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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________ .
Commission File Number 000-22715
SCHUFF STEEL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 86-0318760
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1841 West Buchanan Street
Phoenix, Arizona 85009
(Address of principal executive offices) (Zip Code)
(602) 252-7787
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
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Title of Class Name of each Exchange on which registered
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COMMON STOCK, $.001 PAR VALUE NASDAQ NATIONAL MARKET
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At March 16, 1998, the aggregate market value of voting stock held by
non-affiliates of the Registrant was $20,750,000 based on the closing market
price of the Common Stock on such date, as reported by the Nasdaq National
Market.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court.
YES [ ] NO [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 7,000,000 shares of
the Registrant's Common Stock were outstanding as of March 16, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement relating to its
annual meeting of stockholders to be held on June 2, 1998, are incorporated by
reference into Part III hereof to the extent provided herein. Except as
specifically incorporated by reference herein, the Proxy Statement is not deemed
filed as part of this Annual Report on Form 10-K.
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TABLE OF CONTENTS
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Page
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PART I
ITEM 1 - BUSINESS .................................................. 3
ITEM 2 - PROPERTIES ................................................ 14
ITEM 3 - LEGAL PROCEEDINGS ......................................... 14
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ....... 15
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY SECURITIES
AND RELATED STOCKHOLDER MATTERS ........................... 16
ITEM 6 - SELECTED FINANCIAL DATA ................................... 18
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ................................. 20
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............... 30
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ....... 30
ITEM 11 - EXECUTIVE COMPENSATION ................................... 30
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT ............................................... 30
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........... 30
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K .............................................. 31
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PART I
ITEM 1 - BUSINESS
GENERAL
Schuff Steel Company (the "Company") is a fully integrated fabricator
and erector of structural steel and heavy steel plate. The Company fabricates
and erects structural steel for commercial and industrial construction projects
such as high and low rise buildings and office complexes, hotels and casinos,
convention centers, sports arenas, shopping malls, hospitals, dams, bridges,
mines and power plants. The Company also specializes in the fabrication and
erection of heavy steel plate, including large diameter water pipe, water
storage tanks, pollution control scrubbers, tunnel liners, pressure vessels, and
a variety of customized projects. The Company seeks to differentiate its
operations by offering complete, turnkey steel construction services featuring
engineering, detailing, shop fabrication and field erection. By offering an
integrated package of steel construction services from a single source, the
Company is able to respond more efficiently to the design and construction
challenges associated with large, complex, "fast track" construction projects.
The Company currently operates primarily in the southwestern United
States with a concentration in Arizona, Nevada, and southern California, and is
expanding its operations in South America and Mexico. The Company has
experienced significant growth in revenues and pre-tax income over the past five
years. Revenues have grown from $47.0 million in 1992 to $138.2 million in 1997.
During that same period, pre-tax income has grown at a compound annual growth
rate of 80.2% from $610,000 in 1992 to $11.6 million in 1997.
The Company was incorporated in Arizona in 1976 and was reincorporated
in Delaware in 1997. The Company's principal executive offices are located at
1841 West Buchanan Street, Phoenix, Arizona 85009, and its telephone number is
(602) 252-7787.
On July 7, 1997, the Company completed the initial public offering of
its common stock, par value $.001 per share (the "Common Stock"). Pursuant to
the offering, the Company sold 2,000,000 shares of Common Stock. The Common
Stock trades on the Nasdaq National Market under the symbol "SHUF."
RECENT DEVELOPMENTS
On March 17, 1998, the Company entered into a non-binding letter of
intent to acquire all of the capital stock of Addison Structural Services, Inc.
("Addison"), a privately held holding company headquartered in Albany, Georgia.
Addison, through its operating subsidiaries, provides structural steel
fabrication and detailing services and manufactures short and long span joists,
trusses and girders for commercial and light industrial projects. Addison
operates primarily in the southeastern United States with a concentration in
Florida and Georgia, and maintains two steel fabrication plants in Lockhart,
Florida and Albany, Georgia, and a steel joist manufacturing plant in Quincy,
Florida. It is expected that certain of the principal officers of Addison's
operating subsidiaries will enter into employment agreements and will continue
to manage Addison's day-to-day operations after the acquisition.
Addison had revenues of $63.6 million in its fiscal year ended June 30,
1997, compared to revenues of $57.6 million in its fiscal year ended June 30,
1996, according to its audited financial statements for those periods. Addison's
long-term indebtedness is expected to be satisfied by it in connection with the
acquisition. It is currently anticipated that the transaction will close in the
second quarter of 1998 and will be recorded under the purchase method of
accounting.
The transaction is subject to a number of contingencies, including the
negotiation of definitive acquisition agreements, the completion of a
satisfactory due diligence review by Schuff, approval by Schuff's board of
directors, Schuff's ability to obtain financing on terms acceptable to it, the
receipt of necessary third party and governmental approvals and other customary
closing conditions. There can be no assurance that the transaction will
ultimately be consummated on the terms described above, if at all.
OVERVIEW OF INDUSTRY
Companies engaged in the steel fabrication and erection industry
prepare detailed shop drawings, fabricate and erect structural steel and steel
plate weldments, and perform related engineering services for the construction
of various facilities. The primary customers for these services include private
developers, general contractors, engineering firms and governmental agencies
involved in a variety of large scale construction projects. Historically, these
customers have relied on multiple subcontractors to perform various services to
complete a single project, primarily because few companies in this industry
offer fully integrated engineering, detailing, fabrication and erection
services.
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The Company believes that there is an increasing trend in the
construction industry toward complex, fast track, "design-as-you-go" projects.
This trend is largely driven by the desire of project owners to more quickly
secure the benefits of revenue producing projects, such as casinos, mines and
computer chip plants. These projects require that all phases of construction be
accomplished in accordance with compressed time schedules. Further, because many
construction activities are dependent on the progress of steel fabrication and
erection, timely completion of these phases is critical. These projects also are
characterized by numerous design changes requiring that all construction
participants coordinate their efforts in order to respond quickly and
efficiently in implementing these changes. These trends have created a demand
for fully integrated fabrication and erection contractors that can (i) avoid the
coordination difficulties inherent in the use of multiple subcontractors and
(ii) implement rapid and multiple design changes in a coordinated and timely
manner, preventing project delays and reducing costs to the general contractor
or owner. The Company believes that it has gained a reputation in the industry
as a reliable, fully integrated provider of engineering, detailing, fabrication
and erection services with the ability to complete large, complex projects on a
timely, cost efficient basis.
The Company also believes that the steel fabrication and erection
industry is highly fragmented and that many of its competitors are small
businesses operating in local or regional markets. Given the trend toward the
use of fully integrated contractors and the large number of smaller companies
engaged in this industry, the Company believes the industry may experience
consolidation.
BUSINESS STRATEGY
The Company's objective is to achieve and maintain a leading market
position in each of its geographic and specific product markets. The Company
believes that its track record of providing quality services on a timely basis
has enabled it to garner a dominant share of the primary geographic markets
served by it and to increase its market share of large, fast track projects in
markets in which it maintains a significant presence. The Company will continue
to pursue its objective by implementing a strategy comprised of the following
components:
Promote Coordinated Service Capabilities. The Company promotes its
ability to provide a fully integrated range of engineering, detailing,
fabrication and erection services, which enables the Company to compete more
effectively on large, "design-as-you-go" projects that typically offer more
favorable contract terms. The Company believes it is positioned to capitalize on
industry trends toward construction of large, fast track projects incorporating
numerous design changes, and the increasing demand for fully integrated
fabrication and erection contractors capable of both implementing those design
changes in a timely and cost efficient manner and providing overall project
management capabilities.
Emphasize Innovative Services. The Company focuses its engineering,
detailing, fabrication and erection expertise on distinct product segments
requiring unique or innovative techniques, where the Company typically
experiences less competition and more advantageous negotiated contract
opportunities. The Company has extensive experience in providing services
requiring complex fabrication and erection techniques and other unusual project
needs, such as specialized transportation, steel treatment or specialty coating
applications. These service capabilities have enabled the Company to address
such design sensitive projects as computer chip manufacturing facilities, large
diameter underground water pipes, and uniquely designed hotels and casinos.
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Diversify Customer and Product Base. Although the Company seeks to
garner a leading share of the geographic and product markets in which it
competes, it also seeks to diversify its construction projects across a wide
range of commercial, industrial, and specialty projects. The following chart
sets forth the percentage of revenues attributable to the Company's various
principal geographic and project markets for 1997:
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INDUSTRIAL Commercial Other
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Arizona.................................... 9.1% 38.6% 1.4%
California................................. 0.6% 7.6% 0.0%
Nevada..................................... 0.4% 38.0% 0.0%
New Mexico................................. 0.7% 0.0% 0.0%
International.............................. 3.6% 0.0% 0.0%
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In recent periods, the Company has focused efforts on diversifying into
international markets. Accordingly, the Company believes that its combined
diversification into new geographic, specific product and international markets
will better enable it to expand its revenue base and to reduce the impact of
periodic market or economic conditions adversely impacting one or more of its
market segments.
Employ Unique Technical Expertise. The Company offers in-house project
management and design expertise not typically provided by steel fabricators and
erectors. The Company employs two registered structural engineers and
approximately 30 design and detailing personnel, which permits the Company to
occupy a more influential role in critical design decisions on many projects.
The Company believes that its ability to offer these services allows it to
negotiate rather than bid on a greater percentage of its contracts, which
enables the Company to obtain terms more favorable to it than the terms of
competitively bid projects, while at the same time providing overall cost
savings and project efficiencies to its customers. The Company's technical
expertise also permits it to compete more effectively for projects offering
unique structural or design challenges, such as the fully retractable roof on
the Bank One Ballpark project, the Salt River Siphon Replacement Project, and
specialty coating of large diameter water pipe.
GROWTH STRATEGY
The Company believes that the steel fabrication and erection industry
will continue to be characterized by large, complex, fast track projects. The
complexity and size of these projects requires companies with extended financial
and operational capabilities. With its integrated service capabilities and
financial and management strength, the Company intends to take advantage of this
trend. Additionally, the fragmented nature of the industry provides the Company
opportunities for growth. The Company seeks to achieve continued growth and
diminish the impact of business and economic cycles by pursuing a growth
strategy consisting of the following components:
Acquire Synergistic Businesses. In addition to Addison, the Company
intends to pursue selective acquisitions of steel detailing, fabrication and
erection companies that offer the Company increased plant facilities,
opportunities to increase market share in selected geographic markets,
penetration of new product market segments and access to domestic and
international markets targeted by the Company for geographic expansion. Such
acquisitions may also provide the additional benefits of increased purchasing
efficiencies with respect to steel and other raw materials, payment and
performance bonding and insurance premiums, and more efficient allocation and
utilization of labor resources among projects within its geographic markets. The
Company believes that many of its competitors operate primarily on a local or
limited
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geographic basis and, while having established relationships in those markets,
lack the resources to compete for large or more complex projects. In addition,
the industry is highly fragmented with many of the Company's competitors being
closely or family held entities. In January 1997, the Company completed the
acquisition of all of the outstanding capital stock of B&K Steel Fabrications,
Inc. ("B&K Steel"), a competitor of the Company located in the Phoenix
metropolitan area. B&K Steel is primarily a fabrication contractor and had
revenues of approximately $9.4 million in 1996 and $10.1 million in 1997. The
Company believes that the acquisition of B&K Steel will enable the Company to
capture a larger share of the Arizona industrial and commercial market and will
provide the Company with increased access to the mining industry throughout the
southwestern United States. The acquisition of B&K Steel also provides the
Company with additional fabrication facilities located near the Company's
existing facilities.
Promote Internal Growth. The Company intends to pursue continued
internal growth by adding sales and marketing personnel to dedicated, fast
growing markets in which the Company is actively pursuing new projects, by
further developing its engineering and design capabilities and fabrication
capacity, and by continually updating its fabrication and detailing equipment
and technologies. The Company believes that these efforts will enhance its
market share, revenues, and operating income in its existing and targeted
principal markets and improve its operating capacity. The Company recently
secured additional office and administrative facilities, which will permit the
expansion of its existing detailing, estimating and other project operations.
The Company also invested $3.2 million in 1997, and intends to invest
approximately $1.5 million in 1998, in new fabrication equipment and
technologies.
Create Additional Project Opportunities. The Company believes that its
ability to efficiently coordinate and implement numerous design and logistical
changes on large or more complex fast track projects, combined with its
established long term relationships with key national and multi-national general
contractors and other customers, will provide the Company with opportunities to
market its services in a number of markets in which the Company has not yet
achieved a leading position or conducted significant operations. Domestically,
the Company plans to expand into markets in which it believes it can leverage
its existing expertise to achieve a significant share of such markets. Among the
regions targeted by the Company for domestic expansion are the Pacific
Northwest, which presents several opportunities in the expanding computer chip
manufacturing industry, Texas, which offers the Company convenient and cost
effective access to its developing international markets, and the southeastern
United States, a significant Sun Belt growth area. The Company also will seek to
capture significant market share in selected product markets. Among other
markets, the Company is seeking to increase its participation in the
construction of sports stadiums and airports, through the acquisition of
Addison, commercial and light industrial projects, and, through its acquisition
of B&K Steel, the mining and smaller commercial construction markets. The
Company plans to participate in these markets through the acquisition of
existing participants, expansion of strategic customer relationships into new
markets, and through increased sales and marketing efforts generally.
Expand Internationally and Develop Strategic Alliances. The Company
recently has developed its presence in selected international markets, including
Chile and Argentina, and is pursuing opportunities in Mexico and Southeast Asia.
Each of these international markets is expected to have a growing demand for
services offered by the Company. In Argentina, the Company recently completed
fabrication and erection coordination services for mill facilities at one of the
largest copper mines in the world. The Company also completed a large mining
project in Chile. In addition, the Company will seek to expand internationally
by partnering with existing multi-national customers such as Fluor Daniel, Inc.
and Bechtel Group, Inc., as well as other international structural and design
engineering firms, and by entering into strategic alliances with leading foreign
fabricators and erectors in the Company's targeted international markets. The
Company believes that its international alliances also will help to reduce its
risk of entry into foreign markets by partnering with entities having an
established presence and experience in such markets. The Company has developed a
strategic alliance with Corey, S.A. de C.V., Mexico's leading steel fabrication
and erection contractor. Pursuant to this alliance, the parties have formed a
corporate joint venture that provides detailing services to the Company's
domestic operations. The Mexico joint venture uses state of the art Stru-Cad and
Autocad design systems, and is expected to significantly expand the Company's
internal detailing capacity. The Company believes its investment in this joint
venture will reduce its reliance on detailing subcontractors and improve the
Company's cost profile. The Company expects the alliance to provide it access to
several large projects in Mexico through Corey's marketing, importation and
fabrication support.
PRIMARY MARKETS AND PRODUCTS
The Company's current principal geographic markets include Arizona and
Nevada. The Company also has a substantial presence in southern California and
currently is expanding into selected international markets. Set forth below is a
description of the Company's current primary markets and products.
ARIZONA MARKET. The Company is the leading steel fabrication and
erection firm in Arizona. The Company has been a prominent participant in many
of Arizona's largest and most visible public and private projects, including the
expansion of Sky Harbor Airport in Phoenix, which involved the night time
erection of pedestrian walkways linking the airport's main concourses; the
erection of 10,000 tons of bridge plate girders for the interchange of
Interstates 10 and 17 in Phoenix; and the fabrication of the Roosevelt Dam
penstock near Phoenix. In addition, the Company believes
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that it is the dominant fabricator and erector for Arizona's rapidly growing
semiconductor and computer chip industry. The Company's major projects in this
industry have included the fabrication and erection of structural steel for
Intel Corp.'s "Fab 12" facility, which was one of the largest construction
projects of its kind in the United States in 1994 and 1995; the fabrication and
erection of Motorola Inc.'s Chandler, Arizona computer chip manufacturing
facility in 1995; and the 1995-1996 fabrication and erection of portions of the
Sumitomo Energy Center, a new wafer manufacturing plant constructed by Sumitomo
Sitix in Scottsdale, Arizona. Recently awarded or completed large Arizona-based
projects include:
- Phoenix Criminal Justice Facility. The Company was recently
awarded and has begun the fabrication and erection of the structural steel
decking for a new ten story, 400,000 square foot Criminal Justice Facility
located in downtown Phoenix.
- U.S. Federal Building and Courthouse. The Company was awarded
a contract to fabricate and erect all of the structural steel for the new U.S.
Federal Building and Courthouse in downtown Phoenix. This project will entail
3,100 tons of structural steel which will frame an atrium attached to an eight
story concrete frame building. Erection of the atrium is expected to start in
the third quarter of 1998.
- Mount Graham Telescope Project. The Company recently won an
award for the second phase of the Large Binocular Telescope Project on Mount
Graham, near Safford, Arizona. In October 1997, the Company completed the first
phase of this unique project, which consisted of the construction of the
observatory base structure. The second phase will entail the fabrication and
erection of the rotating structure and four 84,000 pound steel wheel assemblies
upon which the telescope housing will rotate. This project, part of the renowned
Mount Graham International Observatory, is the collaborative effort of leading
universities and astronomical communities in the United States, Italy and
Germany and is widely regarded as the most powerful and versatile telescope
facility in the world.
- Bank One Ballpark. In 1995, the Company was awarded a contract
to provide steel fabrication and erection services for the Bank One Ballpark in
Phoenix, a new state of the art baseball stadium for Major League Baseball's
Arizona Diamondbacks franchise that will feature, among other things, a fully
retractable roof consisting of steel components detailed, fabricated and erected
by the Company. The stadium contract is divided into three phases representing a
total of approximately $61 million in revenues to the Company, of which
approximately $59 million had been earned as of December 31, 1997. The stadium
required over 20,000 tons of structural steel and employed approximately 160
iron workers at the peak of construction.
- Barrows Neurological Institute. The Company was the fabricator
and erector for the Barrows Neurological Center in Phoenix, Arizona. Due to the
unique nature of this facility, the project required highly specialized
vibration control which resulted in a structural frame that weighs five times
normal tonnage for a building of this size.
- Mayo Hospital. The Company is the fabricator and erector for
the Mayo Clinic's newest hospital facility currently being constructed in
Phoenix, Arizona.
NEVADA MARKET. The Company believes that it is the dominant fabricator
and erector in the Nevada hotel and casino construction industry, which has
experienced rapid expansion over the past several years and is expected to
continue its expansion for the foreseeable future. The Company maintains a sales
manager dedicated to pursue Nevada-based projects. In recent years, the Company
has completed several large fast track projects in the Nevada hotel and casino
industry, including the 500,000 square foot Sands Expo and Convention Center,
which was completed in nine months; the Mirage Hotel and Casino; the Holiday
Riverboat remodeling project, which involved the fabrication and erection of two
120 foot high river boat "stacks" constructed by the Company during the active
operation of the resort; the launch tower of the "SkyScreamer SkyCoaster" thrill
ride at the MGM Grand Theme Park, a 220 foot high structure that was erected by
the Company in only three days; and the Orleans Hotel and Casino, which involved
the fabrication and erection of over 7,900 tons of structural steel for the
casino, entertainment, and retail areas. Among the Company's recent hotel and
casino projects in Nevada are the following:
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- Bellagio Hotel and Casino. The Company is the fabricator and
erector for the casino and retail areas of the Bellagio Hotel and Casino, a new
$1.2 billion Spanish themed resort consisting of over one million square feet of
retail and casino space and a 37 story hotel tower with approximately 3,800
rooms.
