including, without
limitation, the filing of any financing statement) or with respect to, any
Receivable or Related Security or Collections in respect thereof, or upon or
with respect to any Contract under which any Receivable arises, or any
Collection Account or assign any right to receive income in respect thereof
(other than, in each case, the creation of the interests therein in favor of the
Agent and the Purchasers provided for herein), and the Seller shall defend the
right, title and interest of the Agent and the Purchasers in, to and under any
of the foregoing property, against all claims of third parties claiming through
or under the Seller.
(e) NATURE OF BUSINESS; OTHER AGREEMENTS; OTHER INDEBTEDNESS. The Seller
shall not engage in any business or activity of any kind or enter into any
transaction or indenture, mortgage, instrument, agreement, contract, lease or
other undertaking other than the transactions contemplated and authorized by
this Agreement and the Transfer Agreement. Without limiting the generality of
the foregoing, the Seller shall not create, incur, guarantee, assume or suffer
to exist any indebtedness or other liabilities, whether direct or contingent,
other than (i) as a result of the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business, (ii) the incurrence of obligations under this Agreement, (iii) the
incurrence of obligations, as expressly contemplated in the Transfer Agreement,
to make payment to the Transferor thereunder for the purchase of Receivables
from the Transferor under such Transfer Agreement, and (iv) the incurrence of
operating expenses in the ordinary course of business of the type otherwise
contemplated in Section 5.1(k) of this Agreement. In the event the Seller shall
at any time borrow a "Revolving Loan" under the Transfer Agreement, the
obligations of the Seller in connection therewith shall be subordinated to the
obligations of the Seller to the Purchasers and the Agent under this Agreement,
on such terms as shall be satisfactory to the Agent.
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(f) AMENDMENTS TO THE TRANSFER AGREEMENT. The Seller shall not, without
the prior written consent of the Agent, (i) cancel or terminate the Transfer
Agreement, (ii) give any consent, waiver, directive or approval under the
Transfer Agreement, (iii) waive any default, action, omission or breach under
the Transfer Agreement, or otherwise grant any indulgence thereunder, (iv)
terminate any Sub-Servicer under the Transfer Agreement, or (v) amend,
supplement or otherwise modify any of the terms of the Transfer Agreement.
(g) AMENDMENTS TO CORPORATE DOCUMENTS. The Seller shall not amend its
Certificate of Incorporation or By-Laws in any respect that would impair its
ability to comply with the terms or provisions of any of the Transaction
Documents, including, without limitation, Section 5.1(k) of this Agreement.
(h) MERGER. The Seller shall not merge or consolidate with or into, or
convey, transfer, lease or otherwise dispose of (whether in one transaction or
in a series of transactions, and except as otherwise contemplated herein) all or
any material part of its assets (whether now owned or hereafter acquired) to, or
acquire all or any material part of the assets of, any Person.
ARTICLE VI
ADMINISTRATION AND COLLECTION
Section 6.1. DESIGNATION OF SERVICER. (a) The servicing, administration
and collection of the Receivables shall be conducted by such Person (the
"Servicer") so designated from time to time in accordance with this Section 6.1.
The Seller is hereby designated as, and hereby agrees to perform the duties and
obligations of, the Servicer pursuant to the terms of this Agreement. The Agent
may at any time in its sole discretion terminate the Seller as Servicer on
notice given by the Agent to the Seller and may designate as Servicer any Person
to succeed the Seller or any successor Servicer.
(b) The Seller is permitted to delegate, and the Seller hereby advises the
Purchasers and the Agent that it has delegated, to the Transferor as subservicer
of the Servicer, certain of its duties and responsibilities as Servicer
hereunder. The Seller hereby further advises the Purchasers and the Agent that
the Transferor has delegated, to the Originators as subservicers of the
Transferor, its duties and responsibilities as subservicer. Notwithstanding the
foregoing, (i) the Seller shall be and remain primarily liable to the Agent and
the Purchasers for the full and prompt performance of all duties and
responsibilities of the Servicer hereunder and (ii) the Agent and the Purchasers
shall be entitled to deal exclusively with the Seller in matters relating to the
discharge by the Servicer of its duties and responsibilities hereunder, and the
Agent and the Purchasers shall not be required to give notice, demand or other
communication to any Person other than the Seller in order for communication to
the Servicer and its respective delegates and subservicers in respect thereof to
be accomplished. The Seller, at all times that it is the Servicer, shall be
responsible for providing its delegates and subservicers with any notice given
under this Agreement. The Agent may at any time in its sole discretion direct
the Seller to replace any of its delegates or
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subservicers on notice given by the Agent to the Seller and may designate as
subservicer any Person to succeed such subservicer or any successor subservicer.
(c) Without the prior written consent of the Required Investors, (i) the
Seller shall not be permitted to delegate any of its duties or responsibilities
as Servicer to any Person other than the Transferor, and then such delegation
shall be limited to the activities of Servicer hereunder, (ii) the Transferor
shall not be permitted to delegate any of its duties or responsibilities of the
Servicer delegated to it by the Seller to any Person other than the Originators
and (ii) the Originators shall not be permitted to further delegate to any other
Person any of its duties or responsibilities of the Servicer delegated to it by
the Transferor. If the Agent shall designate as Servicer any Person other than
the Seller in accordance with this Section 6.1, all duties and responsibilities
theretofore delegated by the Seller to the Transferor and by the Transferor to
any Originator may, at the discretion of the Agent, be terminated forthwith on
notice given by the Agent to the Seller.
Section 6.2. DUTIES OF SERVICER. (a) The Servicer shall take or cause to
be taken all such actions as may be necessary or advisable to collect each
Receivable from time to time, all in accordance with applicable laws, rules and
regulations, with reasonable care and diligence, and in accordance with the
Credit and Collection Policy.
(b) The Servicer shall administer the Collections in accordance with the
procedures described herein and in Article I. The Servicer shall set aside and
hold in trust for the account of the Seller and the Purchasers their respective
shares of the Collections of Receivables in accordance with Section 1.7. The
Servicer shall upon the request of the Agent after the occurrence of a
Liquidation Day, segregate, in a manner acceptable to the Agent, all cash,
checks and other instruments received by it from time to time constituting
Collections from the general funds of the Servicer or the Seller prior to the
remittance thereof in accordance with Section 1.7. If the Servicer shall be
required to segregate Collections pursuant to the preceding sentence, the
Servicer shall segregate and deposit with a bank designated by the Agent such
allocable share of Collections of Receivables set aside for the Purchasers on
the first Business Day following receipt by the Servicer of such Collections,
duly endorsed or with duly executed instruments of transfer.
(c) The Servicer, may, in accordance with the Credit and Collection
Policy, extend the maturity of any Receivable or adjust the Outstanding Balance
of any Receivable as the Servicer may determine to be appropriate to maximize
Collections thereof; PROVIDED, HOWEVER, that such extension or adjustment shall
not alter the status of such Receivable as a Delinquent Receivable or Defaulted
Receivable or limit the rights of the Agent or the Purchasers under this
Agreement. Notwithstanding anything to the contrary contained herein, the Agent
shall have the absolute and unlimited right to direct the Servicer to commence
or settle any legal action with respect to any Receivable or to foreclose upon
or repossess any Related Security.
(d) The Servicer shall hold in trust for the Seller and the Purchasers, in
accordance with their respective Receivable Interests, all Records that evidence
or relate to the Receivables, the related Contracts and Related Security or that
are otherwise necessary or desirable to collect the
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Receivables and shall, as soon as practicable upon demand of the Agent, deliver
or make available to the Agent all such Records, at a place selected by the
Agent. The Servicer shall, as soon as practicable following receipt thereof,
turn over to the Seller (i) that portion of Collections of Receivables
representing the Seller's undivided fractional ownership interest therein, less,
in the event the Seller is not the Servicer, all reasonable out-of-pocket costs
and expenses of the Servicer of servicing, administering and collecting the
Receivables not otherwise covered by the Servicing Fee, and (ii) any cash
collections or other cash proceeds received with respect to Indebtedness not
constituting Receivables. The Servicer shall, from time to time at the request
of any Purchaser, furnish to the Purchasers (promptly after any such request) a
calculation of the amounts set aside for the Purchasers pursuant to Section 1.7.
(e) Any payment by an Obligor in respect of any indebtedness owed by it to
the applicable Originator shall, except as otherwise specified by such Obligor
or otherwise required by contract or law and unless otherwise instructed by the
Agent, be applied as a Collection of any Receivable of such Obligor (starting
with the oldest such Receivable) to the extent of any amounts then due and
payable thereunder before being applied to any other receivable or other
obligation of such Obligor.
Section 6.3. COLLECTION NOTICES. The Agent is authorized at any time to
date and to deliver to the Collection Banks a Collection Notice under any
Collection Account Agreement. The Seller hereby transfers to the Agent for the
benefit of the Purchasers, effective when the Agent delivers any such Collection
Notice, the exclusive ownership and control of the Collection Accounts. In case
any authorized signatory of the Seller whose signature appears on a Collection
Account Agreement shall cease to have such authority before the delivery of such
notice, such Collection Account Agreement shall nevertheless be valid as if such
authority had remained in force. The Seller hereby authorizes the Agent, and
agrees that the Agent shall be entitled to (i) endorse the Seller's name on
checks and other instruments representing Collections, (ii) enforce the
Receivables, the related Contracts and the Related Security and (iii) take such
action as shall be necessary or desirable to cause all cash, checks and other
instruments constituting Collections of Receivables to come into the possession
of the Agent rather than the Seller.
Section 6.4. RESPONSIBILITIES OF THE SELLER. Anything herein to the
contrary notwithstanding, the exercise by the Agent and the Purchasers of their
rights hereunder shall not release the Servicer or the Seller from any of their
duties or obligations with respect to any Receivables or under the related
Contracts. Neither the Agent nor any of the Purchasers shall have any obligation
or liability with respect to any Receivables or related Contracts, nor shall any
of them be obligated to perform the obligations of the Seller.
Section 6.5. REPORTS. On the Reporting Date of each month and at such
other times as the Agent shall request, the Servicer shall prepare and forward
to the Agent a Monthly Report.
Section 6.6. SERVICER FEE. In consideration of the Servicer's agreement to
perform the duties and obligations of the Servicer hereunder, the parties hereto
severally agree to pay to the
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Servicer on each Settlement Date a fee (the "Servicing Fee") in an amount equal
to (i) 2.0% per annum MULTIPLIED by (ii) the average daily Outstanding Balance
of the Receivables during the calendar month then most recently ended. The
payment obligation in respect of the Servicing Fee shall be allocated among the
parties hereto ratably in accordance with their respective interests from time
to time in the Receivables. During the period that the Seller or any of its
Affiliates is the Servicer hereunder, unless a Servicer Default shall have
occurred and then be continuing, the Seller shall be permitted to retain an
amount from the Collections on each Settlement Date equal to the Servicing Fee
accrued and payable to such date.
ARTICLE VII
SERVICER DEFAULTS
Section 7.1. SERVICER DEFAULT. The occurrence of any one or more of the
following events shall constitute a Servicer Default:
(a) The Seller, the Transferor or the Servicer shall fail (i) to make any
payment or deposit required hereunder, (ii) to perform or observe any term,
covenant or agreement under SECTIONS 5.1 (A), (B)(II), (B)(III), (C), (E), (F)
or (N) and such failure shall remain unremedied for five Business Days, or (iii)
to perform or observe any term, covenant or agreement hereunder (other than as
referred to in clauses (i) or (ii) of this paragraph (a)) and such failure shall
remain unremedied for three Business Days.
(b) Any representation, warranty, certification or statement made by the
Seller in this Agreement, any other Transaction Document or in any other
document delivered pursuant hereto shall prove to have been incorrect when made
or deemed made.
(c) (i) Failure of the Seller to pay any Indebtedness when due; or the
default by the Seller in the performance of any term, provision or condition
contained in any agreement under which any Indebtedness was created or is
governed, the effect of which is to cause, or to permit the holder or holders of
such Indebtedness to cause, such Indebtedness to become due prior to its stated
maturity; or any Indebtedness of the Seller shall be declared to be due and
payable or required to be prepaid (other than by a regularly scheduled payment)
prior to the date of maturity thereof or (ii) failure of the Transferor, any
Originator or, if the Servicer is not the Seller, the Servicer to pay any
Indebtedness in excess of $10,000,000 when due; or the default by the
Transferor, any Originator or, if the Servicer is not the Seller, the Servicer
in the performance of any term, provision or condition contained in any
agreement under which such Indebtedness was created or is governed, the effect
of which is to cause, or to permit the holder or holders of such Indebtedness to
cause, such Indebtedness to become due prior to its stated maturity; or any such
Indebtedness of the Transferor, any Originator or, if the Servicer is not the
Seller, the Servicer shall be declared to be due and payable or required to be
prepaid (other than by a regularly scheduled payment) prior to the date of
maturity thereof.
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(d) (i) The Seller, the Transferor, any Originator or the Servicer shall
generally not pay its debts as such debts become due or shall admit in writing
its inability to pay its debts generally or shall make a general assignment for
the benefit of creditors; or any proceeding shall be instituted by or against
the Seller, the Transferor, any Originator or the Servicer seeking to adjudicate
it bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee or other similar official for it or any substantial part of
its property or (ii) the Seller, the Transferor, any Originator or the Servicer
shall take any corporate action to authorize any of the actions set forth in
clause (i) above in this subsection (d).
(e) As at the end of any calendar month,
(i) the average of the Delinquency Ratios of the three most recently
ended calendar months shall exceed x.x%;
(ii) the average of the Dilution Ratios of the three most recently
ended calendar months shall exceed x.x%; or
(iii) the average of the Default Ratios of the three most recently
ended calendar months shall exceed x.x%.
(f) The Transferor shall for any reason cease to transfer, or cease to
have the legal capacity or otherwise be incapable of transferring, Receivables
under the Transfer Agreement, or any "Potential Termination Event" with respect
to the covenant set forth in Section 4.1(c) of the Transfer Agreement or any
"Termination Event" shall occur under the Transfer Agreement.
(g) One or more Originators, the aggregate Outstanding Balance of whose
Receivables equals 17% or more of the Outstanding Balance of the Receivables
originated by all Originators, shall for any reason cease to transfer, or cease
to have the legal capacity or otherwise be incapable of transferring,
Receivables under the Originator Transfer Agreement, or any "Potential
Termination Event" with respect to the covenant set forth in Section 4.1(c) of
the Originator Transfer Agreement or any "Termination Event" shall occur under
the Originator Transfer Agreement with respect to such Originators.
(h) The aggregate Receivable Interests hereunder shall at any time exceed
xx% and such condition shall continue to exist for one Business Day.
(i) A Change of Control shall occur.
(j) Any Termination Event (as defined in the Transferor Credit Agreement
as of the date hereof) occurs which is reasonably likely to subject the Seller,
Transferor or any of the Transferor's Subsidiaries to liability individually or
in the aggregate in excess of $10,000,000.
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(k) The Transferor shall fail to observe any of the financial covenants
under Section 7.4 of the Transferor Credit Agreement as such financial covenants
are set forth in the Transferor Credit Agreement on the date hereof.
(l) The Seller shall fail to cause each lock-box and Collection Account to
be subject to a Collection Account Agreement that is in full force and effect
within 60 days of the date hereof.
then, and in any such event, the Agent shall at the request, or may with the
consent, of the Required Investors by notice to the Seller declare the
Termination Date to have occurred, whereupon the Termination Date shall
forthwith occur, without demand, protest or further notice of any kind, all of
which are hereby expressly waived by the Seller; PROVIDED, HOWEVER, that upon
the occurrence of a Servicer Default described in subsection (d) above or of an
actual or deemed entry of an order for relief with respect to the Seller, the
Transferor, any Originator or the Servicer, the Termination Date shall
automatically occur, without demand, protest or any notice of any kind, all of
which are hereby expressly waived by the Seller and the Servicer. Upon the
occurrence of the Termination Date for any reason whatsoever, the Agent and the
Purchasers shall have, in addition to all other rights and remedies under this
Agreement or otherwise, all other rights and remedies provided under the UCC of
all applicable jurisdictions and all other applicable laws, which rights shall
be cumulative. Promptly following the declaration of the Termination Date, the
Agent shall notify the Seller of such declaration in writing and shall confirm
therein that the Required Investors shall have requested or consented to such
declaration (it being understood that no such notice is required in the case of
a Servicer Default described in subsection (d) above or of an actual or deemed
entry of an order for relief with respect to the Seller, the Transferor, any
Originator or the Servicer). No action taken by the Agent or the Purchasers
under this ARTICLE VII shall limit, modify or otherwise affect the obligations
of any Investor to make any purchase requested by Falcon pursuant to SECTION 2.1
hereof.
Section 7.2. ORIGINATOR LIQUIDATION EVENTS. If any of the following events
shall occur:
(a) the Collection Account at Comerica Bank in the name of Meier Metal
Servicenters, Inc. and the Collection Account at First Union National Bank in
the name of Interstate Steel Supply Company are not subject to effective
Collection Account Agreements within 14 days of the date hereof;
(b) a termination statement with respect to the UCC filing in the office
of Montgomery County, Ohio naming Meier Metal Servicenters, Inc. as the debtor
and Comerica Bank as the secured party is not filed within 7 days of the date
hereof;
(c) any Material Adverse Effect shall exist with respect to, or a material
adverse change shall occur in the financial condition of, any single Originator;
or
(d) any Originator shall for any reason cease to transfer, or cease to
have the legal capacity or otherwise be incapable of transferring, Receivables
under the Originator Transfer Agreement,
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or any "Potential Termination Event" with respect to the covenant set forth in
Section 4.1(c) of the Originator Transfer Agreement or any "Termination Event"
shall occur under the Originator Transfer Agreement.
then, in any such event, all of the Receivables that shall have been originated
by such affected Originator thereupon (or, in the case of Section 7.2 (c), upon
notice thereof from the Agent to the Seller) shall cease to be Eligible
Receivables and shall remain ineligible for so long as any of the conditions
described above shall continue to exist and, if the Seller is unable to satisfy
the conditions precedent set forth in Section 4.2 as a result of such event,
purchases and Reinvestments shall cease until such date as the conditions
precedent set forth in Section 4.2 are satisfied.
ARTICLE VIII
INDEMNIFICATION
Section 8.1. INDEMNITIES BY THE SELLER. Without limiting any other rights
which the Agent or any Purchaser may have hereunder or under applicable law, the
Seller hereby agrees to indemnify the Agent and each Purchaser and their
respective officers, directors, agents and employees (each an "Indemnified
Party") from and against any and all damages, losses, claims, taxes,
liabilities, costs, expenses and for all other amounts payable, including
reasonable attorneys' fees (which attorneys may be employees of the Agent or
such Purchaser) and disbursements (all of the foregoing being collectively
referred to as "Indemnified Amounts") awarded against or incurred by any of them
arising out of or as a result of this Agreement or the acquisition, either
directly or indirectly, by a Purchaser of an interest in the Receivables,
excluding, however:
(i) Indemnified Amounts to the extent final judgment of a court of
competent jurisdiction holds such Indemnified Amounts resulted from gross
negligence or willful misconduct on the part of the Indemnified Party
seeking indemnification;
(ii) Indemnified Amounts to the extent the same includes losses in
respect of Eligible Receivables which are uncollectible on account of the
insolvency, bankruptcy or lack of creditworthiness of the related Obligor;
or
(iii) taxes imposed by the jurisdiction in which such Indemnified
Party's principal executive office is located, on or measured by the
overall net income of such Indemnified Party to the extent that the
computation of such taxes is consistent with the Intended
Characterization;
PROVIDED, HOWEVER, that nothing contained in this sentence shall limit the
liability of the Seller or the Servicer or limit the recourse of the Purchasers
to the Seller or Servicer for amounts otherwise specifically provided to be paid
by the Seller or the Servicer under the terms of this Agreement. Without
limiting the generality of the foregoing indemnification, but subject to the
exclusions in clauses (i), (ii) and (iii) above, the Seller shall indemnify the
Agent and the Purchasers for
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Indemnified Amounts (including, without limitation, losses in respect of
uncollectible receivables, regardless of whether reimbursement therefor would
constitute recourse to the Seller or the Servicer) relating to or resulting
from:
(i) any representation or warranty made by the Seller, the Transferor,
any Originator or, if the Servicer is the Seller or an Affiliate of
the Seller, the Servicer (or any officers of the Seller, the
Transferor, any Originator or, if the Servicer is the Seller or an
Affiliate of the Seller, the Servicer) under or in connection with
this Agreement, any other Transaction Document, any Monthly Report
or any other information or report delivered by the Seller, the
Transferor, any Originator or, if the Servicer is the Seller or an
Affiliate of the Seller, the Servicer pursuant hereto, which shall
have been false or incorrect when made or deemed made;
(ii) the failure by the Seller, the Transferor, any Originator or, if the
Servicer is the Seller or an Affiliate of the Seller, the Servicer
to comply with any applicable law, rule or regulation with respect
to any Receivable or Contract related thereto, or the nonconformity
of any Receivable or Contract included therein with any such
applicable law, rule or regulation;
(iii) any failure of the Seller, the Transferor, any Originator or, if the
Servicer is the Seller or an Affiliate of the Seller, the Servicer
to perform its duties or obligations in accordance with the
provisions of this Agreement, any Contract relating to the
Receivables, or any other Transaction Document;
(iv) any products liability, personal injury or damage suit, or other
similar claim arising out of or in connection with merchandise,
insurance or services which are the subject of any Contract or any
Receivable;
(v) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any
Receivable (including, without limitation, a defense based on such
Receivable or the related Contract not being a legal, valid and
binding obligation of such Obligor enforceable against it in
accordance with its terms), or any other claim resulting from the
sale of the merchandise or service related to such Receivable or the
furnishing or failure to furnish such merchandise or services;
(vi) the commingling of Collections of Receivables at any time with other
funds;
(vii) any investigation, litigation or proceeding related to or arising
from this Agreement or any other Transaction Document, the
transactions contemplated hereby or thereby, the use of the proceeds
of a purchase, the
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ownership of the Receivable Interests or any other
investigation, litigation or proceeding relating to the
Seller, the Transferor or any Originator in which any
Indemnified Party becomes involved as a result of any of the
transactions contemplated hereby or thereby;
(viii)any inability to litigate any claim against any Obligor in
respect of any Receivable as a result of such Obligor being
immune from civil and commercial law and suit on the grounds
of sovereignty or otherwise from any legal action, suit or
proceeding;
(ix) any Servicer Default described in Section 7.1(d);
(x) the failure to vest and maintain vested in the Agent and the
Purchasers, or to transfer to the Agent and the Purchasers,
legal and equitable title to, and ownership of, a first
priority perfected undivided percentage ownership (to the
extent of the Receivable Interests contemplated hereunder) in
the Receivables, the Related Security and the Collections,
free and clear of any Adverse Claim;
(xi) any failure to vest and maintain vested in the Seller (except
to the extent further transferred hereunder) legal and
equitable title to, and ownership of, the Receivables, the
Related Security and the Collections from the Transferor, free
and clear of any Adverse Claim; or any failure of the Seller
to give reasonably equivalent value to the Transferor under
the Transfer Agreement in consideration of the transfer by the
Transferor of any Receivable; or any attempt by any Person to
void any such transfer under statutory provisions or common
law or equitable action, including, without limitation, any
provision of the Bankruptcy Code;
(xii) any failure to vest and maintain vested in the Transferor
(except to the extent further transferred to the Seller under
the Transfer Agreement) legal and equitable title to, and
ownership of, the Receivables, the Related Security and the
Collections from each applicable Originator, free and clear of
any Adverse Claim; or any failure of the Transferor to give
reasonably equivalent value to each applicable Originator
under the Originator Transfer Agreement in consideration of
the transfer by such Originator of any Receivable; or any
attempt by any Person to void any such transfer under
statutory provisions or common law or equitable action,
including, without limitation, any provision of the Bankruptcy
Code;
(xiii)the Year 2000 Issue; or
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(xiv) the failure of any Receivable included in the calculation of
the Net Receivables Balance as an Eligible Receivable to be an
Eligible Receivable.
Section 8.2. INCREASED COST AND REDUCED RETURN. If after the date hereof,
any Funding Source shall be charged any fee, expense or increased cost on
account of the adoption of any applicable law, rule or regulation (including any
applicable law, rule or regulation regarding capital adequacy) or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency (a "Regulatory Change"): (i) which subjects
any Funding Source to any charge or withholding on or with respect to any
Funding Agreement or a Funding Source's obligations under a Funding Agreement,
or on or with respect to the Receivables, or changes the basis of taxation of
payments to any Funding Source of any amounts payable under any Funding
Agreement (except for changes in the rate of tax on the overall net income of a
Funding Source) or (ii) which imposes, modifies or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of a Funding Source, or credit
extended by a Funding Source pursuant to a Funding Agreement or (iii) which
imposes any other condition the result of which is to increase the cost to a
Funding Source of performing its obligations under a Funding Agreement, or to
reduce the rate of return on a Funding Source's capital as a consequence of its
obligations under a Funding Agreement, or to reduce the amount of any sum
received or receivable by a Funding Source under a Funding Agreement or to
require any payment calculated by reference to the amount of interests or loans
held or interest received by it, then, upon demand by the Agent, the Seller
shall pay to the Agent, for the benefit of the relevant Funding Source, such
amounts charged to such Funding Source or compensate such Funding Source for
such reduction.
Section 8.3. OTHER COSTS AND EXPENSES. The Seller shall pay to the Agent
and Falcon on demand all costs and out-of-pocket expenses in connection with the
preparation, execution, delivery and administration of this Agreement and the
other Transaction Documents, the transactions contemplated hereby and the other
documents to be delivered hereunder, including without limitation, the cost of
Falcon's auditors auditing the books, records and procedures of the Seller,
reasonable fees and out-of-pocket expenses of legal counsel for Falcon and the
Agent (which such counsel may be employees of Falcon or the Agent) with respect
thereto and with respect to advising Falcon and the Agent as to their respective
rights and remedies under this Agreement. The Seller shall pay to the Agent on
demand any and all costs and expenses of the Agent and the Purchasers, if any,
including reasonable counsel fees and expenses in connection with the
enforcement of this Agreement and the other documents delivered hereunder and in
connection with any restructuring or workout of this Agreement or such
documents, or the administration of this Agreement following a Servicer Default.
The Seller shall reimburse Falcon on demand for all other costs and expenses
incurred by Falcon or any shareholder of Falcon ("Other Costs"), including,
without limitation, the cost of auditing Falcon's books by certified
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public accountants, the cost of rating the Commercial Paper by independent
financial rating agencies, any and all applicable issuing and paying agent fees
and commissions of placement agents and commercial paper dealers in respect of
such Commercial Paper, and the reasonable fees and out-of-pocket expenses of
counsel for Falcon or any counsel for any shareholder of Falcon with respect to
advising Falcon or such shareholder as to matters relating to Falcon's
operations.