- MGM Grand Hotel and Casino Renovation. This structure is
presently the world's largest hotel and casino with 5,005 hotel rooms and one
million square feet of retail and casino space. The Company's participation
includes the completion of a facade renovation and the provision of fabrication
and erection services for the new MGM Convention Center, which will consist of
over 250,000 square feet of convention area.
- New York, New York Hotel and Casino. The Company was the
fabricator and erector for the New York, New York hotel and casino, which
required approximately 6,500 tons of structural steel and represented a contract
price to the Company of over $15 million. The hotel was constructed to resemble
the New York City skyline, including replicas of the Statute of Liberty, the
Brooklyn Bridge, and other New York City landmarks.
- Luxor Hotel and Casino Showroom Theater. The Company has been
involved in the construction of the Luxor Hotel and Casino Showroom Theater and
renovation of the hotel ballroom.
- Paris Hotel & Casino. The Company was recently awarded two
contracts for the fabrication and erection of the structural steel for the 1.2
million square foot low-rise area and the 34 story tower of the new Paris Hotel
and Casino in Las Vegas, which will include hotel, casino, showroom, convention
center and retail shopping areas. The project also entails the fabrication and
erection by the Company of a 540 foot tall scale replica of the Eiffel Tower
which will be built over and penetrate into the casino area and include
restaurant and retail areas and an observation desk. The replica will be
designed and constructed by the Company based on the original engineering
drawings for the Eiffel Tower.
CALIFORNIA AND OTHER WESTERN U.S. MARKETS. The Company has maintained a
strong presence in the California market and intends to achieve a greater share
of this geographic market as it experiences an increase in new construction
activity. The Company provided fabrication and erection services for several new
hospital facilities in California, including the new Children's Hospital and
Health Center in San Diego, the expansion of the Sharp Women's Center in San
Diego, which required construction around existing and operating hospital wings,
and the Valley Medical Center in San Jose. The Company also was selected as the
fabricator and erector for the Fashion Valley Mall in San Diego, which involved
the fabrication and erection of over 7,000 tons of steel for a new second level
of retail shopping space, which was erected at night over the existing shopping
facility without disturbing the ordinary operations of the mall. Other recently
awarded California projects include the fabrication and erection of the 380,000
square foot City Mills Mall in Orange, California; the Bakersfield Arena, an ice
hockey rink being built as part of the Bakersfield Convention Center expansion;
Baxter International, Inc.'s, laboratory facility located in Thousand Oaks,
California; and the expansion of a manufacturing facility for Sony Corporation
located in San Diego.
The Company has also been awarded a contract to provide the fabrication
and erection of the new Assembly Building for the Church of Jesus Christ of
Latter Day Saints in Salt Lake City, Utah. This large project, which is expected
to begin in June 1998 and be completed in September 1998, will include the
fabrication and erection of several large and uniquely designed steel trusses
supporting a main roof and is estimated to consist of between 8,000 and 10,000
tons of structural steel.
SPECIALTY MARKETS. In addition to seeking to achieve a leading market
share in the principal geographic markets that it serves, the Company focuses
its fabrication and erection expertise on distinct product segments,
particularly product segments requiring unique or specialized expertise where
the Company has the potential to achieve a dominant market share. A recent
example of such a product segment is large diameter water pipe used in
governmental aqueduct systems. These projects require the complex formation and
welding of steel plate into large diameter pipe sections that are used to
transport water from major supply sources to various population centers,
primarily in the arid southwestern United States. The Company has developed
in-house specialized fabrication equipment used to construct and weld these pipe
sections, a unique coal tar and fiberglass enamel application system used to
coat the pipe, and customized transportation equipment necessary to deliver the
system to its ultimate destination. The Company's expertise and
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specialized equipment development has made it a dominant fabricator and erector
of these large aqueduct projects in Arizona, Nevada, and California. The
Company's recently completed large diameter pipe projects include the following:
- Salt River Siphon Replacement Project. The Company served as
the fabricator and erector for the Salt River Siphon Replacement Project, a
project requiring the fabrication of over 8,500 feet of 21 foot diameter pipe
for the U. S. Bureau of Reclamation. The system will transport water from the
Salt River near Phoenix, Arizona to the major population centers of Arizona.
- Agua Fria Siphon Project. This project was similar in scope to
and followed the Company's successful completion of the Salt River Siphon
project, and entailed the specialized fabrication and erection of over two miles
of 21 foot diameter pipe from the Central Arizona Project canal system under the
Agua Fria River to Phoenix, Arizona.
- Mohave Underground Aqueduct. The Company was the contractor
for the Mohave Underground Aqueduct project, a massive underground siphon system
for the California Department of Water that will transport water to San
Bernardino, California. The aqueduct system utilized over seven miles of 12 foot
diameter pipe.
- River Mountain Tunnel. The Company recently completed
fabrication of the River Mountain Tunnel water system in Nevada, which consists
of several uniquely constructed pieces of 12 foot diameter pipe and will be
used to transport water to Las Vegas, Nevada.
Other recent specialty projects completed by the Company include the
fabrication and erection of a missile launch complex at Vandenberg Air Force
Base, a thermal blast simulator for the U.S. Corps of Engineers designed to test
military and other equipment against the simulated forces of an atomic blast,
and numerous large capacity water storage tanks holding up to five million
gallons of water that have been fabricated by the Company for a variety of
governmental agencies, private utilities, and other industrial customers.
INTERNATIONAL MARKETS. The Company recently has focused its expansion
into selected international markets such as South America and Mexico, and is
exploring opportunities in Southeast Asia. In South America, the Company
provided the design consultation, fabrication, and delivery of approximately
7,200 tons of structural steel for the Bajo de la Alumbrera mining project in
Argentina, which is one of the largest copper mines in the world. In addition,
the Company was recently awarded its second contract in Argentina, which will
consist of the design and fabrication of the structural steel for the expansion
of the Aluar (Aluminios Argentinos) aluminum smelter facility in Puerto Madryn,
Argentina. The Company's innovative design capabilities are expected to reduce
the total weight of the facility while continuing to meet design and load
standards. In Chile, the Company recently completed the Verde Gold mine project
for Fluor Daniel, Inc. In Mexico, the Company is currently providing the
fabrication of an ore facility and conveyor system.
BUSINESS OPERATIONS
The primary services provided by the Company are engineering and
preparation of detail drawings, shop fabrication, and field erection. Following
is a description of the Company's principal services.
ENGINEERING AND DETAILING. The Company maintains significant in-house
structural engineering and detailing capabilities which enable it to implement
and coordinate with its shop and field personnel changes to building and
structural designs sought by project owners or general contractors, and to help
influence critical determinations as to the most cost effective systems,
designs, connections, and erection procedures for a particular project. The
Company's detailers prepare detail shop drawings of the dimensions, positions,
locations, and connections, and the fabrication and erection sequences of, each
piece of steel utilized in a project, and continually update these drawings to
accommodate design and other changes. The Company utilizes a Stru-CAD automated
detailing system that interacts electronically with the Company's numerically
controlled fabrication equipment and produces updated detail drawings
electronically, which are delivered to each of the Company's domestic and
foreign field locations. The Company's detailing division initially prepares
advance materials bills by size and length of each steel piece within
pre-defined areas or sequences of erection for each project. Detailers
coordinate directly with customers and the Company's fabrication and erection
9
<PAGE> 10
teams to determine and plan the order of fabrication and erection of a project
and associated personnel and equipment requirements.
SHOP FABRICATION. The Company's fabrication services consist of the
procurement from steel producers of raw steel shapes in different sizes and
lengths. These shapes vary in cross-section from I-beams to angle, channel,
tube, pipe, and plate. Upon delivery of these steel shapes, and prior to
fabrication, the Company prepares load lists that identify the sequence and date
that each individual piece of steel is required on a project, a procedure that
reduces the handling of and the need to store materials in the field. Upon
completion of detail shop drawings, the Company's fabrication shop cuts the raw
steel pieces to length, drills and punches holes through the use of numerically
controlled beam lines, and completes coping and beveling with its numerically
controlled machinery and automated burning equipment. The Company then
fabricates fittings and completes welding and inspection of each finished
structural piece. The Company utilizes advanced technologies to inspect weld
seams, which significantly reduces costs, fabrication hours, and the likelihood
of structural defects. After the completion of processing to customer
specifications, finished pieces are loaded for shipment to the construction
site, often pursuant to just-in-time delivery schedules.
FIELD ERECTION. The erection process typically consists of pre-assembly
of steel component parts at the project site, the lifting of components by crane
to the appropriate location at the site and the final assembly of major
components to form the steel backbone of the project. The Company's field
erection crews erect fabricated steel components in accordance with erection
drawings prepared and updated by the Company's detailers. The erection process
for each project is managed by experienced field supervisors and the Company
employs local union erection personnel on an as needed basis in areas near the
project sites.
PROJECT MANAGEMENT
All contract awards to the Company are assigned a project number which
is used to track each steel component and man-hour associated with the project
through the entire construction process. All project drawings, specifications,
and completion schedules on a project are reviewed by the Company's Vice
President of Project Coordination and all projects are assigned to one or more
Project Managers who assume primary responsibility for all aspects of the
project. Often a Project Manager assigned to a given project will have
significant experience in similar projects. A Project Manager generally will be
responsible for one to five projects in various stages of completion at any
given time, depending on the scope, complexity, and geographic location of such
projects. Each project is divided into critical sequences of steel groups that
follow the anticipated erection or fabrication path. Each sequence follows a
timeline and the status is continually monitored. The Vice President of Project
Coordination and Project Manager for each project coordinate and manage design
changes or other changes in scheduled completion deadlines in an effort to
minimize overall project delays. The Company provides production bonuses to its
Project Managers based on, among other factors, the achievement of lower costs
on a project than the estimated costs used to formulate the initial bid or price
or prices of subsequent change orders, and the ability to minimize costs or cost
overruns on particularly complex projects or on projects that exceed initial
cost estimates.
The Company believes that a key factor in its success has been its
ability to provide through its in-house personnel valuable input and assistance
to general contractors, engineering firms, and other customers with respect to
overall project design of fabrication and erection sequences and other critical
project decisions, which often results in overall project cost savings and
efficiencies and helps to solidify key customer relationships. In addition to
its centralized project management, the Company also uses a high percentage of
skilled erection employees local to projects and utilizes advanced scheduling
systems to enhance its ability to provide project management services to
customers complementary to its core engineering, detail drawing, shop
fabrication, and field erection services.
SAFETY AND QUALITY ASSURANCE
The Company has adopted and maintains important safety policies that
are administered and enforced by the Company's top management. The Company
considers workplace accident prevention to be of primary importance in all
phases of its operations and provides continual training on safety procedures
and techniques to all of its shop and field personnel.
10
<PAGE> 11
The Company uses advanced welding and fabrication technologies and all
of the Company's products are fabricated in accordance with applicable industry
and specific customer standards and specifications. The Company has achieved and
maintains a level three certification by the American Institute of Steel
Construction (AISC) with respect to its fabrication operations, the highest
level of certification available from AISC. In addition, the Company's welding
employees are certified in accordance with the American Society of Mechanical
Engineers (ASME) Section IX, Non-Destructive Examination Inspector Certification
to Society Non-Destructive Testing TC-IA Standards. The Company has developed
project-specific and Company-wide quality assurance and quality control
programs, and utilizes sophisticated x-ray and ultra-sonic systems to inspect
weld seams.
SALES AND ESTIMATING
The Company's domestic sales and marketing efforts are led by five
sales managers. Each sales manager is responsible primarily for the Company's
sales and marketing efforts in defined geographic areas, including the emerging
South American and Mexican markets. In addition, the Company employs fifteen
full-time project estimators and three chief estimators. The Company's sales
representatives maintain relationships with and make personal and other sales
calls on general contractors, architects, engineers, and other potential sources
of business to determine potential new projects under consideration, which
provides the Company with valuable market information and new project
opportunities. The Company maintains future projects reports in order to track
the weekly progress of new opportunities. The Company's sales efforts are
further supported by most of its executive officers and by its engineering
personnel, who have substantial experience in the design, fabrication, and
erection of structural steel and heavy steel plate.
The Company competes for new project opportunities through its
relationships and interaction with its active and prospective customer base,
which provides the Company with valuable current market information and sales
opportunities. In addition, the Company frequently is contacted by governmental
agencies in connection with public construction projects, and by large private
sector project owners and by general contractors and engineering firms in
connection with new building projects such as plants, warehouse and distribution
centers, and other industrial and commercial facilities.
Upon selection of projects to bid or price, the Company's estimating
division reviews and prepares projected costs of shop, field, detail drawing
preparation and crane hours, steel and other raw materials, and other costs. On
bid projects, a formal bid is prepared detailing the specific services and
materials to be provided by the Company, payment terms and project completion
timelines. Upon acceptance, the Company's bid proposal is finalized in a
definitive contract.
CONTRACTING METHODS AND PERFORMANCE BONDING
The Company's projects are awarded through a competitive bid process or
are obtained through negotiation, in either case generally using one of two
types of contract pricing approaches: fixed price or cost-plus pricing. Under
the fixed price approach, the Company receives the price fixed in the contract,
subject to adjustment only for change orders placed by the customer. As a
result, the Company retains all cost savings but is also responsible for cost
overruns. Under the cost-plus arrangement, the Company receives a specified fee
in excess of its direct labor and material cost, up to a maximum amount, and
thus seeks to gain protection against cost overruns and sometimes benefits
directly from cost savings. Historically, a substantial majority of the
Company's contracts have been fixed price arrangements.
While customers may consider a number of factors, including
availability, capability, reputation, and safety record, price and the ability
to meet customer imposed project schedules are the principal factors on which
the Company obtains contracts. Generally, the Company's contracts and projects
vary in length from three to twelve months depending on the size and complexity
of the project, project owner demands, and other factors.
The Company's contract arrangements with customers sometimes require
the Company to provide payment and performance bonds and, in selected cases
typically associated with international projects, letters of credit, to
partially secure the Company's obligations under its contracts. Bonding
requirements typically arise in connection with public
11
<PAGE> 12
works projects and sometimes with respect to certain private contracts. The
Company's payment and performance bonds are obtained through surety companies
and typically cover the entire contract price on a project. The Company believes
that its bonding capacity provides a competitive advantage in some cases due to
the Company's ability to obtain large bonds and to negotiate more favorable
pricing of bonds.
BACKLOG
The Company considers backlog an important indicator of its operating
condition because its engineering, detailing, fabrication, and erection services
are characterized by long lead times for projects and orders. The Company
defines its backlog of contract commitments as the potential future revenues to
be recognized upon performance of contracts awarded to the Company. Backlog
increases as new contract commitments are obtained, decreases as work is
performed and the related revenues are recognized, and increases or decreases as
modifications in work are performed under a contract. As of December 31, 1997,
the Company's backlog was $56.8 million, of which approximately $12.2 million
was attributable to two projects for a single customer in Las Vegas, Nevada, and
approximately $9.4 million was attributable to one project in Phoenix, Arizona.
The Company expects approximately 95% of its backlog as of December 31, 1997 to
be recognized as revenues in 1998.
COMPETITION
The principal geographic and product markets served by the Company are
highly competitive. The Company competes with other contractors on a local,
regional, or national basis, and, in certain cases, on an international basis.
The Company has different competitors for each of its services and product
segments and within each geographic market served by the Company. The Company
believes that it can compete effectively for new projects both nationally and
internationally and that it is among the largest competitors in its industry.
Among the principal competitive factors within the industry are price,
timeliness of completion of projects, quality, reputation, and the desire of
customers to utilize specific contractors with whom they have favorable
relationships and prior experience. Certain of the Company's competitors have
financial and operating resources greater than those of the Company.
GOVERNMENTAL REGULATION
The Company's operations are governed by and subject to government
regulations in the United States and in foreign countries in which the Company
operates, including laws and regulations relating to workplace safety and worker
health, principally the Occupational Safety and Health Act and regulations
thereunder in the United States. With respect to its international operations,
the Company is subject to a number of laws and regulations, including those
relating to taxation of its earnings and earnings of its personnel and its use
of local personnel and suppliers. The Company's operations are subject to the
risk of changes in federal, state, and local laws and policies which may impose
restrictions on the Company, including trade restrictions, expropriation or
nationalization decrees, confiscatory tax systems, primary or secondary boycotts
or embargos directed at specific countries, import restrictions or other trade
barriers, and mandatory sourcing rules, any of which could, if adopted or
implemented, materially and adversely affect the Company. The Company believes
that it is in material compliance with the laws and regulations under which it
and its operations are currently governed and does not believe that future
compliance with such laws and regulations will have a material and adverse
effect on it. The Company cannot determine, however, to what extent future
operations and earnings of the Company may be affected by new legislation, new
regulations, or changes in or new interpretations of existing regulations.
The Company is subject to licensure and holds licenses in each of the
states in the United States in which it operates and in certain local
jurisdictions within such states. The Company believes that it is in material
compliance with all contractor licensing requirements in the various states in
which it operates. The loss or revocation of any license or the limitation on
any of the Company's primary services thereunder in any state in which the
Company conducts substantial operations could prevent the Company from
conducting further operations in such jurisdiction and would have a material
adverse effect on the Company.
12
<PAGE> 13
ENVIRONMENTAL REGULATION
The Company's operations and properties are affected by numerous
federal, state, and local environmental protection laws and regulations, such as
those governing discharges into air and water, and the handling and disposal of
solid and hazardous waste. The requirements of these laws and regulations have
become increasingly stringent, complex, and costly to comply with. In addition,
the Company may be subject to claims alleging personal injury or property damage
as a result of alleged exposure to hazardous substances. The Company is not
aware of any non-compliance with environmental laws that could have a material
adverse effect on the Company's business or operations. There can be no
assurance, however, that such laws, regulations, or their interpretation will
not change in the future in a manner that could materially and adversely affect
the Company.
Certain environmental laws, such as CERCLA, provide for strict and
joint and several liability for investigation and/or remediation of spills and
other releases of hazardous substances. Such laws may apply to conditions at
properties presently owned or operated by the Company or its predecessors, as
well as to conditions at properties at which waste or other contamination
attributable to an entity or its predecessors come to be located. The Company's
facilities have been operated for many years, and substances that are or might
be considered hazardous were used at such locations. The Company does not
anticipate incurring material capital expenditures for environmental controls or
for investigation or remediation of environmental conditions during the current
or succeeding fiscal year. Nevertheless, the Company can give no assurance that
it, or entities for which it may be responsible, will not incur liability in
connection with the investigation and remediation of facilities it currently
owns or operates or other locations in a manner that could materially and
adversely affect the Company.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 645 people.
The number of persons employed by the Company on an hourly basis fluctuates
directly in relation to the amount of business performed by the Company. Certain
of the fabrication and erection personnel employed by the Company are
represented by the United Steelworkers of America, the International Association
of Bridge, Structural and Ornamental Iron Workers Union, the International Union
of Operating Engineers, and the International Brotherhood of Boilermakers, Iron
Shipbuilders, Blacksmiths, Forgers and Helpers Union. The Company is a party to
several separate collective bargaining agreements with such unions in certain of
the Company's current operating regions, which expire (if not renewed) at
various times in the future. Most of the Company's collective bargaining
agreements are subject to automatic annual or other renewal unless either party
elects to terminate the agreement on the scheduled expiration date. The Company
considers its relationship with its employees to be good and, other than
sporadic and unauthorized work stoppages of an immaterial nature, none of which
have been related to the Company's own labor relations, the Company has not
experienced a work stoppage or other labor disturbance.
The Company utilizes third-party fabrication subcontractors on many of
its projects and also subcontracts detailing services from time to time when it
lacks available in-house capacity for such services. The Company's inability to
engage fabrication and detailing subcontractors on terms favorable to the
Company could limit the Company's ability to complete projects in a timely
manner or compete for new projects and could have a material adverse effect on
the Company.
SUPPLIERS
The Company currently purchases a majority of its steel and steel
components from several domestic and foreign steel producers and suppliers.
However, steel is readily available from numerous foreign and domestic steel
producers and the Company is not dependent on any one supplier. The Company
believes that its relationships with its suppliers are good and has no long term
commitments with any of its suppliers. In recent periods, there has been an
increased demand for steel from domestic mills and the Company has purchased a
portion of its steel requirements from Asian producers.
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<PAGE> 14
ITEM 2 - PROPERTIES
The Company's primary fabrication facilities consist of over 400,000
square feet of shop space under roof on approximately 26 acres in Phoenix,
Arizona. These facilities also house the Company's operations, erection,
engineering and detailing departments and are leased by the Company from a
partnership, the general partners of which are David A. Schuff, Nancy A. Schuff
and Scott A. Schuff and the limited partners of which are family trusts of Mr.
Scott A. Schuff and certain of his siblings (the "Schuff Partnership"). This
lease was amended as of March 1, 1997 and expires on February 28, 2017. Annual
rent under the lease totaled $264,000 and $295,000 for 1996 and 1997,
respectively, and will be $414,000 in 1998, $556,000 in 1999, $601,000 in 2000,
and $605,000 in each year thereafter during the remaining term of the lease,
subject to increase every five years commencing in 2002 pursuant to a Consumer
Price Index formula.
With the acquisition of B&K Steel, the Company added approximately
145,000 square feet of covered fabrication, office, engineering and detailing
facilities on approximately 23 acres in Gilbert, Arizona. The property on which
B&K Steel's facilities are located was acquired by the Schuff Partnership and is
leased to the Company by that partnership. This lease commenced on March 1, 1997
and expires on February 28, 2017. Annual rent under the lease was approximately
$283,000 in 1997 and is expected to be $340,000 in each year thereafter, subject
to increase every five years commencing in 2002 based on a Consumer Price Index
formula.
The Schuff Partnership also owns and is leasing to the Company
additional facilities consisting of approximately 22,000 square feet of office
space adjacent to its existing principal fabrication and office facilities in
Phoenix, Arizona. This facility houses the Company's executive offices and
sales, estimating, finance and administrative departments. This lease commenced
on May 1, 1997 and expires April 30, 2017. Annual rent under the lease was
$90,000 in 1997 and is expected to be $135,000 in each year thereafter, subject
to increase every five years based on a Consumer Price Index formula. The
Company subleases a portion of the premises.
Under each of the foregoing leases, the Company also is obligated to
pay all taxes, insurance and maintenance costs.
ITEM 3 - LEGAL PROCEEDINGS
Construction in general and the fabrication and erection of structural
steel and heavy steel plate in particular involve a high degree of operational
risk. Adverse weather conditions, operator and other error, and other unforeseen
factors can cause personal injury or loss of life, severe damage to or
destruction of property and equipment, and suspension of operations. Litigation
arising from such occurrences may result in the Company being named as a party
to lawsuits asserting substantial claims or to administrative or criminal
actions that may involve substantial monetary penalties or the restriction of
the Company's operations in one or more jurisdictions. The Company is a
defendant in lawsuits from time to time, including lawsuits arising in the
normal course of its business. While it is impossible at this time to determine
with certainty the ultimate outcome of these lawsuits, the Company's management
believes that the ultimate outcome will not have a material adverse effect on
the Company.
The Company maintains workers compensation insurance that provides full
coverage of statutory workers compensation benefits. The Company also maintains
employer liability insurance in its principal geographic markets in amounts of
$1,000,000 per accident for bodily injury by accident and $1,000,000 per
employee (and as a policy limit) for bodily injury by disease and contractors
commercial general liability insurance in the amount of $1,000,000. In addition,
the Company maintains umbrella coverage limits of $20,000,000. The Company also
maintains insurance against property damage caused by fire, flood, explosion and
similar catastrophic events that may result in physical damage or destruction of
the Company's facilities and property. All policies are subject to various
deductibles and coverage limitations. Although management of the Company
believes that the Company's insurance is adequate for its present needs, there
can be no assurance that the Company will be able to maintain adequate insurance
at premium rates that management considers commercially reasonable, nor can
there be any assurance that such coverage will be adequate to cover all claims
that may arise.
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<PAGE> 15
Currently, the Company does not maintain any reserves for its ongoing
litigation. The Company periodically reviews the need to maintain a litigation
reserve. The Company seeks to mitigate the effects of loss or damage through the
maintenance of risk management, insurance, and safety programs. There can be no
assurance, however, that the Company's efforts to mitigate losses will be
successful or that any losses incurred will not exceed the Company's insurance
or estimated reserves therefor.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security holders
during the fourth quarter of 1997.
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<PAGE> 16
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY SECURITIES
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on Nasdaq National Market under
the symbol "SHUF." The Common Stock commenced public trading on July 1, 1997 in
connection with the Company's initial public offering. As a result, high and low
market price information is not available for periods prior to the third quarter
of fiscal 1997. The following table sets forth the high and low closing sale
prices of the Common Stock, as reported by Nasdaq National Market, for the
periods indicated:
<TABLE>
<CAPTION>
Market Price
FISCAL YEAR 1997 High Low
---- ---
<S> <C> <C>
Third Quarter (from July 1, 1997)....... $11.125 $7.50
Fourth Quarter.......................... $11.875 $8.625
FISCAL YEAR 1998
First Quarter (through March 16, 1998).. $11.25 $8.875
</TABLE>
As of March 16, 1998, there were approximately 32 holders of record of
the Company's Common Stock.
Except for certain distributions to its then current shareholders while
the Company was subject to taxation under subchapter S of the Internal Revenue
Code of 1986, as amended, and certain other distributions, including those made
in connection with the closing of the Company's initial public offering in July
1997 to the Company's shareholders prior to the offering, the Company has not
made distributions or declared dividends on its Common Stock and does not
anticipate doing so in the foreseeable future. It is the current policy of the
Company's Board of Directors to retain its earnings, if any, to finance the
operation and expansion of the Company's business. See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
SALES OF UNREGISTERED SECURITIES DURING THE YEAR ENDED DECEMBER 31, 1997
On May 8, 1997, the Company reincorporated from Arizona to Delaware by
way of a merger in which the predecessor of the Company, an Arizona corporation,
merged with and into a newly created Delaware subsidiary of the Company. In the
merger, each share of the Arizona corporation's issued and outstanding common
stock was exchanged for 50,000 shares of the Delaware corporation's common stock
and each option to purchase one share of the Arizona corporation's common stock
was exchanged for 50,000 options to purchase shares of the Delaware
corporation's common stock. All share figures set forth above give effect to
this exchange ratio. Exemption from registration for this transaction was
claimed pursuant to Section 4(2) of the Securities Act regarding transactions by
an issuer not involving any public offering and/or pursuant to Rule 145 under
the Securities Act regarding transactions the sole purpose of which is to change
an issuer's domicile solely within the United States.
On February 5, 1997, the Company granted stock options to purchase a
total of 6.91 shares of its Common Stock at an exercise price of $250,000 per
share. All of these options vest over a five year period with 20% of such
options of each grantee vesting on each anniversary of the date of grant. After
the reincorporation, the options were exchanged for 345,500 options to purchase
the Company's Common Stock at an exercise price of $5.00 per share. Following
consummation of the Company's initial public offering on July 7, 1997, the
Company granted to each of its current non-employee directors options to
purchase 7,500 shares of Common Stock, or 15,000 shares in the aggregate, in
consideration for their services on the Board of Directors. These options vest
on the first anniversary of the grant date. Exemption from restriction for these
transactions was claimed pursuant to Section 4(2) of the Securities Act
regarding transactions by an issuer not involving any public offering.
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USE OF PROCEEDS FROM SALE OF REGISTERED SECURITIES
The Company sold 2,000,000 shares of Common Stock pursuant to a
Registration Statement on Form S-1 (File No. 333-26711), which was declared
effective by the Securities and Exchange Commission on June 26, 1997 (the
"Offering"). The Company's total expenses in connection with the Offering from
the effective date of the registration statement through December 31, 1997 were
approximately $2,000,000, of which $1,120,000 was for underwriting discounts and
commissions and approximately $880,000 was for other expenses, all of which were
paid to persons other than directors or officers of the Company, persons owning
more than 10 percent of any class of equity securities of the Company, or
affiliates of the Company. As of December 31, 1997, the Company expended
$7,000,000 on S corporation distributions to certain of its stockholders prior
to the Offering (each of which own more than 10 percent of the Company's
outstanding Common Stock and are controlled by two directors and an executive
officer of the Company), and approximately $2,500,000 of such net proceeds for
the purchase of specialized fabrication equipment. As of December 31, 1997, the
remaining net proceeds of approximately $4,500,000 were used for general working
capital purposes.
FACTORS THAT MAY AFFECT FUTURE STOCK PERFORMANCE
The performance of the Company's Common Stock is dependent upon several
factors including those set forth below and in Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations --Factors That May
Affect Future Results and Financial Condition."
Control by Majority Shareholders; Ability to Issue Preferred Stock
Mr. David A. Schuff, the Company's Chairman and co-founder, and Mr.
Scott A. Schuff, the Company's President, Chief Executive Officer, co-founder
and a member of its Board of Directors, collectively control the voting of
approximately 71.4% of the outstanding Common Stock. As a result, these
individuals control the vote on all matters requiring approval of the
stockholders, including causing or restricting the sale or merger of the
Company. In addition, the Company's Certificate of Incorporation authorizes the
Company to issue shares of "blank check" preferred stock, the designation,
number, voting powers, preferences, and rights of which may be fixed or altered
from time to time by the Board of Directors. Accordingly, the Board of Directors
has the authority, without stockholder approval, to issue preferred stock with
rights that could adversely affect the voting power or other rights of the
holders of the Common Stock.
Volatility of Stock Price
The stock market has experienced price and volume fluctuations that
have affected the market for many companies and have often been unrelated to the
operating performance of such companies. The market price of the Common Stock is
also subject to significant fluctuations in response to variations in the
Company's quarterly operating results, analyst reports, announcements concerning
the Company, legislative or regulatory changes or the interpretation of existing
statutes or regulations affecting the Company's business, litigation, general
trends in the industry and other events or factors.
Shares Eligible for Future Sale
There were 7,000,000 shares of Common Stock outstanding as of March 16,
1998. Of these shares, 2,000,000 shares of Common Stock are freely tradeable.
The 5,000,000 remaining shares of Common Stock are beneficially held by Messrs.
David A. Schuff and Scott A. Schuff and are "restricted securities" as that term
is defined under Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"). In general, under Rule 144 as currently in
effect, subject to the satisfaction of certain other conditions, if two years
have elapsed since the later of the date of acquisition of restricted shares
from either an issuer by an affiliate of the issuer, or from an affiliate of an
issuer, the affiliate acquiror or subsequent holder is entitled to sell in the
open market, within any three-month period, a number of shares that does not
exceed the greater of one percent of the outstanding shares of the same class or
the average weekly trading volume during the four calendar weeks preceding the
filing of the required notice of sale. Of the "restricted securities"
outstanding, substantially all of these shares have been held for the two-year
holding period
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required under Rule 144. No predictions can be made with respect to the effect,
if any, that sales of Common Stock in the market or the availability of shares
of Common Stock for sale under Rule 144 will have on the market price of Common
Stock prevailing from time to time. Sales of substantial amounts of Common Stock
in the open market could adversely affect the prevailing market price of the
Common Stock and may make it more difficult for the Company to sell its equity
securities in the future on terms it deems appropriate.
ITEM 6 - SELECTED FINANCIAL DATA
The following sets forth selected historical consolidated financial
data of the Company for each of the years in the five-year period ended December
31, 1997. The selected annual historical consolidated financial data are derived
from the Company's Consolidated Financial Statements audited by independent
auditors. For additional information, see the Consolidated Financial Statements
of the Company and Notes thereto included elsewhere in this report. The
following table should be read in conjunction with Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and is
qualified by reference thereto and to the Company's Consolidated Financial
Statements and Notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands, except per share data)
--------------------------------------------------------------------------
1993 1994 1995 1996 1997(1)
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues .............................. $ 58,640 $ 68,199 $ 62,090 $ 103,912 $ 138,218
Cost of revenues ...................... 50,376 58,874 54,222 86,998 117,955
-------- -------- -------- --------- ---------
Gross profit ................. 8,264 9,325 7,868 16,914 20,263
General and administrative expenses ... 4,367 4,915 5,284 6,715 8,880
-------- -------- -------- --------- ---------
Operating income ............. 3,897 4,410 2,584 10,199 11,383
Interest expense ...................... (627) (718) (752) (452) (348)
Other income .......................... 60 67 618 303 520
-------- -------- -------- --------- ---------
Income before income taxes ... 3,330 3,759 2,450 10,050 11,555
Provision for income taxes ............ -- -- -- -- 2,823
-------- -------- -------- --------- ---------
Net income ............................ 3,330 3,759 2,450 10,050 8,732
Pro forma income taxes (2) ............ 1,330 1,500 980 4,020 1,513
-------- -------- -------- --------- ---------
Pro forma net income (2) ..... $ 2,000 $ 2,259 $ 1,470 $ 6,030 $ 7,219
======== ======== ======== ========= =========
Pro forma net income per share (2)(3):
- basic ...................... $ 1.02 $ 1.12
- diluted .................... $ 1.02 $ 1.10
Shares used in computation(3):
- basic ...................... 5,941 6,457
- diluted .................... 5,941 6,556
OPERATING DATA:
Backlog(4) ............................ $ 18,387 $ 22,544 $ 80,834 $ 67,335 $ 56,793
BALANCE SHEET DATA:
Cash and cash equivalents ............. $ 113 $ 63 $ 289 $ 7,253 $ 197
Restricted funds on deposit(5) ........ -- -- 220 2,249 2,096
Costs and recognized earnings in excess
of billings on uncompleted
contracts(6) ....................... 714 777 1,076 3,331 3,982
Billings in excess of costs and
recognized earnings on uncompleted
contracts(6) ....................... 4,215 6,506 5,940 12,051 3,758
Property and equipment, net ........... 4,310 4,666 4,222 5,116 7,415
Total assets .......................... 25,387 26,244 25,260 36,397 42,038
Long term debt, excluding current
portion ............................ 3,806 7,057 5,271 2,753 4,927
Stockholders' equity .................. $ 5,320 $ 6,032 $ 6,768 $ 10,682 $ 24,673
</TABLE>
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<PAGE> 19
- ----------------
(1) Gives effect to the Company's acquisition of B&K Steel on January 31,
1997, which was accounted for under the purchase method of accounting.
Financial information relating to B&K Steel has not been included in
periods prior to the acquisition.
(2) Prior to the completion of its initial public offering in July 1997,
the Company elected to be treated as an S corporation under the
Internal Revenue Code of 1986, as amended. As an S corporation, the
Company was not subject to income taxes. Pro forma net income reflects
the provision for income taxes that would have been recorded had the
Company been subject to income taxes as a C corporation for all
periods, assuming an effective tax rate of 40%. Provision for income
taxes for 1997 includes credits of $300,000 to income recorded upon
revocation of the Company's S corporation election in June 1997.
(3) Shares used in the computation of pro forma net income per share are
based upon the weighted average number of common shares and common
stock equivalents outstanding during each year. In February 1997, the
Financial Accounting Standards Board (FASB) issued SFAS No. 128,
"Earnings Per Share" ("SFAS No. 128"), which was adopted by the Company
on December 31, 1997. SFAS No. 128 replaced the previously reported
primary or fully diluted pro forma earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share exclude any dilutive effects of options, warrants,
and convertible securities. Diluted earnings per share is very similar
to the previously reported primary earnings per share. All earnings per
share amounts for all periods have been presented and, where necessary,
restated to conform to the SFAS No. 128 requirements. The impact of
SFAS No. 128 on the calculation of fully diluted earnings per share for
each of the periods presented was not material.
(4) Backlog is the amount of potential future revenues to be recognized
upon performance of contracts awarded to the Company. Backlog increases
as new contract commitments are received, decreases as revenues are
recognized, and increases or decreases to reflect modifications in the
work to be performed under a contract. Of the Company's $56.8 million
backlog as of December 31,1997, approximately $12.2 million was
attributable to two projects for a single customer in Las Vegas,
Nevada, and approximately $9.4 million was attributable to one project
in Phoenix, Arizona.
(5) Restricted funds on deposit represent funds on deposit in an interest
bearing escrow account which are maintained in lieu of retention for a
specific contract. Retentions on contract receivables are amounts due
which are withheld until the completed project has been accepted by the
customer in accordance with the contract. See Note 1 to Consolidated
Financial Statements.
(6) The Company recognizes revenues and costs from construction projects
using the percentage of completion accounting method. Under this
method, revenues are recognized based upon the ratio of the costs
incurred to date to the total estimated costs to complete the project,
commencing when progress is sufficient to estimate final results with
reasonable accuracy, which typically occurs when fabricated product is
shipped to the project site or when erection of the project commences.
Construction contracts with customers generally provide that billings
are to be made monthly in amounts which are commensurate with the
extent of performance under the contracts. Costs and recognized
earnings in excess of billings on uncompleted contracts primarily
represent revenues earned under the percentage of completion method
which have not been billed, and also include costs incurred in excess
of billings on contracts for which sufficient work has not been
performed to allow for recognition of revenues. Billings in excess of
costs and recognized earnings on uncompleted contracts represent
amounts billed on contracts in excess of the revenues allowed to be
recognized under the percentage of completion method on those
contracts.