Section 8.4. ALLOCATIONS. Falcon shall allocate the liability for Other
Costs among the Seller and other Persons with whom Falcon has entered into
agreements to purchase interests in receivables ("Other Sellers"). If any Other
Costs are attributable to the Seller and not attributable to any Other Seller,
the Seller shall be solely liable for such Other Costs. However, if Other Costs
are attributable to Other Sellers and not attributable to the Seller, such Other
Sellers shall be solely liable for such Other Costs. All allocations to be made
pursuant to the foregoing provisions of this Article VIII shall be made by
Falcon in its sole discretion and shall be binding on the Seller and the
Servicer.
ARTICLE IX
THE AGENT
Section 9.1. AUTHORIZATION AND ACTION. (a) Each Purchaser hereby
designates and appoints First Chicago to act as its agent hereunder and under
each other Transaction Document, and authorizes the Agent to take such actions
as agent on its behalf and to exercise such powers as are delegated to the Agent
by the terms of this Agreement and the other Transaction Documents together with
such powers as are reasonably incidental thereto. The Agent shall not have any
duties or responsibilities, except those expressly set forth herein or in any
other Transaction Document, or any fiduciary relationship with any Purchaser,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities on the part of the Agent shall be read into this Agreement or any
other Transaction Document or otherwise exist for the Agent. In performing its
functions and duties hereunder and under the other Transaction Documents, the
Agent shall act solely as agent for the Purchasers and does not assume nor shall
be deemed to have assumed any obligation or relationship of trust or agency with
or for the Seller or any of its successors or assigns. The Agent shall not be
required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement, any other Transaction Document or
applicable law. The appointment and authority of the Agent hereunder shall
terminate upon the indefeasible payment in full of all Aggregate Unpaids. Each
Purchaser hereby authorizes the Agent to execute each of the Uniform Commercial
Code financing statements, together with such other instruments or documents
determined by the Agent to be necessary or desirable in order to perfect,
evidence or more fully protect the interest of the Purchasers contemplated
hereunder, on behalf of such Purchaser (the terms of which shall be binding on
such Purchaser).
(b) Without limiting the generality of the foregoing, the Agent is
authorized (but not required) to act on behalf of the Purchasers in connection
with providing such instructions,
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approvals, waivers or consents as may from time to time be required hereunder or
under the Transfer Agreement to permit or authorize or direct the Seller to take
or refrain from taking any action under the Transfer Agreement; PROVIDED that
the Agent may at any time, in its sole discretion, elect to refrain from
providing any such instructions, approvals, waivers or consents until such time
as it shall have received the consent thereto of the Required Investors.
Section 9.2. DELEGATION OF DUTIES. The Agent may execute any of its duties
under this Agreement and each other Transaction Document by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
Section 9.3. EXCULPATORY PROVISIONS. Neither the Agent nor any of its
directors, officers, agents or employees shall be (i) liable for any action
lawfully taken or omitted to be taken by it or them under or in connection with
this Agreement or any other Transaction Document (except for its, their or such
Person's own gross negligence or willful misconduct), or (ii) responsible in any
manner to any of the Purchasers for any recitals, statements, representations or
warranties made by the Seller contained in this Agreement, any other Transaction
Document or any certificate, report, statement or other document referred to or
provided for in, or received under or in connection with, this Agreement, or any
other Transaction Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement, or any other
Transaction Document or any other document furnished in connection herewith or
therewith, or for any failure of the Seller to perform its obligations hereunder
or thereunder, or for the satisfaction of any condition specified in Article IV,
or for the perfection, priority, condition, value or sufficiency or any
collateral pledged in connection herewith. The Agent shall not be under any
obligation to any Purchaser to ascertain or to inquire as to the observance or
performance of any of the agreements or covenants contained in, or conditions
of, this Agreement or any other Transaction Document, or to inspect the
properties, books or records of the Seller. The Agent shall not be deemed to
have knowledge of any Servicer Default or Potential Servicer Default unless the
Agent has received notice from the Seller or a Purchaser.
Section 9.4. RELIANCE BY AGENT. The Agent shall in all cases be entitled
to rely, and shall be fully protected in relying, upon any document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Seller),
independent accountants and other experts selected by the Agent. The Agent shall
in all cases be fully justified in failing or refusing to take any action under
this Agreement or any other Transaction Document unless it shall first receive
such advice or concurrence of Falcon or the Required Investors or all of the
Purchasers, as applicable, as it deems appropriate and it shall first be
indemnified to its satisfaction by the Purchasers, PROVIDED that unless and
until the Agent shall have received such advice, the Agent may take or refrain
from taking any action, as the Agent shall deem advisable and in the best
interests of the Purchasers. The Agent shall in all cases be fully protected in
acting, or in refraining from acting, in accordance with a request of Falcon or
the Required
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Investors or all of the Purchasers, as applicable, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Purchasers.
Section 9.5. NON-RELIANCE ON AGENT AND OTHER PURCHASERS. Each Purchaser
expressly acknowledges that neither the Agent, nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by the Agent hereafter
taken, including, without limitation, any review of the affairs of the Seller,
shall be deemed to constitute any representation or warranty by the Agent. Each
Purchaser represents and warrants to the Agent that it has and will,
independently and without reliance upon the Agent or any other Purchaser and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, operations, property,
prospects, financial and other conditions and creditworthiness of the Seller and
made its own decision to enter into this Agreement, the other Transaction
Documents and all other documents related hereto or thereto.
Section 9.6. REIMBURSEMENT AND INDEMNIFICATION. The Investors agree to
reimburse and indemnify the Agent and its officers, directors, employees,
representatives and agents ratably according to their Pro Rata Shares, to the
extent not paid or reimbursed by the Seller (i) for any amounts for which the
Agent, acting in its capacity as Agent, is entitled to reimbursement by the
Seller hereunder and (ii) for any other expenses incurred by the Agent, in its
capacity as Agent and acting on behalf of the Purchasers, in connection with the
administration and enforcement of this Agreement and the other Transaction
Documents.
Section 9.7. AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Seller or any Affiliate of the Seller as though the
Agent were not the Agent hereunder. With respect to the acquisition of
Receivable Interests pursuant to this Agreement, the Agent shall have the same
rights and powers under this Agreement as any Purchaser and may exercise the
same as though it were not the Agent, and the terms "Investor," "Purchaser,"
"Investors" and "Purchasers" shall include the Agent in its individual capacity.
Section 9.8. SUCCESSOR AGENT. The Agent may, upon five days' notice to the
Seller and the Purchasers, and the Agent will, upon the direction of all of the
Purchasers (other than the Agent, in its individual capacity) resign as Agent.
If the Agent shall resign, then the Required Investors during such five-day
period shall appoint from among the Purchasers a successor agent. If for any
reason no successor Agent is appointed by the Required Investors during such
five-day period, then effective upon the termination of such five day period,
the Purchasers shall perform all of the duties of the Agent hereunder and under
the other Transaction Documents and the Seller shall make all payments in
respect of the Aggregate Unpaids directly to the applicable Purchasers and for
all purposes shall deal directly with the Purchasers. After the effectiveness of
any retiring Agent's resignation hereunder as Agent, the retiring Agent shall be
discharged from its duties and obligations hereunder and under the other
Transaction Documents and the provisions of this Article IX and Article VIII
shall continue in effect for its benefit with respect to any actions taken
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or omitted to be taken by it while it was Agent under this Agreement and under
the other Transaction Documents.
ARTICLE X
ASSIGNMENTS; PARTICIPATIONS
Section 10.1. ASSIGNMENTS. (a) The Seller and each Investor hereby agree
and consent to the complete or partial assignment by Falcon of all of its rights
under, interest in, title to and obligations under this Agreement to the
Investors pursuant to Section 2.1 or to any other Person, and upon such
assignment, Falcon shall be released from its obligations so assigned. Further,
the Seller and each Investor hereby agree that any assignee of Falcon of this
Agreement or all or any of the Receivable Interests of Falcon shall have all of
the rights and benefits under this Agreement as if the term "Falcon" explicitly
referred to such party, and no such assignment shall in any way impair the
rights and benefits of Falcon hereunder. The Seller shall not have the right to
assign its rights or obligations under this Agreement.
(b) Any Investor may at any time and from time to time assign to one or
more Persons ("Purchasing Investors") all or any part of its rights and
obligations under this Agreement pursuant to an assignment agreement, in a form
and substance satisfactory to the Agent (the "Assignment Agreement",) executed
by such Purchasing Investor and such selling Investor. The consent of Falcon
shall be required prior to the effectiveness of any such assignment. Each
assignee of an Investor must have a short-term debt rating of A-1 or better by
S&P and P-1 by Moody's and must agree to deliver to the Agent, promptly
following any request therefor by the Agent or Falcon, an enforceability opinion
in form and substance satisfactory to the Agent and Falcon. Upon delivery of the
executed Assignment Agreement to the Agent, such selling Investor shall be
released from its obligations hereunder to the extent of such assignment.
Thereafter the Purchasing Investor shall for all purposes be an Investor party
to this Agreement and shall have all the rights and obligations of an Investor
under this Agreement to the same extent as if it were an original party hereto
and no further consent or action by the Seller, the Purchasers or the Agent
shall be required.
(c) Each of the Investors agrees that in the event that it shall cease to
have a short-term debt rating of A-1 or better by S&P and P-1 by Moody's (an
"Affected Investor"), such Affected Investor shall be obliged, at the request of
Falcon or the Agent, to assign all of its rights and obligations hereunder to
(x) another Investor or (y) another financial institution nominated by the Agent
and acceptable to Falcon, and willing to participate in this Agreement through
the Liquidity Termination Date in the place of such Affected Investor; provided
that the Affected Investor receives payment in full, pursuant to an Assignment
Agreement, of an amount equal to such Investor's Pro Rata Share of the Capital
and Discount owing to the Investors and all accruing but
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unpaid fees and other costs and expenses payable in respect of its Pro Rata
Share of the Receivable Interests.
Section 10.2. PARTICIPATIONS. Any Investor may, in the ordinary course of
its business at any time sell to one or more Persons (each a "Participant")
participating interests in its Pro Rata Share of the Receivable Interests of the
Investors, its obligation to pay Falcon its Acquisition Amounts or any other
interest of such Investor hereunder. Notwithstanding any such sale by an
Investor of a participating interest to a Participant, such Investor's rights
and obligations under this Agreement shall remain unchanged, such Investor shall
remain solely responsible for the performance of its obligations hereunder, and
the Seller, Falcon and the Agent shall continue to deal solely and directly with
such Investor in connection with such Investor's rights and obligations under
this Agreement. Each Investor agrees that any agreement between such Investor
and any such Participant in respect of such participating interest shall not
restrict such Investor's right to agree to any amendment, supplement, waiver or
modification to this Agreement, except for any amendment, supplement, waiver or
modification described in clause (i) of Section 11.1(b).
ARTICLE XI
MISCELLANEOUS
Section 11.1. WAIVERS AND AMENDMENTS. (a) No failure or delay on the part
of the Agent or any Purchaser in exercising any power, right or remedy under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or remedy preclude any other further
exercise thereof or the exercise of any other power, right or remedy. The rights
and remedies herein provided shall be cumulative and nonexclusive of any rights
or remedies provided by law. Any waiver of this Agreement shall be effective
only in the specific instance and for the specific purpose for which given.
(b) No provision of this Agreement may be amended, supplemented, modified
or waived except in writing in accordance with the provisions of this Section
11.1(b). Falcon, the Seller and the Agent, at the direction of the Required
Investors, may enter into written modifications or waivers of any provisions of
this Agreement, PROVIDED, HOWEVER, that no such modification or waiver shall:
(i) without the consent of each affected Purchaser, (A) extend the
Liquidity Termination Date or the date of any payment or deposit of
Collections by the Seller or the Servicer, (B) reduce the rate or extend
the time of payment of Discount or Funding Charges (or any component
thereof), (C) reduce any fee payable to the Agent for the benefit of the
Purchasers, (D) except pursuant to Article X hereof, change the amount of
the Capital of any Purchaser, an Investor's Pro Rata Share or an
Investor's Commitment, (E) amend, modify or waive any provision of the
definition of Required Investors or this Section 11.1(b), (F) consent to
or permit the assignment or transfer by the Seller of any of its rights
and obligations under this Agreement, or (G) amend or modify any defined
term (or any defined term used directly or indirectly in such defined
term) used in clauses
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(A) through (G) above in a manner which would circumvent the intention of
the restrictions set forth in such clauses; or
(ii) without the consent of the Investors with aggregate Commitments
equal to at least 85% of the Purchase Limit, change the definition of
"Dilution Reserve Percentage," "Discount/Servicing Reserve Percentage,"
"Eligible Receivable," or "Loss Reserve Percentage"; or
(ii) without the written consent of the then Agent, amend, modify or
waive any provision of this Agreement if the effect thereof is to affect
the rights or duties of such Agent.
Notwithstanding the foregoing, (i) without the consent of the Investors, the
Agent may, with the consent of the Seller, amend this Agreement solely to add
additional Persons as Investors hereunder and (ii) without the consent of the
Seller, the Agent, the Required Investors and Falcon may enter into amendments
to modify any of the terms or provisions of Article II, Article IX, Article X,
Section 11.13 or any other provision of this Agreement, provided that such
amendment has no negative impact upon the Seller. Any modification or waiver
made in accordance with this Section 11.1 shall apply to each of the Purchasers
equally and shall be binding upon the Seller, the Purchasers and the Agent.
Section 11.2 NOTICES. Except as provided below, all communications and
notices provided for hereunder shall be in writing (including bank wire,
telecopy or electronic facsimile transmission or similar writing) and shall be
given to the other parties hereto at their respective addresses or telecopy
numbers set forth on the signature pages hereof. The Seller hereby authorizes
the Agent to effect purchases and Tranche Period and Discount Rate selections
based on telephonic notices made by any Person whom the Agent in good faith
believes to be acting on behalf of the Seller. The Seller agrees to deliver
promptly to the Agent a written confirmation of each telephonic notice signed by
an authorized officer of the Seller. However, the absence of such confirmation
shall not affect the validity of such notice. If the written confirmation
differs from the action taken by the Agent, the records of the Agent shall
govern absent manifest error.
Section 11.3. RATABLE PAYMENTS. If any Purchaser, whether by setoff or
otherwise, has a payment made to it with respect to any portion of the Aggregate
Unpaids owing to such Purchaser (other than payments received pursuant to
Section 8.2 or 8.3) in a greater proportion than that received by any other
Purchaser entitled to receive a ratable share of such Aggregate Unpaids, such
Purchaser agrees, promptly upon demand, to purchase for cash without recourse or
warranty a portion of the Aggregate Unpaids held by the other Purchasers so that
after such purchase each Purchaser will hold its ratable proportion of the
Aggregate Unpaids; provided that if all or any portion of such excess amount is
thereafter recovered from such Purchaser, such purchase shall be rescinded and
the purchase price restored to the extent of such recovery, but without
interest.
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Section 11.4. PROTECTION OF OWNERSHIP INTERESTS OF THE PURCHASERS. (a) The
Seller agrees that from time to time, at its expense, it will promptly execute
and deliver all instruments and documents, and take all actions, that may be
necessary or desirable, or that the Agent may request, to perfect, protect or
more fully evidence the Receivable Interests, or to enable the Agent or the
Purchasers to exercise and enforce their rights and remedies hereunder. The
Agent may, or the Agent may direct the Seller to, notify the Obligors of
Receivables, at any time and at the Seller's expense, of the ownership interests
of the Purchasers under this Agreement and may also direct that payments of all
amounts due or that become due under any or all Receivables be made directly to
the Agent or its designee. The Seller shall, at any Purchaser's request,
withhold the identity of such Purchaser in any such notification.
(b) If the Seller or the Servicer fails to perform any of its obligations
hereunder, the Agent or any Purchaser may (but shall not be required to)
perform, or cause performance of, such obligation; and the Agent's or such
Purchaser's costs and expenses incurred in connection therewith shall be payable
by the Seller (if the Servicer that fails to so perform is the Seller or an
Affiliate thereof) as provided in Section 8.3, as applicable. The Seller and the
Servicer each irrevocably authorizes the Agent at any time and from time to time
in the sole discretion of the Agent, and appoints the Agent as its
attorney-in-fact, to act on behalf of the Seller and the Servicer (i) to execute
on behalf of the Seller as debtor and to file financing statements necessary or
desirable in the Agent's sole discretion to perfect and to maintain the
perfection and priority of the interest of the Purchasers in the Receivables and
(ii) to file a carbon, photographic or other reproduction of this Agreement or
any financing statement with respect to the Receivables as a financing statement
in such offices as the Agent in its sole discretion deems necessary or desirable
to perfect and to maintain the perfection and priority of the interests of the
Purchasers in the Receivables. This appointment is coupled with an interest and
is irrevocable.
Section 11.5. CONFIDENTIALITY. (a) The Seller shall maintain and shall
cause each of its employees and officers to maintain the confidentiality of this
Agreement and the other Transaction Documents and the other confidential
proprietary information with respect to the Agent and Falcon and their
respective businesses obtained by it or them in connection with the structuring,
negotiating and execution of the transactions contemplated herein and therein,
except that the Seller and its officers and employees may disclose such
information to the Seller's external accountants and attorneys and as required
by any applicable law or order of any judicial or administrative proceeding.
(b) Anything herein to the contrary notwithstanding, the Seller hereby
consents to the disclosure of any nonpublic information with respect to it (i)
to the Agent, the Investors or Falcon by each other, (ii) by the Agent or the
Purchasers to any prospective or actual assignee or participant of any of them
or (iii) by the Agent to any rating agency, Commercial Paper dealer or provider
of a surety, guaranty or credit or liquidity enhancement to Falcon or any entity
organized for the purpose of purchasing, or making loans secured by, financial
assets for which First Chicago acts as the administrative agent and to any
officers, directors, employees, outside
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accountants and attorneys of any of the foregoing. In addition, the Purchasers
and the Agent may disclose any such nonpublic information pursuant to any law,
rule, regulation, direction, request or order of any judicial, administrative or
regulatory authority or proceedings (whether or not having the force or effect
of law).
Section 11.6. BANKRUPTCY PETITION. The Seller, the Agent and each Investor
hereby covenants and agrees that, prior to the date which is one year and one
day after the payment in full of all outstanding senior Indebtedness of Falcon,
it will not institute against, or join any other Person in instituting against,
Falcon any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other similar proceeding under the laws of the United States or
any state of the United States.
Section 11.7. LIMITATION OF LIABILITY. Except with respect to any claim
arising out of the willful misconduct or gross negligence of Falcon, the Agent
or any Investor, no claim may be made by the Seller, the Servicer or any other
Person against Falcon, the Agent or any Investor or their respective Affiliates,
directors, officers, employees, attorneys or agents for any special, indirect,
consequential or punitive damages in respect of any claim for breach of contract
or any other theory of liability arising out of or related to the transactions
contemplated by this Agreement, or any act, omission or event occurring in
connection therewith; and the Seller hereby waives, releases, and agrees not to
sue upon any claim for any such damages, whether or not accrued and whether or
not known or suspected to exist in its favor.
SECTION 11.8. CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
ILLINOIS.
SECTION 11.9. CONSENT TO JURISDICTION. THE SELLER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR
ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY THE SELLER PURSUANT
TO THIS AGREEMENT AND THE SELLER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE
AGENT OR ANY PURCHASER TO BRING PROCEEDINGS AGAINST THE SELLER IN THE COURTS OF
ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE SELLER AGAINST THE AGENT
OR ANY PURCHASER OR ANY AFFILIATE OF THE AGENT OR A PURCHASER INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH THIS AGREEMENT OR ANY DOCUMENT
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EXECUTED BY THE SELLER PURSUANT TO THIS AGREEMENT SHALL BE BROUGHT ONLY IN A
COURT IN CHICAGO, ILLINOIS.
SECTION 11.10. WAIVER OF JURY TRIAL. THE AGENT, THE SELLER AND EACH
PURCHASER HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS
AGREEMENT, ANY DOCUMENT EXECUTED BY THE SELLER PURSUANT TO THIS AGREEMENT OR THE
RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER.
Section 11.11. INTEGRATION; SURVIVAL OF TERMS. (a) This Agreement, the
Collection Account Agreements and the Fee Letter contain the final and complete
integration of all prior expressions by the parties hereto with respect to the
subject matter hereof and shall constitute the entire agreement among the
parties hereto with respect to the subject matter hereof superseding all prior
oral or written understandings.
(b) The provisions of Article VIII and Section 11.6 shall survive any
termination of this Agreement.
Section 11.12. COUNTERPARTS; SEVERABILITY. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
Section 11.13. FIRST CHICAGO ROLES. Each of the Investors acknowledges
that First Chicago acts, or may in the future act, (i) as administrative agent
for Falcon, (ii) as issuing and paying agent for the Commercial Paper, (iii) to
provide credit or liquidity enhancement for the timely payment for the
Commercial Paper and (iv) to provide other services from time to time for Falcon
(collectively, the "First Chicago Roles"). Without limiting the generality of
this Section 11.13, each Investor hereby acknowledges and consents to any and
all First Chicago Roles and agrees that in connection with any First Chicago
Role, First Chicago may take, or refrain from taking, any action which it, in
its discretion, deems appropriate, including, without limitation, in its role as
administrative agent for Falcon, the giving of notice to the Agent of a
mandatory purchase pursuant to Section 2.1.
Section 11.14. CHARACTERIZATION. If the conveyance by the Seller to the
Purchasers of interests in Receivables hereunder shall be characterized as a
secured loan and not a sale, it is the intention of the parties hereto that this
Agreement shall constitute a security agreement under
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applicable law, and that the Seller shall be deemed to have granted to the Agent
for the ratable benefit of the Purchasers a duly perfected security interest in
all of the Seller's right, title and interest in, to and under the Receivables,
the Collections, each Collection Account, all Related Security, all payments on
or with respect to such Receivables, all other rights relating to and payments
made in respect of the Receivables, and all proceeds of any thereof prior to all
other liens on and security interests therein to secure the payment of the
Aggregate Unpaids, including the indemnity obligations of the Seller under
ARTICLE VIII, the payment and reimbursement by the Seller to the Purchasers of
all Capital hereunder, and the payment of all other obligations owed hereunder
to the Agent and the Purchasers. After a Servicer Default, the Agent and the
Purchasers shall have, in addition to the rights and remedies which they may
have under this Agreement, all other rights and remedies provided to a secured
creditor after default under the UCC and other applicable law, which rights and
remedies shall be cumulative.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date hereof.
METALS RECEIVABLES CORPORATION
By:/S/ KEITH ST. CLAIR
Name: KEITH ST. CLAIR
Title: TREASURER
Notices To:
Attn:Keith St. Clair
Address: Three Riverway
Suite 600
Houston, TX 77056
Tel.: (713) 585-6406
Fax: (713) 965-0067
FALCON ASSET SECURITIZATION
CORPORATION
By: /S/ KIRK D. FARNEY
Name: KIRK D. FARNEY
Authorized Signatory
c/o The First National Bank
of Chicago, as Agent
Suite 0596, 21st Floor
One First National Plaza
Chicago, Illinois 60670
Fax: (312) 732-4487
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THE FIRST NATIONAL BANK OF CHICAGO, as Agent
By: /S/ KIRK D. FARNEY
Name: KIRK D. FARNEY
Title: FIRST VICE PRESIDENT
The First National Bank
Suite 0596, 21st Floor
One First National Plaza
Chicago, Illinois 60670
Fax: (312) 732-4487
INVESTORS:
COMMITMENT
$100,000,000 THE FIRST NATIONAL BANK OF CHICAGO, as an Investor
By: /S/ KAREN E. STAIB
Title: FIRST VICE PRESIDENT
The First National Bank of Chicago
Suite 0596, 21st Floor
One First National Plaza
Chicago, Illinois 60670
Fax: (312) 732-4487
$100,000,000 TOTAL COMMITMENT
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EXHIBIT I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"ACCRUAL PERIOD" means the period from (and including) the first day of
each calendar month to (and including) the last day of such calendar month,
provided that the initial Accrual Period hereunder means the period from (and
including) the date of the initial purchase hereunder to (and including) the
last day of the calendar month during which the date of such initial purchase
occurs.
"ACQUISITION AMOUNT" means, on the date of any purchase from Falcon of
Receivable Interests pursuant to Section 2.1, (i) with respect to each Investor
other than First Chicago, the lesser of (a) such Investor's Pro Rata Share of
the Falcon Transfer Price and (b) such Investor's unused Commitment and (ii)
with respect to First Chicago, the difference between (a) the Falcon Transfer
Price and (b) the aggregate amount payable by all other Investors on such date
pursuant to clause (i) above.
"ADJUSTED LIQUIDITY PRICE" means, in determining the Falcon Transfer Price
for any Receivable Interest, an amount, as of any date of determination.
"ADVERSE CLAIM" means a lien, security interest, charge or encumbrance, or
other right or claim in, of or on any Person's assets or properties in favor of
any other Person.
"AFFILIATE" means any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, another Person
or any Subsidiary of such other Person. A Person shall be deemed to control
another Person if the controlling Person owns 10% or more of any class of voting
securities of the controlled Person or possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies of the
controlled Person, whether through ownership of stock, by contract or otherwise.
"AGENT" means First Chicago in its capacity as agent for the Purchasers
pursuant to Article IX, and not in its individual capacity as an Investor, and
any successor Agent appointed pursuant to Article IX.
"AGGREGATE UNPAIDS" means, at any time, an amount equal to the sum of all
accrued and unpaid Discount, accrued and unpaid Funding Charges, accrued and
unpaid Servicing Fee, Capital and all other amounts owed (whether due or
accrued) hereunder or under the Fee Letter to the Agent and the Purchasers at
such time.
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"AGREEMENT" means this Receivables Purchase Agreement, as it may be
amended or modified and in effect from time to time.
"ALLOCATED COMMERCIAL PAPER" means Commercial Paper notes issued by Falcon
for a tenor and in an amount specially requested by any Person in connection
with a Receivable Purchase Facility then being made available by Falcon (or by
any agent on behalf of Falcon).
"BANKRUPTCY CODE" means the United States Bankruptcy Code, 11 U.S.C.
ss.ss.101 et seq., as amended.
"BASE RATE" means, (i) prior to the occurrence of a Servicer Default, a
rate per annum equal to the corporate base rate, prime rate or base rate of
interest, as applicable, announced by the Reference Bank from time to time,
changing when and as such rate changes, and (ii) at all times after the
occurrence of a Servicer Default, such rate plus 2% per annum.
"BUSINESS DAY" means any day on which banks are not authorized or required
to close in New York, New York or Chicago, Illinois and The Depository Trust
Company of New York is open for business, and, if the applicable Business Day
relates to any computation or payment to be made with respect to the LIBO Rate,
any day on which dealings in dollar deposits are carried on in the London
interbank market.
"CAPITAL" of any Receivable Interest means, at any time, the Purchase
Price of such Receivable Interest, minus the sum of the aggregate amount of
Collections and other payments received by the Agent which in each case are
applied to reduce such Capital; PROVIDED that such Capital shall be restored in
the amount of any Collections or payments so received and applied if at any time
the distribution of such Collections or payments are rescinded or must otherwise
be returned for any reason.