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<PAGE> 20
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding
the Company's financial position as of December 31, 1996 and 1997, and its
results of operations for the years ended December 31, 1995, 1996, and 1997.
This discussion should be read in conjunction with the preceding "Selected
Consolidated Financial and Operating Data" and the Company's Consolidated
Financial Statements and related Notes thereto appearing elsewhere in this
report.
INTRODUCTION
The Company's results of operations are affected primarily by (i) the
level of commercial and industrial construction in its principal markets, (ii)
the Company's ability to win project contracts, (iii) the amount and complexity
of project changes requested by customers or general contractors, (iv) the
Company's success in utilizing its resources at or near full capacity, and (v)
the Company's ability to complete contracts on a timely and cost effective
basis. The level of commercial and industrial construction activity is related
to several factors, including local, regional and national economic conditions,
interest rates, availability of financing, and the supply of existing facilities
relative to demand.
The Company believes that there is an increasing trend in the steel
fabrication and erection industry to design and build large, complex projects
according to accelerated time schedules. With many projects, only a portion of
the detail design drawings are completed when construction begins. The remaining
drawings are completed, with numerous design changes being implemented,
throughout the construction process. These fast track,"design-as-you-go"
projects are well-suited to integrated contractors that can (i) reduce the
logistical and coordination problems inherent in the use of multiple
subcontractors to complete a large, complex project and (ii) more efficiently
respond to rapid and multiple design changes while minimizing project delays and
cost overruns commonly associated with such changes. The complexity and size of
these projects requires subcontractors possessing extended financial and
operational capabilities. Typically, these projects offer greater potential
profit than small, less complex projects because project management and overhead
requirements for large projects usually are proportionately less. Individual
large projects can have a substantial impact upon the Company's results of
operations and cause significant fluctuations from quarter to quarter.
The Company obtains contracts through competitive bidding or
negotiation, which generally are either fixed price or cost-plus arrangements.
During 1996 and 1997, approximately $94.0 million (91.0%) and $133.8 million
(96.8%), respectively, of the Company's revenues were derived from projects
performed pursuant to fixed price contracts. In bidding or negotiating
contracts, the Company must estimate its costs, including projected increases in
labor, material, and service costs. Project duration typically lasts from three
to twelve months.
The Company recognizes revenues using the percentage of completion
accounting method. Under this method, revenues are recognized based upon the
ratio of costs incurred to date to the estimated total cost to complete the
project. Revenue recognition begins when progress is sufficient to estimate
final results with reasonable accuracy, which typically occurs when fabricated
product is shipped to the project site or when erection of the project
commences. Revenues relating to changes in the scope of a contract are
recognized when the customer has authorized the change, the work is commenced
and the Company has made an estimate of the amount that will be paid for the
change. The cumulative impact of revisions in total cost estimates during the
progress of work is reflected in the period in which these revisions become
known. Estimated losses on contracts are recognized in full when it is
determined that a loss will be incurred on a contract.
Cost of revenues consists of the costs of materials, equipment, direct
labor, fringe benefits, and indirect costs associated with detailing,
fabrication and erection, including rent, depreciation and supervisory labor.
Other costs not associated with specific projects are included in general and
administrative expenses.
Gross profit margins can be positively affected by large, more complex
projects, the percentage of negotiated contracts relative to competitively bid
contracts, the number and scope of contract modifications and improvements in
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<PAGE> 21
operating efficiencies. Gross profit margins can be adversely affected by
construction delays, inefficient or underutilization of the Company's resources,
availability and cost of materials and labor, the timing and performance of work
by other contractors, weather conditions and construction site conditions.
Backlog increases as contract commitments are obtained, decreases as
revenues are recognized, and increases or decreases to reflect modifications in
the work to be performed under the contract. The timing of contract commitments,
the size of projects and other factors beyond the Company's control can cause
significant fluctuation in backlog outstanding at any given date.
Prior to the completion of the Company's initial public offering in
July 1997, the Company was taxed as an S corporation for income tax purposes.
Accordingly, its income was taxed directly to its stockholders. Immediately
prior to the offering, the Company's S corporation election was revoked and the
Company became subject to income tax as a C corporation. For purposes of the
financial information contained in this section, pro forma income tax expense
has been included assuming an income tax rate of 40%, and pro forma net income
reflects this provision.
On March 17, 1998, the Company entered into a non-binding letter of
intent to acquire all of the outstanding capital stock of Addison Structural
Services, Inc. Substantially all of the purchase price will be paid in cash. The
transaction is subject to a number of contingencies and closing conditions, and
there can be no assurance that the transaction will be consummated on the terms
currently anticipated, if at all. See "Business-Recent Developments."
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain
financial data as a percentage of revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Revenues ............................. 100.0% 100.0% 100.0%
Cost of revenues ..................... 87.3 83.7 85.3
------ ------ ------
Gross Profit ....................... 12.7 16.3 14.7
General and administrative expenses .. 8.5 6.5 6.4
------ ------ ------
Operating income ................... 4.2 9.8 8.3
Interest expense ..................... (1.2) (0.4) (0.3)
Other income ......................... 1.0 0.3 0.4
------ ------ ------
Income before income taxes ........... 4.0 9.7 8.4
Provision for income taxes ........... -- -- 2.1
Pro forma income taxes ............... 1.6 3.9 1.1
------ ------ ------
Pro forma net income ................. 2.4% 5.8% 5.2%
====== ====== ======
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. Revenues increased by 33.0% to $138.2 million in 1997 from
$103.9 million in 1996. The increase was largely attributable to an increase in
revenues generated from the Bank One Ballpark project of $19.2 million to $39.0
million in 1997 from revenues of $19.8 million in 1996. Revenues for 1997 also
include $10.1 million of revenues of B&K Steel following its acquisition by the
Company on January 31, 1997 for which there were no
21
<PAGE> 22
respective revenues in 1996. The average revenues for the Company's ten largest
revenue generating projects was $9.3 million in 1997 versus $7.8 million in
1996, which represents a 19.2% increase.
Gross profit. Gross profit increased 19.8% to $20.3 million in 1997
from $16.9 million in 1996 primarily due to the 33.0% increase in revenues. As a
percentage of revenues, gross profit decreased to 14.7% in 1997 from 16.3% in
1996. The decrease as a percentage of revenues was primarily attributable to
above average 1996 margins resulting from higher than anticipated revenues from
requested contract modifications and higher then expected costs on the Company's
largest contract as a result of increased efforts on the project for which the
Company is not assured of being reimbursed.
General and administrative expenses. General and administrative
expenses increased by 32.2% to $8.9 million in 1997 from $6.7 million in 1996.
Of the $2.2 million increase in 1997, $1.7 million was attributable to
additional general and administrative costs resulting from the B&K Steel
acquisition and the remaining $500,000 was attributable to increases required to
support the increased revenues in 1997. General and administrative expenses as a
percentage of revenues remained relatively constant at 6.4% in 1997 compared to
6.5% in 1996. General and administrative expenses include those for contract
bids, estimating, sales and marketing, facilities, project management, and
support services, none of which increased in proportion to the increase in
revenues, primarily because the Company's higher average contracts during the
period did not require proportionately higher general and administrative
expenses.
Interest expense. Interest expense decreased by 23.0% to $348,000 in
1997 from $452,000 in 1996. The decrease was attributable largely to the lower
average monthly line of credit borrowings and more favorable interest rate
terms.
Other income. Other income increased 71.6% to $520,000 in 1997 from
$303,000 in 1996. The increases in other income was primarily attributable to
earnings on funds invested.
Income tax expense. Income tax expense for 1997 was $2.8 million which
represents a 40% effective tax rate on earnings of the Company from the date of
its S corporation status termination on June 26, 1997. The 1997 expense is
offset by a $300,000 credit to deferred taxes generated upon the revocation of
the Company's S corporation status for the effect of cumulative temporary
differences as of the date of the S corporation termination. Prior to 1997, the
Company was an S corporation and the related S corporation earnings were taxed
directly to the stockholders.
Pro forma net income. Pro forma net income increased by 19.7% to $7.2
million in 1997 from 6.0 million in 1996.
Backlog. Backlog decreased 15.6% to $56.8 million at December 31, 1997
from $67.3 million at December 31, 1996. The $10.5 million net decrease is due
to a decrease of backlog of $32.4 million to $1.9 million in 1997 from $34.3
million in 1996 relating to the Bank One Ballpark project. This decrease was
offset by an increase in backlog related to three significant projects awarded
in 1997 for which backlog is approximately $21.6 million on total contract
amounts of $31.5 million. Of the backlog at December 31, 1997, approximately
$12.2 million was attributable to two projects for a single customer in Las
Vegas, Nevada, and approximately $9.4 million was attributable to one project in
Phoenix, Arizona.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues increased by 67.4% to $103.9 million in 1996 from
$62.1 million in 1995. The increase was attributable primarily to larger
individual contracts in 1996 compared to 1995, including the Bank One Ballpark,
which contributed $19.8 million. The Bank One Ballpark project is expected to
generate total revenues approaching $55.0 million when completed in 1998. The
average revenues for the Company's ten largest revenue generating projects was
$7.8 million in 1996 versus $3.3 million in 1995. Excluding Bank One Ballpark,
the ten largest revenue generating projects averaged $6.4 million in 1996, which
represented a 93.9% increase over the 1995 average of $3.3 million.
Gross profit. Gross profit increased by 115.0% to $16.9 million in 1996
from $7.9 million in 1995 primarily due to the 67.4% increase in revenues. As a
percentage of revenues, gross profit increased to 16.3% in 1996 from 12.7%
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<PAGE> 23
in 1995. The increase as a percentage of revenues was attributable primarily to
greater overhead absorption, better pricing associated with larger projects,
improved operating efficiencies, and modifications to specific contracts. By
obtaining larger average value and more complex contracts, the Company has been
able to realize higher gross margins on such projects, a trend that was
reflected in the Company's gross profit in 1996. In addition, many of the
Company's fixed costs, such as depreciation, increased proportionately less than
the 67.4% increase in revenues, which further served to improve gross margins.
General and administrative expenses. General and administrative
expenses increased by 27.1% to $6.7 million in 1996 from $5.3 million in 1995.
Of the $1.4 million increase in 1996, $590,000 was attributable to bonus
payments to employees and $529,000 was attributable to a deferred compensation
plan implemented in 1996. The Company's deferred compensation plan was
terminated in 1997. General and administrative expenses as a percentage of
revenues decreased to 6.5% in 1996 from 8.5% in 1995 due to the benefits of
having larger average contracts in 1996. In 1995, the Company experienced a 9.0%
decrease in revenues from 1994 and elected not to reduce general and
administrative costs proportionately in anticipation of future contract awards,
thereby causing higher general and administrative expenses as a percentage of
revenues.
Interest expense. Interest expense decreased by 39.9% to $452,000 in
1996 from $752,000 in 1995. The decrease was attributable to the lower average
line of credit borrowings, which reflected in large part the Company's ability
to increase its billings in excess of costs and recognized earnings on
uncompleted contracts. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Pro forma net income. Pro forma net income increased by 310.2% to $6.0
million in 1996 from $1.5 million in 1995.
Backlog. Backlog at December 31, 1996 was $13.5 million less than at
December 31, 1995 due to the receipt of four contract awards that collectively
represented backlog of $47.2 million at December 31, 1995. Additionally, the
high level of backlog at the end of the first quarter of 1996 caused the Company
to become more selective in the pursuit of new contract awards during the
remainder of the year. Of the backlog at December 31, 1996, approximately $13.1
million was attributable to three projects for a single customer in Las Vegas,
Nevada, and approximately $34.3 million was attributable to the Bank One
Ballpark project in Phoenix, Arizona.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed its initial public offering of 2,000,000 shares
of Common Stock on or about July 1, 1997, and closed such offering on July 7,
1997. The offering yielded $14.0 million in proceeds net of underwriting
discounts and other costs. The Company used approximately $7.0 million of the
proceeds to fund S corporation distributions, and has used the remaining
proceeds to purchase specialized fabrication equipment and to fund general
corporate purposes.
The Company attempts to structure the payment arrangements under its
contracts to match costs incurred under the project. To the extent the Company
is able to bill in advance of costs incurred, it generates working capital
through billings in excess of costs and recognized earnings on uncompleted
contracts. To the extent the Company is not able to bill in advance of costs, it
relies on its credit facilities to meet its working capital needs. At December
31, 1997, the Company had $2.6 million of borrowings under its line of credit
due in large part to its decrease in billings in excess of costs and recognized
earnings on uncompleted contracts of $8.3 million and a $6.6 million increase in
receivables during 1997. At December 31, 1997, the Company had working capital
of approximately $22.5 million. The Company believes that it has sufficient
liquidity through its present resources and the existence of its bank credit
facility to meet its near term operating needs.
The Company's short term cash needs are primarily for working capital
to support operations including receivables, inventories, and other costs
incurred in performing its contracts. Operating activities required cash flows
of $4.5 million for the year ended December 31, 1997 and provided cash flows of
$14.4 million for the year ended December 31, 1996. For the year ended December
31, 1997, operating cash flows were less than net income (excluding
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<PAGE> 24
pro forma income taxes) due to the $8.3 million decrease in billings in excess
of costs and recognized earnings on uncompleted contracts, a $6.6 million
increase in receivables, and other net working capital fluctuations. The
increase in billings in excess of costs and recognized earnings on uncompleted
contracts was a result of project advance billings being recognized as revenues
and costs under percentage of completion accounting as the contracts moved
toward completion. The increase in receivables was due to an increase of $1.5
million in retentions as projects moved toward total completion and the
continued growth of revenues. Investing activities required $3.6 million for the
year ended December 31, 1997 and $2.3 million during the year ended December 31,
1996, substantially all of which were related to purchases of property and
equipment in 1997 and 1996 and the cash portion of the acquisition of B&K Steel
in 1997. Financing activities provided $1.1 million for the year ended December
31, 1997 and consumed $5.1 million for the year ended December 31, 1996. Cash
provided by financing activities in 1997 was primarily a result of $14.0 million
net proceeds from the issuance of 2 million additional shares of Common Stock
offset by $13.8 million in S corporation stockholder distributions, of which
$7.0 million was distributed at the effective date of the offering. Cash
consumed by financing activities in 1996 was related primarily to repayments of
long-term debt, payments on line of credit balances and $2.3 million of
stockholder distributions.
As described above, the Company has entered into a non-binding letter
of intent to acquire Addison. See "Business-Recent Developments." If the Company
ultimately consummates such acquisition on the terms currently anticipated, it
would not, and does not expect to have, sufficient working capital or available
credit under its bank credit facilities to pay the entire purchase price in the
transaction. The Company is currently pursuing various debt financing
alternatives in connection with this and potentially other acquisitions.
The Company maintains a $10.0 million credit facility with a commercial
bank that is subject to renewal on June 30, 1999 and is collateralized by
contract receivables, equipment and inventory. The Company's credit facility
requires that the Company maintain minimum tangible net worth of $19.0 million,
minimum owners equity (the sum of capital, capital surplus and retained earnings
divided by total assets) of 40%, a minimum current ratio of 1.25 to 1.0, and
minimum debt coverage ratio of 1.5 to 1.0 (net profit after tax plus
depreciation and amortization plus changes in deferred taxes divided by
long-term debt including current maturities). The security agreements pursuant
to which the Company's assets are pledged prohibit any further pledge of such
assets without the written consent of the Company's lender. Under this facility,
the Company may borrow up to an amount equal to the greater of (a) 75% of
qualifying contracts receivable and inventories of up to a maximum of $10.0
million, or (b) a maximum of $5.0 million based on the greater of (i) 50% of the
net book value of fixed assets or (ii) 75% of the fair market value of fixed
assets. The Company's ability to borrow is subject to, among other restrictions,
billings in excess of costs and recognized earnings on uncompleted contracts. At
December 31, 1997, there was $6.2 million available under the line for future
borrowings.
The Company has two other long-term debt commitments that are related
to its property and equipment. One is a subordinated note payable to a limited
partnership comprised of David A. Schuff, Scott Schuff and certain of their
family members, which requires monthly payments of $12,037 plus interest and
matures in 2003. The balance on this loan was approximately $1.8 million at
December 31, 1997. The other long-term debt of the Company consists of two notes
in the aggregate principal amount of $796,250 incurred as part of the
consideration paid to the sellers in the B&K Steel acquisition. Such notes are
payable in five equal annual installments ending in 2002. The acquisition of B&K
Steel, which had 1996 revenues of approximately $9.4 million and 1997 revenues
of approximately $10.1 million, was accounted for under the purchase method of
accounting. The fair value of the tangible net assets acquired approximated the
purchase price so no goodwill was recorded with respect to the transaction.
Effective December 10, 1997, the Company obtained a $10,000,000 line of
credit (the "Acquisition Facility") with a commercial bank solely to finance the
acquisition of other companies. The covenants of this facility are consistent
with the credit facility mentioned above. The Acquisition Facility is
collateralized by the Company's accounts receivable, inventory and equipment,
any real property or securities purchased by utilization of the credit facility
or owned by a purchased subsidiary, and other items as described in the credit
facility agreement. Interest is payable in one, two, or three month periods at
the LIBOR or prime rate plus 0.25 percent. Outstanding principal on the
acquisition line will be payable in installments commencing on January 30, 1999,
as described in the acquisition facility agreement. At December 31, 1997, no
amounts were outstanding under the acquisition line.
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<PAGE> 25
The Company leases its fabrication and office facilities from a
partnership in which the present beneficial stockholders of the Company and
their family members are the general and limited partners. Under the lease for
the Company's principal fabrication and office facilities, the Company's annual
rental payments were $295,000 in 1997, increasing to $414,000 for 1998, $556,000
for 1999, $601,000 in 2000, and $605,000 in each year thereafter during the 20
year term of the lease. The lease agreement for the B&K Steel property and
equipment provides for rental payments in the amount of $340,000 per year over
the 20 year term of the lease. The Company also leases additional office
facilities adjacent to the Company's existing principal office and shop
facilities. This office lease provides for rental payments of $135,000 per year
over the 20 year term of the lease. See Item 2. "Properties."
The Company estimates that its capital expenditures for 1998 will be
approximately $1.5 million. The Company believes that its available funds, cash
generated by operating activities and funds available under its bank credit
facilities will be sufficient to fund these capital expenditures and its working
capital needs. However, the Company may expand its operations through future
acquisitions, including the acquisition of Addison, and may require additional
equity or debt financing.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"), which was adopted by
the Company on December 31, 1997. SFAS No. 128 replaced the previously reported
primary or fully diluted pro forma earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per share
exclude any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported primary
earnings per share. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the SFAS No. 128
requirements. The impact of SFAS No. 128 on the calculation of fully diluted
earnings per share for each of the periods presented was not material.
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") was
issued by the FASB in June 1997, and is effective for periods beginning after
December 15, 1997. For periods after that time, the Company will be required to
change the method currently used to compute income and to restate all prior
periods. Under the new requirements for calculating income, SFAS No. 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. The
impact of SFAS No. 130 on the calculation of comprehensive income for these
periods was not material.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131
establishes standards for the manner in which public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. The adoption of SFAS 131 will have no impact
on the Company's consolidated results of operations, financial position or cash
flows.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
The Company's future operating results and financial condition are
dependent on a number of factors that the Company must successfully manage in
order to achieve favorable future operating results and financial condition. The
following potential risks and uncertainties, together with those mentioned
elsewhere herein, including in Item 5." Market for Registrant's Common Equity
and Related Stockholder Matters," could affect the Company's future operating
results, financial condition, and the market price of its Common Stock.
Fluctuating Quarterly Results of Operations
The Company has experienced, and in the future is expected to continue
to experience, substantial variations in its results of operations as a result
of a number of factors, many of which are outside the Company's control. In
particular, the Company's operating results may vary because of downturns in one
or more segments of the building
25
<PAGE> 26
construction industry, changes in economic conditions, the Company's failure to
obtain, or delays in awards of, major projects, the cancellation of major
projects, the Company's failure to timely replace projects that have been
completed or are nearing completion, or declines in the amount of the Company's
billings in excess of costs and recognized earnings on uncompleted projects. Any
of these factors could result in the periodic inefficient or underutilization of
the Company's resources and could cause the Company's operating results to
fluctuate significantly from period to period, including on a quarterly basis.
No Assurance of Successful Acquisitions
In addition to Addison, the Company intends to consider acquisitions of
and alliances with other companies in its industry that could complement the
Company's business, including the acquisition of entities in diverse geographic
regions and entities offering greater access to industries and markets not
currently served by the Company. There can be no assurance that suitable
acquisition or alliance candidates can be identified or, if identified, that the
Company will be able to consummate such transactions. Further, there can be no
assurance that the Company will be able to integrate successfully any acquired
companies into its existing operations, which could increase the Company's
operating expenses. Moreover, any acquisition by the Company may result in
potentially dilutive issuances of equity securities, incurrence of additional
debt and amortization of expenses related to goodwill and intangible assets, all
of which could adversely affect the Company's profitability. Acquisitions
involve numerous risks, such as diverting attention of the Company's management
from other business concerns, the entrance of the Company into markets in which
it has had no or only limited experience and the potential loss of key employees
of the acquired company, any of which could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company has devoted and expects to continue to devote substantial
management attention and resources to the proposed acquisition of Addison. In
addition, the Company does not currently have sufficient working capital or
available bank financing to pay the entire purchase price in the acquisition,
and is pursuing various debt financing alternatives. In the event the Company
completes the acquisition, it is currently anticipated that the Company would
incur additional indebtedness. In addition, due to the geographic disposition of
Addison's operations from the Company's present facilities and management, the
Company will be dependent on the retention and future performance of Addison's
officers and employees for the day-to-day operations of Addison.
Large Fixed Price Contracts
A substantial portion of the Company's backlog consists of projects
being performed on a fixed price basis. In bidding on projects, the Company
estimates its costs, including projected increases in costs of labor, material
and services. Despite these estimates, costs and gross profit realized on a
fixed price contract may vary from estimated amounts because of unforeseen
conditions or changes in job conditions, variations in labor and equipment
productivity over the terms of contracts, higher than expected increases in
labor or material costs and other factors. These variations could have a
material adverse effect on the Company's business, financial condition and
results of operations for any period.
Dependence on Construction Industry
The Company earns virtually all of its revenues in the building
construction industry, which is subject to local, regional and national economic
cycles. The Company's revenues and cash flows depend to a significant degree on
major construction projects in various industries, including the hotel and
casino, retail shopping, health care, mining, computer chip manufacturing,
public works and other industries, each of which industries may be adversely
affected by general or specific economic conditions. If construction activity
declines significantly in the Company's principal markets, the Company's
business, financial condition and results of operations would be adversely
affected.
Dependence on Subcontractors
The Company routinely relies on subcontractors to perform a significant
portion of its fabrication and project detailing to fulfill projects that the
Company cannot fulfill in-house due to capacity constraints or that are in
markets in which the Company has not established a strong local presence. With
respect to these projects, the Company's success depends on its ability to
retain and successfully manage these subcontractors. Any difficulty in
attracting and retaining qualified subcontractors on terms and conditions
favorable to the Company could have an adverse effect on the Company's ability
to complete these projects in a timely and cost effective manner.
Operating Risks; Litigation
Construction and heavy steel plate weldments involve a high degree of
operational risk. Natural disasters, adverse weather conditions, design,
fabrication and erection errors and work environment accidents can cause death
or personal injury, property damage and suspension of operations. The occurrence
of any of these events could result in loss of revenues, increased costs, and
liability to third parties. The Company is subject to litigation claims in the
ordinary course of business, including lawsuits asserting substantial claims.
Currently, the Company does not maintain any reserves for its ongoing
litigation. The Company periodically reviews the need to maintain a litigation
reserve. The Company maintains risk management, insurance, and safety programs
intended to prevent or mitigate losses. There can be no assurance that any of
these programs will be adequate or that the Company will be able to maintain
adequate insurance in the future at rates that it considers reasonable.
Union Contracts
The Company currently is a party to a number of collective bargaining
agreements with various unions representing the Company's fabrication and
erection employees. These contracts expire or are subject to expiration at
various times in the future. The inability of the Company to renew such
contracts could result in work stoppages and other labor disturbances, which
could disrupt the Company's business and adversely affect the Company's results
of operations.
26
<PAGE> 27
Risks Associated with Percentage of Completion Accounting
The Company recognizes revenues using the percentage of completion
accounting method. Under this method, revenues are recognized based on the ratio
that costs incurred to date bear to the total estimated costs to complete the
project. Estimated losses on contracts are recognized in full when the Company
determines that a loss will be incurred. The Company frequently reviews and
revises revenues and total cost estimates as work progresses on a contract and
as contracts are modified. Accordingly, revenue adjustments based upon the
revised completion percentage are reflected in the period that estimates are
revised. Although revenue estimates are based upon management assumptions
supported by historical experience, these estimates could vary materially from
actual results. To the extent percentage of completion adjustments reduce
previously reported revenues, the Company would recognize a charge against
operating results, which could have a material adverse effect on the Company's
results of operations for the applicable period.
Geographic Concentration
The Company's fabrication and erection operations currently are
conducted primarily in Arizona and Nevada, states in which the construction
industry has experienced substantial growth during recent years. Because of this
concentration, future construction activity and the Company's business may be
adversely affected in the event of a downturn in economic conditions existing in
Arizona and Nevada and in the southwestern United States generally. Factors that
may affect economic conditions include increases in interest rates or
limitations in the availability of financing for construction projects,
decreases in the amount of funds budgeted for governmental projects, decreases
in capital expenditures devoted to the construction of plants, distribution
centers, industrial facilities, hotels and casinos, convention centers and other
facilities, the prevailing market prices of copper, gold and other metals that
impact related mining activity, and downturns in occupancy rates, office space
demand, tourism and convention related activity and population growth.
Variations in Backlog
The Company's backlog can be significantly affected by the receipt, or
loss, of individual contracts. In the event one or more large contracts were
terminated or their scope reduced, the Company's backlog would decrease
substantially. The Company's future business and results of operations may be
adversely affected if it is unable to replace significant contracts when lost or
completed, or if it otherwise fails to maintain a sufficient level of backlog.
Risks Of International Operations
The Company currently is expanding into international markets. The
Company's international operations are subject to certain political, economic
and other uncertainties, including risks of war, nationalization of assets,
renegotiation or nullification of existing contracts, changing political
conditions, changing laws and policies affecting trade and investment, and
overlap of different tax structures. Although the Company currently attempts to
limit its exposure to currency fluctuations by dealing solely in United States
dollars, there can be no assurance that the Company's international operations
will escape the risks of fluctuating currency values, hard currency shortages,
or controls on currency exchange.
Competition
Many small and various large companies offer fabrication, erection and
related services that compete with those provided by the Company. Local and
regional companies offer competition in one or more of the Company's geographic
markets or product segments. Out of state or international companies may provide
competition in any market. The Company competes for every project it obtains.
Although the Company believes customers consider, among other things, the
availability and technical capabilities of equipment and personnel, efficiency,
safety record and reputation, price competition usually is the primary factor in
determining which qualified contractor is awarded a contract. Competition has
resulted in pressure on pricing and operating margins, and the effects of
competitive pressure in the industry may continue. Some of the Company's
competitors have greater capital and other resources than the Company and are
well established in their respective markets. There can be no assurance that the
Company's competitors will not substantially increase their commitment of
resources devoted to competing aggressively with the Company or that the Company
will be able to compete profitably with its competitors.
27
<PAGE> 28
Substantial Liquidity Requirements
The Company's operations require significant amounts of working capital
to procure materials for contracts to be performed over relatively long periods,
and for purchases and modifications of heavy-duty and specialized fabrication
equipment. In addition, the Company's contract arrangements with customers
sometimes require the Company to provide payment and performance bonds and, in
selected cases, letters of credit, to partially secure the Company's obligations
under its contracts, which may require the Company to incur significant
expenditures prior to receipt of payments. Furthermore, the Company's customers
often will retain a portion of amounts otherwise payable to the Company during
the course of a project as a guarantee of completion of that project. To the
extent the Company is unable to receive project payments in the early stages of
a project, the Company's cash flow would be reduced, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Dependence Upon Key Personnel
The Company's success depends on the continued services of the
Company's senior management and key employees as well as the Company's ability
to attract additional members to its management team with experience in the
steel fabrication and erection industry. Although the Company has implemented a
stock option plan designed to retain key management and other employees, and
believes that it offers competitive compensation to such personnel, the Company
is not currently a party to any employment agreements with its executive
management personnel or other key employees. The unexpected loss of the services
of any of the Company's management or other key personnel, or its inability to
attract new management when necessary, could have a material adverse effect upon
the Company.
Potential Environmental Liability
The Company's operations and properties are affected by numerous
federal, state and local environmental protection laws and regulations, such as
those governing discharges to air and water and the handling and disposal of
solid and hazardous wastes. Compliance with these laws and regulations has
become increasingly stringent, complex and costly. There can be no assurance
that such laws and regulations or their interpretation will not change in a
manner that could materially and adversely affect the Company. Certain
environmental laws, such as the Comprehensive Environmental Response,
Compensation and Liability Act and its state law counterparts, provide for
strict and joint and several liability for investigation and remediation of
spills and other releases of toxic and hazardous substances. These laws may
apply to conditions at properties currently or formerly owned or operated by an
entity or its predecessors, as well as to conditions at properties at which
wastes or other contamination attributable to an entity or its predecessors come
to be located. Although the Company has not incurred any material environmental
related liability in the past and believes that it is in material compliance
with environmental laws, there can be no assurance that the Company, or entities
for which it may be responsible, will not incur such liability in connection
with the investigation and remediation of facilities it currently operates (or
formerly owned or operated) or other locations in a manner that could materially
and adversely affect the Company.
28
<PAGE> 29
Governmental Regulation
Many aspects of the Company's operations are subject to governmental
regulations in the United States and in other countries in which the Company
operates, including regulations relating to occupational health and workplace
safety, principally the Occupational Safety and Health Act and regulations
thereunder. In addition, the Company is subject to licensure and holds or has
applied for licenses in each of the states in the United States in which it
operates and in certain local jurisdictions within such states. Although the
Company believes that it is in material compliance with applicable laws and
permitting requirements, there can be no assurance that it will be able to
maintain this status. Further, the Company cannot determine to what extent
future operations and earnings of the Company may be affected by new
legislation, new regulations or changes in or new interpretations of existing
regulations.
Year 2000
The Company has determined that it will need to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and beyond. The Company also has
initiated discussions with its significant suppliers, large customers and
financial institutions to ensure that those parties have appropriate plans to
remediate year 2000 issues where their systems interface with the Company's
systems or otherwise impact its operations. The Company is assessing the extent
to which its operations are vulnerable should those organizations fail to
remediate properly their computer systems.
The assessment and necessary modifications for the Year 2000 issue is
estimated to be completed in early 1999. The Company believes that with current
systems and anticipated modifications, the year 2000 issue will not pose
significant operational problems for its computer systems. However, if such
modifications and necessary conversions are not made or not completed timely,
the year 2000 issue could have a material impact on the operations of the
Company. There can also be no guarantee that the systems of other companies on
which the Company's systems and operations rely will be converted on a timely
basis and will not have a material effect on the Company. Any remaining costs of
the year 2000 initiatives is not expected to be material to the Company's
results of operation or financial position.
Forward Looking Statements
This Annual Report on Form 10-K, including Item 1. "Business," Item 3.
"Legal Proceedings," the Notes to the Condensed Consolidated Financial
Statements and in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations," contains forward looking statements.
Additional written or oral forward looking statements may be made by the Company
from time to time in filings with the Securities and Exchange Commission, in its
press releases, or otherwise. The words "believe," "expect," "anticipate,"
"intends," "forecast," "project," and similar expressions identify forward
looking statements. Such statements may include, but not be limited to, the
anticipated outcome of contingent events, including consummation of acquisitions
and the integration and benefits expected to be derived from the acquired
companies, litigation, projections of revenues, income or loss, capital
expenditures, plans for future operations, growth and acquisitions, financing
needs or plans and the availability of financing, and plans relating to services
of the Company, as well as assumptions relating to the foregoing. Such forward
looking statements are within the meaning of that term in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended.
Forward looking statements reflect the Company's current views with
respect to future events and financial performance and speak only as of the date
the statements are made. Such forward looking statements are inherently subject
to risks and uncertainties, some of which cannot be predicted or quantified.
Future events and actual results could differ materially from those set forth
in, contemplated by, or underlying the forward looking statements. Statements in
this Annual Report, including Item 1 "Business," Item 3 "Legal Proceedings," the
Notes to the Condensed Consolidated Financial Statements and in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," describe factors, among others, that could contribute to or cause
such differences. In addition, new factors emerge from time to time and it is
not possible for management to predict all of such factors, nor can it assess
the impact of each such factor on the business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from forward looking statements. The Company undertakes no obligation to
29
<PAGE> 30
publicly update or review any forward looking statements, whether as a result of
new information, future events, or otherwise.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors' Report and Consolidated Financial Statements
of the Company, including the Notes to such statements, are set forth on pages
F-1 through F-27.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no disagreements with its independent accountant in
regard to accounting and financial disclosure and has not changed its
independent accountants during the two most recent fiscal years.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding (i) directors and executive officers of the
Company is set forth under the caption "Information Concerning Directors and
Executive Officers" and (ii) compliance with Section 16(a) is set forth under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance," in the
Company's Proxy Statement relating to its 1998 Annual Meeting of Stockholders
(the "1998 Proxy Statement") incorporated by reference into this Form 10-K
Report, which has been filed with the Commission in accordance with Rule 14a-6
promulgated under the Exchange Act. With the exception of the foregoing
information and other information specifically incorporated by reference into
this report, the Company's 1998 Proxy Statement is not being filed as a part
hereof.
ITEM 11 - EXECUTIVE COMPENSATION
Information regarding executive compensation is set forth under the
caption "Executive Compensation" in the 1998 Proxy Statement, which information
is incorporated herein by reference; provided, however, that the "Compensation
Committee Report on Executive Compensation" and the "Stock Price Performance
Graph" contained in the 1998 Proxy Statement are not incorporated by reference
herein.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management is set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 1998 Proxy Statement, which information
is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions of
management is set forth under the caption "Certain Transactions and
Relationships" in the 1998 Proxy Statement, which information is incorporated
herein by reference.
30
<PAGE> 31
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) CONSOLIDATED FINANCIAL STATEMENTS.
The following documents are filed as part of this Annual Report on
Form 10-K:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors............................................ F-1
Consolidated Financial Statements and Notes thereto of Schuff Steel Company:
Consolidated Balance Sheets at December 31, 1997 and 1996........................... F-2
Consolidated Statements of Income for the years ended December 31, 1997, 1996,
and 1995............................................................................ F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1997, 1996, and 1995................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1996, and 1995..................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
(b) REPORTS ON FORM 8-K.
No report on Form 8-K was filed during the last quarter of the period
covered by this report.
(c) EXHIBITS AND SCHEDULES.
The following exhibits and schedules are filed as part of this Annual
Report on Form 10-K.
(i) EXHIBITS
EXHIBIT
NUMBER Description
------ -----------
3.1(a) Certificate of Incorporation of the Registrant (1)
3.1(b) Certificate of Amendment of Certificate of Incorporation of
the Registrant (1)
3.2 Bylaws of the Registrant (1)
4.1 Certificate of Incorporation of the Registrant
(filed as Exhibit 3.1) (1)
10.1(a) Loan Agreement dated June 30, 1996 between the Registrant and
Bank One, Arizona, NA (1)
10.1(b) Variable Rate Revolving Line of Credit Note dated
June 30, 1996 (1)
10.2(a) Revolving Line of Credit Loan Agreement and Addendum dated
June 30, 1995 between the Registrant and Bank One,
Arizona, NA (1)
10.2(b) Variable Rate Revolving Line of Credit Note and Addendum
dated June 30, 1995(1)
31
<PAGE> 32
<TABLE>
<S> <C>
10.2(c) Modification Agreement dated June 30, 1996 between the
Registrant and Bank One, Arizona, NA (1)
10.2(d) Continuing Guaranty dated June 30, 1995 between David A.
Schuff, Nancy A. Schuff and Bank One, Arizona, NA (1)
10.2(e) Continuing Guaranty dated June 30, 1995 between Scott A.