"CHANGE OF CONTROL" means (i) the acquisition by any Person, or two or
more Persons acting in concert, of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of 30% or more of the outstanding shares of voting stock
of the Servicer or the Transferor; or (ii) the Transferor shall cease to own,
free and clear of all Adverse Claims, all of the outstanding shares of voting
stock of the Seller or any Originator on a fully diluted basis.
"CHARGED-OFF RECEIVABLE" means a Receivable: (i) as to which the Obligor
thereof has taken any action, or suffered any event to occur, of the type
described in Section 7.1(d) (as if references to the Seller therein refer to
such Obligor); (ii) as to which the Obligor thereof, if a natural person, is
deceased, (iii) which, consistent with the Credit and Collection Policy, would
be written off the Seller's books as uncollectible, or (iv) which has been
identified by the Seller as uncollectible.
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"COLLECTION ACCOUNT" means each concentration account, depositary account,
lock-box account or similar account in which any Collections are collected or
deposited.
"COLLECTION ACCOUNT AGREEMENT" means, in the case of any actual or
proposed Collection Account, an agreement in substantially the form of Exhibit V
hereto.
"COLLECTION BANK" means, at any time, any of the banks or other financial
institutions holding one or more Collection Accounts.
"COLLECTION NOTICE" means a notice, in substantially the form of the
Collection Notice contained in Annex A to Exhibit V hereto, from the Agent to a
Collection Bank.
"COLLECTIONS" means, with respect to any Receivable, all cash collections
and other cash proceeds in respect of such Receivable, including, without
limitation, all cash proceeds of Related Security with respect to such
Receivable and all amounts payable to the Purchasers by the Seller pursuant to
Section 1.8.
"COMMERCIAL PAPER" means promissory notes of Falcon issued by Falcon in
the commercial paper market.
"COMMITMENT" means, for each Investor, the commitment of such Investor to
purchase its Pro Rata Share of Receivable Interests from (i) the Seller and (ii)
Falcon, such Pro Rata Share not to exceed, in the aggregate, the amount set
forth opposite such Investor's name on the signature pages of this Agreement, as
such amount may be modified in accordance with the terms hereof.
"CONCENTRATION LIMIT" means, at any time, for any Obligor, the product of
.33 MULTIPLIED BY the Loss Reserve Percentage at such time, or such greater
amount for such Obligor designated by the Agent at any time on not less than
three Business Days' prior written notice to the Seller; PROVIDED, that in the
case of an Obligor and any Affiliate of such Obligor, the Concentration Limit
shall be calculated as if such Obligor and such Affiliate are one Obligor.
"CONTINGENT OBLIGATION" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person of
the types listed in clauses (i), (ii), (iii), (iv), (v) and (vi) of the
definition of Indebtedness, or agrees to maintain the net worth or working
capital or other financial condition of any other Person, or otherwise assures
any creditor of such other Person in respect of obligations of the types listed
in clauses (i), (ii), (iii), (iv), (v) and (vi) of the definition of
Indebtedness, against loss, including, without limitation, any comfort letter,
operating agreement, take-or-pay contract or application for a letter of credit.
"CONTRACT" means, with respect to any Receivable, any and all instruments,
agreements, leases, invoices or other writings pursuant to which such Receivable
arises or which evidences
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such Receivable, including, without limitation, the applicable quotation to
provide services, Obligor acknowledgments and acceptances and related purchase
orders.
"CP RATE" means, in respect of any Accrual Period, the rate per annum
which reflects all Funding Charges accruing during such Accrual Period.
"CREDIT AND COLLECTION POLICY" means the Seller's credit and collection
policies and practices relating to Contracts and Receivables existing on the
date hereof and summarized in Exhibit VI hereto, as modified from time to time
in accordance with this Agreement.
"DEEMED COLLECTIONS" means the aggregate of all amounts owing to Falcon
pursuant to Sections 1.8 and 8.1.
"DEFAULT FEE" means with respect to any amount due and payable by the
Seller hereunder or under the Fee Letter, an amount equal to interest on any
such amount at a rate per annum equal to 2% above the Base Rate, PROVIDED,
HOWEVER, that such interest rate will not at any time exceed the maximum rate
permitted by applicable law.
"DEFAULT RATIO" means, as of the last day of any month, a percentage equal
to (i) the aggregate Outstanding Balance of all Receivables that became
Defaulted Receivables during such month, PLUS the aggregate Outstanding Balance
of all Receivables (other than Defaulted Receivables) that became Charged-off
Receivables during such month, DIVIDED by (ii) the Originator Sales during the
month ending three months prior to such date.
"DEFAULTED RECEIVABLE" means a Receivable as to which any payment, or part
thereof, remains unpaid for more than 90 days from the original invoice date for
such payment.
"DELINQUENCY RATIO" means, at any time, a percentage equal to (i) the
aggregate Outstanding Balance of all Receivables that were Delinquent
Receivables at such time, DIVIDED by (ii) the aggregate Outstanding Balance of
all Receivables at such time.
"DELINQUENT RECEIVABLE" means a Receivable as to which any payment, or
part thereof, remains unpaid for more than 60 days from the original invoice
date.
"DESIGNATED OBLIGOR" means an Obligor indicated by the Agent to the Seller
in writing.
"DILUTION HORIZON RATIO" means, as of the last day of any month, a
percentage equal to (i) the Originator Sales during the two most recently ended
calendar months DIVIDED by (ii) the aggregate Outstanding Balance of all
Receivables that are not Defaulted Receivables as of such date.
"DILUTION RATIO" means, at any time, a percentage equal to (i) the
aggregate amount of Dilutions which occurred during the month then most recently
ended, DIVIDED by (ii) the Originator Sales during the month ending two months
prior to such date.
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"DILUTION RESERVE PERCENTAGE" means as of the last day of any month, a
percentage equal to the greater of (a) x.x% or (b) x.x%.
"DILUTIONS" means, at any time, the aggregate amount of reductions in the
Outstanding Balances of the Receivables as a result of any setoff, discount,
adjustment, amendment or cancellation and rebill (not including corrections to
bills occurring on the same day of the original invoice), or otherwise, other
than (i) cash Collections on account of the Receivables (excluding those amounts
payable pursuant to Section 1.8) and (ii) charge-offs; PROVIDED that in the case
of a Receivable that is amended or canceled and re-billed, if the Seller's
records show the connection between the original invoice and the re-billed
invoice such that both invoices represent one and the same Receivable, the
amount of "Dilution" with respect to such Receivable shall equal the difference
between the amount due under such original invoice and the amount due under the
re-billed invoice.
"DILUTION SPIKE RATIO" means, as of any date, the highest Dilution Ratio
in respect of any of the 12 immediately preceding months.
"DISCOUNT" means, for each Receivable Interest for any Tranche Period in
respect of which the LIBO Rate or the Base Rate applies: PROVIDED, that no
provision of this Agreement shall require the payment or permit the collection
of Discount in excess of the maximum permitted by applicable law; and PROVIDED,
FURTHER, that Discount for any Tranche Period shall not be considered paid by
any distribution to the extent that at any time all or a portion of such
distribution is rescinded or must otherwise be returned for any reason.
"DISCOUNT RATE" means the CP Rate, the LIBO Rate or the Base Rate, as
applicable.
"DISCOUNT/SERVICING RESERVE PERCENTAGE" means, on any date, an amount
equal to x.x%.
"EARLY COLLECTION FEE" means, for any Receivable Interest which has its
Capital reduced, or its Tranche Period terminated prior to the date on which it
was originally scheduled to end, the excess, if any, of (i) the Discount or
Funding Charges that would have accrued during the remainder of the Tranche
Period subsequent to the date of such reduction or termination on the Capital of
such Receivable Interest if such reduction or termination had not occurred, over
(ii) the sum of (a) to the extent all or a portion of such Capital is allocated
to another Receivable Interest, the Discount or Funding Charges actually accrued
during such period on such Capital for the new Receivable Interest, and (b) to
the extent such Capital is not allocated to another Receivable Interest, the
income, if any, actually received during such period by the holder of such
Receivable Interest from investing the portion of such Capital not so allocated.
In the event that the amount referred to in clause (ii) exceeds the amount
referred to in clause (i), the relevant Purchaser or Purchasers agree to pay to
the Seller the amount of such excess.
"ELIGIBLE RECEIVABLE" means, at any time, a Receivable:
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(i) the Obligor of which (a) if a natural person, is a resident of
the United States or, if a corporation or other business organization, is
organized under the laws of the United States or any political subdivision
thereof and has its chief executive office in the United States; (b) is
not an Affiliate of any of the parties hereto; (c) is not a Designated
Obligor; and (d) is not a government or a governmental subdivision or
agency,
(ii) the Obligor of which is not the Obligor of any Defaulted
Receivable or any Charged-Off Receivable which in the aggregate constitute
more than 20% of all Receivables of such Obligor,
(iii) which is not a Defaulted Receivable or a Charged-Off
Receivable,
(iv) which by its terms is due and payable (a) within 60 days of the
original billing date therefor and has not had its payment terms extended,
and the Outstanding Balance of which, when added to the Outstanding
Balance of all other Eligible Receivables which by their terms are due and
payable within 60 days of the original billing date therefor, does not
exceed 20% of the Net Receivables Balance or (b) within 30 days of the
original billing date therefor and has not had its payment terms extended,
(v) which is an account receivable representing all or part of the
sales price of merchandise, insurance and services within the meaning of
Section 3(c)(5) of the Investment Company Act of 1940, as amended,
(vi) which is an "account" within the meaning of Section 9-106 of
the UCC of all applicable jurisdictions,
(vii) which is denominated and payable only in United States dollars
in the United States,
(viii) which arises under a Contract which, together with such
Receivable, is in full force and effect and constitutes the legal, valid
and binding obligation of the related Obligor enforceable against such
Obligor in accordance with its terms subject to no offset, counterclaim or
other defense (except the potential discharge (as distinguished from
avoidance) in bankruptcy of such Obligor),
(ix) which arises under a Contract which (a) does not require the
Obligor under such Contract to consent to the transfer, sale or assignment
of the rights and duties of the applicable Originator or any of its
assignees under such Contract and (b) does not contain a confidentiality
provision that purports to restrict the ability of the Agent or any
Purchaser to exercise its rights under this Agreement, including, without
limitation, its right to review the Contract,
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(x) which arises under a Contract that contains an obligation to pay
a specified sum of money, contingent only upon the sale of goods or the
provision of services by the applicable Originator,
(xi) which is not subject to any right of rescission, set-off,
counterclaim, any other defense (including defenses arising out of
violations of usury laws) of the applicable Obligor or the applicable
Originator or any other Adverse Claim, and the Obligor thereon holds no
right as against the applicable Originator to cause such Originator to
repurchase the goods or merchandise the sale of which shall have given
rise to such Receivable,
(xii) as to which the applicable Originator has satisfied and fully
performed all obligations on its part with respect to such Receivable
required to be fulfilled by it, and no further action is required to be
performed by any Person with respect thereto other than payment thereon by
the applicable Obligor,
(xiii) all right, title and interest to and in which has been (i)
validly transferred by the applicable Originator directly to the
Transferor under and in accordance with the Originator Transfer Agreement,
and the Transferor has good and marketable title thereto free and clear of
any Adverse Claim and (ii) validly transferred by the Transferor directly
to the Seller under and in accordance with the Transfer Agreement, and the
Seller has good and marketable title thereto free and clear of any Adverse
Claim,
(xiv) which, together with the Contract related thereto, does not
contravene any law, rule or regulation applicable thereto (including,
without limitation, any law, rule and regulation relating to truth in
lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and privacy) and with respect
to which no part of the Contract related thereto is in violation of any
such law, rule or regulation in any material respect,
(xv) which satisfies all applicable requirements of the Credit and
Collection Policy,
(xvi) which was generated in the ordinary course of the applicable
Originator's business,
(xvii) which arises solely from the sale or the provision of
services to the related Obligor by the applicable Originator, and not by
any other Person (in whole or in part),
(xviii) which, if canceled or amended and re-billed, (a) the
re-billed invoice for such Receivable is sufficiently connected to the
original invoice in the records and systems of the Seller such that the
original invoice and the re-billed invoice represent one and the same
Receivable and (b) such Receivable is not a Delinquent Receivable or a
Defaulted Receivable, as measured from the original invoice date prior to
giving effect to such cancellation or amendment, and
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(xix) as to which the Agent has not notified the Seller that the
Agent has, in the reasonable business judgment of the Agent, determined that
such Receivable or class of Receivables is not acceptable as an Eligible
Receivable, including, without limitation, because such Receivable arises under
a Contract that is not reasonably acceptable to the Agent.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EXPECTED DILUTION RATIO" means, as of any date, the average of the
Dilution Ratios in respect of the 12 immediately preceding months.
"FACILITY ACCOUNT" means the Seller's Account No. 515-6602 at First
Chicago.
"FALCON RESIDUAL" means the sum of the Falcon Transfer Price Reductions.
"FALCON TRANSFER PRICE" means, with respect to the assignment by Falcon of
one or more Receivable Interests to the Agent for the benefit of the Investors
pursuant to Section 2.1, the sum of (i) the lesser of (a) the Capital of each
Receivable Interest and (b) the Adjusted Liquidity Price of each Receivable
Interest and (ii) all accrued and unpaid Discount and Funding Charges for such
Receivable Interests.
"FALCON TRANSFER PRICE REDUCTION" means in connection with the assignment
of a Receivable Interest by Falcon to the Agent for the benefit of the
Investors, the positive difference between (i) the Capital of such Receivable
Interest and (ii) the Adjusted Liquidity Price for such Receivable Interest.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a fluctuating
interest rate per annum equal for each day during such period equal to (a) the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the preceding
Business Day) by the Federal Reserve Bank of New York in the Composite Closing
Quotations for U.S. Governments Securities; or (b) if such rate is not so
published for any day which is a Business Day, the average of the quotations at
approximately 10:30 a.m. (Chicago time) for such day on such transactions
received by the Reference Bank from three federal funds brokers of recognized
standing selected by it.
"FEE LETTER" means that certain letter agreement dated as of the date
hereof between the Seller and the Agent, as it may be amended or modified and in
effect from time to time.
"FINANCE CHARGES" means, with respect to a Contract, any finance,
interest, late payment charges or similar charges owing by an Obligor pursuant
to such Contract.
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"FIRST CHICAGO" means The First National Bank of Chicago in its individual
capacity and its successors.
"FUNDING AGREEMENT" means this Agreement and any agreement or instrument
executed by any Funding Source with or for the benefit of Falcon.
"FUNDING CHARGES" means (i) in respect of each Receivable Interest funded
substantially with Pooled Commercial Paper, the Pooled Funding Charges, and (ii)
in respect of each Receivable Interest funded substantially with Specially
Pooled Paper, the Special Funding Charges.
"FUNDING SOURCE" means (i) any Investor or (ii) any insurance company,
bank or other financial institution providing liquidity, credit enhancement or
back-up purchase support or facilities to Falcon.
"INCREMENTAL PURCHASE" means a purchase of one or more Receivable
Interests which increases the total outstanding Capital hereunder.
"INDEBTEDNESS" of a Person means such Person's (i) obligations for
borrowed money, (ii) obligations representing the deferred purchase price of
property or services (other than accounts payable arising in the ordinary course
of such Person's business payable on terms customary in the trade), (iii)
obligations, whether or not assumed, secured by liens or payable out of the
proceeds or production from property now or hereafter owned or acquired by such
Person, (iv) obligations which are evidenced by notes, acceptances, or other
instruments, (v) capitalized lease obligations, (vi) net liabilities under
interest rate swap, exchange or cap agreements and (vii) Contingent Obligations.
"INTENDED CHARACTERIZATION" means, for income tax purposes, the
characterization of the acquisition by the Purchasers of Receivable Interests as
a loan or loans by the Purchasers to the Seller secured by the Receivables, the
Related Security and the Collections.
"INVESTOR FEE" means, for each Investor, a fee agreed to in writing by the
Agent or Falcon and such Investor.
"INVESTORS" means the financial institutions listed on the signature pages
of this Agreement under the heading "Investors" and their respective successors
and assigns.
"LIBO RATE" means the rate per annum equal to the sum of (i) (a) the rate
at which deposits in U.S. Dollars are offered by the Reference Bank to
first-class banks in the London interbank market at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of the relevant Tranche
Period, such deposits being in the approximate amount of the Capital of the
Receivable Interest to be funded or maintained, divided by (b) one minus the
Reserve
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Requirement (expressed as a decimal) applicable to such Tranche Period PLUS (ii)
1.75% per annum. The LIBO Rate shall be rounded, if necessary, to the next
higher 1/16 of 1%.
"LIQUIDATION DAY" means, for any Receivable Interest, the earliest to
occur of (i) the day on which the conditions precedent set forth in Section 4.2
are not satisfied, (ii) any Business Day so designated by the Seller or Falcon
after the occurrence of the Termination Date and (iii) the Business Day
immediately prior to the occurrence of a Servicer Default set forth in Section
7.1(d).
"LIQUIDITY TERMINATION DATE" means January 20, 2000.
"LOSS HORIZON RATIO" means a percentage, calculated as of the last day of
any month, equal to (i) the Originator Sales during the three-month period ended
on such date, DIVIDED by (ii) the aggregate Outstanding Balance of Receivables
as of such date that are not Defaulted Receivables.
"LOSS RATIO" means, as of any date, a percentage equal to the highest
three-month rolling average Default Ratio as of the last day of any of the
twelve months then most recently ended.
"LOSS RESERVE PERCENTAGE" means, at any time, the greater of (i) x TIMES
the Loss Ratio TIMES the Loss Horizon Ratio (in each case determined as of the
last day of the month then most recently ended) and (ii) x%.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
financial condition, business or operations of (A) the Seller or (B) the
Transferor and its Subsidiaries taken as a whole, (ii) the ability, financial or
otherwise, of the Seller, the Transferor or any Originator to perform its
obligations under any Transaction Document, (iii) the legality, validity or
enforceability of this Agreement, any Transaction Document or any Collection
Account Agreement or Collection Notice relating to a Collection Account into
which a material portion of Collections are deposited, (iv) any Purchaser's
interest in the Receivables generally or in any significant portion of the
Receivables, the Related Security or the Collections with respect thereto, or
(v) the collectibility of the Receivables generally or of any material portion
of the Receivables.
"MINIMUM RECEIVABLES BALANCE" means, at any time, an amount equal to the
aggregate Capital of the Receivable Interests DIVIDED BY (i) 1 MINUS (ii) the
sum, expressed as a decimal, of the Loss Reserve Percentage, the
Discount/Servicing Reserve Percentage and the Dilution Reserve Percentage.
"MONTHLY REPORT" means a report, in substantially the form of Exhibit VII
hereto (appropriately completed), furnished by the Servicer to the Agent
pursuant to Section 6.5.
"MOODY'S" means Moody's Investors Service, Inc., and any successor
thereto.
"NET RECEIVABLES BALANCE" means, at any time, the aggregate Outstanding
Balance of the Eligible Receivables at such time reduced by the aggregate amount
by which the Outstanding
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Balance of all Eligible Receivables of each Obligor and its Affiliates exceeds
the Concentration Limit for such Obligor.
"OBLIGOR" means a Person obligated to make payments pursuant to a
Contract.
"ORIGINATORS" means each of the Subsidiaries of the Transferor listed on
Exhibit IX.
"ORIGINATOR SALES" means, in respect of any period, aggregate sales by the
Originators that shall have given rise to Receivables in accordance with
generally accepted accounting principles.
"ORIGINATOR TRANSFER AGREEMENT" means that certain Originator Transfer
Agreement of even date herewith among the Transferor, as buyer, and each
Originator, as sellers, as the same may be amended, restated, supplemented or
otherwise modified from time to time.
"OTHER COSTS" has the meaning assigned to that term in SECTION 8.3.
"OUTSTANDING BALANCE" of any Receivable at any time means the then
outstanding principal balance thereof.
"PERSON" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"POOLED ALLOCATION" means, for each Receivable Interest funded
substantially with Pooled Commercial Paper, an amount each day equal to the
product of (i) the Pooled Percentage Share of such Receivable Interest on such
day multiplied by (ii) the aggregate amount of Pooled Funding Charges for such
day.
"POOLED COMMERCIAL PAPER" means Commercial Paper notes of Falcon except
(A) Allocated Commercial Paper, and (B) Specially Pooled Paper.
"POOLED FUNDING CHARGES" means, for each day, the sum of (i) discount
accrued on Pooled Commercial Paper on such day, plus (ii) any and all accrued
commissions in respect of placement agents and Commercial Paper dealers in
respect of such Pooled Commercial Paper for such day, plus (iii) issuing and
paying agent fees incurred on such Pooled Commercial Paper for such day, plus
(iv) other costs associated with funding small or odd-lot amounts with respect
to all Receivable Purchase Facilities which are funded by Pooled Commercial
Paper for such day, minus (v) any accrual of income net of expenses received on
such day from investment of collections received under all Receivable Purchase
Facilities funded with Pooled Commercial Paper, minus (vi) any payment received
on such day net of expenses in respect of broken funding costs related to the
prepayment of any Receivables Interest of Falcon pursuant to the terms of any
Receivable Purchase Facilities funded substantially with Pooled Commercial
Paper.
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"POOLED PERCENTAGE SHARE" means, for each Receivable Interest funded
substantially with Pooled Commercial Paper, a fraction (expressed as a
percentage) the numerator of which is equal to the Capital associated with such
Receivable Interest and the denominator of which is equal to the aggregate
amount of all outstanding capital associated with receivable interests (or
comparable terms used in any Receivable Purchase Facility) held by Falcon which
is funded substantially with Pooled Commercial Paper.
"POTENTIAL SERVICER DEFAULT" means an event which, with the passage of
time or the giving of notice, or both, would constitute a Servicer Default.
"PRO RATA SHARE" means, for each Investor, the Commitment of such Investor
divided by the Purchase Limit, adjusted as necessary to give affect to the
application of the terms of SECTION 2.5. "PURCHASE LIMIT" means the
aggregate of the Commitments of the Investors hereunder.
"PURCHASE NOTICE" has the meaning assigned to that term in SECTION 1.2.
"PURCHASE PRICE" means, with respect to any Incremental Purchase, the
amount specified by the Seller in the related Purchase Notice in respect of the
Receivable Interest then being proposed for sale to the Purchasers, which amount
shall not be greater than the amount which when added to the amount of the
aggregate Capital outstanding immediately prior to the consummation of such
Incremental Purchase would cause the aggregate Receivable Interests upon
consummation of such Incremental Purchase to equal 100%.
"PURCHASER" means Falcon or an Investor, as applicable.
"RECEIVABLE" means the indebtedness and other obligations owed (at the
time it arises, and before giving effect to any transfer or conveyance
contemplated under the Originator Transfer Agreement, the Transfer Agreement or
hereunder) to the applicable Originator, whether constituting an account,
chattel paper, instrument or general intangible, arising in connection with the
sale of goods or the rendering of services by such Originator, and includes,
without limitation, the obligation to pay any Finance Charges with respect
thereto. Indebtedness and other rights and obligations arising from any one
transaction, including, without limitation, indebtedness and other rights and
obligations represented by an individual invoice, shall constitute a Receivable
separate from a Receivable consisting of the indebtedness and other rights and
obligations arising from any other transaction.
"RECEIVABLE INTEREST" means, at any time, an undivided percentage
ownership interest associated with a designated amount of Capital, Discount Rate
and Tranche Period selected pursuant to Section 1.3 in (i) all Receivables
arising prior to the time of the most recent computation or recomputation of
such undivided interest pursuant to Section 1.4, (ii) all Related Security with
respect to such Receivables, and (iii) all Collections with respect to, and
other proceeds of, such Receivables.
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"RECEIVABLE PURCHASE FACILITY" means any receivables purchase agreement or
other similar contracted arrangement to which Falcon is a party relating to the
transfer, purchase or funding of receivables or other financial assets.
"RECORDS" means, with respect to any Receivable, all Contracts and other
documents, books, records and other information (including, without limitation,
computer programs, tapes, disks, punch cards, data processing software and
related property and rights) relating to such Receivable, any Related Security
therefor and the related Obligor.
"REDUCTION PERCENTAGE" means, for any Receivable Interest acquired by the
Investors from Falcon for less than the Capital of such Receivable Interest, a
percentage equal to a fraction the numerator of which is the Falcon Transfer
Price Reduction for such Receivable Interest and the denominator of which is the
Capital of such Receivable Interest.
"REFERENCE BANK" means First Chicago or such other bank as the Agent shall
designate with the consent of the Seller.
"REINVESTMENT" has the meaning assigned to that term in SECTION 1.6.
"RELATED SECURITY" means, with respect to any Receivable:
(i) all of the Seller's interest in the inventory and goods
(including returned or repossessed inventory or goods), if any, the
financing or lease of which by the applicable Originator gave rise to such
Receivable, and all insurance contracts with respect thereto,
(ii) all other security interests or liens and property subject
thereto from time to time, if any, purporting to secure payment of such
Receivable, whether pursuant to the Contract related to such Receivable or
otherwise, together with all financing statements and security agreements
describing any collateral securing such Receivable,
(iii) all guaranties, letters of credit, certificates of deposit,
insurance and other agreements or arrangements of whatever character from
time to time supporting or securing payment of such Receivable whether
pursuant to the Contract related to such Receivable or otherwise,
(iv) all service contracts and other contracts and agreements
associated with such Receivables,
(v) all Records related to such Receivables,
(vi) all of the Seller's right, title and interest in, to and under
the Transfer Agreement, the Originator Transfer Agreement and each
instrument, document
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or agreement executed in connection therewith in favor of or otherwise for
the benefit of the Seller; and
(vii) all proceeds of any of the foregoing.
"REPORTING DATE" means the 15th Business Day of each month.
"REQUIRED INVESTORS" means, at any time, Investors with Commitments in
excess of 66-2/3% of the Purchase Limit.
"RESERVE REQUIREMENT" means the maximum aggregate reserve requirement
(including all basic, supplemental, marginal and other reserves) which is
imposed against the Reference Bank in respect of Eurocurrency liabilities, as
defined in Regulation D of the Board of Governors of the Federal Reserve System
as in effect from time to time.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, or any successor thereto.
"SECTION" means a numbered section of this Agreement, unless another
document is specifically referenced.
"SELLER INTEREST" means, at any time, an undivided percentage ownership
interest of the Seller in the Receivables, Related Security and all Collections
with respect thereto equal to (i) one, minus (ii) the aggregate of the
Receivable Interests.
"SERVICER" means at any time the Person (which may be the Agent) then
authorized pursuant to Section 6.1 to service, administer and collect
Receivables.
"SERVICER DEFAULT" has the meaning specified in Article VII.
"SERVICING FEE" has the meaning specified in Section 6.6.