Schuff and Bank One, Arizona, NA (1)
10.2(f) Modification Agreement dated March 31, 1997 between the
Registrant and Bank One, Arizona, NA (1)
10.2(g) Modification Letter Agreement dated May 7, 1997 between the
Registrant and Bank One, Arizona, NA (1)
10.2(h) Modification Agreement dated June 30, 1997 between the
Registrant and Bank One, Arizona, NA (2)
10.2(i) Continuing Guaranty dated June 30, 1997 between B & K Steel
Fabrications, Inc. and Bank One, Arizona, NA (2)
10.2(j) Subordination of Lien Rights between 19th Avenue/Buchanan
Limited Partnership and Bank One, Arizona, NA Relating to Real
Property Located at 420 South 19th Avenue, Phoenix, Arizona (2)
10.2(k) Subordination of Lien Rights between 19th Avenue/Buchanan
Limited Partnership and Bank One, Arizona, NA Relating to Real
Property located at 1833-1841 West Buchanan Street, Phoenix,
Arizona (2)
10.2(l) Subordination of Lien Rights between 19th Avenue/Buchanan
Limited Partnership and Bank One, Arizona, NA Relating to Real
Property Located at 619 North Cooper Road, Gilbert, Arizona (2)
10.2(m) Subordination Agreement dated June 30, 1997 between 19th
Avenue/Buchanan Limited Partnership, the Registrant and
Bank One, Arizona, NA (2)
10.3(a) Loan Agreement and Addendum dated June 30, 1995 between the
Registrant and Bank One, Arizona, NA (1)
10.3(b) Variable Rate Line of Credit Note and Addendum dated June 30,
1995 (1)
10.3(c) Modification Agreement dated June 30, 1996 between the
Registrant and Bank One, Arizona, NA (1)
10.4 Continuing Guaranty dated April 22, 1996 between the
Registrant and Bank One, Arizona, NA (1)
10.5 Guaranty of Payment dated April 22, 1997 between the
Registrant and Bank One, Arizona, NA (1)
10.6 Guaranty of Payment dated January 31, 1997 between the
Registrant and Bank One, Arizona, NA (1)
10.7 Promissory Note dated December 31, 1989 between the Registrant
and 19th Avenue/Buchanan Limited Partnership (1)
10.7.1 Modification and Extension Agreement dated as of September 30,
1997 between the Registrant and 19th Avenue/Buchanan Limited
Partnership (3)
10.8 Lease dated March 1, 1997 for 420 S. 19th Avenue in Phoenix,
Arizona between 19th Avenue/Buchanan Limited Partnership and
the Registrant (1)
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C>
10.9 Lease dated March 1, 1997 for 619 N. Cooper Road in Gilbert,
Arizona between 19th Avenue/Buchanan Limited Partnership and
the Registrant (1)
10.10 Lease dated May 1, 1997 for 1841 W. Buchanan Street in
Phoenix, Arizona between 19th Avenue/Buchanan Limited
Partnership and the Registrant (1)
10.11 Schuff Steel Company Supplemental Retirement and Deferred
Compensation Plan (1)*
10.12(a) Schuff Steel Company 1997 Stock Option Plan (1)*
10.12(b) Form of Incentive Stock Option Agreement for 1997 Stock Option
Plan (1)*
10.12(c) Form of Non-Qualified Stock Option Agreement for 1997 Stock
Option Plan (1)*
10.13 Form of Indemnity Agreement between the Registrant and its
directors (1)
10.14(a) Modification and Extension Agreement dated as of September 30,
1997 between the Registrant and 19th Avenue/Buchanan Limited
Partnership (2)
10.15(a) Credit Agreement dated December 10, 1997 between the Registrant
and Bank One, Arizona, NA
10.15(b) Promissory Note dated December 10, 1997 between the Registrant
and Bank One, Arizona, NA
23.1 Consent of Ernst & Young LLP, independent auditors
24.1 Power of Attorney of David A. Schuff
24.2 Power of Attorney of Dennis DeConcini
24.3 Power of Attorney of Edward M. Carson
27 Financial Data Schedule
</TABLE>
(ii) FINANCIAL STATEMENT SCHEDULES:
The financial statement schedules have been omitted since they are not
applicable or the information required to be set forth therein is contained
elsewhere herein.
- ------------------
* Indicates a management contract or compensation plan.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-26711), effective June 26, 1997.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
33
<PAGE> 34
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.
SCHUFF STEEL COMPANY,
a Delaware corporation
By: /s/ Scott A. Schuff
----------------------------------------
Scott A. Schuff
President and Chief Executive Officer
Date: March 31, 1998
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 and on the dates indicated.
<TABLE>
<CAPTION>
Name and Signature Title Date
------------------ ----- ----
<S> <C> <C>
/s/ Scott A. Schuff President, Chief Executive March 31, 1998
- ---------------------------------- Officer and
Scott A. Schuff Director (Principal Executive
Officer)
/s/ Kenneth F. Zylstra Vice President and March 31, 1998
- ---------------------------------- Chief Financial Officer,
Kenneth F. Zylstra Secretary, Treasurer and Director
(Principal financial and
accounting officer)
* Chairman of the Board of March 31, 1998
- ---------------------------------- Directors
David A. Schuff
* March 31, 1998
- ---------------------------------- Director
Dennis DeConcini
* March 31, 1998
- ---------------------------------- Director
Edward M. Carson
</TABLE>
* By: /s/ Kenneth F. Zylstra
------------------------------
Kenneth F. Zylstra
Attorney-in-Fact
36
<PAGE> 35
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
Schuff Steel Company
We have audited the accompanying consolidated balance sheets of Schuff Steel
Company and subsidiaries as of December 31, 1997 and 1996, and the related
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1997. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Schuff Steel
Company and subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
February 20, 1998, except for Note 16 as
to which the date is March 18, 1998
F-1
<PAGE> 36
Schuff Steel Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------- -------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 197 $ 7,253
Restricted funds on deposit 2,096 2,249
Receivables 24,717 16,885
Costs and recognized earnings in excess of billings on
uncompleted contracts 3,982 3,331
Inventories 2,364 1,279
Prepaid expenses 750 178
Deferred income taxes 417 --
------- -------
TOTAL CURRENT ASSETS 34,523 31,175
Property and equipment, net 7,415 5,116
Other assets 100 106
======= =======
$42,038 $36,397
======= =======
</TABLE>
See accompanying notes.
F-2
<PAGE> 37
Schuff Steel Company
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------- --------
(in thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,749 $ 4,043
Accrued payroll and employee benefits 1,023 1,539
Insurance payable 721 181
Other accrued liabilities 420 186
Billings in excess of costs and recognized earnings on
uncompleted contracts 3,758 12,051
Stockholder distributions payable -- 4,555
Current portion of long-term debt 304 144
------- --------
TOTAL CURRENT LIABILITIES 11,975 22,699
Long-term debt, less current portion 4,927 2,753
Deferred income taxes 226 --
Other liabilities 237 263
Stockholders' equity
Preferred Stock, $.001 par value - authorized 1,000,000 shares,
none issued -- --
Common Stock, $.001 par value - authorized 20,000,000 shares,
7,000,000 and 5,000,000 shares issued and outstanding in
1997 and 1996, respectively 7 5
Additional paid-in-capital 14,013 15
Unfunded pension losses -- (519)
Retained earnings 10,653 11,181
------- --------
24,673 10,682
======= ========
$42,038 $ 36,397
======= ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 38
Schuff Steel Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------- --------- ---------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Revenues $ 138,218 $ 103,912 $ 62,090
Cost of revenues 117,955 86,998 54,222
---------- --------- ---------
GROSS PROFIT 20,263 16,914 7,868
General and administrative expenses 8,880 6,715 5,284
---------- --------- ---------
OPERATING INCOME 11,383 10,199 2,584
Interest expense (348) (452) (752)
Other income 520 303 618
---------- --------- ---------
NET INCOME BEFORE TAXES 11,555 10,050 2,450
Provision for income taxes 2,823 - -
========== ========= =========
NET INCOME $ 8,732 $ 10,050 $ 2,450
========== ========= =========
Pro forma net income data (unaudited)
Net income as reported $ 8,732 $ 10,050
Pro forma additional tax provision 1,513 4,020
----------- -----------
Pro forma net income $ 7,219 $ 6,030
=========== ===========
Pro forma net income per share:
Basic $ 1.12 $ 1.02
=========== ===========
Diluted $ 1.10 $ 1.02
=========== ===========
Weighted average shares used in computation:
Basic 6,457 5,941
=========== ===========
Diluted 6,556 5,941
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 39
Schuff Steel Company
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional Unfunded
----------------- Paid-In Pension Retained
Shares Amount Capital Losses Earnings Total
------ ------ ------- ------ -------- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 5,000 $5 $ 15 $(563) $ 6,575 $ 6,032
Changes in unfunded pension
losses -- - -- 137 -- 137
Distributions to stockholders -- - -- -- (1,851) (1,851)
Net income -- - -- -- 2,450 2,450
----- -- ------- ----- -------- --------
Balance December 31, 1995 5,000 5 15 (426) 7,174 6,768
Changes in unfunded pension
losses -- - -- (93) -- (93)
Distributions to stockholders -- - -- -- (6,043) (6,043)
Net income -- - -- -- 10,050 10,050
----- -- ------- ----- -------- --------
Balance December 31, 1996 5,000 5 15 (519) 11,181 10,682
Issuance of common stock, net
of offering expenses 2,000 2 13,998 -- -- 14,000
Changes in unfunded pension
losses -- - -- 519 -- 519
Distributions to stockholders -- - -- -- (9,260) (9,260)
Net income -- - -- -- 8,732 8,732
===== == ======= ===== ======== ========
Balance December 31, 1997 7,000 $7 $14,013 $ -- $ 10,653 $ 24,673
===== == ======= ===== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 40
Schuff Steel Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,732 $ 10,050 $ 2,450
Adjustment to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,520 1,267 1,248
Gain on disposal of property and equipment (21) (13) (20)
Deferred income taxes (191) -- --
Loss on pension plan termination 251 -- --
Changes in operating assets and liabilities net of effects from
purchase of B&K Steel Fabrications, Inc.:
Restricted funds on deposit 153 (2,029) (220)
Receivables (6,585) (5,598) 4,092
Costs and recognized earnings in excess of billings on
uncompleted contracts (53) (2,255) (1,014)
Inventories (989) 6,491 (2,461)
Prepaid expenses (479) 40 47
Accounts payable 917 58 1,882
Accrued payroll and employee benefits (541) 606 (322)
Insurance payable 540 253 (72)
Other accrued liabilities 205 (448) (290)
Billings in excess of costs and recognized earnings on
uncompleted contracts (8,293) 6,111 (566)
Deferred rents payable 237 -- --
Accrued pension cost 111 (142) (97)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (4,486) 14,391 4,657
INVESTING ACTIVITIES
Increase in receivables from stockholders -- (185) --
Repayment of receivables from stockholders -- 18 45
Acquisitions of property and equipment (3,188) (2,337) (814)
Proceeds from disposals of property and equipment 79 189 30
Increase in other assets (100) -- --
Purchase of business (427) -- --
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (3,636) (2,315) (739)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long-term borrowings 23,874 33,500 64,558
Principal payments on revolving line of credit and long-term debt (22,993) (36,278) (66,436)
Proceeds from issuance of common stock, net of offering expenses 14,000 -- --
Cash distributions to stockholders (13,815) (2,334) (1,814)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) IN FINANCING ACTIVITIES 1,066 (5,112) (3,692)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,056) 6,964 226
Cash and cash equivalents at beginning of year 7,253 289 63
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 197 $ 7,253 $ 289
======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 41
Schuff Steel Company
Notes to Consolidated Financial Statements
December 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Schuff Steel Company (the Company) is a steel fabrication and erection
contractor based in Phoenix, Arizona. The Company's construction projects are
located primarily in Arizona, Nevada, California and South America.
Principles of Consolidation
As more fully described in Note 15, the Company acquired B&K Steel Fabrications,
Inc. (B&K Steel) on January 31, 1997 and accounted for the transaction using the
purchase method. Effective as of that date, B&K Steel became a wholly owned
subsidiary of the Company and began consolidating its financial statements from
the date of acquisition. All intercompany transactions have been eliminated for
the year ended December 31, 1997. Financial statements for the years ended
December 31, 1996 and 1995 are not consolidated since the Company had no
subsidiaries during those periods.
Operating Cycle
Balance sheet items expected to be paid or received within one year are
classified as current. Assets and liabilities relating to long-term construction
contracts are included in current assets and current liabilities in the
accompanying consolidated balance sheet, since they will be realized or
liquidated in the normal course of contract completion, although completion may
require more than one year.
Cash and cash equivalents
Cash consists of cash in noninterest bearing checking accounts. Cash equivalents
consist of investments in a money market mutual fund which is invested in
financial instruments and securities issued and guaranteed by the U.S. Treasury,
the U.S. government or its agencies or instrumentalities. All such investments
are completely liquid and are made through the Company's bank pursuant to an
investment and custody agreement.
Restricted Funds on Deposit
Restricted funds on deposit represent funds on deposit in an interest bearing
escrow account which is maintained in lieu of retention for a specific contract.
Inventories
Inventories, primarily steel components, are stated at the lower of cost or
market under the first-in, first-out method.
F-7
<PAGE> 42
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment is stated at cost and is depreciated over the estimated
useful lives, which generally range from five to ten years, of the related
assets using the straight line method. Leasehold improvements are amortized over
the shorter of the lease term or the estimated useful life. Amortization of
leasehold improvements is included in depreciation and amortization.
Revenue and Cost Recognition
The Company performs its services primarily under fixed-price contracts and
recognizes revenues and costs from construction projects using the percentage of
completion method. Under this method, revenue is recognized based upon the ratio
of the costs incurred to date to the total estimated costs to complete the
project. Revenue recognition begins when progress is sufficient to estimate
final results with reasonable accuracy. Costs include all direct material and
labor costs related to contract performance, subcontractor costs, indirect
labor, and fabrication plant overhead costs, which are charged to contract costs
as incurred. Revenues relating to changes in the scope of a contract are
recognized when the customer has authorized the change, the work is commenced
and the Company has made an estimate of the amount that is probable of being
paid for the change. Revisions in estimates during the course of contract work
are reflected in the accounting period in which the facts requiring the revision
become known. Provisions for estimated losses on uncompleted contracts are made
in the period a loss on a contract becomes determinable.
Construction contracts with customers generally provide that billings are to be
made monthly in amounts which are commensurate with the extent of performance
under the contracts. Contract receivables arise principally from the balance of
amounts due on progress billings on jobs under construction. Retentions on
contract receivables are amounts due on progress billings which are withheld
until the completed project has been accepted by the customer.
Costs and recognized earnings in excess of billings on uncompleted contracts
primarily represent revenue earned under the percentage of completion method
which has not been billed, and also include costs incurred in excess of the
billings on contracts for which sufficient work has not been performed to allow
for the recognition of revenue. Billings in excess of related costs and
recognized earnings on uncompleted contracts represent amounts billed on
contracts in excess of the revenue allowed to be recognized under the percentage
of completion method on those contracts.
F-8
<PAGE> 43
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees and
directors with an exercise price equal to the fair market value of the shares at
the date of grant. The Company accounts for stock option grants to employees and
directors in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," (APB 25) and accordingly, recognizes
no compensation expense for these stock option grants.
Income Taxes
The Company accounts for income taxes under the liability method in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."
On June 26, 1997, the Company's stockholders elected to terminate the Company's
status to be treated as an S Corporation. As an S Corporation, the Company was
not subject to federal and state income taxes. Pro forma net income information
presented in the consolidated statements of income reflects the provision for
income taxes that would have been recorded had the Company been taxed on its
income through the S Corporation termination date. As an S Corporation, the
Company would from time to time make S Corporation distributions to its
stockholders in amounts sufficient for the stockholders to pay their income tax
liability related to the earnings of the Company. The actual provisions reported
for the periods subsequent to the S Corporation termination date reflect the
Company's C Corporation status.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
that the Company disclose estimated fair values of financial instruments. Cash
and cash equivalents, restricted funds on deposit, receivables, accounts
payable, and other accrued liabilities are carried at amounts that reasonably
approximate their fair values. The Company believes the carrying amount of their
long-term debt approximates fair value at December 31, 1997 largely due to the
variable nature of the interest rates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
receivables. The Company maintains cash and cash equivalents, restricted funds
on deposit and certain other financial instruments with large financial
institutions. The Company performs periodic evaluations of the relative credit
standing of those financial institutions that are considered in the Company's
investment strategy. Concentrations of credit risk with respect to receivables
are limited as the Company's customers tend to be larger general contractors on
adequately funded projects and the Company has certain lien rights.
F-9
<PAGE> 44
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting principles necessarily requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the balance
sheet date and the reported amounts of revenues and expenses during the
reporting period for long-term contracts.
The Company has a substantial history of making reasonably dependable estimates
of the extent of progress towards completion, contract revenues, and contract
costs on its long-term contracts. The estimates inherent in such provisions are
periodically evaluated and revisions are made as required to reflect the most
up-to-date information. However, due to uncertainties inherent in the estimation
process, actual results could differ materially from those estimates.
Pro Forma Net Income Data
Basic pro forma net income per share is computed using the weighted average
common shares outstanding and diluted pro forma net income per share is computed
using the weighted average common shares and common stock equivalents if
dilutive. Pro forma tax provision is based on the effective tax rate that the
Company believes would have been incurred had the Company not been an S
corporation for income tax purposes. That rate of 40 percent is comprised of a
34 percent federal statutory rate plus an effective state tax rate net of
federal benefit of six percent.
Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, "Earnings Per Share" (SFAS No. 128), adopted by the Company on December
31, 1997. SFAS No. 128 replaced the previously reported primary or fully diluted
pro forma earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities. Diluted earnings per
share is very similar to the previously reported primary earnings per share. All
earnings per share amounts for all periods have been presented, and where
necessary, restated to conform to the SFAS No. 128 requirements. The impact of
SFAS No. 128 on the calculation of fully diluted earnings per share for each of
the periods presented was not material.
SFAS No. 130 "Reporting Comprehensive Income" (SFAS No. 130), issued by the FASB
in June 1997, is effective for periods beginning after December 15, 1997. Under
the new requirements for calculating income, this statement requires that an
enterprise (a) classify items of other comprehensive income by
F-10
<PAGE> 45
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. The
impact of SFAS No. 130 on the calculation of comprehensive income for these
periods is not expected to be material.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. The adoption of SFAS 131 will have no impact
on the Company's consolidated results of operations, financial position or cash
flows.
Reclassifications
Certain amounts in the 1995 and 1996 consolidated financial statements have been
reclassified to conform with the 1997 presentation.
2. RECEIVABLES AND CONTRACTS IN PROGRESS
Receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------- -------
(in thousands)
<S> <C> <C>
Contract receivables:
Contracts in progress $18,094 $11,566
Unbilled retentions 6,520 5,112
------- -------
24,614 16,678
Other receivables 103 207
======= =======
$24,717 $16,885
======= =======
</TABLE>
Substantially all of the Company's receivables are due from general contractors
located in Arizona, California, Nevada and South America.