"SETTLEMENT DATE" means (i) the fifth Business Day in each calendar month
and (ii) from and after the Termination Date or the occurrence of any Servicer
Default, each additional day designated as such by the Agent.
"SPECIAL FUNDING CHARGES" means, for each day, the sum of (i) discount
accrued on Specially Pooled Paper on such day, plus (ii) any and all accrued
commissions in respect of placement agents and Commercial Paper dealers in
respect of such Specially Pooled Paper for such day, plus (iii) issuing and
paying agent fees incurred on such Specially Pooled Paper for such day, plus
(iv) other costs associated with funding small or odd-lot amounts with respect
to all Receivable Purchase Facilities which are funded by Specially Pooled Paper
for such day, minus (v) any accrual of income net of expenses received on such
day from investment of collections received under all Receivable
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Purchase Facilities funded with Specially Pooled Paper, minus (vi) any payment
received on such day net of expenses in respect of broken funding costs related
to the prepayment of any Receivable Interest of Falcon pursuant to the terms of
any Receivable Purchase Facility funded substantially with Specially Pooled
Paper.
"SPECIAL PERCENTAGE SHARE" means, for each Receivable Interest funded
substantially with Specially Pooled Paper, a fraction (expressed as a
percentage) the numerator of which is equal to the Capital associated with such
Receivable Interest and the denominator of which is equal to the aggregate
amount of all outstanding capital associated with receivable interests (or
comparable terms used in any Receivable Purchase Facility) held by Falcon which
is funded substantially with Specially Pooled Paper.
"SPECIAL POOLED PERIOD" means any period commencing on (i) each March 15th
and ending on the following April 5th, (ii) each June 15th and ending on the
following July 5th, (iii) each September 15th and ending on the following
October 5th, or (iv) each December 15th and ending on the following January 5th.
If the last day of any Special Pooled Period shall not be a Business Day, the
last day of such Special Pooled Period shall be the next succeeding Business
Day.
"SPECIALLY POOLED ALLOCATION" means, for each Receivable Interest funded
substantially with Specially Pooled Paper, an amount each day equal to the
product of (i) the Special Percentage Share of such Receivable Interest on such
day multiplied by the (ii) the aggregate amount of Special Funding Charges for
such day.
"SPECIALLY POOLED PAPER" means the aggregate of all Commercial Paper notes
of Falcon issued during any Special Pooled Period and allocated by the Agent to
Specially Pooled Paper in accordance with Section 1.9(b) hereof. Specially
Pooled Paper will not include Pooled Commercial Paper or Allocated Commercial
Paper at any time.
"SUBSIDIARY" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Seller.
"TERMINATION DATE" means, the earliest of (i) the Liquidity Termination
Date, (ii) the date of the declaration or automatic occurrence of the
Termination Date pursuant to Section 7.1 and (iii) the date designated by the
Seller or the Transferor upon 15 Business Days prior written notice to the
Agent; PROVIDED that, solely with respect to any Receivable Interest of Falcon,
"Termination Date" shall in addition be any date designated by Falcon as such in
a notice given to the Seller and the Agent.
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"TRANCHE PERIOD" means, with respect to any Receivable Interest:
(a) if the Discount Rate with respect to such Receivable Interest is
the CP Rate, the Accrual Period;
(b) if Discount for such Receivable Interest is calculated on the
basis of the LIBO Rate, a period of one, two or three months, or such
other period as may be mutually agreeable to the Agent and the Seller,
commencing on a Business Day selected by the Seller or the Agent pursuant
to this Agreement. Such Tranche Period shall end on the day in the
applicable succeeding calendar month which corresponds numerically to the
beginning day of such Tranche Period, provided, however, that if there is
no such numerically corresponding day in such succeeding month, such
Tranche Period shall end on the last Business Day of such succeeding
month; and
(c) if Discount for such Receivable Interest is calculated on the
basis of the Base Rate, a period of 30 days commencing on a Business Day
selected by the Seller.
If any Tranche Period would end on a day which is not a Business Day, such
Tranche Period shall end on the next succeeding Business Day, PROVIDED, however,
that in the case of Tranche Periods corresponding to the LIBO Rate, if such next
succeeding Business Day falls in a new month, such Tranche Period shall end on
the immediately preceding Business Day. In the case of any Tranche Period for
any Receivable Interest of which commences before the Termination Date and would
otherwise end on a date occurring after the Termination Date, such Tranche
Period shall end on the Termination Date. The duration of each Tranche Period
which commences after the Termination Date shall be of such duration as selected
by the Agent.
"TRANSACTION DOCUMENTS" means, collectively, this Agreement, the Transfer
Agreement, the Originator Transfer Agreement, the Fee Letter, each Collection
Account Agreement and all other instruments, documents and agreements executed
and delivered by the Seller, the Transferor or the Originator in connection
herewith.
"TRANSFER AGREEMENT" means that certain Receivable Purchase Agreement of
even date herewith between the Seller, as purchaser, and the Transferor, as
seller, as the same may be amended, restated, supplemented or otherwise modified
from time to time.
"TRANSFEROR" means Metals USA, Inc., a Delaware corporation.
"TRANSFEROR CREDIT AGREEMENT" means that certain Amended and Restated
Credit Agreement originally dated as of July 15, 1997 and amended and restated
as of February 11, 1998, among the Transferor, the institutions from time to
time parties thereto as Lenders and The First National Bank of Chicago, as
Agent, as the same has been amended prior to the date hereof and may be further
amended, restated, supplemented or otherwise modified from time to time.
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"UCC" means the Uniform Commercial Code as from time to time in effect in
the specified jurisdiction.
"YEAR 2000 ISSUES" means anticipated costs, problems and uncertainties
associated with the inability of certain computer applications to effectively
handle data including dates on and after January 1, 2000, as such inability
affects the business, operations, and financial condition of the Seller, the
Transferor, or any Originator and of the Seller's, the Transferor's or any
Originator's material customers, suppliers and vendors.
All accounting terms not specifically defined herein shall be construed in
accordance with generally accepted accounting principles. All terms used in
Article 9 of the UCC in the State of Illinois, and not specifically defined
herein, are used herein as defined in such Article 9.
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EXHIBIT II
PRINCIPAL PLACE OF BUSINESS OF THE SELLER; LOCATION(S) OF RECORDS;
FEDERAL EMPLOYER IDENTIFICATION NUMBERS
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EXHIBIT III
LOCK-BOXES;
CONCENTRATION ACCOUNTS; AND DEPOSITARY ACCOUNTS
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EXHIBIT IV
FORM OF COMPLIANCE CERTIFICATE
To: The First National Bank of Chicago, as Agent
This Compliance Certificate is furnished pursuant to that certain
Receivables Purchase Agreement dated as of January 21, 1999, among Metals
Receivables Corporation (the "Seller"), Falcon Asset Securitization Corporation,
the financial institutions party thereto and The First National Bank of Chicago,
as agent (the "Agreement").
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected of the Seller;
2. I have reviewed the terms of the Agreement and I have made, or have
caused to be made under my supervision, a detailed review of the transactions
and conditions of the Seller and its Subsidiaries during the accounting period
covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I have
no knowledge of, the existence of any condition or event which constitutes a
Servicer Default or Potential Servicer Default other than with respect to those
Servicer Defaults set forth in SECTION 7.1(E) of the Agreement, as each such
term is defined under the Agreement, during or at the end of the accounting
period covered by the attached financial statements or as of the date of this
Certificate, except as set forth below;
4. The examinations described in paragraph 2 did not disclose, and I have
no knowledge of, the existence of any condition or event which constitutes a
Servicer Default or Potential Servicer Default with respect to those Servicer
Defaults set forth in SECTION 7.1(E) of the Agreement, as each such term is
defined under the Agreement, as of the applicable date certified in each Monthly
Report issued by the Servicer during of the accounting period covered by the
attached financial statements, except as set forth below; and
5. Schedule I attached hereto sets forth financial data and computations
evidencing the compliance with certain covenants of the Agreement, all of which
data and computations are true, complete and correct.
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Seller has taken, is taking, or proposes to
take with respect to each such condition or event:
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The foregoing certifications, together with the computations set forth in
Schedule I hereto and the financial statements delivered with this Certificate
in support hereof, are made and delivered this ____ day of ______________,
19___.
SCHEDULE I TO COMPLIANCE REPORT
A. Schedule of Compliance as of __________, 19____ with Sections ___ of the
Agreement. Unless otherwise defined herein, the terms used in this
Compliance Certificate have the meanings ascribed thereto in the
Agreement.
This schedule relates to the month ended:
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EXHIBIT V
FORM OF COLLECTION ACCOUNT AGREEMENT
[On letterhead of Seller]
19
[Lock-Box Bank/Concentration Bank/Depositary Bank]
Re: [ORIGINATOR]
METALS USA, INC.
METALS RECEIVABLES CORPORATION
Ladies and Gentlemen:
You have exclusive control of P.O. Box #_____________ in [CITY, STATE, ZIP
CODE] (the "Lock-Box") for the purpose of receiving mail and processing payments
therefrom pursuant to that certain [name of lock-box agreement) between you and
[ORIGINATOR][Metals USA, Inc.] dated (the "Agreement"). You hereby confirm your
agreement to perform the services described therein. Among the services you have
agreed to perform therein, is to endorse all checks and other evidences of
payment, and credit such payments to our checking account no. __________
maintained with you in the name of [ORIGINATOR][Metals USA, Inc.] (the "Lock-Box
Account").
[ORIGINATOR][Metals USA, Inc.], hereby transfers and assigns all of its
right, title and interest in and to, and exclusive ownership and control over,
the Lock-Box and the Lock-Box Account to Metals Receivables Corporation (the
"Seller"). We hereby request that the name of the Lock-Box Account be changed to
Metals Receivables Corporation, as "Collection Agent" for the benefit of The
First National Bank of Chicago ("FNBC"), as agent under that certain Receivables
Purchase Agreement (the "Receivables Purchase Agreement") dated as of January
21, 1999 among the Seller, Falcon Asset Securitization Corporation, certain
financial institutions parties thereto and FNBC.
The Seller hereby irrevocably instructs you, and you hereby agree, that
upon receiving notice from FNBC in the form attached hereto as Annex A: (i) the
name of the Lock-Box Account will be changed to FNBC for itself and as agent (or
any designee of FNBC) and FNBC will have exclusive ownership of and access to
such Lock-Box Account, and neither the Seller nor any of our affiliates will
have any control of such Lock-Box Account or any access thereto, (ii) you will
either continue to send the funds from the Lock-Box to the Lock-Box Account, or
will redirect the funds as FNBC may otherwise request, (iii) you will transfer
monies on deposit in the Lock-Box
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Account, at any time, as directed by FNBC, (iv) all services to be performed by
you under the Agreement will be performed on behalf of FNBC, and (v) all
correspondence or other mail which you have agreed to send us will be sent to
FNBC at the following address:
The First National Bank of Chicago
Suite , 21st Floor
One First National Plaza
Chicago, Illinois 60670
Attention: Credit Manager, Asset Backed
Securities Division
Moreover, upon such notice, FNBC for itself and as agent will have all
rights and remedies given to us under the Agreement. We agree, however, to
continue to pay all fees and other assessments due thereunder at any time.
You hereby acknowledge that monies deposited in the Lock-Box Account or
any other account established with you by FNBC for the purpose of receiving
funds from the Lock-Box are subject to the liens of FNBC for itself and as agent
under the Receivables Purchase Agreement, and will not be subject to deduction,
set-off, banker's lien or any other right you or any other party may have
against us, except that you may debit the Lock-Box Account for any items
deposited therein that are returned or otherwise not collected and for all
charges, fees, commissions and expenses incurred by you in providing services
hereunder, all in accordance with your customary practices for the charge back
of returned items and expenses.
This letter agreement and the rights and obligations of the parties
hereunder will be governed by and construed and interpreted in accordance with
the laws of the State of Illinois. This letter agreement may be executed in any
number of counterparts and all of such counterparts taken together will be
deemed to constitute one and the same instrument. All references herein to "we"
or "us" refer to [ORIGINATOR][Metals USA, Inc.] and Metals Receivables
Corporation
This letter agreement contains the entire agreement between the parties,
and may not be altered, modified, terminated or amended in any respect, nor may
any right, power or privilege of any party hereunder be waived or released or
discharged, except upon execution by all parties hereto of a written instrument
so providing. In the event that any provision in this letter agreement is in
conflict with, or inconsistent with, any provision of the Agreement, this letter
agreement will exclusively govern and control. Each party agrees to take all
actions reasonably requested by any other party to carry out the purposes of
this letter agreement or to preserve and protect the rights of each party
hereunder.
Please indicate your agreement to the terms of this letter agreement by
signing in the space provided below. This letter agreement will become effective
immediately upon execution of a counterpart of this letter agreement by all
parties hereto.
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Very truly yours,
[ORIGINATOR][METALS USA, INC.]
By:
Name:______________________
Title
METALS RECEIVABLES CORPORATION
By:
Name:______________________
Title
Acknowledged and agreed to
this day of
[COLLECTION BANK]
By:
Name:______________________
Title:
Acknowledged and agreed to
this day of , 19
THE FIRST NATIONAL BANK OF
CHICAGO (for itself and
as agent)
By:
Name:___________________________
Title:
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ANNEX A
FORM OF COLLECTION NOTICE
[On letterhead of FNBC]
, 19
[Collection Bank/Depositary Bank/Concentration Bank]
Re: Metals Receivables Corporation
Ladies and Gentlemen:
We hereby notify you that we are exercising our rights pursuant to that
certain letter agreement among [ORIGINATOR][Metals USA, Inc.], Metals
Receivables Corporation, you and us, to have the name of, and to have exclusive
ownership and control of, account number (the "Lock-Box Account") maintained
with you, transferred to us. [Lock-Box Account will henceforth be a zero-balance
account, and funds deposited in the Lock-Box Account should be sent at the end
of each day to .] You have further agreed to perform all other services you are
performing under that certain agreement dated between you and Metals Receivables
Corporation on our behalf.
We appreciate your cooperation in this matter.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
(for itself and as agent)
By:
Title:
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EXHIBIT VI
CREDIT AND COLLECTION POLICY
(Attached)
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<PAGE>
EXHIBIT VII
FORM OF MONTHLY REPORT
(Attached)
EXHIBIT VIII
FORM OF PURCHASE NOTICE
[Date]
The First National Bank of Chicago as Agent for the Purchasers parties to the
Receivables Purchase Agreement referred to below
Suite _____
One First National Plaza
Chicago Illinois 60670
Attention: Asset-Backed Markets
Gentlemen:
The undersigned, METALS RECEIVABLES CORPORATION, refers to the
Receivables Purchase Agreement, dated as of January 21, 1999 (the "Receivables
Purchase Agreement", the terms defined therein being used herein as therein
defined), among the undersigned, Falcon Asset Securitization Corporation
("Falcon"), certain Investors parties thereto and The First National Bank of
Chicago, as Agent for Falcon and such Investors (Falcon and Investors,
collectively, the "Purchasers"), and hereby gives you notice irrevocably,
pursuant to Section 1.2 of the Receivables Purchase Agreement, that the
undersigned hereby requests a purchase under the Receivables Purchase Agreement,
and in that connection sets forth below the information relating to such
purchase (the "Proposed Purchase") as required by Section 1.2 of the Receivables
Purchase Agreement:
(i) The Business Day of the Proposed Purchase is _________, 19__.
(ii) The requested Purchase Price in respect of the Proposed Purchase is
$_______.
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(iii) The requested Purchaser[s] in respect of the Proposed Purchase [is
Falcon] [are the Investors].
(iii) The duration of the initial Tranche Period for the Proposed Purchase
is _______ [days] [months][the Accrual Period].
(iv) The Discount Rate related to such initial Tranche Period is
requested to be the [CP][LIBO] [Base] Rate [and is requested to be
funded with Specially Pooled Paper in accordance with Section
1.9(b)].
The undersigned hereby certifies that the conditions precedent in
Section 4.2 of the Receivables Purchase Agreement are satisfied, including,
without limitation, that the following statements are true on the date hereof,
and will be true on the date of the Proposed Purchase (before and after giving
effect to the Proposed Purchase):
(A) the representations and warranties set forth in Article III of the
Receivables Purchase Agreement are correct in all material respects
on and as of such date, as though made on and as of such date;
(B) no event has occurred, or would result from the Proposed Purchase
that will constitute a Servicer Default, and no event has occurred
and is continuing, or would result from such Proposed Purchase, that
would constitute a Potential Servicer Default; and
(C) the Liquidity Termination Date shall not have occurred, the
aggregate Capital of all Receivable Interests shall not exceed the
Purchase Limit and the aggregate Receivable Interests shall not
exceed 100%.
Very truly yours,
METALS RECEIVABLES CORPORATION
By:_____________________________
Name:________________________
Title:_________________________
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EXHIBIT IX
ORIGINATORS
SCHEDULE A
DOCUMENTS AND RELATED ITEMS TO BE DELIVERED TO THE AGENT
ON OR PRIOR TO THE INITIAL PURCHASE
1. Copy of the Resolutions of the Board of Directors of the Seller certified
by its Secretary authorizing the Seller's execution, delivery and
performance of this Agreement and the other documents to be delivered by
it thereunder.
2. Articles or Certificate of Incorporation of the Seller certified by the
Secretary of State of the jurisdiction of incorporation of the Seller on
or within thirty (30) days prior to the initial Purchase.
3. Good Standing Certificate for the Seller issued by the Secretaries of
State of each jurisdiction where it has material operations.
4. A certificate of the Secretary of the Seller certifying (i) the names and
signatures of the officers authorized on its behalf to execute the
Agreement and any other documents to be delivered by it thereunder and
(ii) a copy of the Seller's By-Laws.
5. Time stamped receipt copies of proper financing statements, duly filed
under the UCC on or before the date of such initial Purchase in all
jurisdictions as may be necessary or, in the opinion of the Agent,
desirable, under the UCC of all appropriate jurisdictions or any
comparable law in order to perfect the ownership interests contemplated by
the Agreement.
6. Time stamped receipt copies of proper UCC termination statements, if any,
necessary to release all security interests and other rights of any Person
in the Receivables, Contracts or Related Security previously granted by
the Seller.
7. Executed copy of the Collection Account Agreements.
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8. A favorable opinion of legal counsel for the Seller reasonably acceptable
to the Agent which addresses general corporate matters enforceability,
perfection and such other matters as the Agent may reasonably request.
9. If requested by Falcon or the Agent, a favorable opinion of legal counsel
for each Investor, reasonably acceptable to the Agent which addresses the
following matters:
-- The Agreement has been duly authorized by all necessary corporate
action of the Investor.
-- The Agreement has been duly executed and delivered by the Investor
and, assuming due authorization, execution and delivery by each of
the other parties thereto, constitutes a legal, valid and binding
obligation of the Investor, enforceable against the Investor in
accordance with its terms.
10. A Compliance Certificate.
11. Written information from the Borrower, satisfactory to each Agent and each
Lender, indicating that the Borrower (a) has made a full and complete
assessment of the Year 2000 Issues; (b) has a realistic and achievable
program for remediating the Year 2000 Issues on a timely basis, and (c)
does not reasonably anticipate that Year 2000 Issues will have a Material
Adverse Effect.
12. The Fee Letter.
13. A direction letter executed by the Seller authorizing the Agent, and
directing warehousemen to allow the Agent, to inspect and make copies from
Seller's books and records maintained at off-site data processing or
storage facilities.
14. A Monthly Report as at , 19___.
15. Executed copies of (i) all consents from and authorizations by any Persons
and (ii) all waivers and amendments to existing credit facilities, that
are necessary in connection with the Agreement.
16. For each Purchaser that is not incorporated under the laws of the United
States of America, or a state thereof, two duly completed copies of United
States Internal Revenue Service Form 1001 or 4224, certifying in either
case that such Purchaser is entitled to receive payments under the
Agreement without deduction or withholding of any United States federal
income taxes.
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EXHIBIT 10.22
AMENDMENT NO. 1
DATED AS OF NOVEMBER 25, 1998
TO
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF FEBRUARY 11, 1998
THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT
("AMENDMENT") is made as of this 25th day of November, 1998 by and among METALS
USA, INC., (the "BORROWER"), the financial institutions parties thereto as
lenders (the "LENDERS"), THE FIRST NATIONAL BANK OF CHICAGO, as Agent (the
"AGENT") under that certain Amended and Restated Credit Agreement dated as of
February 11, 1998 by and among the Borrower, the Lenders and the Agent (the
"CREDIT AGREEMENT"). Capitalized terms used herein and not otherwise defined
herein shall have the meaning given to them in the Credit Agreement.
WITNESSETH
WHEREAS, the Borrower, the Lenders and the Agent are parties to the
Credit Agreement; and
WHEREAS, the Borrower has requested certain amendments to the Credit
Agreement;
WHEREAS, the Borrower, the Lenders and the Agent have agreed to amend the
Credit Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Borrower, the Lenders and the Agent have agreed to the following amendments to
the Credit Agreement.
1. AMENDMENT TO CREDIT AGREEMENT.
(A) RETROACTIVE AMENDMENTS. EFFECTIVE RETROACTIVELY TO JULY 15,
1997, AND SUBJECT TO THE SATISFACTION OF THE APPLICABLE CONDITIONS
PRECEDENT SET FORTH IN SECTION 2 BELOW, THE CREDIT AGREEMENT IS HEREBY
AMENDED AS FOLLOWS:
1.1. SECTION 1.1 OF THE CREDIT AGREEMENT IS AMENDED TO DELETE THE
DEFINITION OF "EXISTING LETTER OF CREDIT" CONTAINED THEREIN IN ITS
ENTIRETY.
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<PAGE>
1.2. SECTION 1.1 OF THE CREDIT AGREEMENT IS FURTHER AMENDED TO
DELETE THE DEFINITIONS OF "ISSUING BANKS" AND "LETTER OF CREDIT" THEREFROM
IN THEIR ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
"ISSUING BANKS" MEANS FIRST CHICAGO AND ANY OTHER LENDER WHICH, AT
THE BORROWER'S REQUEST, AGREES, IN EACH SUCH LENDER'S SOLE DISCRETION, TO
BECOME AN ISSUING BANK FOR THE PURPOSE OF ISSUING LETTERS OF CREDIT, AND
THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, IN EACH CASE IN SUCH LENDER'S
SEPARATE CAPACITY AS AN ISSUER OF LETTERS OF CREDIT PURSUANT TO SECTION
3.1. THE DESIGNATION OF ANY LENDER AS AN ISSUING BANK AFTER THE DATE
HEREOF SHALL BE SUBJECT TO THE PRIOR WRITTEN CONSENT OF THE AGENT.
"LETTER OF CREDIT" MEANS THE LETTERS OF CREDIT ISSUED BY THE ISSUING
BANKS PURSUANT TO SECTION 3.1 HEREOF AFTER THE ORIGINAL CLOSING DATE.
1.3. SECTION 1.3 OF THE CREDIT AGREEMENT IS AMENDED TO DELETE THE
THIRD SENTENCE THEREOF IN ITS ENTIRETY.
1.4. SECTION 3.1 OF THE CREDIT AGREEMENT IS AMENDED TO DELETE THE
LAST SENTENCE THEREOF IN ITS ENTIRETY.
1.5. SECTION 3.5 OF THE CREDIT AGREEMENT IS AMENDED TO DELETE THE
FIRST SENTENCE THEREOF IN ITS ENTIRETY AND TO SUBSTITUTE THE FOLLOWING
THEREFOR:
UNLESS A LENDER SHALL HAVE NOTIFIED THE ISSUING BANK, PRIOR TO ITS
ISSUANCE OF A LETTER OF CREDIT, THAT ANY APPLICABLE CONDITION PRECEDENT
SET FORTH IN SECTIONS 5.1 AND 5.2 HAD NOT THEN BEEN SATISFIED, IMMEDIATELY
UPON THE ISSUANCE OF EACH OTHER LETTER OF CREDIT HEREUNDER, EACH LENDER
SHALL BE DEEMED TO HAVE AUTOMATICALLY, IRREVOCABLY AND UNCONDITIONALLY
PURCHASED AND RECEIVED FROM THE APPLICABLE ISSUING BANK AN UNDIVIDED
INTEREST AND PARTICIPATION IN AND TO SUCH LETTER OF CREDIT, THE
OBLIGATIONS OF THE BORROWER IN RESPECT THEREOF, AND THE LIABILITY OF SUCH
ISSUING BANK THEREUNDER (COLLECTIVELY, AN "L/C INTEREST") IN AN AMOUNT
EQUAL TO THE AMOUNT AVAILABLE FOR DRAWING UNDER SUCH LETTER OF CREDIT
MULTIPLIED BY SUCH LENDER'S PRO RATA SHARE.
1.6. SECTION 3.7 OF THE CREDIT AGREEMENT IS AMENDED TO DELETE THE
LAST SENTENCE THEREOF IN ITS ENTIRETY.
(B) AMENDMENTS AS OF THE DATE HEREOF. EFFECTIVE AS OF THE DATE THAT
IS THREE (3) BUSINESS DAYS FOLLOWING SATISFACTION OF THE CONDITIONS
PRECEDENT SET FORTH IN SECTION 2 BELOW (THE "AMENDMENT EFFECTIVE DATE"),
THE CREDIT AGREEMENT IS HEREBY AMENDED AS FOLLOWS:
1.7 SECTION 1.1 OF THE CREDIT AGREEMENT IS AMENDED TO DELETE CLAUSE
(IV) FROM THE DEFINITION OF "CHANGE OF CONTROL" IN ITS ENTIRETY AND TO
SUBSTITUTE THE FOLLOWING THEREFOR:
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<PAGE>
(IV) OTHER THAN AS A RESULT OF A TRANSACTION PERMITTED UNDER THE
TERMS OF THIS AGREEMENT, THE BORROWER SHALL CEASE TO OWN, OF RECORD AND
BENEFICIALLY, WITH SOLE VOTING AND DISPOSITIVE POWER, (A) 80% OF THE
OUTSTANDING SHARES OF CAPITAL STOCK OF EACH OF THE GUARANTORS, (B) 100% OF
THE OUTSTANDING SHARES OF CAPITAL STOCK OF THE SPC (IF FORMED), OR (C)
SHALL CEASE TO HAVE THE POWER, DIRECTLY OR INDIRECTLY, TO ELECT A MAJORITY
OF THE MEMBERS OF THE BOARD OF DIRECTORS OF EACH OF THE GUARANTORS; OR
1.8 SECTION 1.1 OF THE CREDIT AGREEMENT IS FURTHER AMENDED TO ADD
THE FOLLOWING DEFINITIONS IN THE APPLICABLE ALPHABETICAL LOCATIONS:
"BUYING LENDER(S)" IS DEFINED IN SECTION 2.4(C).
"COMMITMENT INCREASE NOTICE" IS DEFINED IN SECTION 2.4(B).
"DOMESTIC SUBSIDIARIES" MEANS ANY SUBSIDIARY OF ANY PERSON ORGANIZED
UNDER THE LAWS OF ANY STATE OF THE UNITED STATES.
"EFFECTIVE COMMITMENT AMOUNTS" IS DEFINED IN SECTION 2.4(B).
"FOREIGN EMPLOYEE BENEFIT PLAN" MEANS ANY EMPLOYEE BENEFIT PLAN AS
DEFINED IN SECTION 3(3) OF ERISA WHICH (I) IS MAINTAINED OR CONTRIBUTED TO
FOR THE BENEFIT OF EMPLOYEES OF THE BORROWER, ANY OF ITS SUBSIDIARIES OR
ANY MEMBER OF ITS CONTROLLED GROUP, (II) IS NOT COVERED BY ERISA PURSUANT
TO SECTION 4(B)(4) OF ERISA, AND (III) COULD REASONABLY SUBJECT BORROWER
OR ANY OF ITS DOMESTIC SUBSIDIARIES TO LIABILITY.
"FOREIGN PENSION PLAN" MEANS ANY FOREIGN EMPLOYEE BENEFIT PLAN WHICH
UNDER APPLICABLE LOCAL LAW IS REQUIRED TO BE FUNDED THROUGH A TRUST OR
OTHER FUNDING VEHICLE.
"HOLDERS OF SECURED OBLIGATIONS" MEANS THE HOLDERS OF THE SECURED
OBLIGATIONS FROM TIME TO TIME AND SHALL REFER TO (I) EACH LENDER IN
RESPECT OF ITS LOANS, (II) THE ISSUING BANK IN RESPECT OF REIMBURSEMENT
OBLIGATIONS, (III) THE AGENT, THE LENDERS, THE SWING LINE BANK AND THE
ISSUING BANK IN RESPECT OF ALL OTHER PRESENT AND FUTURE OBLIGATIONS AND
LIABILITIES OF THE BORROWER OR ANY OF ITS DOMESTIC SUBSIDIARIES OF EVERY
TYPE AND DESCRIPTION ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, (III) EACH INDEMNITEE IN RESPECT OF THE
OBLIGATIONS AND LIABILITIES OF THE BORROWER TO SUCH PERSON HEREUNDER, (IV)
EACH LENDER (OR AFFILIATE THEREOF), IN RESPECT OF ALL HEDGING OBLIGATIONS
OF THE BORROWER OR ANY OF ITS SUBSIDIARIES TO SUCH LENDER (OR SUCH
AFFILIATE) AS EXCHANGE PARTY OR COUNTERPARTY UNDER ANY INTEREST RATE
AGREEMENT, AND (V) THEIR RESPECTIVE SUCCESSORS, TRANSFEREES AND ASSIGNS.
"LENDER INCREASE NOTICE" IS DEFINED IN SECTION 2.4(B).
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<PAGE>
"ORIGINATORS" MEANS THE BORROWER OR ANY OF ITS SUBSIDIARIES IN THEIR
CAPACITIES AS PARTIES TO ANY RECEIVABLES SALE AGREEMENT AND SELLER OR
TRANSFEROR OF ANY RECEIVABLES IN CONNECTION WITH A PERMITTED RECEIVABLES
TRANSFER.
"PERMITTED RECEIVABLES TRANSFER" MEANS (A) A SALE OR ANOTHER
TRANSFER BY ANY ORIGINATOR OF RECEIVABLES (AND ANY RELATED SECURITY AND
COLLECTIONS) (COLLECTIVELY, "RECEIVABLES INTERESTS") FOR FAIR MARKET VALUE
AND WITHOUT RECOURSE (EXCEPT FOR LIMITED RECOURSE CUSTOMARY FOR SIMILAR
STRUCTURED FINANCE TRANSACTIONS) TO A PERSON, INCLUDING SPC, IN A
TRANSACTION IN WHICH ANOTHER PERSON THEN PURCHASES OR IS OTHERWISE
TRANSFERRED SUCH RECEIVABLES INTERESTS AND (B) A SALE BY SPC TO SUCH OTHER
PERSON OF RECEIVABLES INTERESTS PURCHASED BY SPC FROM AN ORIGINATOR OR
TRANSFERRED TO THE SPC BY AN ORIGINATOR, IN EACH CASE PURSUANT TO
RECEIVABLES PURCHASE AND SALE DOCUMENTS IN FORM AND SUBSTANCE REASONABLY
ACCEPTABLE TO THE AGENT AND GENERALLY CONSISTENT WITH TERMS CONTAINED IN
COMPARABLE STRUCTURED FINANCE TRANSACTIONS (AS AMENDED, MODIFIED AND/OR
RESTATED FROM TIME TO TIME IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT,
THE "RECEIVABLES PURCHASE DOCUMENTS").
"PROPOSED NEW LENDER" IS DEFINED IN SECTION 2.4(B).
"RECEIVABLE(S)" MEANS AND INCLUDES ALL OF THE BORROWER'S AND ITS
SUBSIDIARIES' PRESENTLY EXISTING AND HEREAFTER ARISING OR ACQUIRED
ACCOUNTS, ACCOUNTS RECEIVABLE, AND ALL PRESENT AND FUTURE RIGHTS OF THE
BORROWER AND ITS SUBSIDIARIES TO PAYMENT FOR GOODS SOLD OR LEASED OR FOR
SERVICES RENDERED (EXCEPT THOSE EVIDENCED BY INSTRUMENTS OR CHATTEL
PAPER), WHETHER OR NOT THEY HAVE BEEN EARNED BY PERFORMANCE, AND ALL
RIGHTS IN ANY MERCHANDISE OR GOODS WHICH ANY OF THE SAME MAY REPRESENT,
AND ALL RIGHT, TITLE, SECURITY AND GUARANTIES WITH RESPECT TO EACH OF THE
FOREGOING, INCLUDING, WITHOUT LIMITATION, ANY RIGHT OF STOPPAGE IN
TRANSIT.
"RECEIVABLES INTERESTS" IS DEFINED IN THE DEFINITION OF PERMITTED
RECEIVABLES TRANSFER ABOVE.
"RECEIVABLES PURCHASE DOCUMENTS" IS DEFINED IN THE DEFINITION OF
PERMITTED RECEIVABLES TRANSFER ABOVE.
"SELLING LENDER(S)" IS DEFINED IN SECTION 2.4(C).
"SPC" MEANS A SPECIAL PURPOSE, WHOLLY-OWNED SUBSIDIARY OF THE
BORROWER, FORMED FOR THE PURPOSE OF IMPLEMENTING THE PERMITTED RECEIVABLES
TRANSFER.
"YEAR 2000 ISSUES" MEANS ANTICIPATED COSTS, PROBLEMS AND
UNCERTAINTIES ASSOCIATED WITH THE INABILITY OF CERTAIN COMPUTER
APPLICATIONS TO EFFECTIVELY HANDLE DATA INCLUDING DATES ON AND AFTER
JANUARY 1, 2000, AS SUCH INABILITY AFFECTS THE BUSINESS, OPERATIONS, AND
FINANCIAL CONDITION OF THE BORROWER AND ITS SUBSIDIARIES AND OF THE
BORROWER'S OR ITS SUBSIDIARIES' MATERIAL CUSTOMERS, SUPPLIERS AND VENDORS.
4
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1.9 SECTION 1.1 OF THE CREDIT AGREEMENT IS FURTHER AMENDED TO DELETE
THE DEFINITIONS OF "AGGREGATE COMMITMENT", "GUARANTORS", "INDEBTEDNESS",
"INTEREST EXPENSE", "LENDERS", "OFF BALANCE SHEET LIABILITIES", "ORIGINAL
CREDIT AGREEMENT" AND "SWING LINE COMMITMENT" THEREFROM IN THEIR ENTIRETY
AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
"AGGREGATE COMMITMENT" MEANS THE AGGREGATE OF THE COMMITMENTS OF
ALL THE LENDERS, AS AMENDED FROM TIME TO TIME PURSUANT TO THE TERMS
HEREOF. THE INITIAL AGGREGATE COMMITMENT IS THREE HUNDRED FIFTY
MILLION AND 00/100 DOLLARS ($350,000,000.00).
"GUARANTORS" MEANS ALL OF THE BORROWER'S DOMESTIC SUBSIDIARIES AS OF
THE EFFECTIVE DATE AND ANY OTHER NEW SUBSIDIARIES WHICH ARE DOMESTIC
SUBSIDIARIES AND HAVE SATISFIED THE PROVISIONS OF SECTION 7.3(G)(II)
HEREOF, AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS. NOTWITHSTANDING
ANYTHING HEREIN TO THE CONTRARY, THE SPC, IF FORMED, SHALL NOT BE REQUIRED
TO BE OR BECOME A GUARANTOR AND SHALL NOT BE INCLUDED IN THE DEFINITION OF
GUARANTOR.
"INDEBTEDNESS" OF ANY PERSON MEANS, WITHOUT DUPLICATION, SUCH
PERSON'S (A) OBLIGATIONS FOR BORROWED MONEY, (B) OBLIGATIONS REPRESENTING
THE DEFERRED PURCHASE PRICE OF PROPERTY OR SERVICES (OTHER THAN ACCOUNTS
PAYABLE ARISING IN THE ORDINARY COURSE OF SUCH PERSON'S BUSINESS PAYABLE
ON TERMS CUSTOMARY IN THE TRADE), (C) OBLIGATIONS, WHETHER OR NOT ASSUMED,
SECURED BY LIENS OR PAYABLE OUT OF THE PROCEEDS OR PRODUCTION FROM
PROPERTY OR ASSETS NOW OR HEREAFTER OWNED OR ACQUIRED BY SUCH PERSON, (D)
OBLIGATIONS WHICH ARE EVIDENCED BY NOTES, ACCEPTANCES OR OTHER
INSTRUMENTS, (E) CAPITALIZED LEASE OBLIGATIONS, (F) REIMBURSEMENT
OBLIGATIONS WITH RESPECT TO LETTERS OF CREDIT (OTHER THAN COMMERCIAL
LETTERS OF CREDIT) ISSUED FOR THE ACCOUNT OF SUCH PERSON, (G) HEDGING
OBLIGATIONS, (H) OFF BALANCE SHEET LIABILITIES AND (I) CONTINGENT
OBLIGATIONS IN RESPECT OF OBLIGATIONS OF ANOTHER PERSON OF THE TYPE
DESCRIBED IN THE FOREGOING CLAUSES (A) THROUGH (H). THE AMOUNT OF
INDEBTEDNESS OF ANY PERSON AT ANY DATE SHALL BE WITHOUT DUPLICATION (I)
THE OUTSTANDING BALANCE AT SUCH DATE OF ALL UNCONDITIONAL OBLIGATIONS AS
DESCRIBED ABOVE AND THE MAXIMUM LIABILITY OF ANY SUCH CONTINGENT
OBLIGATIONS AT SUCH DATE AND (II) IN THE CASE OF INDEBTEDNESS OF OTHERS
SECURED BY A LIEN TO WHICH THE PROPERTY OR ASSETS OWNED OR HELD BY SUCH
PERSON IS SUBJECT, THE LESSER OF THE FAIR MARKET VALUE AT SUCH DATE OF ANY
ASSET SUBJECT TO A LIEN SECURING THE INDEBTEDNESS OF OTHERS AND THE AMOUNT
OF THE INDEBTEDNESS SECURED. INDEBTEDNESS SHALL INCLUDE THE UNRECOVERED
INVESTMENT OF PURCHASERS OR TRANSFEREES OF RECEIVABLES INTERESTS FROM
ORIGINATORS OR SPC PURSUANT TO THE RECEIVABLES PURCHASE DOCUMENTS OR ANY
OTHER OBLIGATION OF THE BORROWER, SPC OR THE ORIGINATORS TO
PURCHASERS/TRANSFEREES OF RECEIVABLES INTERESTS OR THE AGENT FOR SUCH
PURCHASERS/TRANSFEREES PURSUANT TO AND IN CONNECTION WITH THE RECEIVABLES
PURCHASE DOCUMENTS, AND, WITHOUT LIMITATION OF THE OTHER PROVISIONS
HEREIN, SUCH INDEBTEDNESS SHALL BE DEEMED TO BE FUNDED INDEBTEDNESS FOR
PURPOSES OF SECTION 7.1(F) AND PART OF TOTAL DEBT FOR PURPOSES OF SECTION
2.12 AND SECTION 7.4.
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"INTEREST EXPENSE" MEANS, FOR ANY PERIOD, THE TOTAL INTEREST EXPENSE
OF THE BORROWER AND ITS CONSOLIDATED SUBSIDIARIES, WHETHER PAID OR ACCRUED
(INCLUDING THE INTEREST COMPONENT OF CAPITALIZED LEASES, THE INTEREST
COMPONENT OF SYNTHETIC LEASES OR TAX RETENTION OPERATING LEASES, NET
PAYMENTS AND CREDITS (IF ANY) PURSUANT TO HEDGING OBLIGATIONS RELATING TO
INTEREST RATE PROTECTION, COMMITMENT AND LETTER OF CREDIT FEES AND
DISCOUNT AND OTHER FEES AND CHARGES INCURRED UNDER THE RECEIVABLES
PURCHASE DOCUMENTS), BUT EXCLUDING INTEREST EXPENSE NOT PAYABLE IN CASH
(INCLUDING AMORTIZATION OF DISCOUNT), ALL AS DETERMINED IN CONFORMITY WITH
AGREEMENT ACCOUNTING PRINCIPLES.
"LENDERS" MEANS THE LENDING INSTITUTIONS LISTED ON THE SIGNATURE
PAGES OF THIS AGREEMENT, EACH ADDITIONAL LENDER WHICH BECAME A LENDER
PURSUANT TO THE TERMS OF AMENDMENT NO. 1 TO THIS AGREEMENT AND EACH
PROPOSED NEW LENDER WHICH BECOMES A LENDER HERETO PURSUANT TO THE
PROVISIONS OF SECTION 2.4(B) AND THEIR RESPECTIVE SUCCESSORS AND
ASSIGNS.
"OFF BALANCE SHEET LIABILITIES" OF A PERSON MEANS (A) ANY REPURCHASE
OBLIGATION OR LIABILITY OF SUCH PERSON OR ANY OF ITS SUBSIDIARIES WITH
RESPECT TO ACCOUNTS OR NOTES RECEIVABLE SOLD BY SUCH PERSON OR ANY OF ITS
SUBSIDIARIES, INCLUDING, WITHOUT LIMITATION, PURSUANT TO THE RECEIVABLES
PURCHASE DOCUMENTS, (B) ANY LIABILITY UNDER ANY SALE AND LEASEBACK
TRANSACTIONS WHICH DO NOT CREATE A LIABILITY ON THE CONSOLIDATED BALANCE
SHEET OF SUCH PERSON, (C) ANY LIABILITY UNDER ANY FINANCING LEASE OR
SO-CALLED "SYNTHETIC" LEASE TRANSACTION OR TAX RETENTION OPERATING LEASE,
OR (D) ANY OBLIGATIONS ARISING WITH RESPECT TO ANY OTHER TRANSACTION WHICH
IS THE FUNCTIONAL EQUIVALENT OF OR TAKES THE PLACE OF BORROWING BUT WHICH
DOES NOT CONSTITUTE A LIABILITY ON THE CONSOLIDATED BALANCE SHEETS OF SUCH
PERSON AND ITS SUBSIDIARIES.
"ORIGINAL CREDIT AGREEMENT" MEANS THE CREDIT AGREEMENT DATED AS OF
JULY 15, 1997 AMONG THE BORROWER, THE FINANCIAL INSTITUTIONS PARTIES
THERETO AND THE AGENT, AS AMENDED AND RESTATED AS OF FEBRUARY 11, 1998.
"SWING LINE COMMITMENT" MEANS THE OBLIGATION OF THE SWING LINE BANK
TO MAKE SWING LINE LOANS UP TO A MAXIMUM PRINCIPAL AMOUNT OF $25,000,000
AT ANY ONE TIME OUTSTANDING.
1.10 SECTION 2.4 OF THE CREDIT AGREEMENT IS AMENDED TO DELETE THE
TERMS THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
2.4 CHANGES IN COMMITMENTS. (A) REDUCTION OF COMMITMENTS. THE
BORROWER MAY PERMANENTLY REDUCE THE AGGREGATE COMMITMENT IN WHOLE, OR IN
PART RATABLY AMONG THE LENDERS, IN AN AGGREGATE MINIMUM AMOUNT OF
$5,000,000 AND INTEGRAL MULTIPLES OF $5,000,000 IN EXCESS OF THAT AMOUNT
(UNLESS THE AGGREGATE COMMITMENT IS REDUCED IN WHOLE), UPON AT LEAST THREE
(3) BUSINESS DAYS' WRITTEN NOTICE TO THE AGENT, WHICH NOTICE SHALL SPECIFY
THE AMOUNT OF ANY SUCH REDUCTION; PROVIDED, HOWEVER, THAT THE AMOUNT OF
THE AGGREGATE COMMITMENT MAY NOT BE REDUCED BELOW THE AGGREGATE PRINCIPAL
AMOUNT OF THE
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OUTSTANDING REVOLVING CREDIT OBLIGATIONS. ALL ACCRUED COMMITMENT FEES
SHALL BE PAYABLE ON THE EFFECTIVE DATE OF ANY PARTIAL OR COMPLETE
TERMINATION OF THE OBLIGATIONS OF THE LENDERS TO MAKE REVOLVING LOANS
HEREUNDER.
(B) INCREASES OF COMMITMENTS. AT ANY TIME, THE BORROWER MAY REQUEST
THAT THE AGGREGATE COMMITMENT BE INCREASED; PROVIDED THAT, NOTWITHSTANDING
ANYTHING TO THE CONTRARY SET FORTH IN SECTION 9.3, WITHOUT THE PRIOR
WRITTEN CONSENT OF ALL OF THE LENDERS, (I) THE AGGREGATE COMMITMENT SHALL
AT NO TIME EXCEED $375,000,000 MINUS THE AGGREGATE AMOUNT OF ALL
REDUCTIONS IN THE AGGREGATE COMMITMENT PREVIOUSLY MADE PURSUANT TO SECTION
2.4(A) AND (II) THE BORROWER SHALL NOT MAKE ANY SUCH REQUEST DURING THE
SIX MONTH PERIOD FOLLOWING ANY REDUCTION IN THE AGGREGATE COMMITMENT
OCCURRING UNDER SECTION 2.4(A). SUCH REQUEST SHALL BE MADE IN A WRITTEN
NOTICE GIVEN TO THE AGENT AND THE LENDERS BY THE BORROWER NOT LESS THAN
FIFTEEN (15) BUSINESS DAYS PRIOR TO THE PROPOSED EFFECTIVE DATE OF SUCH
INCREASE, WHICH NOTICE (A "COMMITMENT INCREASE NOTICE") SHALL SPECIFY THE
AMOUNT OF THE PROPOSED INCREASE IN THE AGGREGATE COMMITMENT AND THE
PROPOSED EFFECTIVE DATE OF SUCH INCREASE. ON OR PRIOR TO THE DATE THAT IS
TEN (10) BUSINESS DAYS AFTER RECEIPT OF THE COMMITMENT INCREASE NOTICE,
EACH LENDER SHALL SUBMIT TO THE AGENT A NOTICE INDICATING THE MAXIMUM
AMOUNT BY WHICH IT IS WILLING TO INCREASE ITS COMMITMENT IN CONNECTION
WITH SUCH COMMITMENT INCREASE NOTICE (ANY SUCH NOTICE TO THE AGENT BEING
HEREIN A "LENDER INCREASE NOTICE"). ANY LENDER WHICH DOES NOT SUBMIT A
LENDER INCREASE NOTICE TO THE AGENT PRIOR TO THE EXPIRATION OF SUCH TEN
(10) BUSINESS DAY PERIOD SHALL BE DEEMED TO HAVE DENIED ANY INCREASE IN
ITS COMMITMENT. IN THE EVENT THAT THE INCREASES OF COMMITMENTS SET FORTH
IN THE LENDER INCREASE NOTICES EXCEED THE AMOUNT REQUESTED BY THE BORROWER
IN THE COMMITMENT INCREASE NOTICE, THE AGENT AND THE ARRANGER SHALL HAVE
THE RIGHT, IN CONSULTATION WITH THE BORROWER, TO ALLOCATE THE AMOUNT OF
INCREASES NECESSARY TO MEET THE BORROWER'S COMMITMENT INCREASE NOTICE. IN
THE EVENT THAT THE LENDER INCREASE NOTICES ARE LESS THAN THE AMOUNT
REQUESTED BY THE BORROWER, THE AGENT AND THE ARRANGER SHALL ASSIST THE
BORROWER IN ATTEMPTING TO IDENTIFY FINANCIAL INSTITUTIONS WHICH MAY HAVE
AN INTEREST IN BECOMING LENDERS UNDER THIS AGREEMENT. NOT LATER THAN 3
BUSINESS DAYS PRIOR TO THE PROPOSED EFFECTIVE DATE THE BORROWER MAY NOTIFY
THE AGENT OF ANY FINANCIAL INSTITUTION THAT SHALL HAVE AGREED TO BECOME A
"LENDER" PARTY HERETO (A "PROPOSED NEW LENDER") IN CONNECTION WITH THE
COMMITMENT INCREASE NOTICE. ANY PROPOSED NEW LENDER SHALL BE CONSENTED TO
BY THE AGENT (WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD). IF THE
BORROWER, THE AGENT AND THE ARRANGER SHALL NOT HAVE ARRANGED ANY PROPOSED
NEW LENDER(S) TO COMMIT TO THE SHORTFALL FROM THE LENDER INCREASE NOTICES,
THEN THE BORROWER SHALL BE DEEMED TO HAVE REDUCED THE AMOUNT OF ITS
COMMITMENT INCREASE NOTICE TO THE AGGREGATE AMOUNT SET FORTH IN THE LENDER
INCREASE NOTICES. BASED UPON THE LENDER INCREASE NOTICES, ANY ALLOCATIONS
MADE IN CONNECTION THEREWITH AND ANY NOTICE REGARDING ANY PROPOSED NEW
LENDER, IF APPLICABLE, THE AGENT SHALL NOTIFY THE BORROWER AND THE LENDERS
ON OR BEFORE THE BUSINESS DAY IMMEDIATELY PRIOR TO THE PROPOSED EFFECTIVE
DATE OF THE AMOUNT OF EACH LENDER'S AND PROPOSED NEW LENDERS' COMMITMENT
(SUCH NEW AMOUNTS BEING THE "EFFECTIVE COMMITMENT AMOUNTS") AND THE AMOUNT
OF THE AGGREGATE COMMITMENT, WHICH AMOUNTS SHALL BE EFFECTIVE ON THE
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FOLLOWING BUSINESS DAY. ANY INCREASE IN THE AGGREGATE COMMITMENT SHALL BE
SUBJECT TO THE FOLLOWING CONDITIONS PRECEDENT: (A) THE BORROWER SHALL HAVE
OBTAINED THE CONSENT THERETO OF EACH GUARANTOR AND ITS REAFFIRMATION OF
THE LOAN DOCUMENT(S) EXECUTED BY IT, WHICH CONSENT AND REAFFIRMATION SHALL
BE IN WRITING AND IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE
AGENT, (B) AS OF THE DATE OF THE COMMITMENT INCREASE NOTICE AND AS OF THE
PROPOSED EFFECTIVE DATE OF THE INCREASE IN THE AGGREGATE COMMITMENT, NO
EVENT SHALL HAVE OCCURRED AND THEN BE CONTINUING WHICH CONSTITUTES A
DEFAULT OR UNMATURED DEFAULT, (C) THE BORROWER, THE AGENT AND EACH
PROPOSED NEW LENDER OR LENDER THAT SHALL HAVE AGREED TO PROVIDE A
"COMMITMENT" IN SUPPORT OF SUCH INCREASE IN THE AGGREGATE COMMITMENT SHALL
HAVE EXECUTED AND DELIVERED A "COMMITMENT AND ACCEPTANCE" SUBSTANTIALLY IN
THE FORM OF EXHIBIT K HERETO, (D) COUNSEL FOR THE BORROWER AND FOR THE
GUARANTORS SHALL HAVE PROVIDED TO THE AGENT SUPPLEMENTAL OPINIONS IN FORM
AND SUBSTANCE REASONABLY ACCEPTABLE TO THE AGENT AND (E) THE BORROWER AND
THE PROPOSED NEW LENDER SHALL OTHERWISE HAVE EXECUTED AND DELIVERED SUCH
OTHER INSTRUMENTS AND DOCUMENTS AS MAY BE REQUIRED UNDER SECTION
2.12(E)(VI) OR THAT THE AGENT SHALL HAVE REASONABLY REQUESTED IN
CONNECTION WITH SUCH INCREASE. IF ANY FEE SHALL BE CHARGED BY THE LENDERS
IN CONNECTION WITH ANY SUCH INCREASE, SUCH FEE SHALL BE IN ACCORDANCE WITH
THEN PREVAILING MARKET CONDITIONS, WHICH MARKET CONDITIONS SHALL HAVE BEEN
REASONABLY DOCUMENTED BY THE AGENT TO THE BORROWER. UPON SATISFACTION OF
THE CONDITIONS PRECEDENT TO ANY INCREASE IN THE AGGREGATE COMMITMENT, THE
AGENT SHALL PROMPTLY ADVISE THE BORROWER AND EACH LENDER OF THE EFFECTIVE
DATE OF SUCH INCREASE. UPON THE EFFECTIVE DATE OF ANY INCREASE IN THE
AGGREGATE COMMITMENT THAT IS SUPPORTED BY A PROPOSED NEW LENDER, SUCH
PROPOSED NEW LENDER SHALL BE A PARTY HERETO AS A LENDER AND SHALL HAVE THE
RIGHTS AND OBLIGATIONS OF A LENDER HEREUNDER. NOTHING CONTAINED HEREIN
SHALL CONSTITUTE, OR OTHERWISE BE DEEMED TO BE, A COMMITMENT ON THE PART
OF ANY LENDER TO INCREASE ITS COMMITMENT HEREUNDER AT ANY TIME. UPON THE
EFFECTIVE DATE OF ANY INCREASE IN THE AGGREGATE COMMITMENT, THE LENDERS
(INCLUDING PROPOSED NEW LENDERS ALLOCATED A COMMITMENT) SHALL BE BOUND BY
THE TERMS OF THE FOLLOWING CLAUSE (C).