F-11
<PAGE> 46
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
2. RECEIVABLES AND CONTRACTS IN PROGRESS (CONTINUED)
Costs and estimated earnings on completed and uncompleted contracts consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------- ---------
(in thousands)
<S> <C> <C>
Costs incurred on completed and contracts in progress $ 222,669 $ 165,108
Estimated earnings 32,274 23,058
--------- ---------
254,943 188,166
Less progress billings 254,719 196,886
========= =========
$ 224 $ (8,720)
========= =========
Included in the accompanying consolidated
balances sheets under the following captions:
Costs and recognized earnings in excess of
billings on uncompleted contracts $ 3,982 $ 3,331
Billings in excess of costs and recognized earnings
on uncompleted contracts (3,758) (12,051)
--------- ---------
$ 224 $ (8,720)
========= =========
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------ ------
(in thousands)
<S> <C> <C>
Raw materials $1,846 $ 665
Finished goods 518 614
====== ======
$2,364 $1,279
====== ======
</TABLE>
F-12
<PAGE> 47
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------- -------
(in thousands)
<S> <C> <C>
Property and equipment:
Leasehold improvements $ 2,647 $ 2,334
Furniture and fixtures 309 91
Transportation equipment 1,547 1,308
Machinery and equipment 10,274 7,995
Cranes 644 654
Office equipment 322 285
Detailing equipment 316 83
EDP equipment 1,835 1,524
------- -------
17,894 14,274
Less amortization and accumulated depreciation 10,479 9,158
======= =======
$ 7,415 $ 5,116
======= =======
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------ ------
(in thousands)
<S> <C> <C>
Note payable to a bank under a revolving line of credit agreement maturing in
1999, with interest payable monthly at the bank's prime rate $2,640 $ --
Subordinated note payable to a related party, payable in monthly installments of
$12,037, plus interest at the bank's prime rate plus 0.75 percent, maturing
in 2003 1,795 2,897
Notes payable to related parties under a stock purchase agreement, payable in
annual installments of $159,250 plus interest at 5.73 percent, maturing in 2002 796 --
------ ------
5,231 2,897
Less current portion 304 144
------ ------
$4,927 $2,753
====== ======
</TABLE>
F-13
<PAGE> 48
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
The Company maintains a $10,000,000 credit facility with a commercial bank that
is subject to renewal on June 30, 1999 and is collateralized by contract
receivables, equipment and inventory. The security agreements pursuant to which
the Company's assets are pledged prohibit any further pledge of such assets
without the written consent of the Company's lender. Under this facility, the
Company may borrow up to an amount equal to the greater of a) 75 percent of
qualified contract receivables and inventories up to a maximum of $10,000,000,
or b) a maximum of $5,000,000 based on the greater of i) 50 percent of the net
book value of fixed assets, or ii) 75 percent of the fair market value of fixed
assets. The Company's ability to borrow is also subject to, among other
restrictions, billings in excess of costs and recognized earnings on uncompleted
contracts. At December 31, 1997, there was approximately $6,200,000 of credit
available under the credit facility for borrowings which has been reduced by
approximately $945,000 of outstanding letters of credit under which the Company
is committed. The Company's credit facility requires that the Company maintain
certain financial ratios as well as other covenants. The Company made interest
payments on its line of credit of approximately $45,000, $64,000 and $272,000
for the years ended December 31, 1997, 1996 and 1995, respectively. The weighted
average interest rate on the revolving line of credit was approximately 8.5
percent at December 31, 1997 and 1996.
The subordinated note payable to a related party is a long-term loan from a
partnership owned by related parties which includes certain of the Company's
stockholders. The partnership obtained the funds loaned to the Company from a
bank under terms similar to those included in the loan it made to the Company.
Under the terms of the loan agreement between the partnership and the bank,
certain officers and stockholders of the Company have guaranteed repayment of
the partnership's loan.
Effective December 10, 1997, the Company was granted a $10,000,000 line of
credit agreement (Acquisition Line) with a commercial bank solely to finance the
acquisition of other companies and/or their assets. The covenants of this
agreement are consistent with the credit facility mentioned above. The
Acquisition Line is collateralized by the Company's accounts receivable,
inventory and equipment; any real property purchased through the credit
agreement or property owned by an acquired subsidiary; and other items as
defined in the agreement. Interest is payable in one, two, or three month
periods at LIBOR or prime rate plus 0.25 percent. Borrowings under the
Acquisition Line will be payable in installments as defined in the related
agreement commencing on January 30, 1999. At December 31, 1997, no amounts were
due under the acquisition line.
Annual principal amounts of long-term debt maturing subsequent to December 31,
1997 are: 1998--$304,000, 1999--$2,944,000, 2000--$304,000, 2001--$304,000,
2002--$304,000 and thereafter--$1,071,000. The Company made interest payments of
approximately $325,000, $420,000 and $449,000 for the years ended December 31,
1997, 1996 and 1995, respectively, on its long-term debt.
F-14
<PAGE> 49
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
6. STOCKHOLDERS' EQUITY
On May 8, 1997, the Company effected a 50,000 for one common stock split.
Accordingly, all shares of common stock have been retroactively restated in the
consolidated financial statements to reflect the effect of this stock split. At
the same time the Company also reincorporated in Delaware and changed its
authorized shares and classes of stock. The information set forth in the
financial statements reflect the authorized shares after having given effect to
the reincorporation.
On July 7, 1997, the Company sold 2,000,000 common shares pursuant to the
Company's Registration Statement on Form S-1 filed with the Securities and
Exchange Commission. The Company received net proceeds of approximately
$14,000,000 from the sale of the shares of which approximately $7,000,000 was
used to fund S Corporation distributions payable to stockholders of record of
the Company immediately prior to the effective date of the Form S-1.
Prior to June 26, 1997, the Company's principal stockholders were the sole
parties to a share repurchase agreement that was funded by life insurance
proceeds and personal promissory notes in the event of the death of either
stockholder. Under the terms of the Company's bank loan agreement, the Company
was permitted to make distributions to enable the shareholders to pay the
premiums on their life insurance policies. Effective June 26, 1997, with the
termination of the Company's "S" election, this agreement was canceled.
Due to the Company's status as a qualified S corporation through June 26, 1997,
there was no income tax expense to the Company for the period from January 1,
1997 through June 26, 1997 or the years ended December 31, 1996 and 1995.
However, it was the policy of the Company to also make distributions to
stockholders in such amounts as were required to enable them to pay income taxes
attributable to their allocable share of taxable S corporation income from the
Company through June 26, 1997. A final accounting was made by the Company in
December 1997 for the period ended June 26, 1997 prior to the preparation and
filing of the Company's final "S" corporation income tax return. Pursuant to
provisions in the Company's bank loan agreement, the Company was also permitted
at its discretion to declare an annual dividend to the stockholders providing
the Company maintained certain financial criteria.
F-15
<PAGE> 50
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
Following is an analysis of stockholder distributions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Stockholder distributions payable at beginning of year $ 4,555 $ 1,071 $ 1,297
Additions (deductions):
Life insurance premiums 173 346 346
Current year income taxes 2,087 5,105 1,217
Prior year income taxes -- (73) (93)
Less: Prior year refunds applied to current year taxes -- (35) (79)
Current year dividend 7,000 700 460
------- ------- -------
9,260 6,043 1,851
------- ------- -------
Cash distributions:
Life insurance premiums 173 226 226
Current year income taxes 2,087 925 369
Prior year income taxes 4,140 798 691
Current year dividend 7,000 185 128
Prior year dividend 415 200 400
------- ------- -------
13,815 2,334 1,814
------- ------- -------
Noncash distributions applied to receivables from stockholders -- 225 263
------- ------- -------
Stockholder distributions payable at end of year $ -- $ 4,555 $ 1,071
======= ======= =======
</TABLE>
7. INCOME TAXES
As discussed in Note 1, on June 26, 1997, the Company's stockholders elected to
terminate the Company's status as an "S" Corporation, and the Company became
subject to federal and state income taxes. Upon revocation of the S Corporation
election, the Company recorded a $300,000 credit to income as a deferred tax
benefit for the effect of cumulative temporary differences as of the date of the
termination. Prior to its termination as an S Corporation, the Company declared
an additional distribution of $7,000,000 to its then current stockholders. The
Company's retained earnings include undistributed S Corporation earnings of
approximately $3,100,000 and certain C Corporation earnings prior to the
Company's election of subchapter S Corporation status in 1987.
F-16
<PAGE> 51
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities are composed of the following at December
31, 1997:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Deferred tax assets:
Vacation accrual $190
Deferred recognition on contracts in progress 174
Property tax accrual 53
Deferred rents payable 95
Other 35
----
547
Deferred tax liabilities:
Depreciation 158
Pension accrual 48
Other 150
----
356
----
Net deferred tax assets $191
====
</TABLE>
Significant components of the income tax expense (benefit) for the year ended
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Current:
Federal $ 2,562
State 452
-------
3,014
Deferred:
Federal (163)
State (28)
-------
(191)
-------
$ 2,823
=======
</TABLE>
F-17
<PAGE> 52
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
The reconciliation of income tax computed at the U.S. federal statutory rates to
provision for income taxes follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
ACTUAL PRO FORMA
------- -------
(in thousands)
<S> <C> <C>
Tax at U.S. federal statutory rates $ 3,929 $ 3,929
State income taxes, net of federal tax benefit 280 693
S Corporation termination (300) (300)
Tax attributable to S Corporation portion of earnings (1,213) --
Other 127 14
------- -------
$ 2,823 $ 4,336
======= =======
</TABLE>
Total income tax payments for the period from June 27, 1997 (date of C
Corporation commencement) to December 31, 1997 were approximately $3,012,000.
8. EMPLOYEE RETIREMENT PLANS
The Company maintains a 401(k) retirement savings plan which covers eligible
employees and which permits participants to contribute to the plan, subject to
Internal Revenue Code restrictions. The plan also permits the Company to make
discretionary matching contributions, which amounted to approximately $70,000
and $35,000 for the years ended December 31, 1997 and 1996, respectively (none
for 1995).
In 1996, the Company adopted the "Supplemental Retirement and Deferred
Compensation Plan" for certain management employees. The Plan is an unfunded
deferred compensation plan whereby the Company contributes an amount equal to 10
percent of annual net profits after deducting taxes to be paid by the
stockholders, as defined in the Plan. During the year ended December 31, 1996,
total expense recognized by the Company was $529,000, which was distributed to
eligible employees in 1997 pursuant to termination of this Plan in January 1997.
Substantially all of the Company's fabrication and erection workforce is subject
to collective bargaining agreements. The Company made contributions to union
sponsored pension plans of $1,836,000, $1,122,000 and $883,000 during the years
ended December 31, 1997, 1996 and 1995, respectively. Information from the
administrators of the plans is not available to permit the Company to determine
its share of accumulated benefits and related assets.
F-18
<PAGE> 53
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
8. EMPLOYEE RETIREMENT PLANS (CONTINUED)
The Company has a 401(k) defined contribution retirement savings plan for union
steelworkers. Currently, only participants contribute to this plan on a
voluntary basis, subject to Internal Revenue Code restrictions. All account
balances are 100 percent vested.
On August 15, 1994, the Company and local representatives of the United
Steelworkers of America reached an agreement whereby the Company became a
participating employer in a multi-employer defined benefit retirement plan.
Effective January 1, 1997, the Company is required to contribute 40 cents to the
plan (compared to 35 cents in 1996 and 30 cents in 1995) for each hour worked in
the preceding month by each plan participant. The Company has also agreed to
increase its hourly contribution by five cents per participant annually through
the year 1999. The Company's funding policy is to make monthly contributions to
the plan. Total cost recognized as expense was approximately $147,000, $124,000
and $97,000 during the years ended December 31, 1997, 1996 and 1995,
respectively.
In December 1997, the Company terminated a second, contributory defined benefit
plan that had been maintained to provide pension and disability benefits to
union steelworkers. The plan had previously been curtailed in 1989 when all
pension credits were frozen. At the time of plan termination, all undistributed
benefits were fully vested. Annuities were purchased to settle pension
obligations under the terminated plans and excess pension assets returned to the
Company. As a result of the settlement, the Company recorded a loss of
approximately $251,000.
Prior to its termination in 1997, the Company accounted for pension expense
under its noncontributory defined benefit pension plan under the provisions of
SFAS No. 87, "Employers' Accounting for Pensions." The weighted average discount
rate used in determining the actuarial present value of accumulated and
projected benefit obligations was 6.5 percent in 1996. The expected long-term
rate of return on plan assets was 8.5 percent in 1996. The weighted average rate
of compensation increase is not applicable because the benefit is not pay
related.
F-19
<PAGE> 54
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
8. EMPLOYEE RETIREMENT PLANS (CONTINUED)
The following table sets forth the funded status of the plan as provided by
consulting actuaries at December 31, 1996:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Actuarial present value of accumulated and projected benefit obligations, all of
which are fully vested $ 2,003
Plan assets at fair value 1,740
=======
Funded status, projected benefit obligation in excess of plan assets $ 263
=======
Comprised of:
Prepaid pension cost before adjustment to recognize additional minimum liability $ 362
Unrecognized net loss (519)
Unrecognized net obligation (106)
-------
Adjustment to recognize minimum liability $ (263)
=======
Net pension cost includes the following components:
Service costs $ 50
Interest cost on projected benefit obligation 122
Actual return on plan assets (231)
Net amortization and deferral 128
=======
Net period pension cost $ 69
=======
</TABLE>
F-20
<PAGE> 55
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
9. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted pro forma
net income per share:
<TABLE>
<CAPTION>
1997 1996
------ ------
(in thousands except
per share date)
<S> <C> <C>
Numerator:
Pro forma net income $7,219 $6,030
Denominator:
Weighted average shares 5,975 5,000
Net effect of shares issued that are attributed to stockholder distributions made
from initial public offering proceeds 482 941
------ ------
Denominator for basic pro forma net income per share 6,457 5,941
Effect of dilutive securities:
Employee and director stock options 99 --
====== ======
Denominator for diluted pro forma net income per share - adjusted weighted average
shares and assumed conversions 6,556 5,941
====== ======
Pro forma net income per share:
Basic $ 1.12 $ 1.02
====== ======
Diluted $ 1.10 $ 1.02
====== ======
</TABLE>
10. STOCK OPTIONS
The Company established a qualified stock option plan (Plan) effective February
5, 1997. The exercise price of the options, as well as the vesting period, are
established by the Company's Board of Directors. A summary of activity under the
Plan is as follows:
<TABLE>
<CAPTION>
Outstanding Options
Shares Weighted-
Available Average
Under Exercise
Option Price Number
------- ------- -------
<S> <C> <C> <C>
Balance at February 5, 1997 (inception of Plan) -- -- $ --
Authorized 600,000 -- --
Granted -- 360,500 5.12
Exercised -- -- --
Canceled -- 48,500 5.00
======= ======= =======
Balance at December 31, 1997 600,000 312,000 $ 5.14
======= ======= =======
Exercisable at December 31, 1997 -0-
=======
</TABLE>
F-21
<PAGE> 56
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
10. STOCK OPTIONS (CONTINUED)
The range of exercise prices for options outstanding at December 31, 1997 was
$5.00 to $8.00 per option. The weighted-average remaining contractual life of
those options is approximately nine years.
The Company's 1997 Stock Option Plan has authorized the grant of options up to
600,000 shares to officers, directors or key employees of the Company. All
options have ten year terms and generally vest ratably over five years from the
date of grant. The weighted average fair value of options granted during the
year ended December 31, 1997 was $3.21.
The Company has elected to follow APB 25 and related Interpretations in
accounting for its stock options issued to employees because, as discussed
below, the alternative fair value accounting provided for under SFAS No. 123,
"Accounting for Stock-Based Compensation," (SFAS No. 123) requires use of option
valuation models that were developed for use in valuing stock options. Under APB
25, because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and pro forma earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS No.
123. The fair value for these options was estimated at the date of grant using a
Black Scholes Option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
Year Ended December
31,
1997
--------------------
<S> <C>
Expected life of award 5 years
Volatility .699
Risk-free interest rate 6 percent
Expected dividends yield 0 percent
</TABLE>
Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant date for awards in 1997 consistent with the
provisions of SFAS No. 123, the estimated fair value of the options would be
amortized to expense over the option's vesting period and the Company's net
income and net income per share would have been decreased to the pro forma
amounts indicated below for the year ended December 31, 1997:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Pro forma net income as reported $7,219
Pro forma net income including SFAS No. 123 expense $7,114
Pro forma earnings per share including SFAS No. 123 expense
Basic $ 1.10
Diluted $ 1.09
</TABLE>
F-22
<PAGE> 57
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
10. STOCK OPTIONS (CONTINUED)
Pro forma results disclosed are based on the provisions of SFAS 123 using the
Black-Scholes option valuation model and are not likely to be representative of
the effects on the net income for future years. In addition, The Black-Scholes
option valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's option, the
estimating models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
11. RELATED PARTY TRANSACTIONS
The Company leases certain property from a partnership owned by related parties
which includes the Company's principal stockholders. Effective March 1, 1997,
the Company terminated the existing lease and executed a new 20-year lease with
the same partnership. The lease requires monthly lease payments ranging from
$24,611 in 1997 to $50,427 in 2000 and thereafter with additional stipulated
rent increases every five years based on the Consumer Price Index. The Company
is also obligated to pay the partnership any taxes related to the lease
payments.
Effective March 1, 1997, the Company also executed a 20-year lease of certain
property with the partnership discussed above. Such property was part of the
acquisition discussed in Note 15. The lease requires monthly lease payments of
$28,333 with additional stipulated rent increases every five years based on the
Consumer Price Index. The Company is also obligated to pay the partnership any
taxes related to the lease payments.
Effective May 1, 1997, the Company also executed a 20-year lease of certain
property with the partnership discussed above. The lease requires monthly lease
payments of $11,250 with additional stipulated rent increases every five years
based on the Consumer Price Index. The Company is also obligated to pay the
partnership any taxes related to the lease payments. In connection with this
lease, the Company was assigned and did assume two sub-lease agreements with an
unrelated party for a portion of the property. The subleases were effective for
the period from April 24, 1997 through June 30, 1997, and called for monthly
rentals totaling $21,076. Effective July 1, 1997, the Company terminated one of
the subleases and renegotiated the other. The new sublease has a term of two
years (with options to extend an additional two years) and calls for monthly
rentals of $7,669.
Rent expense under the related party leases totaled approximately $900,000 in
1997, $274,000 in 1996, and $264,000 in 1995, respectively.
F-23
<PAGE> 58
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
11. RELATED PARTY TRANSACTIONS (CONTINUED)
Future minimum rentals (excluding taxes), by year, and in the aggregate under
these noncancelable operating leases at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1998 $ 889
1999 1,031
2000 1,076
2001 1,080
2002 1,080
Thereafter 15,324
-------
$20,480
=======
</TABLE>
The Company also leases certain property, vehicles, and equipment from
nonrelated parties for which it incurred rent expense of approximately $259,000,
$233,000 and $134,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
12. SIGNIFICANT CUSTOMERS
The Company had revenues to certain customers that were in excess of 10 percent
of the respective years revenues as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Customer A 20% 13.4% 10.4%
Customer B 32% 19.5% n/a
Customer C n/a 13.7% n/a
Customer D n/a 11.5% n/a
Customer E n/a n/a 11.2%
Customer F n/a n/a 14.4%
</TABLE>
During the years ended December 31, 1997, 1996 and 1995, the Company's revenues
included approximately $12,435,000, $14,280,000 and $1,894,000, respectively,
relating to projects carried out internationally for which approximately
$1,541,000 and $1,776,000 was in accounts receivable at December 31, 1997 and
1996, respectively.
F-24
<PAGE> 59
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
13. OTHER INCOME
During 1995, the Company received $175,000 as a result of a settlement with
third parties relating to damages to Company equipment. In addition, the Company
received approximately $371,000 from a claim related to misappropriation of
funds by a former employee.
14. CONTINGENCIES
The Company is involved from time to time through the ordinary course of
business in certain claims, litigation, and assessments. Due to the nature of
the construction industry, the Company's employees from time to time become
subject to injury, or even death, while under the employ of the Company. The
Company does not believe there is any such contingencies at December 31, 1997
for which the eventual outcome would have a material adverse impact on the
Company.