(C) MASTER ASSIGNMENT IN CONNECTION WITH COMMITMENT INCREASES. FOR
PURPOSES OF THIS CLAUSE (C), THE TERM "BUYING LENDER(S)" SHALL MEAN (1)
EACH LENDER THE EFFECTIVE COMMITMENT AMOUNT OF WHICH IS GREATER THAN ITS
COMMITMENT PRIOR TO THE EFFECTIVE DATE OF ANY INCREASE IN THE AGGREGATE
COMMITMENT AND (2) EACH PROPOSED NEW LENDER THAT IS ALLOCATED AN EFFECTIVE
COMMITMENT AMOUNT IN CONNECTION WITH ANY COMMITMENT INCREASE NOTICE AND
THE TERM "SELLING LENDER(S)" SHALL MEAN EACH LENDER WHOSE COMMITMENT UNDER
THIS AGREEMENT IS NOT BEING INCREASED FROM THAT IN EFFECT PRIOR TO SUCH
INCREASE IN THE AGGREGATE COMMITMENT. EFFECTIVE ON THE EFFECTIVE DATE OF
ANY INCREASE IN THE AGGREGATE COMMITMENT PURSUANT TO CLAUSE (B) ABOVE,
EACH SELLING LENDER HEREBY SELLS, GRANTS, ASSIGNS AND CONVEYS TO EACH
BUYING LENDER, WITHOUT RECOURSE, WARRANTY, OR REPRESENTATION OF ANY KIND,
EXCEPT AS SPECIFICALLY PROVIDED HEREIN, AN UNDIVIDED PERCENTAGE IN SUCH
SELLING LENDER'S RIGHT, TITLE AND INTEREST IN AND TO ITS OUTSTANDING LOANS
AND L/C OBLIGATIONS IN THE RESPECTIVE DOLLAR AMOUNTS AND PERCENTAGES
NECESSARY SO THAT, FROM AND AFTER SUCH SALE, EACH SUCH SELLING LENDER'S
OUTSTANDING LOANS AND L/C OBLIGATIONS SHALL EQUAL SUCH SELLING LENDER'S
PRO RATA SHARE (CALCULATED BASED UPON THE
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EFFECTIVE COMMITMENT AMOUNTS) OF THE OUTSTANDING LOANS AND L/C OBLIGATIONS
UNDER THIS AGREEMENT. EFFECTIVE ON THE EFFECTIVE DATE OF THE INCREASE IN
THE AGGREGATE COMMITMENT PURSUANT TO CLAUSE (B) ABOVE, EACH BUYING LENDER
HEREBY PURCHASES AND ACCEPTS SUCH GRANT, ASSIGNMENT AND CONVEYANCE FROM
THE SELLING LENDERS. EACH BUYING LENDER HEREBY AGREES THAT ITS RESPECTIVE
PURCHASE PRICE FOR THE PORTION OF THE OUTSTANDING LOANS AND L/C
OBLIGATIONS PURCHASED HEREBY SHALL EQUAL THE RESPECTIVE DOLLAR AMOUNT
NECESSARY SO THAT, FROM AND AFTER SUCH PAYMENTS, EACH BUYING LENDER'S
OUTSTANDING LOANS AND L/C OBLIGATIONS SHALL EQUAL SUCH BUYING LENDER'S PRO
RATA SHARE (CALCULATED BASED UPON THE EFFECTIVE COMMITMENT AMOUNTS) OF THE
OUTSTANDING LOANS AND L/C OBLIGATIONS UNDER THIS AGREEMENT. SUCH AMOUNT
SHALL BE PAYABLE ON THE EFFECTIVE DATE OF THE INCREASE IN THE AGGREGATE
COMMITMENT BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE FUNDS TO THE AGENT.
THE AGENT, IN TURN, SHALL WIRE TRANSFER ANY SUCH FUNDS RECEIVED TO THE
SELLING LENDERS, IN SAME DAY FUNDS, FOR THE SOLE ACCOUNT OF THE SELLING
LENDERS. EACH SELLING LENDER HEREBY REPRESENTS AND WARRANTS TO EACH BUYING
LENDER THAT SUCH SELLING LENDER OWNS THE LOANS AND L/C OBLIGATIONS BEING
SOLD AND ASSIGNED HEREBY FOR ITS OWN ACCOUNT AND HAS NOT SOLD, TRANSFERRED
OR ENCUMBERED ANY OR ALL OF ITS INTEREST IN SUCH LOANS OR L/C OBLIGATIONS,
EXCEPT FOR PARTICIPATIONS WHICH WILL BE EXTINGUISHED UPON PAYMENT TO
SELLING LENDER OF AN AMOUNT EQUAL TO THE PORTION OF THE OUTSTANDING LOANS
AND L/C OBLIGATIONS BEING SOLD BY SUCH SELLING LENDER. EACH BUYING LENDER
HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT FOR EACH SELLING LENDER'S
REPRESENTATIONS AND WARRANTIES CONTAINED IN THE FOREGOING SENTENCE, EACH
SUCH BUYING LENDER HAS ENTERED INTO ITS COMMITMENT AND ACCEPTANCE WITH
RESPECT TO SUCH INCREASE ON THE BASIS OF ITS OWN INDEPENDENT INVESTIGATION
AND HAS NOT RELIED UPON, AND WILL NOT RELY UPON, ANY EXPLICIT OR IMPLICIT
WRITTEN OR ORAL REPRESENTATION, WARRANTY OR OTHER STATEMENT OF THE LENDERS
OR THE AGENT CONCERNING THE AUTHORIZATION, EXECUTION, LEGALITY, VALIDITY,
EFFECTIVENESS, GENUINENESS, ENFORCEABILITY OR SUFFICIENCY OF THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS. THE BORROWER HEREBY AGREES TO
COMPENSATE EACH SELLING LENDER FOR ALL LOSSES, EXPENSES AND LIABILITIES
INCURRED BY EACH LENDER IN CONNECTION WITH THE SALE AND ASSIGNMENT OF ANY
EURODOLLAR RATE LOANS HEREUNDER ON THE TERMS AND IN THE MANNER AS SET
FORTH IN SECTION 4.4.
1.11 SECTION 2.12(C) IS AMENDED TO DELETE CLAUSE (II) THEREOF IN ITS
ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
(II) THE BORROWER AGREES TO PAY TO THE AGENT FOR THE SOLE ACCOUNT OF
THE AGENT AND THE ARRANGER (UNLESS OTHERWISE AGREED BETWEEN THE AGENT OR
THE ARRANGER AND ANY LENDER) THE FEES SET FORTH IN THE LETTER AGREEMENT
DATED NOVEMBER 1, 1998 BETWEEN THE AGENT AND/OR THE ARRANGER AND THE
BORROWER ENTERED INTO FROM TIME TO TIME, PAYABLE AT THE TIMES AND IN THE
AMOUNTS SET FORTH THEREIN.
1.12 SECTION 2.12(D) IS AMENDED TO DELETE CLAUSE (II) THEREOF IN ITS
ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
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(II) THE APPLICABLE EURODOLLAR MARGIN, APPLICABLE FLOATING RATE
MARGIN AND APPLICABLE COMMITMENT FEE PERCENTAGE SHALL BE DETERMINED FROM
TIME TO TIME BY REFERENCE TO THE TABLE SET FORTH BELOW, ON THE BASIS OF
THE THEN APPLICABLE LEVERAGE RATIO AS DESCRIBED IN THIS SECTION
2.12(D)(II); PROVIDED, HOWEVER, FOR THE PERIOD FROM THE EFFECTIVE DATE OF
AMENDMENT NO. 1 TO THIS AGREEMENT UNTIL THE APPLICABLE EURODOLLAR MARGINS,
APPLICABLE FLOATING RATE MARGIN AND APPLICABLE COMMITMENT FEE PERCENTAGE
ARE FIRST ADJUSTED PURSUANT TO THIS CLAUSE (D), IT SHALL BE ASSUMED THAT
THE LEVERAGE RATIO IS >3.50 TO 1.00 AND <= 4.00 TO 1.00; PROVIDED,
FURTHER, HOWEVER, IF UTILIZING THE LEVERAGE RATIO INSTEAD OF THE "ADJUSTED
LEVERAGE RATIO" (AS DEFINED BELOW) WOULD RESULT IN LOWERING THE APPLICABLE
EURODOLLAR MARGIN, APPLICABLE FLOATING RATE MARGIN AND APPLICABLE
COMMITMENT FEE PERCENTAGE BY MORE THAN ONE LEVEL AS SET FORTH IN THE TABLE
BELOW, THEN THE APPLICABLE EURODOLLAR MARGIN, APPLICABLE FLOATING RATE
MARGIN AND APPLICABLE COMMITMENT FEE PERCENTAGE SHALL BE THE LEVEL THAT IS
ONE LEVEL LOWER THAN THE LEVEL DETERMINED USING THE ADJUSTED LEVERAGE
RATIO. FOR PURPOSES HEREOF "ADJUSTED LEVERAGE RATIO" SHALL MEAN THE
LEVERAGE RATIO CALCULATED UTILIZING EBITDA WITHOUT TAKING INTO ACCOUNT THE
ADJUSTMENTS SET FORTH IN CLAUSES (X) AND (XII) IN THE DEFINITION THEREOF.
-------------------------------------------------------------------------
Level I Level II Level III Level IV Level V
-------------------------------------------------------------------------
-------------------------------------------------------------------------
> 2.50 to >3.00 to
1.00 1.00 >3.50 to 1.00
and and and
Leverage <=2.50 to <= 3.00 to <= 3.5 <=4.00 to
Ratio 1.00 1.00 to 1.00 1.00 >4.00 to 1.00
-------------------------------------------------------------------------
FOR PURPOSES OF THIS SECTION 2.12(D)(II), THE LEVERAGE RATIO SHALL BE
DETERMINED AS OF THE LAST DAY OF EACH FISCAL QUARTER BASED UPON (A) FOR
TOTAL DEBT, TOTAL DEBT AS OF THE LAST DAY OF EACH SUCH FISCAL QUARTER; AND
(B) FOR EBITDA, EBITDA FOR THE TWELVE-MONTH PERIOD ENDING ON SUCH DAY
CALCULATED AS SET FORTH IN THE DEFINITION THEREOF. UPON RECEIPT OF THE
FINANCIAL STATEMENTS DELIVERED PURSUANT TO SECTIONS 7.1(A)(I) (SUBJECT TO
ADJUSTMENT UPON RECEIPT OF THE FINANCIAL STATEMENTS DELIVERED PURSUANT TO
SECTION 7.1(A)(II)), THE APPLICABLE EURODOLLAR MARGIN, APPLICABLE FLOATING
RATE MARGIN AND APPLICABLE COMMITMENT FEE PERCENTAGE SHALL BE ADJUSTED,
SUCH ADJUSTMENT BEING EFFECTIVE FIVE (5) BUSINESS DAYS FOLLOWING THE
AGENT'S RECEIPT OF SUCH FINANCIAL STATEMENTS AND THE COMPLIANCE
CERTIFICATE REQUIRED TO BE DELIVERED IN CONNECTION THEREWITH PURSUANT TO
SECTION 7.1(A)(III); PROVIDED, THAT IF THE BORROWER SHALL NOT HAVE TIMELY
DELIVERED ITS FINANCIAL STATEMENTS IN ACCORDANCE WITH SECTION 7.1(A)(I) OR
(II), AS APPLICABLE, THEN COMMENCING ON THE DATE UPON WHICH SUCH FINANCIAL
STATEMENTS SHOULD HAVE BEEN DELIVERED AND CONTINUING UNTIL SUCH FINANCIAL
STATEMENTS ARE ACTUALLY DELIVERED, IT SHALL BE ASSUMED FOR PURPOSES OF
DETERMINING THE APPLICABLE EURODOLLAR MARGIN, APPLICABLE FLOATING RATE
MARGIN AND APPLICABLE COMMITMENT FEE PERCENTAGE THAT THE LEVERAGE RATIO
WAS GREATER THAN 4.00 TO 1.0.
1.13 SECTION 2.12(G) OF THE CREDIT AGREEMENT IS AMENDED TO DELETE
THE TERMS THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE THE FOLLOWING
THEREFOR:
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(G) CONTROL ACCOUNT. THE REGISTER MAINTAINED BY THE AGENT PURSUANT
TO SECTION 13.3(C) SHALL INCLUDE A CONTROL ACCOUNT, AND A SUBSIDIARY
ACCOUNT FOR EACH LENDER, IN WHICH ACCOUNTS (TAKEN TOGETHER) SHALL BE
RECORDED (I) THE DATE AND AMOUNT OF EACH ADVANCE MADE HEREUNDER, THE TYPE
OF LOAN COMPRISING SUCH ADVANCE AND ANY INTEREST PERIOD APPLICABLE
THERETO, (II) THE EFFECTIVE DATE AND AMOUNT OF EACH ASSIGNMENT AGREEMENT
DELIVERED TO AND ACCEPTED BY IT AND THE PARTIES THERETO PURSUANT TO
SECTION 13.3, (III) THE AMOUNT OF ANY PRINCIPAL OR INTEREST DUE AND
PAYABLE OR TO BECOME DUE AND PAYABLE FROM THE BORROWER TO EACH LENDER
HEREUNDER OR UNDER THE NOTES, (IV) THE AMOUNT OF ANY SUM RECEIVED BY THE
AGENT FROM THE BORROWER HEREUNDER AND EACH LENDER'S SHARE THEREOF (V) THE
AMOUNT OF ANY INCREASE OF THE AGGREGATE COMMITMENT PURSUANT TO SECTION
2.4(B) AND THE APPLICABLE LENDERS WITH RESPECT THERETO AND (VI) ALL OTHER
APPROPRIATE DEBITS AND CREDITS AS PROVIDED IN THIS AGREEMENT, INCLUDING,
WITHOUT LIMITATION, ALL FEES, CHARGES, EXPENSES AND INTEREST.
1.14 SECTION 4.4 OF THE CREDIT AGREEMENT IS AMENDED TO DELETE THE
TERMS THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
4.4 FUNDING INDEMNIFICATION. IF ANY PAYMENT OF A EURODOLLAR RATE
ADVANCE OCCURS ON A DATE WHICH IS NOT THE LAST DAY OF THE APPLICABLE
INTEREST PERIOD, WHETHER BECAUSE OF ACCELERATION, PREPAYMENT, OR
OTHERWISE, OR A EURODOLLAR RATE ADVANCE IS NOT MADE ON THE DATE SPECIFIED
BY THE BORROWER FOR ANY REASON OTHER THAN DEFAULT BY THE LENDERS, OR A
EURODOLLAR RATE ADVANCE IS CONVERTED ON A DAY OTHER THAN THE LAST DAY OF
THE APPLICABLE INTEREST PERIOD, THE BORROWER INDEMNIFIES EACH LENDER FOR
ANY LOSS OR COST INCURRED BY IT RESULTING THEREFROM (INCLUDING LOSS OF
PROFIT OTHER THAN LOSS OF PROFIT REPRESENTED BY THE APPLICABLE EURODOLLAR
MARGIN WHICH WOULD HAVE BEEN PAYABLE FOR SUCH INTEREST PERIOD), INCLUDING,
WITHOUT LIMITATION, ANY LOSS OR COST IN LIQUIDATING OR EMPLOYING DEPOSITS
ACQUIRED TO FUND OR MAINTAIN THE EURODOLLAR RATE ADVANCE.
1.15 SECTION 6.4 OF THE CREDIT AGREEMENT IS AMENDED TO DELETE THE
TERMS THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
6.4 FINANCIAL STATEMENTS. THE PRO FORMA FINANCIAL STATEMENTS OF THE
BORROWER AND ITS SUBSIDIARIES CONTAINED IN CONFIDENTIAL INFORMATION
MEMORANDUM DATED SEPTEMBER 1998 AND FURNISHED ON BEHALF OF THE BORROWER TO
FINANCIAL INSTITUTIONS INVITED TO PARTICIPATE IN THE CREDIT FACILITY
EVIDENCED BY THIS AGREEMENT (THE "INFORMATION MEMORANDUM"), PRESENT ON A
PRO FORMA BASIS THE FINANCIAL CONDITION OF THE BORROWER AND SUCH
SUBSIDIARIES AS OF THE DATES CONTAINED THEREIN, AND REFLECT ON A PRO FORMA
BASIS THOSE LIABILITIES REFLECTED IN THE NOTES THERETO AND RESULTING FROM
CONSUMMATION OF THE INITIAL ACQUISITIONS, THE MERGERS, THE PUBLIC
OFFERINGS AND THE RELATED TRANSACTIONS AND THE OTHER TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT, AND THE PAYMENT OR ACCRUAL OF ALL
TRANSACTION COSTS PAYABLE WITH RESPECT TO ANY OF THE FOREGOING. THE
PROJECTIONS AND ASSUMPTIONS CONTAINED UNDER TAB 7 OF THE INFORMATION
MEMORANDUM REFERENCED ABOVE
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WERE PREPARED IN GOOD FAITH AND ON THE BASIS OF ASSUMPTIONS AND
INFORMATION THAT THE BORROWER BELIEVED TO BE REASONABLE AT THE TIME SO
FURNISHED.
1.16 SECTION 6.5 OF THE CREDIT AGREEMENT IS AMENDED TO DELETE THE
TERMS THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
6.5 NO MATERIAL ADVERSE CHANGE. SINCE DECEMBER 31, 1997, THERE HAS
OCCURRED NO EVENT OR CIRCUMSTANCE WHICH HAS HAD OR COULD REASONABLY BE
EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT.
1.17 SECTION 6.9 OF THE CREDIT AGREEMENT IS AMENDED TO ADD THE
FOLLOWING AT THE END THEREOF:
EACH FOREIGN PENSION PLAN IS IN COMPLIANCE IN ALL MATERIAL RESPECTS WITH
ALL LAWS, REGULATIONS AND RULES APPLICABLE THERETO AND THE RESPECTIVE
REQUIREMENTS OF THE GOVERNING DOCUMENTS FOR SUCH PLAN. THE AGGREGATE OF
THE LIABILITIES TO PROVIDE ALL OF THE ACCRUED BENEFITS UNDER ANY FOREIGN
EMPLOYEE BENEFIT PLAN DOES NOT EXCEED THE CURRENT FAIR MARKET VALUE OF THE
ASSETS HELD IN THE TRUST OR OTHER FUNDING VEHICLE FOR SUCH PLAN.
1.18 ARTICLE VI OF THE CREDIT AGREEMENT IS AMENDED TO DELETE THE
SECTION 6.20 THEREOF IN ITS ENTIRETY AND TO SUBSTITUTE THE FOLLOWING
THEREFOR:
6.20 SENIOR DEBT STATUS. THE SECURED OBLIGATIONS CONSTITUTE "SENIOR
DEBT" AS DEFINED IN THE INDENTURE AND ARE ENTITLED TO THE BENEFITS OF THE
SUBORDINATION PROVISIONS CONTAINED THEREIN.
1.19 ARTICLE VI OF THE CREDIT AGREEMENT IS AMENDED TO ADD SECTION
6.21 AT THE END THEREOF AS FOLLOWS:
6.21 YEAR 2000 ISSUES. THE BORROWER AND ITS SUBSIDIARIES HAVE MADE A
COMPLETE ASSESSMENT OF THE YEAR 2000 ISSUES AND HAVE A REALISTIC AND
ACHIEVABLE PROGRAM FOR REMEDIATING THE YEAR 2000 ISSUES ON A TIMELY BASIS.
BASED ON SUCH ASSESSMENT AND PROGRAM, THE BORROWER DOES NOT REASONABLY
ANTICIPATE THAT YEAR 2000 ARE REASONABLY LIKELY TO HAVE A MATERIAL ADVERSE
EFFECT.
1.20 SECTION 7.1(D) OF THE CREDIT AGREEMENT IS AMENDED TO DELETE THE
"AND" AT THE END OF CLAUSE (VII), TO ADD AN "AND" AT THE END OF CLAUSE
(VIII) AND TO ADD THE FOLLOWING AS CLAUSE (IX) THEREOF:
(IX) WITHIN FIFTEEN (15) BUSINESS DAYS AFTER THE ESTABLISHMENT OF
ANY FOREIGN EMPLOYEE BENEFIT PLAN OR THE COMMENCEMENT OF, OR OBLIGATION TO
COMMENCE, CONTRIBUTIONS TO ANY FOREIGN EMPLOYEE BENEFIT PLAN TO WHICH THE
BORROWER OR ANY DOMESTIC SUBSIDIARY WAS NOT PREVIOUSLY CONTRIBUTING, WHERE
THE AGGREGATE ANNUAL CONTRIBUTION BY THE BORROWER OR ANY DOMESTIC
SUBSIDIARY TO SUCH PLAN ARE OR COULD
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REASONABLY BE EXPECTED TO EXCEED $1,000,000, NOTIFICATION OF SUCH
ESTABLISHMENT COMMENCEMENT OR OBLIGATION TO COMMENCE AND THE AMOUNT OF
SUCH CONTRIBUTIONS.
1.21. SECTION 7.2 OF THE CREDIT AGREEMENT IS AMENDED TO DELETE
SUBSECTION (J) THEREOF IN ITS ENTIRETY AND TO SUBSTITUTE THE FOLLOWING
THEREFOR:
(J) USE OF PROCEEDS. THE BORROWER SHALL USE THE PROCEEDS OF THE
LOANS TO (I) REPAY IN FULL THE EXISTING INDEBTEDNESS OF THE BORROWER UNDER
ITS LETTER AGREEMENT DATED AS OF SEPTEMBER 14, 1998 WITH FIRST CHICAGO AS
OF THE EFFECTIVE DATE OF AMENDMENT NO. 1 TO THIS AGREEMENT, (II) PROVIDE
FUNDS FOR THE ADDITIONAL WORKING CAPITAL NEEDS AND OTHER GENERAL CORPORATE
PURPOSES OF THE BORROWER AND ITS SUBSIDIARIES AND (III) FUND PERMITTED
ACQUISITIONS. THE BORROWER WILL NOT, NOR WILL IT PERMIT ANY SUBSIDIARY TO,
USE ANY OF THE PROCEEDS OF THE LOANS TO PURCHASE OR CARRY ANY "MARGIN
STOCK" OR TO MAKE ANY ACQUISITION, OTHER THAN ANY PERMITTED ACQUISITION
PURSUANT TO SECTION 7.3(G).
1.22. SECTION 7.2 OF THE CREDIT AGREEMENT IS AMENDED TO DELETE
SUBSECTION (K) THEREOF IN ITS ENTIRETY AND TO SUBSTITUTE THE FOLLOWING
THEREFOR:
(K) ADDITION OF GUARANTORS; ADDITION OF PLEDGED CAPITAL STOCK;
PLEDGE OF FOREIGN SUBSIDIARIES' STOCK. THE BORROWER SHALL CAUSE (I) EACH
DOMESTIC SUBSIDIARY THAT IS, AT ANY TIME, A MATERIAL SUBSIDIARY, AND (II)
EACH OTHER DOMESTIC SUBSIDIARY NECESSARY FOR THE BORROWER TO COMPLY WITH
THE REQUIREMENTS SET FORTH IN SECTION 7.3(E), TO DELIVER TO THE AGENT AN
EXECUTED GUARANTY SUPPLEMENT TO BECOME A GUARANTOR UNDER THE GUARANTY IN
THE FORM OF EXHIBIT J ATTACHED HERETO AND APPROPRIATE CORPORATE
RESOLUTIONS, OPINIONS AND OTHER DOCUMENTATION IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE AGENT, SUCH GUARANTY SUPPLEMENT AND OTHER
DOCUMENTATION TO BE DELIVERED TO THE AGENT AS PROMPTLY AS POSSIBLE BUT IN
ANY EVENT WITHIN THIRTY (30) DAYS OF DETERMINATION THAT A SUBSIDIARY IS A
MATERIAL SUBSIDIARY OR OTHERWISE NEEDS TO BE ADDED AS A GUARANTOR.
SIMULTANEOUSLY WITH ANY SUBSIDIARY BECOMING A GUARANTOR, THE BORROWER
SHALL (OR, IF THE CAPITAL STOCK OF SUCH SUBSIDIARY IS OWNED BY ANOTHER
SUBSIDIARY, SHALL CAUSE SUCH OTHER SUBSIDIARY TO) DELIVER TO THE AGENT AN
EXECUTED SUPPLEMENT TO THE PLEDGE AGREEMENT OR A PLEDGE AGREEMENT,
TOGETHER WITH APPROPRIATE CORPORATE RESOLUTIONS, OPINIONS, STOCK
CERTIFICATES, UCC FILINGS OR AMENDMENTS AND OTHER DOCUMENTATION, IN EACH
CASE IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE AGENT AND THE
AGENT SHALL BE REASONABLY SATISFIED THAT IT HAS A FIRST PRIORITY PERFECTED
PLEDGE OF ALL OF THE CAPITAL STOCK OF SUCH GUARANTOR OWNED BY THE BORROWER
AND ITS SUBSIDIARIES. SIMULTANEOUSLY WITH THE FORMATION OR ACQUISITION OF
ANY MATERIAL SUBSIDIARY WHICH IS NOT A DOMESTIC SUBSIDIARY OR AT ANY TIME
THEREAFTER THAT SUCH NON-DOMESTIC SUBSIDIARY IS DETERMINED TO BE A
MATERIAL SUBSIDIARY, THE BORROWER SHALL (OR, IF THE CAPITAL STOCK OF SUCH
SUBSIDIARY IS OWNED BY ANOTHER SUBSIDIARY, SHALL CAUSE SUCH OTHER
SUBSIDIARY TO) DELIVER TO THE AGENT AN EXECUTED PLEDGE AGREEMENT PURSUANT
TO WHICH 65% OF EACH CLASS OF THE CAPITAL STOCK OF SUCH SUBSIDIARY IS
PLEDGED TO THE AGENT FOR THE BENEFIT OF THE HOLDERS OF SECURED
OBLIGATIONS, TOGETHER WITH APPROPRIATE CORPORATE RESOLUTIONS, OPINIONS,
INCLUDING FOREIGN COUNSEL'S OPINION, STOCK CERTIFICATES, UCC OR OTHER
REQUIRED FILINGS OR AMENDMENTS AND
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OTHER DOCUMENTATION, IN EACH CASE IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE AGENT AND THE AGENT SHALL BE REASONABLY SATISFIED THAT
IT HAS A FIRST PRIORITY PERFECTED PLEDGE OF 65% OF EACH CLASS OF THE
CAPITAL STOCK OF SUCH SUBSIDIARY OR, IF LESS, SUCH PERCENTAGE AS IS OWNED
BY THE BORROWER AND ITS SUBSIDIARIES.
1.23 SECTION 7.2 OF THE CREDIT AGREEMENT IS AMENDED TO ADD THE
FOLLOWING AT THE END THEREOF:
(L) YEAR 2000 COVENANTS. THE BORROWER WILL AND WILL CAUSE EACH OF
ITS SUBSIDIARIES TO TAKE ALL ACTIONS REASONABLY NECESSARY TO ASSURE THAT
THE YEAR 2000 ISSUES WILL NOT HAVE A MATERIAL ADVERSE EFFECT. UPON THE
AGENT'S OR ANY LENDER'S REQUEST, THE BORROWER WILL PROVIDE LENDER A
DESCRIPTION OF THE YEAR 2000 PROGRAM OF THE BORROWER AND ITS SUBSIDIARIES,
INCLUDING UPDATES AND PROGRESS REPORTS. BORROWER WILL ADVISE THE AGENT OF
ANY REASONABLY ANTICIPATED MATERIAL ADVERSE EFFECT AS A RESULT OF YEAR
2000 ISSUES.
1.24. SECTION 7.3(A) OF THE CREDIT AGREEMENT IS AMENDED TO DELETE
CLAUSE (IX) THEREOF IN ITS ENTIRETY AND TO SUBSTITUTE THE FOLLOWING
THEREFOR:
(IX) SECURED OR UNSECURED PURCHASE MONEY INDEBTEDNESS
(INCLUDING CAPITALIZED LEASES) INCURRED BY THE BORROWER OR ANY OF
ITS SUBSIDIARIES AFTER THE ORIGINAL CLOSING DATE (INCLUDING, AS A
RESULT OF THE ASSUMPTION OF ANY SUCH INDEBTEDNESS IN CONNECTION WITH
A PERMITTED ACQUISITION) TO FINANCE THE ACQUISITION OF FIXED ASSETS,
IF (1) AT THE TIME OF SUCH INCURRENCE, NO DEFAULT OR UNMATURED
DEFAULT HAS OCCURRED AND IS CONTINUING OR WOULD RESULT FROM SUCH
INCURRENCE, (2) SUCH INDEBTEDNESS HAS A SCHEDULED MATURITY AND IS
NOT DUE ON DEMAND, (3) SUCH INDEBTEDNESS DOES NOT EXCEED THE LOWER
OF THE FAIR MARKET VALUE OR THE COST OF THE APPLICABLE FIXED ASSETS
ON THE DATE ACQUIRED, (4) SUCH INDEBTEDNESS DOES NOT EXCEED IN THE
AGGREGATE AT ANY TIME AN AMOUNT EQUAL TO THE SUM OF (A) $10,000,000
PLUS (B) AN AMOUNT EQUAL TO 1.5% OF CONSOLIDATED REVENUES OF THE
BORROWER AND ITS SUBSIDIARIES FOR EACH FISCAL YEAR, COMMENCING WITH
THE FISCAL YEAR ENDING DECEMBER 31, 1997, (5) ANY LIEN SECURING SUCH
INDEBTEDNESS IS PERMITTED UNDER SECTION 7.3(C) AND (6) SUCH
INDEBTEDNESS IS INCURRED IN COMPLIANCE WITH CLAUSE (XV) BELOW (SUCH
INDEBTEDNESS BEING REFERRED TO HEREIN AS "PERMITTED PURCHASE MONEY
INDEBTEDNESS");
1.25. SECTION 7.3(A) OF THE CREDIT AGREEMENT IS FURTHER AMENDED TO
DELETE CLAUSE (XII) THROUGH (XIV) THEREOF IN THEIR ENTIRETY AND TO
SUBSTITUTE THE FOLLOWING THEREFOR:
(XII) INDEBTEDNESS (INCLUDING, WITHOUT LIMITATION,
REIMBURSEMENT OBLIGATIONS IN CONNECTION WITH LETTERS OF CREDIT
ISSUED IN CONNECTION THEREWITH)
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INCURRED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES (OR ASSUMED IN
CONNECTION WITH A PERMITTED ACQUISITION) CONSISTING OF
TAX-ADVANTAGED INDUSTRIAL REVENUE BOND, INDUSTRIAL DEVELOPMENT BOND
OR OTHER SIMILAR FINANCINGS; PROVIDED THE AGGREGATE AMOUNT OF SUCH
INDEBTEDNESS SHALL NOT AT ANY TIME EXCEED $40,000,000;
(XIII) INDEBTEDNESS INCURRED IN CONNECTION WITH THE
RECEIVABLES PURCHASE DOCUMENTS; PROVIDED THE AGGREGATE AMOUNT OF
SUCH INDEBTEDNESS SHALL NOT AT ANY TIME EXCEED $100,000,000 AND;
PROVIDED FURTHER THAT IN ANY EVENT THE BORROWER SHALL CONCURRENTLY
REDUCE THE REVOLVING CREDIT OBLIGATIONS BY AN AMOUNT EQUAL TO THE
AMOUNT OF SUCH INDEBTEDNESS (WHICH REDUCTION SHALL HAVE NO IMPACT,
HOWEVER, ON THE AGGREGATE COMMITMENT);
(XIV) OTHER INDEBTEDNESS (OTHER THAN WORKING CAPITAL
FINANCING) EXISTING AT A NEW SUBSIDIARY AT THE TIME OF THE PERMITTED
ACQUISITION THEREOF (BUT NOT INCURRED IN CONNECTION OR IN
ANTICIPATION OF SUCH PERMITTED ACQUISITION) THE OUTSTANDING
PRINCIPAL BALANCE OF WHICH DOES NOT EXCEED TEN PERCENT (10%) OF THE
BOOK VALUE OF THE ASSETS ACQUIRED AS A RESULT OF SUCH PERMITTED
ACQUISITION AND SUCH INDEBTEDNESS IS INCURRED IN COMPLIANCE WITH THE
PROVISIONS OF CLAUSE (XV) BELOW; AND
(XV) OTHER INDEBTEDNESS IN ADDITION TO THAT REFERRED TO
ELSEWHERE IN THIS SECTION 7.3(A) INCURRED BY THE BORROWER PROVIDED
THAT (A) THE AGGREGATE AMOUNT OF SUCH OTHER INDEBTEDNESS TOGETHER
WITH THE AGGREGATE AMOUNT OF PERMITTED PURCHASE MONEY INDEBTEDNESS
AND INDEBTEDNESS INCURRED UNDER CLAUSE (XIV) ABOVE SHALL NOT AT ANY
TIME EXCEED $50,000,000; (B) THE AGGREGATE AMOUNT OF SUCH OTHER
INDEBTEDNESS WHICH IS SECURED BY A LIEN PERMITTED UNDER THE TERMS OF
THIS AGREEMENT TOGETHER WITH THE AGGREGATE AMOUNT OF SECURED
PERMITTED PURCHASE MONEY INDEBTEDNESS AND SECURED INDEBTEDNESS
INCURRED UNDER CLAUSE (XIV) ABOVE SHALL NOT AT ANY TIME EXCEED
$25,000,000; AND (C) NO DEFAULT OR UNMATURED DEFAULT SHALL HAVE
OCCURRED AND BE CONTINUING AT THE DATE OF SUCH INCURRENCE OR WOULD
RESULT THEREFROM.
1.26. SECTION 7.3(B) OF THE CREDIT AGREEMENT IS AMENDED TO CHANGE
THE NUMBERING OF CLAUSE (III) TO CLAUSE (IV) AND TO INSERT THE FOLLOWING
IMMEDIATELY PRIOR THERETO:
(iii) PERMITTED RECEIVABLES TRANSFERS; AND
1.27. SECTION 7.3(C) OF THE CREDIT AGREEMENT IS AMENDED TO DELETE
CLAUSE (VI) THEREOF IN ITS ENTIRETY AND TO SUBSTITUTE THE FOLLOWING
THEREFOR:
(VI) LIENS ARISING UNDER THE RECEIVABLES PURCHASE
DOCUMENTS; AND
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(VII) LIENS (OTHER THAN ON THE STOCK OF ANY
SUBSIDIARIES) SECURING OTHER OBLIGATIONS NOT EXCEEDING
$25,000,000 IN THE AGGREGATE AT ANY TIME OUTSTANDING.
1.28. SECTION 7.3(C) OF THE CREDIT AGREEMENT IS FURTHER AMENDED TO
ADD THE FOLLOWING AT THE END OF THE LAST SENTENCE THEREOF IMMEDIATELY
PRIOR TO THE PERIOD:
AND; PROVIDED FURTHER THAT THE RECEIVABLES PURCHASE DOCUMENTS MAY
PROHIBIT THE CREATION OF A LIEN IN FAVOR OF THE AGENT FOR THE
BENEFIT OF THE HOLDERS OF SECURED OBLIGATIONS ON THE ASSETS OF THE
SPC AND ON THE RECEIVABLES INTERESTS BEING SOLD OR TRANSFERRED BY
THE ORIGINATORS PURSUANT TO THE RECEIVABLES PURCHASE DOCUMENTS.
1.29. SECTION 7.3(D) OF THE CREDIT AGREEMENT IS AMENDED TO DELETE
CLAUSE (IX) THEREOF IN ITS ENTIRETY AND TO SUBSTITUTE THE FOLLOWING
THEREFOR:
(IX) INVESTMENTS IN SPC REQUIRED IN CONNECTION WITH THE
RECEIVABLES PURCHASE DOCUMENTS: AND
(X) INVESTMENTS IN ADDITION TO THOSE REFERRED TO ELSEWHERE IN THIS
SECTION 7.3(D) IN AN AMOUNT NOT TO EXCEED $1,000,000 IN THE AGGREGATE AT
ANY TIME OUTSTANDING;
PROVIDED, HOWEVER, THAT THE INVESTMENTS DESCRIBED IN CLAUSES (V), (VIII)
AND (X) ABOVE SHALL NOT BE PERMITTED IF EITHER A DEFAULT OR UNMATURED
DEFAULT SHALL HAVE OCCURRED AND BE CONTINUING ON THE DATE THEREOF OR WOULD
RESULT THEREFROM.
1.30. SECTION 7.3(E) OF THE CREDIT AGREEMENT IS AMENDED DELETE THE
TERMS OF CLAUSES (I) AND (II) THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE
THE FOLLOWING THEREFOR:
(E) NON-GUARANTOR SUBSIDIARIES OR NON-PLEDGED SUBSIDIARIES. THE
BORROWER SHALL NOT PERMIT THE TOTAL ASSETS OF THE SUBSIDIARIES WHICH ARE
NOT GUARANTORS OR THE CAPITAL STOCK OF WHICH IS NOT PLEDGED (EXCLUDING
THEREFROM ALL ITEMS THAT ARE TREATED AS INTANGIBLES UNDER AGREEMENT
ACCOUNTING PRINCIPLES) TO BE EQUAL TO OR GREATER THAN TEN PERCENT (10%) OF
CONSOLIDATED TANGIBLE ASSETS. FOR PURPOSES OF THIS SECTION 7.3(E),WITH
RESPECT TO NON-DOMESTIC SUBSIDIARIES WHERE ONLY 65% OF THE CAPITAL STOCK
IS PLEDGED, THIRTY FIVE PERCENT (35%) OF SUCH SUBSIDIARIES' CONSOLIDATED
TANGIBLE ASSETS SHALL BE INCLUDED IN THE CALCULATION OF THE TEN PERCENT
(10%) AMOUNT SET FORTH ABOVE.
1.31 SECTION 7.3(G) OF THE CREDIT AGREEMENT IS AMENDED DELETE THE
TERMS OF CLAUSES (I) AND (II) THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE
THE FOLLOWING THEREFOR:
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(G) CONDUCT OF BUSINESS; SUBSIDIARIES; ACQUISITIONS.
(I) LINES OF BUSINESS. NEITHER THE BORROWER NOR ANY OF ITS
SUBSIDIARIES SHALL ENGAGE IN ANY BUSINESS OTHER THAN THE BUSINESSES
ENGAGED IN BY THE BORROWER ON THE ORIGINAL CLOSING DATE AND ANY BUSINESS
OR ACTIVITIES WHICH ARE SUBSTANTIALLY SIMILAR, RELATED OR INCIDENTAL
THERETO.
(II) DOMESTIC AND FOREIGN SUBSIDIARIES.
(A) DOMESTIC SUBSIDIARIES. THE BORROWER MAY CREATE, ACQUIRE
AND/OR CAPITALIZE ANY SUBSIDIARY (A "NEW SUBSIDIARY") AFTER THE DATE
HEREOF PURSUANT TO ANY TRANSACTION THAT IS PERMITTED BY OR NOT
OTHERWISE PROHIBITED BY THIS AGREEMENT; PROVIDED THAT UPON THE
CREATION OR ACQUISITION OF EACH NEW SUBSIDIARY, THE BORROWER SHALL
CAUSE EACH NEW SUBSIDIARY THAT IS BOTH A DOMESTIC SUBSIDIARY AND A
MATERIAL SUBSIDIARY TO PROMPTLY DELIVER TO THE AGENT AN EXECUTED
COUNTERPART OF A GUARANTY SUPPLEMENT TO BECOME A GUARANTOR UNDER THE
GUARANTY IN THE FORM OF EXHIBIT J ATTACHED HERETO AND APPROPRIATE
CORPORATE RESOLUTIONS, OPINIONS AND OTHER DOCUMENTATION IN FORM AND
SUBSTANCE SATISFACTORY TO THE AGENT, AND ALL NEW SUBSIDIARIES THAT
ARE MATERIAL SUBSIDIARIES SHALL BE CONTROLLED SUBSIDIARIES.
(B) FOREIGN SUBSIDIARIES. THE BORROWER SHALL DELIVER AN
AGREEMENT EVIDENCING THE PLEDGE, TO THE AGENT, FOR THE BENEFIT OF
THE HOLDERS OF SECURED OBLIGATIONS OF 65% OF THE CAPITAL STOCK OF
EACH MATERIAL SUBSIDIARY THAT IS NOT A DOMESTIC SUBSIDIARY, WITHIN
SIXTY (60) DAYS AFTER SUCH SUBSIDIARY HAS BECOME A MATERIAL
SUBSIDIARY, TOGETHER, IN EACH SUCH CASE, WITH CORPORATE RESOLUTIONS,
OPINIONS OF COUNSEL, STOCK CERTIFICATES, STOCK POWERS AND SUCH OTHER
CORPORATE DOCUMENTATION AS THE AGENT MAY REASONABLY REQUEST, ALL IN
FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE AGENT; PROVIDED,
HOWEVER, IN THE EVENT THAT ANY SUCH MATERIAL FOREIGN SUBSIDIARY IS
WHOLLY-OWNED BY A DOMESTIC SUBSIDIARY, IN CONNECTION WITH WHICH ALL
OF THE REQUIREMENTS OF THIS CLAUSE (II) HAVE BEEN SATISFIED AND THE
ACTIVITIES OF WHICH ARE LIMITED TO OWNING THE CAPITAL STOCK OF ITS
SUBSIDIARIES, THEN, THE AGENT, AT ITS OPTION, MAY WAIVE THE
REQUIREMENT FOR THE PLEDGE OF SUCH FOREIGN MATERIAL SUBSIDIARY'S
CAPITAL STOCK UNDER THIS CLAUSE (II); AND PROVIDED FURTHER, HOWEVER,
IN THE EVENT THAT MORE THAN ONE SUBSIDIARY WITHIN A COMMONLY
CONTROLLED GROUP OF SUBSIDIARIES CONSTITUTES A MATERIAL SUBSIDIARY
WHICH IS NOT A DOMESTIC SUBSIDIARY, THEN ONLY THE CAPITAL STOCK OF
THE "PARENT" OR "CONTROLLING" SUBSIDIARY SHALL BE REQUIRED TO BE
PLEDGED. IF AT ANY TIME ANY NON-DOMESTIC MATERIAL SUBSIDIARY SHALL
ISSUE OR CAUSE TO BE ISSUED CAPITAL STOCK, OR WARRANTS OR OPTIONS
WITH RESPECT TO ITS CAPITAL STOCK, SUCH THAT THE AGGREGATE AMOUNT OF
THE CAPITAL STOCK, IF ANY, OF SUCH MATERIAL FOREIGN SUBSIDIARY
PLEDGED TO THE AGENT FOR THE BENEFIT OF THE HOLDERS OF SECURED
OBLIGATIONS IS LESS THAN 65% OF ALL OF THE OUTSTANDING CAPITAL STOCK
THEREOF, THE BORROWER SHALL (I) PROMPTLY
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NOTIFY THE AGENT OF SUCH DEFICIENCY AND (II) DELIVER OR CAUSE TO BE
DELIVERED ANY AGREEMENTS, INSTRUMENTS, CERTIFICATES AND OTHER
DOCUMENTS AS THE AGENT MAY REASONABLY REQUEST ALL IN A FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE AGENT IN ORDER TO CAUSE ALL
OF THE CAPITAL STOCK OF SUCH NON-DOMESTIC MATERIAL SUBSIDIARY (BUT
NOT IN EXCESS OF 65% OF ALL OF THE OUTSTANDING CAPITAL STOCK
THEREOF) TO BE PLEDGED TO THE AGENT FOR THE BENEFIT OF THE HOLDERS
OF SECURED OBLIGATIONS. IN THE EVENT THAT THE BORROWER OR ANY
GUARANTOR CAUSES OR PERMITS ANY FOREIGN MATERIAL SUBSIDIARY THAT IS
NOT A GUARANTOR TO, DIRECTLY OR INDIRECTLY, GUARANTEE THE PAYMENT OF
ANY INDEBTEDNESS OF THE BORROWER OR ANY GUARANTOR THEN THE BORROWER
WILL (1) SIMULTANEOUSLY DELIVER, OR CAUSE TO BE DELIVERED, AN
AGREEMENT EVIDENCING THE PLEDGE, TO THE AGENT, FOR THE BENEFIT OF
THE HOLDERS OF SECURED OBLIGATIONS, OF ALL OF THE CAPITAL STOCK OF
SUCH NON-DOMESTIC MATERIAL SUBSIDIARY, (2) SIMULTANEOUSLY CAUSE SUCH
NON-DOMESTIC MATERIAL SUBSIDIARY TO EXECUTE AND DELIVER TO THE AGENT
A GUARANTY SUPPLEMENT PURSUANT TO WHICH IT AGREES TO BE BOUND BY THE
TERMS AND PROVISIONS OF THE SUBSIDIARY GUARANTY (WHEREUPON SUCH
SUBSIDIARY SHALL BECOME A "GUARANTOR" UNDER THIS AGREEMENT), AND (3)
DELIVER AND CAUSE SUCH SUBSIDIARIES TO DELIVER CORPORATE
RESOLUTIONS, OPINIONS OF COUNSEL, STOCK CERTIFICATES, STOCK POWERS,
UCC FINANCING STATEMENTS WITH RESPECT TO THE CAPITAL STOCK ADDED AS
ADDITIONAL COLLATERAL AND SUCH OTHER CORPORATE DOCUMENTATION AS THE
AGENT MAY REASONABLY REQUEST, ALL IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE AGENT.
1.32. SECTION 7.3(G) OF THE CREDIT AGREEMENT IS FURTHER AMENDED TO
DELETE CLAUSE (III)(H) THEREOF IN ITS ENTIRETY AND TO SUBSTITUTE THE
FOLLOWING THEREFOR:
(H) THE WRITTEN CONSENT OF THE REQUIRED LENDERS SHALL HAVE BEEN
OBTAINED IN CONNECTION WITH ANY ACQUISITION IF (1) THE AGGREGATE, WITHOUT
DUPLICATION, OF (A) THE CASH PORTION OF THE PURCHASE PRICE, PLUS (B) THE
DIFFERENCE (IF POSITIVE) OF (I) INDEBTEDNESS INCURRED OR ASSUMED IN
CONNECTION WITH SUCH ACQUISITION MINUS (II) CASH ACQUIRED IN SUCH
ACQUISITION IS GREATER THAN $75,000,000 OR (2) (A) THE AGGREGATE PURCHASE
PRICE (INCLUDING, WITHOUT LIMITATION OR DUPLICATION, CASH, STOCK,
INDEBTEDNESS ASSUMED (NET OF ANY CASH ACQUIRED), AND TRANSACTION RELATED
CONTRACTUAL PAYMENTS, INCLUDING AMOUNTS PAYABLE UNDER NON-COMPETE,
CONSULTING OR SIMILAR AGREEMENTS)(VALUING ALL NON-CASH CONSIDERATION AT
FAIR VALUE) (THE "PURCHASE PRICE") IS EQUAL TO OR GREATER THAN
$10,000,000; AND (B) THE PURCHASE PRICE IS EQUAL TO OR GREATER THAN EIGHT
(8) TIMES THE EBITDA OF THE TARGET ENTITY FOR THE LAST 12-MONTH PERIOD
PRECEDING SUCH ACQUISITION FOR WHICH FINANCIAL STATEMENTS ARE AVAILABLE.
1.33. SECTION 7.3 OF THE CREDIT AGREEMENT IS AMENDED TO DELETE
SUBSECTION (H) THEREOF IN ITS ENTIRETY AND TO SUBSTITUTE THE FOLLOWING
THEREFOR:
(H) TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. NEITHER THE
BORROWER NOR ANY OF ITS SUBSIDIARIES SHALL DIRECTLY OR INDIRECTLY ENTER
INTO OR PERMIT TO EXIST ANY TRANSACTION (INCLUDING, WITHOUT LIMITATION,
THE PURCHASE, SALE, LEASE OR EXCHANGE OF ANY PROPERTY OR
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THE RENDERING OF ANY SERVICE) WITH ANY HOLDER OR HOLDERS OF ANY OF THE
EQUITY INTERESTS OF THE BORROWER, OR WITH ANY AFFILIATE OF THE BORROWER
WHICH IS NOT ITS SUBSIDIARY, ON TERMS THAT ARE LESS FAVORABLE TO THE
BORROWER OR ANY OF ITS SUBSIDIARIES, AS APPLICABLE, THAN THOSE THAT MIGHT
BE OBTAINED IN AN ARM'S LENGTH TRANSACTION AT THE TIME FROM PERSONS WHO
ARE NOT SUCH A HOLDER OR AFFILIATE, EXCEPT FOR (I) PERMITTED RECEIVABLES
TRANSFERS AND (II) RESTRICTED PAYMENTS PERMITTED BY SECTION 7.3(F).
1.34. SECTION 7.3(J) OF THE CREDIT AGREEMENT IS AMENDED TO DELETE
CLAUSE (III) THEREOF IN ITS ENTIRETY AND TO SUBSTITUTE THE FOLLOWING
THEREFOR:
(III) THE AGGREGATE AMOUNT OF ALL OBLIGATIONS INCURRED BY THE
BORROWER AND ITS SUBSIDIARIES IN CONNECTION THEREWITH DOES NOT EXCEED
$25,000,000 OUTSTANDING AT ANY TIME.
1.35. SECTION 7.3 OF THE CREDIT AGREEMENT IS AMENDED TO DELETE
SUBSECTION (P) THEREOF IN ITS ENTIRETY AND TO SUBSTITUTE THE FOLLOWING
THEREFOR:
(P) SUBSIDIARY COVENANTS. EXCEPT TO THE EXTENT REQUIRED IN THE
RECEIVABLES TRANSFER DOCUMENTS, THE BORROWER WILL NOT, AND WILL NOT PERMIT
ANY SUBSIDIARY TO, CREATE OR OTHERWISE CAUSE TO BECOME EFFECTIVE ANY
CONSENSUAL ENCUMBRANCE OR RESTRICTION OF ANY KIND ON THE ABILITY OF ANY
SUBSIDIARY TO PAY DIVIDENDS OR MAKE ANY OTHER DISTRIBUTION ON ITS STOCK,
OR MAKE ANY OTHER RESTRICTED PAYMENT, PAY ANY INDEBTEDNESS OR OTHER
OBLIGATION OWED TO THE BORROWER OR ANY OTHER SUBSIDIARY, MAKE LOANS OR
ADVANCES OR OTHER INVESTMENTS IN THE BORROWER OR ANY OTHER SUBSIDIARY, OR
SELL, TRANSFER OR OTHERWISE CONVEY ANY OF ITS PROPERTY TO THE BORROWER OR
ANY OTHER SUBSIDIARY.
1.36. SECTION 7.3 OF THE CREDIT AGREEMENT IS AMENDED TO ADD THE
FOLLOWING SUBSECTION (S) IN THE APPLICABLE LOCATION:
(S) AMENDMENT OF RECEIVABLES PURCHASE DOCUMENTS. THE BORROWER SHALL
NOT, AND SHALL NOT PERMIT ANY OF ITS SUBSIDIARIES TO, AGREE TO OR ENTER
INTO ANY AMENDMENT, RESTATEMENT OR OTHER MODIFICATION OF THE RECEIVABLES
PURCHASE DOCUMENTS, OR SUBSTITUTE OR REPLACE THE RECEIVABLES PURCHASE
DOCUMENTS WITH ANOTHER RECEIVABLES SECURITIZATION FACILITY, THAT WOULD (I)
INCREASE THE MAXIMUM PRINCIPAL AMOUNT OF INDEBTEDNESS TO BE INCURRED
THEREUNDER TO AN AMOUNT IN EXCESS OF $100,000,000; PROVIDED THAT IN ANY
EVENT THE BORROWER SHALL CONCURRENTLY REDUCE THE REVOLVING CREDIT
OBLIGATIONS BY AN AMOUNT EQUAL TO THE AMOUNT OF ANY INCREASE IN SUCH
INDEBTEDNESS; (II) ACCELERATE ANY SCHEDULED AMORTIZATION DATE; (III)
INCREASE THE RECOURSE OBLIGATIONS OF THE BORROWER OR ANY OF ITS
SUBSIDIARIES (OTHER THAN SPC) IN ANY MATERIAL RESPECT; (IV) IMPOSE NET
WORTH COVENANTS FOR SPC THAT ARE MATERIALLY MORE STRINGENT THAN THOSE
ORIGINALLY CONTAINED IN THE RECEIVABLES PURCHASE DOCUMENTS OR MATERIALLY
MORE STRINGENT THAN IN COMPARABLE STRUCTURED FINANCE TRANSACTIONS; (V)
MATERIALLY DECREASE THE CASH CONSIDERATION TO BE PAID TO ANY ORIGINATOR ON
ACCOUNT OF ANY PERMITTED RECEIVABLES TRANSFERS; OR (VI) MATERIALLY
INCREASE THE AMOUNT OF DISCOUNT, YIELD OR INTEREST PAYABLE THEREUNDER.
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1.37. SECTION 7.4(A) OF THE CREDIT AGREEMENT IS AMENDED TO DELETE
THE FIRST SENTENCE THEREOF IN ITS ENTIRETY AND TO SUBSTITUTE THE FOLLOWING
THEREFOR:
THE BORROWER SHALL MAINTAIN A RATIO ("FIXED CHARGE COVERAGE RATIO") OF (I)
THE SUM OF (A) EBITDA, MINUS (B) DEPRECIATION EXPENSE, TO THE EXTENT
INCLUDED IN THE CALCULATION OF EBITDA, PLUS (C) RENTALS OF THE BORROWER
AND ITS CONSOLIDATED SUBSIDIARIES TO (II) THE SUM OF (A) INTEREST EXPENSE,
PLUS (B) RENTALS PLUS (C) SCHEDULED AMORTIZATION OF INDEBTEDNESS (OTHER
THAN INDEBTEDNESS IN RESPECT OF PERMITTED RECEIVABLES TRANSFERS), IN EACH
CASE FOR THE BORROWER AND ITS CONSOLIDATED SUBSIDIARIES OF AT LEAST 2.25
TO 1.00 FOR EACH FISCAL QUARTER COMMENCING WITH THE FISCAL QUARTER ENDING
SEPTEMBER 30, 1998 AND EACH FISCAL QUARTER THEREAFTER.
1.38. SECTION 7.4 OF THE CREDIT AGREEMENT IS FURTHER AMENDED TO
DELETE SUBSECTIONS (B) AND (D) THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE
THE FOLLOWING THEREFOR:
(B) TOTAL DEBT TO EBITDA RATIO. THE BORROWER SHALL NOT AT ANY TIME
PERMIT THE RATIO (THE "LEVERAGE RATIO") OF (I) TOTAL DEBT OF THE BORROWER
AND ITS CONSOLIDATED SUBSIDIARIES TO (II) EBITDA OF THE BORROWER AND ITS
CONSOLIDATED SUBSIDIARIES, TO BE GREATER THAN 4.50 TO 1.00. THE LEVERAGE
RATIO SHALL BE CALCULATED, IN EACH CASE, DETERMINED AS OF THE LAST DAY OF
EACH FISCAL QUARTER (COMMENCING WITH THE FISCAL QUARTER ENDING SEPTEMBER
30, 1998 AND EACH FISCAL QUARTER THEREAFTER) BASED UPON (A) FOR TOTAL
DEBT, TOTAL DEBT AS OF THE LAST DAY OF EACH SUCH FISCAL QUARTER; AND (B)
FOR EBITDA, EBITDA FOR THE TWELVE-MONTH PERIOD ENDING ON SUCH DAY,
CALCULATED AS SET FORTH IN THE DEFINITION THEREOF.
(D) SENIOR DEBT TO EBITDA RATIO. THE BORROWER SHALL NOT AT ANY TIME
PERMIT THE RATIO OF (I) TOTAL DEBT OF THE BORROWER AND ITS CONSOLIDATED
SUBSIDIARIES MINUS PERMITTED SUBORDINATED INDEBTEDNESS OF THE BORROWER TO
(II) EBITDA OF THE BORROWER AND ITS CONSOLIDATED SUBSIDIARIES, TO BE
GREATER THAN 3.00 TO 1.00. SUCH RATIO SHALL BE CALCULATED, IN EACH CASE,
DETERMINED AS OF THE LAST DAY OF EACH FISCAL QUARTER (COMMENCING WITH THE
FISCAL QUARTER ENDING SEPTEMBER 30, 1998 AND EACH FISCAL QUARTER
THEREAFTER) BASED UPON (A) FOR TOTAL DEBT AND PERMITTED SUBORDINATED
INDEBTEDNESS, TOTAL DEBT AND PERMITTED SUBORDINATED INDEBTEDNESS AS OF THE
LAST DAY OF EACH SUCH FISCAL QUARTER; AND (B) FOR EBITDA, EBITDA FOR THE
TWELVE-MONTH PERIOD ENDING ON SUCH DAY, CALCULATED AS SET FORTH IN THE
DEFINITION THEREOF.
1.39. SECTION 13.3(C) OF THE CREDIT AGREEMENT IS AMENDED TO DELETE
THE TERMS THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE THE FOLLOWING
THEREFOR:
(C) THE REGISTER. THE AGENT SHALL MAINTAIN AT ITS ADDRESS REFERRED
TO IN SECTION 14.1 A COPY OF EACH COMMITMENT AND ACCEPTANCE DELIVERED
PURSUANT TO SECTION
20
<PAGE>
2.4(B) AND EACH ASSIGNMENT AGREEMENT DELIVERED TO AND ACCEPTED BY IT
PURSUANT TO THIS SECTION 13.3 AND A REGISTER (THE "REGISTER") FOR THE
RECORDATION OF THE NAMES AND ADDRESSES OF THE LENDERS AND THE COMMITMENT
OF AND PRINCIPAL AMOUNT OF THE LOANS OWING TO, EACH LENDER FROM TIME TO
TIME AND WHETHER SUCH LENDER IS AN ORIGINAL LENDER, BECAME A LENDER
PURSUANT TO SECTION 2.4(B) OR THE ASSIGNEE OF ANOTHER LENDER PURSUANT TO
AN ASSIGNMENT UNDER THIS SECTION 13.3. THE ENTRIES IN THE REGISTER SHALL
BE CONCLUSIVE AND BINDING FOR ALL PURPOSES, ABSENT MANIFEST ERROR, AND THE
BORROWER AND EACH OF ITS SUBSIDIARIES, THE AGENT AND THE LENDERS MAY TREAT
EACH PERSON WHOSE NAME IS RECORDED IN THE REGISTER AS A LENDER HEREUNDER
FOR ALL PURPOSES OF THIS AGREEMENT. THE REGISTER SHALL BE AVAILABLE FOR
INSPECTION BY THE BORROWER OR ANY LENDER AT ANY REASONABLE TIME AND FROM
TIME TO TIME UPON REASONABLE PRIOR NOTICE.
1.40. THE SCHEDULES AND EXHIBITS TO THE CREDIT AGREEMENT ARE AMENDED
TO DELETE SCHEDULES 1.1.3, 1.1.5 AND 6.8 AND EXHIBITS B AND K THERETO AND
TO SUBSTITUTE THE LIKE NUMBERED AND LETTERED SCHEDULES AND EXHIBITS
ATTACHED TO THIS AMENDMENT.
2. CONDITIONS OF EFFECTIVENESS. The provisions of Section 1(A) of this
Amendment shall not become effective unless this Amendment shall have been
executed by the Borrower, the Agent and NationsBank, N.A. The provisions of
Section 1(B) of this Amendment shall not become effective unless:
(a) this Amendment shall have been executed by the Borrower, the
Agent, the Required Lenders and any Lender the Commitment of which is
increasing or which is joining the Agreement through this Amendment as a
new Lender (the "Required Signatories");
(b) the Agent shall have received from the Subsidiaries a
reaffirmation in the form attached as EXHIBIT A hereto;
(c) the Borrower shall have paid to the Agent for the ratable
account of each of the Lenders parties to the Original Credit Agreement
which have signed this Amendment an amendment fee in the amount of ten
basis points applied to their Commitment as in effect immediately prior to
this Amendment;
(d) the Borrower shall have paid to the Agent such other fees as
have been agreed to between the Borrower and the Agent and/or Arranger;
(e) the Borrower shall have repaid all outstanding Revolving Loans
as of the effective date hereof;
(f) the Borrower shall have executed an amended and restated Swing
Line Note; and
21
<PAGE>
(g) the Borrower has furnished to the Agent, with sufficient copies
for the Lenders, all in form and substance satisfactory to the Agent and
the Required Signatories:
(i) Corporate documentation satisfactory to the Agent of the
corporate power and authority of the Borrower and its Subsidiaries
in connection with the increased facility;
(ii) A certificate, in form and substance satisfactory to the
Agent, signed by the chief financial officer or treasurer of the
Borrower, stating that on the effective date of the Amendment no
Default or Unmatured Default has occurred and is continuing, and
setting forth the calculation of the Leverage Ratio as of September
30, 1998.
(iii) An updated written opinion of the Borrower's,
Guarantors' and pledged Subsidiaries' general counsel and outside
counsel, addressed to the Agent and the Lenders in form and
substance reasonably acceptable to the Agent;
(iv) Revolving Notes payable to the order of each of the
applicable Lenders where the Commitment of such Lender has changed;
(v) written responses to the Agent's questionnaire regarding
the Borrower's and its Subsidiaries' plan for addressing the Year
2000 Issues; and
(vi) Such other documents as the Agent or any of the Required
Signatories or its counsel may have reasonably requested.
3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower hereby
represents and warrants as follows:
(a) The Borrower has the legal power and authority to execute and deliver
this Amendment and the officers of the Borrower executing this Amendment have
been duly authorized to execute and deliver the same and bind the Borrower with
respect to the provisions hereof.
(b) This Amendment and the Credit Agreement as previously executed and as
amended hereby, constitute legal, valid and binding obligations of the Borrower,
enforceable against it in accordance with their terms (except as enforceability
may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditor's rights generally).
(c) Upon the effectiveness of this Amendment, the Borrower hereby
reaffirms all covenants, representations and warranties made in the Credit
Agreement and the other Loan Documents to the extent the same are not amended
hereby, agrees that all such covenants,
22
<PAGE>
representations and warranties shall be deemed to have been remade as of the
effective date of this Amendment.
(d) There exists no Default or Unmatured Default.
4. PROVISIONS APPLICABLE TO NEW LENDERS. Each financial institution
signatory hereto which has not previously been a party to the Credit Agreement
(i) confirms that it has received a copy of the Credit Agreement, together with
copies of the financial statements requested by such new Lender and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Amendment and thereby join as a party
to the Credit Agreement, (ii) agrees that it will, independently and without
reliance upon the Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Loan Documents, (iii)
appoints and authorizes the Agent to take such action as its contractual
representative on its behalf and to exercise such powers under the Loan
Documents as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto, (iv) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Loan Documents are required to be performed by it as a Lender, (v) agrees that
its payment instructions and notice instructions are as set forth in the
administrative schedule previously provided to the Agent and (vi) if applicable,
attaches the forms prescribed by the Internal Revenue Service of the United
States certifying that such new Lender is entitled to receive payments under the
Loan Documents without deduction or withholding of any United States federal
income taxes.
5. REFERENCE TO THE EFFECT ON THE CREDIT AGREEMENT.
(a) Upon the effectiveness of either or both of Section 1(A) and/or
Section 1(B) hereof, on and after the date hereof, each reference in the Credit
Agreement to "this Credit Agreement," "hereunder," "hereof," "herein" or words
of like import shall mean and be a reference to the Credit Agreement as amended
hereby.
(b) Except as specifically amended above, the Credit Agreement and all
other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, operate as a waiver of any right, power of
remedy of the Agent or the Lenders, nor constitute a waiver of any provision of
the Credit Agreement or any other documents, instruments and agreements executed
and/or delivered in connection therewith.
6. GOVERNING LAW. ANY DISPUTE BETWEEN THE BORROWER AND THE AGENT, ANY
LENDER, OR ANY INDEMNITEE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS
AMENDMENT, THE CREDIT
23
<PAGE>
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL
LAWS (INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS
LAW, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE
STATE OF NEW YORK.
7. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
8. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any of the parties hereto may execute this Agreement by signing any such
counterpart.
- - - - Remainder of this page intentionally blank - - - -
24
<PAGE>
Signature Page to Metals USA, Inc. Amendment No. 1
to Amended and Restated Credit Agreement
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day
and year first above written.
METALS USA, INC.
AS THE BORROWER
By: _____________________________________
Print Name: _______________________________
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
INDIVIDUALLY AND AS AGENT
By: _____________________________________
Print Name: _______________________________
Title: _____________________________________
BANKERS TRUST COMPANY, as a Lender
By: _____________________________________
Print Name: _______________________________
Title: _____________________________________
Signature Page to Metals USA, Inc. Amendment No. 1
to Amended and Restated Credit Agreement
<PAGE>
CHASE BANK OF TEXAS, N.A., as a Lender
By: _____________________________________
Print Name: _______________________________
Title: _____________________________________
GUARANTY FEDERAL BANK, F.S.B., as a Lender
By: _____________________________________
Print Name: _______________________________
Title: _____________________________________
NATIONSBANK, N.A., (successor to NationsBank of
Texas, N.A.), as a Lender
By: _____________________________________
Print Name: _______________________________
Title: _____________________________________
PNC BANK, NATIONAL ASSOCIATION, as a Lender
By: _____________________________________
Print Name: _______________________________
Title: _____________________________________
<PAGE>
SOUTHTRUST BANK, NATIONAL ASSOCIATION, as a Lender
By: _____________________________________
Print Name: _______________________________
Title: _____________________________________
UNION BANK OF CALIFORNIA, N.A., as a Lender
By: _____________________________________
Print Name: _______________________________
Title: _____________________________________
WACHOVIA BANK, N.A., as a Lender
By: _____________________________________
Print Name: _______________________________
Title: _____________________________________
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION,
as a Lender
By: _____________________________________
Print Name: _______________________________
Title: _____________________________________
<PAGE>
THE BANK OF NOVA SCOTIA, as a Lender
By: _____________________________________
Print Name: _______________________________
Title: _____________________________________
COMERICA BANK, as a Lender
By: _____________________________________
Print Name: _______________________________
Title: _____________________________________
By their signature below, each of the following institutions acknowledges and
agrees that as of the effective date of this Amendment they no longer are
Lenders under the Credit Agreement referred to above:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION, as a Lender
By: _____________________________________
Print Name: _______________________________
Title: _____________________________________
BANK ONE, TEXAS, N.A., as a Lender
By: _____________________________________
Print Name: _______________________________
Title: _____________________________________
<PAGE>
EXHIBIT A
TO
AMENDMENT NO. 1
REAFFIRMATION OF SUBSIDIARY GUARANTY
Attached
REAFFIRMATION
Each of the undersigned hereby acknowledges receipt of a copy of
Amendment No. 1 to the Amended and Restated Credit Agreement dated as of
February 11, 1998, by and among Metals USA, Inc., the Lenders and the Agent (as
so amended thereby, the "Credit Agreement") which Amendment No. 1 is dated as of
November 25, 1998 (the "Amendment"). Capitalized terms used in this
Reaffirmation and not defined herein shall have the meanings given to them in
the Credit Agreement. Without in any way establishing a course of dealing by the
Agent or any Lender, the undersigned reaffirms the terms and conditions of the
Guaranty dated as of February 11, 1998 executed by it and acknowledges and
agrees that such Guaranty and each and every other Loan Document executed by the
undersigned in connection with the Credit Agreement remain in full force and
effect and are hereby ratified, reaffirmed and confirmed. All references to the
Credit Agreement contained in the above-referenced documents shall be a
reference to the Credit Agreement as so amended by the Amendment and as the same
may from time to time hereafter be amended, modified or restated.
AEROSPACE SPECIFICATION METALS, INC.
AFFILIATED METALS COMPANY
ALUMINUM BUILDING SYSTEMS, INC.
CONCORD METALS CORPORATION
CORNERSTONE ALUMINUM COMPANY, INC.
CORNERSTONE BUILDING PRODUCTS, INC.
CORNERSTONE METALS CORPORATION
FAITOUTE STEEL COMPANY, INC.
FEDERAL BRONZE ALLOYS, INC.
FLAGG STEEL COMPANY, INC.
FOREST MANUFACTURING, INC.
FULLERTON METALS COMPANY
GSBC, INC.
HARVEY TITANIUM, LTD.
INDEPENDENT METALS CO., INC.
INDUSTRIAL METALS, INC.
INTERSTATE STEEL PROCESSING COMPANY
INTERSTATE STEEL SUPPLY COMPANY
INTERSTATE STEEL SUPPLY CO. OF MARYLAND, INC.
INTERSTATE STEEL SUPPLY CO. OF PITTSBURGH, INC.
INTSEL GP
INTSEL LP
<PAGE>
INTSEL SOUTHWEST LIMITED PARTNERSHIP
JEFFREYS STEEL COMPANY, INC.
JEFFREYS REAL ESTATE CORPORATION
KROHN STEEL SERVICE CENTER, INCORPORATED
LASERPRO, INCORPORATED
MEIER METAL SERVICENTERS, INC.
METALS USA FINANCE CORP.
METALS USA SERVICE CORPORATION
METALMART, INC.
MUSA GP, INC.
MUSA LP, INC.
NATIONAL MANUFACTURING, INC.
PACIFIC METAL COMPANY
PROFESSIONAL METALS, INC.
QUEENSBORO STEEL CORPORATION
R.J. FABRICATING, INC.
ROYAL ALUMINUM, INC.
SIERRA PACIFIC STEEL, INC.
SOUTHERN ALLOY OF AMERICA, INC.
STEEL MANUFACTURING AND WAREHOUSE COMPANY
STEEL SERVICE SYSTEMS, INC.
TEXAS ALUMINUM INDUSTRIES, INC.
THE LEVINSON STEEL COMPANY
UNI-STEEL, INC.
VALLEY ALUMINUM CO.
VALLEY ALUMINUM OF NEVADA, INC.
WAYNE STEEL, INC.
WESTERN AWNING COMPANY, INC.
WILKOF-MORRIS STEEL COMPANY
WILLIAMS STEEL & SUPPLY CO., INC.
WSS TRANSPORTATION, INC.
In each case:
By: _______________________________
Its: _______________________________
<PAGE>
METALS VENTURES, L.L.C.
By:_______________________________
Its:_______________________________
By:___________________________
Its:___________________________
CORNERSTONE PATIO CONCEPTS, L.L.C.
By:_______________________________
Its:_______________________________
By:___________________________
Its:___________________________
METALS USA MANAGEMENT CO., L.P.
By: MUSA GP, INC.
Its: General Partner
By: ______________________________
Its: ______________________________
<PAGE>
EXHIBIT B
COMMITMENTS
Revolving Loan Commitments
LENDER AMOUNT OF REVOLVING LOAN
The First National Bank of
Chicago $68,000,000
NationsBank, N.A. (successor
to NationsBank of Texas, N.A.) $62,000,000
PNC Bank, National Association $35,000,000
Bankers Trust Company $25,000,000
Chase Bank of Texas, N.A. $25,000,000
SouthTrust Bank, National
Association $25,000,000
Wells Fargo Bank (Texas),
National Association $25,000,000
The Bank of Nova Scotia $25,000,000
Guaranty Federal Bank, F.S.B. $15,000,000
Union Bank of California, N.A. $15,000,000
Wachovia Bank, N.A. $15,000,000
Comerica Bank $15,000,000
TOTAL $350,000,000
SWING LINE COMMITMENTS
AMOUNT OF SWING LINE
LENDER COMMITMENT
The First National Bank of
Chicago $25,000,000.00
<PAGE>
EXHIBIT K
COMMITMENT AND ACCEPTANCE
Attached
<PAGE>
FORM OF COMMITMENT AND ACCEPTANCE
Dated ,
Reference is made to the Amended and Restated Credit Agreement dated
as of February 11, 1998 Credit Agreement (as amended prior to the date hereof by
Amendment No. 1 thereto dated as of November 25, 1998 and [insert description of
all other amendments],] the "CREDIT AGREEMENT") among Metals USA, Inc., a
Delaware corporation (the "Borrower"), the financial institutions party thereto
(the "Lenders"), and The First National Bank of Chicago, as contractual
representative for the Lenders (the "Agent"). Terms defined in the Credit
Agreement are used herein with the same meaning.
Pursuant to SECTION 2.4(B) of the Credit Agreement, the Borrower has
requested an increase in the Aggregate Commitment from $______________ to
$_____________. Such increase in the Aggregate Commitment is to become effective
on the date (the "EFFECTIVE DATE") which is the later of (i) _________, ____ and
(ii) the date on which the conditions precedent set forth in SECTION 2.4(B) in
respect of such increase have been satisfied. In connection with such requested
increase in the Aggregate Commitment, the Borrower, the Agent and
_________________ (the "Accepting Bank") hereby agree as follows:
1. Effective as of the Effective Date, [the Accepting Bank shall
become a party to the Credit Agreement as a Lender and shall have all of the
rights and obligations of a Lender thereunder and shall thereupon have a
Commitment under and for purposes of the Credit Agreement in an amount equal to
the] [the Commitment of the Accepting Bank under the Credit Agreement shall be
increased from $_________ to the] amount set forth opposite the Accepting Bank's
name on the signature page hereof.
[2. The Accepting Bank hereby (i) confirms that it has received a
copy of the Credit Agreement, together with copies of the financial statements
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this Commitment and
Acceptance Agreement; (ii) agrees that it will, independently and without
reliance upon the Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement;
(iii) appoints and authorizes the Agent to take such action as contractual
representative on its behalf and to exercise such powers under the Credit
Agreement and the other Loan Documents as are delegated to the Agent by the
terms thereof, together with such powers as are reasonably incidental thereto;
and (iv) agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Credit Agreement are required to be
performed by it as a Lender]
3. The Borrower hereby represents and warrants that as of the date
hereof and as of the Effective Date, no event shall have occurred and then be
continuing which constitutes a Default or an Unmatured Default.
<PAGE>
4. THIS COMMITMENT AND ACCEPTANCE AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (INCLUDING, WITHOUT
LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW, BUT OTHERWISE WITHOUT
REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF NEW YORK.
5. This Commitment and Acceptance Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Commitment
and Acceptance Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
METALS USA, INC.
By:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By:
Title:
COMMITMENT ACCEPTING BANK
$ [BANK]
By:
Title:
REAFFIRMATIONS OF GUARANTORS
Each of the undersigned hereby acknowledges receipt of the foregoing
Commitment and Acceptance. Capitalized terms used in this Reaffirmation and not
defined herein shall have the meanings given to them in the Credit Agreement
referred to in the foregoing Commitment and Acceptance. Without in any way
establishing a course of dealing by the Agent or any Lender, the undersigned
reaffirms the terms and conditions of the Guaranty dated as of February 11, 1998
executed by it and acknowledges and agrees that such Guaranty
<PAGE>
and each and every other Loan Document executed by the undersigned in connection
with the Credit Agreement remain in full force and effect and are hereby
ratified, reaffirmed and confirmed. All references to the Credit Agreement
contained in the above-referenced documents shall be a reference to the Credit
Agreement as so amended by the Commitment and Acceptance and as the same may
from time to time hereafter be amended, modified or restated. The failure of any
Guarantor to sign this Reaffirmation shall not release, discharge or otherwise
affect the obligations of any of the Guarantors hereunder or under the Guaranty.
AEROSPACE SPECIFICATION METALS, INC.
AFFILIATED METALS COMPANY
ALUMINUM BUILDING SYSTEMS, INC.
CONCORD METALS CORPORATION
CORNERSTONE ALUMINUM COMPANY, INC.
CORNERSTONE BUILDING PRODUCTS, INC.
CORNERSTONE METALS CORPORATION
FAITOUTE STEEL COMPANY, INC.
FEDERAL BRONZE ALLOYS, INC.
FLAGG STEEL COMPANY, INC.
FOREST MANUFACTURING, INC.
FULLERTON METALS COMPANY
GSBC, INC.
HARVEY TITANIUM, LTD.
INDEPENDENT METALS CO., INC.
INDUSTRIAL METALS, INC.
INTERSTATE STEEL PROCESSING COMPANY
INTERSTATE STEEL SUPPLY COMPANY
INTERSTATE STEEL SUPPLY CO. OF MARYLAND, INC.
INTERSTATE STEEL SUPPLY CO. OF PITTSBURGH, INC.
INTSEL GP
INTSEL LP
INTSEL SOUTHWEST LIMITED PARTNERSHIP
JEFFREYS STEEL COMPANY, INC.
JEFFREYS REAL ESTATE CORPORATION
KROHN STEEL SERVICE CENTER, INCORPORATED
LASERPRO, INCORPORATED
MEIER METAL SERVICENTERS, INC.
METALS USA FINANCE CORP.
METALS USA SERVICE CORPORATION
METALMART, INC.
MUSA GP, INC.
MUSA LP, INC.
NATIONAL MANUFACTURING, INC.
PACIFIC METAL COMPANY
PROFESSIONAL METALS, INC.
QUEENSBORO STEEL CORPORATION
<PAGE>
R.J. FABRICATING, INC.
ROYAL ALUMINUM, INC.
SIERRA PACIFIC STEEL, INC.
SOUTHERN ALLOY OF AMERICA, INC.
STEEL MANUFACTURING AND WAREHOUSE COMPANY
STEEL SERVICE SYSTEMS, INC.
TEXAS ALUMINUM INDUSTRIES, INC.
THE LEVINSON STEEL COMPANY
UNI-STEEL, INC.
VALLEY ALUMINUM CO.
VALLEY ALUMINUM OF NEVADA, INC.
WAYNE STEEL, INC.
WESTERN AWNING COMPANY, INC.
WILKOF-MORRIS STEEL COMPANY
WILLIAMS STEEL & SUPPLY CO., INC.
WSS TRANSPORTATION, INC.
In each case:
By: _______________________________
Its: _______________________________
<PAGE>
METALS VENTURES, L.L.C.
By:_______________________________
Its:_______________________________
By:___________________________
Its:___________________________
CORNERSTONE PATIO CONCEPTS, L.L.C.
By:_______________________________
Its:_______________________________
By:___________________________
Its:___________________________
METALS USA MANAGEMENT CO., L.P.
By: MUSA GP, INC.
Its: General Partner
By: ______________________________
Its: ______________________________
EXHIBIT 21
METALS USA, INC.
SUBSIDIARY LIST
Aerospace Specification Metals, Inc.
Affiliated Metals Company
Aluminum Building Systems
Faitoute Steel Corporation
Federal Bronze Alloys Inc.
Flagg Steel Co.
Forest Manufacturing, Inc.
Fullerton Industries, Inc.
GSBC, Inc. (dba Geneva Steel Blanking)
Harvey Titanium, Ltd.
Industrial Metals, Inc.
Independent Metals Co.
Interstate Steel Supply Company
Interstate Steel Supply Company of Maryland
Intsel Steel
Jeffreys Steel Company, Inc.
Krohn Steel Service Center, Inc.
The Levinson Steel Company
Meier Metal Servicenters, Inc.
Metalmart, Inc.
Metals USA Management Co., L.P.
MUSA GP, Inc.
MUSA LP, Inc.
Metals USA Services Corporation
Metals Receivables Corporation
Metals USA Finance Corporation
National Manufacturing, Inc.
Pacific Metal Company
Professional Metals, Inc.
Queensboro Steel Corporation
Royal Aluminum, Inc.
R.J. Fabricating, Inc.
Sierra Pacific Steel, Inc.
Southern Alloy of America, Inc.
Steel Manufacturing and Warehouse Company
Steel Service Systems, Inc.
Texas Aluminum Industries, Inc.
Cornerstone Metals Corporation
Cornerstone Building Products, Inc.
Cornerstone Aluminum Company, Inc.
Cornerstone Patio Concepts, L.L.C.
Uni-Steel, Inc.
Valley Aluminum Co.
Wayne Steel, Inc.
Western Awning Company, Inc.
Wilkof-Morris Steel Corporation
Williams Steel & Supply Co., Inc.
WSS Transportation, Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Annual Report on Form 10-K, into the Company's
previously filed registration statements on Form S-8 (File No. 333-32363), Form
S-8 (File No. 333-62361) and Form S-4 (File No. 333-50449).
ARTHUR ANDERSEN LLP
Houston, Texas
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM CONSOLIDATED FINANCIAL STATEMENTS IN FORM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,300
<SECURITIES> 0
<RECEIVABLES> 196,900
<ALLOWANCES> (7,100)
<INVENTORY> 343,700
<CURRENT-ASSETS> 559,000
<PP&E> 204,200
<DEPRECIATION> (31,000)
<TOTAL-ASSETS> 1,019,500
<CURRENT-LIABILITIES> 151,600
<BONDS> 0
0
0
<COMMON> 400
<OTHER-SE> 341,200
<TOTAL-LIABILITY-AND-EQUITY> 1,019,500
<SALES> 1,498,800
<TOTAL-REVENUES> 1,498,800
<CGS> 1,135,100
<TOTAL-COSTS> 1,402,000
<OTHER-EXPENSES> (1,600)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,900
<INCOME-PRETAX> 67,500
<INCOME-TAX> 27,500
<INCOME-CONTINUING> 40,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,000
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.07
</TABLE>