During 1996, the primary contractor on the Company's largest contract has
claimed that the Company was liable under delay provisions and is seeking
damages. The Company believes that the reasons for the delay were such that the
Company should not be liable and accordingly no reserves have been created for
this claim.
During 1996, the Company was named as a defendant in a lawsuit relating to an
incident at one of its worksites whereby one of its employees was killed in a
crane accident. The Company believes the loss, if any, relating to the incident
will be fully insured and does not expect the ultimate outcome of the matter to
have a material adverse impact on its financial position.
Relating to the incident set forth in the prior paragraph, the Company has been
named as a defendant in a lawsuit brought on by the crane operator who claims he
was assaulted by employees of the Company after the incident. The Company's
insurance carrier has declined coverage. However, management does not expect the
amount of loss, if any, relating to the ultimate resolution of this matter to
have a material adverse impact on its financial position regardless of whether
or not the insurance carrier ultimately provides coverage.
15. PURCHASE OF SUBSIDIARY
On January 31, 1997, the Company acquired 100 percent of the outstanding capital
stock of B&K Steel Fabrications, Inc. ("B&K"), a steel fabricator located in
Gilbert, Arizona, for $1,223,194, consisting of $426,944 in cash and $796,250 in
two promissory notes payable in annual installments over five years including
interest at 5.73 percent. In addition, the Company prepaid $1,090,000 of the
subordinated note payable discussed in Note 5 to enable a related party lessor
to the Company to acquire the real property upon which B&K is located, and
certain equipment attached to the property. The acquisition was not significant
to the Company under the definitions used by the Securities and Exchange
Commission and has been accounted for under the purchase method of accounting.
After assigning fair values to the tangible assets acquired and liabilities
assumed, there was no goodwill generated by the
F-25
<PAGE> 60
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
15. PURCHASE OF SUBSIDIARY (CONTINUED)
purchase. The results of operations of B&K have been included in those of the
Company commencing February 1, 1997. Had the purchase taken place as of January
1, 1996, the combined business would have had revenues of $113,291,000, income
before taxes of $10,165,000, pro forma net income (using a 40 percent effective
tax rate) of $6,099,000 and diluted pro forma net income per share of $1.03.
However, such information may not be indicative of future operations of the
combined business. Effective December 31, 1997, B&K was merged into the Company
and, as a result, the corporate entity of B&K was dissolved.
16. SUBSEQUENT EVENTS
On March 18, 1998, the Company announced that it had executed a letter of intent
to acquire all of the outstanding shares of stock of Addison Structural
Services, Inc. (Addison). Addison had revenues of approximately $63.6 million
for its fiscal year ended June 30, 1997. The Company is in the process of
performing its due diligence with respect to the transaction and is attempting
to obtain financing to complete the acquisition. However, there is no assurance
that the transaction will ultimately be completed.
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
A summary of the quarterly results of operations for the years ended December
31, 1997 and 1996 follows (in thousands, except for per share amounts):
<TABLE>
<CAPTION>
Fiscal Year 1997
1st 2nd 3rd 4th
Qtr. Qtr. Qtr. Qtr.
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $25,507 $37,177 $35,439 $40,095
Gross profit 3,852 4,438 5,865 6,108
Pro forma net income 1,034 1,752 2,162 2,271
Pro forma net income per share:
Basic $0.17 $0.29 $0.31 $0.32
Diluted $0.17 $0.28 $0.30 $0.32
Weighted average number of shares outstanding:
Basic 5,941 5,941 6,931 7,000
Diluted 6,152 6,286 7,118 7,148
</TABLE>
F-26
<PAGE> 61
Schuff Steel Company
Notes to Consolidated Financial Statements (continued)
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Fiscal Year 1996
1st 2nd 3rd 4th
Qtr. Qtr. Qtr. Qtr.
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $10,410 $29,691 $38,861 $24,950
Gross profit 1,992 4,091 5,885 4,946
Pro forma net income 325 1,547 2,467 1,691
Pro forma net income per share:
Basic $0.05 $0.26 $0.42 $0.28
Diluted $0.05 $0.26 $0.42 $0.28
Weighted average number of shares outstanding:
Basic 5,941 5,941 5,941 5,941
Diluted 5,941 5,941 5,941 5,941
</TABLE>
The 1997 quarterly results for basic and diluted pro forma net income per share,
when totaled, do not equal the basic and diluted net income per share for the
year ended December 31, 1997. These variances are due to rounding and certain
options being antidilutive for certain quarters but not for the year.
F-27
<PAGE> 62
EXHIBIT INDEX
EXHIBIT
NUMBER Description
------ -----------
3.1(a) Certificate of Incorporation of the Registrant (1)
3.1(b) Certificate of Amendment of Certificate of Incorporation of
the Registrant (1)
3.2 Bylaws of the Registrant (1)
4.1 Certificate of Incorporation of the Registrant
(filed as Exhibit 3.1) (1)
10.1(a) Loan Agreement dated June 30, 1996 between the Registrant and
Bank One, Arizona, NA (1)
10.1(b) Variable Rate Revolving Line of Credit Note dated
June 30, 1996 (1)
10.2(a) Revolving Line of Credit Loan Agreement and Addendum dated
June 30, 1995 between the Registrant and Bank One,
Arizona, NA (1)
10.2(b) Variable Rate Revolving Line of Credit Note and Addendum
dated June 30, 1995(1)
<PAGE> 63
<TABLE>
<S> <C>
10.2(c) Modification Agreement dated June 30, 1996 between the
Registrant and Bank One, Arizona, NA (1)
10.2(d) Continuing Guaranty dated June 30, 1995 between David A.
Schuff, Nancy A. Schuff and Bank One, Arizona, NA (1)
10.2(e) Continuing Guaranty dated June 30, 1995 between Scott A.
Schuff and Bank One, Arizona, NA (1)
10.2(f) Modification Agreement dated March 31, 1997 between the
Registrant and Bank One, Arizona, NA (1)
10.2(g) Modification Letter Agreement dated May 7, 1997 between the
Registrant and Bank One, Arizona, NA (1)
10.2(h) Modification Agreement dated June 30, 1997 between the
Registrant and Bank One, Arizona, NA (2)
10.2(i) Continuing Guaranty dated June 30, 1997 between B & K Steel
Fabrications, Inc. and Bank One, Arizona, NA (2)
10.2(j) Subordination of Lien Rights between 19th Avenue/Buchanan
Limited Partnership and Bank One, Arizona, NA Relating to Real
Property Located at 420 South 19th Avenue, Phoenix, Arizona (2)
10.2(k) Subordination of Lien Rights between 19th Avenue/Buchanan
Limited Partnership and Bank One, Arizona, NA Relating to Real
Property located at 1833-1841 West Buchanan Street, Phoenix,
Arizona (2)
10.2(l) Subordination of Lien Rights between 19th Avenue/Buchanan
Limited Partnership and Bank One, Arizona, NA Relating to Real
Property Located at 619 North Cooper Road, Gilbert, Arizona (2)
10.2(m) Subordination Agreement dated June 30, 1997 between 19th
Avenue/Buchanan Limited Partnership, the Registrant and
Bank One, Arizona, NA (2)
10.3(a) Loan Agreement and Addendum dated June 30, 1995 between the
Registrant and Bank One, Arizona, NA (1)
10.3(b) Variable Rate Line of Credit Note and Addendum dated June 30,
1995 (1)
10.3(c) Modification Agreement dated June 30, 1996 between the
Registrant and Bank One, Arizona, NA (1)
10.4 Continuing Guaranty dated April 22, 1996 between the
Registrant and Bank One, Arizona, NA (1)
10.5 Guaranty of Payment dated April 22, 1997 between the
Registrant and Bank One, Arizona, NA (1)
10.6 Guaranty of Payment dated January 31, 1997 between the
Registrant and Bank One, Arizona, NA (1)
10.7 Promissory Note dated December 31, 1989 between the Registrant
and 19th Avenue/Buchanan Limited Partnership (1)
10.7.1 Modification and Extension Agreement dated as of September 30,
1997 between the Registrant and 19th Avenue/Buchanan Limited
Partnership (3)
10.8 Lease dated March 1, 1997 for 420 S. 19th Avenue in Phoenix,
Arizona between 19th Avenue/Buchanan Limited Partnership and
the Registrant (1)
</TABLE>
<PAGE> 64
<TABLE>
<S> <C>
10.9 Lease dated March 1, 1997 for 619 N. Cooper Road in Gilbert,
Arizona between 19th Avenue/Buchanan Limited Partnership and
the Registrant (1)
10.10 Lease dated May 1, 1997 for 1841 W. Buchanan Street in
Phoenix, Arizona between 19th Avenue/Buchanan Limited
Partnership and the Registrant (1)
10.11 Schuff Steel Company Supplemental Retirement and Deferred
Compensation Plan (1)*
10.12(a) Schuff Steel Company 1997 Stock Option Plan (1)*
10.12(b) Form of Incentive Stock Option Agreement for 1997 Stock Option
Plan (1)*
10.12(c) Form of Non-Qualified Stock Option Agreement for 1997 Stock
Option Plan (1)*
10.13 Form of Indemnity Agreement between the Registrant and its
directors (1)
10.14(a) Modification and Extension Agreement dated as of September 30,
1997 between the Registrant and 19th Avenue/Buchanan Limited
Partnership (2)
10.15(a) Credit Agreement dated December 10, 1997 between the Registrant
and Bank One, Arizona, NA
10.15(b) Promissory Note dated December 10, 1997 between the Registrant
and Bank One, Arizona, NA
23.1 Consent of Ernst & Young LLP, independent auditors
24.1 Power of Attorney of David A. Schuff
24.2 Power of Attorney of Dennis DeConcini
24.3 Power of Attorney of Edward M. Carson
27 Financial Data Schedule
</TABLE>
(ii) FINANCIAL STATEMENT SCHEDULES:
The financial statement schedules have been omitted since they are not
applicable or the information required to be set forth therein is contained
elsewhere herein.
- ------------------
* Indicates a management contract or compensation plan.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-26711), effective June 26, 1997.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
<PAGE> 1
EXHIBIT 10.15(a)
CREDIT AGREEMENT
by and between
SCHUFF STEEL COMPANY
and
BANK ONE, ARIZONA, NA
Dated as of
December 10, 1997
<PAGE> 2
CREDIT AGREEMENT
BY THIS CREDIT AGREEMENT (together with any amendments or
modifications, the "Credit Agreement"), entered into as of this _____ day of
__________, 1997 by and between SCHUFF STEEL COMPANY, a Delaware corporation
(the "Borrower"), and BANK ONE, ARIZONA, NA, a national banking association (the
"Lender"), in consideration of the mutual promises herein contained and for
other valuable consideration, the parties hereto do hereby agree as follows:
RECITALS
A. Borrower has applied to Lender for a line of credit (the "Line of
Credit Loan") in the principal amount of TEN MILLION AND NO/100 DOLLARS
($10,000,000.00) (the "Line of Credit Commitment") for the purpose of financing
the acquisition of other companies and/or their assets.
B. The Line of Credit Loan has been requested by Borrower as an
additional financial accommodation over and above other financial accommodations
("Other Credits") extended by Lender to Borrower.
C. As a condition for extending the Line of Credit Loan, Lender has
required that Borrower enter into this Credit Agreement establishing the terms
and conditions thereof.
<PAGE> 3
ARTICLE 1
DEFINITION OF TERMS
1.1 Definitions. For the purposes of this Credit Agreement, unless the
context otherwise requires, the following terms shall have the respective
meanings assigned to them in this Article 1 or in the Section hereof referred to
below:
"Advance" means a Line of Credit Advance.
"Affiliate" of any Person means any Person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether by contract or otherwise.
"Authorized Officer" means one or more officers of Borrower
and, to the extent applicable, of any Guarantor duly authorized (and so
certified to Lender by the corporate secretary of Borrower pursuant to a
certificate of authority and incumbency from time to time satisfactory to Lender
in the exercise of Lender's reasonable discretion), acting alone, to request
Advances under the provisions of this Credit Agreement and execute and deliver
documents, instruments, agreements, reports, statements and certificates in
connection herewith.
"B&K" means B&K Steel Fabrications, Inc., an Arizona
corporation.
"Borrower": See the Preamble hereto.
"Business Day" means a day of the year on which banks are not
required or authorized to close in Phoenix, Arizona, and, with respect to a
LIBOR Rate Line of Credit Advance, a day other than a Saturday, Sunday or any
other day on which commercial banks in London are ordered to be closed by law or
executive order.
"Change in Control" means the occurrence or existence of
either of the following events or conditions without the prior written consent
of Lender, if different than the state of affairs as of the Closing Date:
(a) the acquisition by any Person or two or more
Persons acting in concert of "beneficial ownership" (within
the meaning of Rule 13d-3 promulgated by the SEC under the
Exchange Act or as otherwise specified under the provisions of
this Credit Agreement) of securities of Borrower having more
than 50% of the ordinary voting power for the election of
directors; or
(b) the acquisition by any Person or two or more
Persons acting in concert of Control of Borrower.
-2-
<PAGE> 4
"Closing Date" means December 10, 1997.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means all property subject to the Security
Documents.
"Control" when used with respect to any Person means the
power, directly or indirectly, to direct the management policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Controlled Group" means, severally and collectively, the
members of the group controlling, controlled by and/or in common control of
Borrower, within the meaning of Section 4001(b) of ERISA.
"Credit Agreement": See the Preamble hereto.
"Credit Documents" means this Credit Agreement, the Note
(including any renewals, extensions and refundings thereof), any Security
Documents, and any written agreements, certificates or documents (and with
respect to this Credit Agreement and such other written agreements and
documents, any amendments or supplements thereto or modifications thereof)
executed or delivered pursuant to the terms of this Credit Agreement.
"Current Assets" means all assets of Borrower classified as
current assets under GAAP, determined on a consolidated basis.
"Current Liabilities" means all liabilities of Borrower
classified as current liabilities under GAAP, determined on a consolidated basis
for the purpose of this definition, any amount which is outstanding under the
Line of Credit regardless of whether it would be characterized as a current
liability in accordance with GAAP.
"Current Ratio" means as of any date the ratio of Current
Assets as of such date to Current Liabilities as of such date.
"Deed of Trust" means a Deed of Trust, Assignment of Rents,
Security Agreement and Fixture Filing substantially in the form of Exhibit "D"
attached hereto, executed by the Borrower, a Purchased Subsidiary.
"Default Rate" means an interest rate per annum equal to four
hundred basis points (400 b.p.) above the rate that would otherwise be payable
under the terms of the Note.
"Dollars" and the sign "$" mean lawful currency of the United
States of America.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, together with all final and permanent regulations issued
pursuant thereto. References herein to
-3-
<PAGE> 5
sections and subsections of ERISA are deemed to refer to any successor or
substitute provisions therefor.
"ESOP" means any Employee Stock Ownership Plan, as it may be
amended from time to time, adopted by Borrower.
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors to the Federal Reserve System, as
in effect from time to time.
"Eurodollar Rate Reserve Percentage" for the Interest Period
for each LIBOR Rate Line of Credit Advance means the reserve percentage
applicable two (2) Business Days before the first day of such Interest Period
under regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) for determining the maximum reserve
requirement (including, but not limited to, any emergency, supplemental, or
other marginal reserve requirement) for a member bank of the Federal Reserve
System in San Francisco with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities (or with respect to any other category of
liabilities which includes deposits by reference to which the Interest Rate on
LIBOR Rate Line of Credit Advances is determined) having a term equal to such
Interest Period.
"Event of Default": See Article 9.
"Exchange Act" means the Securities Exchange Act of 1934.
"Financial Covenants": See Section 8.8 hereof.
"GAAP" means those generally accepted accounting principles
and practices which are recognized as such by the American Institute of
Certified Public Accountants acting through its Accounting Principles Board or
by the Financial Accounting Standards Board or through other appropriate boards
or committees thereof and which are consistently applied for all periods after
the date hereof so as to properly reflect the financial condition, and the
results of operations and changes in the financial position, of Borrower,
including without limitation accounting rules promulgated pursuant to
Regulations SX and SK, except that any accounting principle or practice required
to be changed by the said Accounting Principles Board or Financial Accounting
Standards Board (or other appropriate board or committee of the said Boards) in
order to continue as a generally accepted accounting principle or practice may
be so changed.
"Governmental Authority" means any government (or any
political subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over Borrower or any of its business,
operations or properties.
"Guarantor" means any Purchased Subsidiary.
"Guaranty" means a Continuing Guarantee substantially in the
form of Exhibit "B" attached hereto, executed by a new Purchased Subsidiary.
-4-
<PAGE> 6
"Indebtedness" means, with respect to any Person, all of its
monetary obligations and liabilities.
"Initial Principal Payment Date" means January 30, 1999.
"Interest Period" means, for each LIBOR Rate Line of Credit
Advance, the period commencing on the date of such LIBOR Rate Line of Credit
Advance and ending on the last day of the period selected by Borrower pursuant
to the provisions herein and, thereafter, each subsequent period commencing on
the last day of the immediately preceding Interest Period and ending on the last
day of the period selected by Borrower pursuant to the provisions herein. The
duration of each Interest Period shall be one, two or three months, as selected
by Borrower (A), for a new Line of Credit Advance, in the request for a LIBOR
Rate Line of Credit Advance or (B), for an outstanding Line of Credit Advance,
in the request for a LIBOR Rate Line of Credit Advance to continue bearing
interest at the LIBOR Rate or (C), for an outstanding Variable Rate Line of
Credit Advance, in the request to convert to a LIBOR Rate Line of Credit
Advance, provided, however, that:
(i) Interest Periods commencing on the same date
shall be of the same duration;
(ii) Whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, provided that if such
extension would cause the last day of such Interest Period to
occur in the next following calendar month, the last day of
such Interest Period shall occur on the next preceding
Business Day; and
(iii) No Interest Period with respect to any Line of
Credit Advance shall extend beyond the Line of Credit Maturity
Date.
"Lender": See the Preamble hereto.
"LIBOR Rate" means the rate per annum equal to the sum of (i)
250 basis points, and (ii) the rate per annum obtained by dividing (A) the rate
of interest determined by Lender, based on Telerate System reports or such other
source as may be selected by Lender, to be the "London Interbank Offered Rate"
at which deposits in United States dollars are offered by major banks in London,
England for the period equal to such Interest Period, one (1) Business Day
before the first day of the respective Interest Period by (B) a percentage equal
to one hundred percent (100%) minus the Eurodollar Rate Reserve Percentage.
"LIBOR Rate Line of Credit Advance" means a Line of Credit
Advance that bears interest at the LIBOR Rate.
"Lien" means any lien, mortgage, security interest, tax lien,
pledge, encumbrance, conditional sale or title retention arrangement, or any
other interest in property designed to secure
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the repayment of Indebtedness whether arising by agreement or under any statute
or law, or otherwise.
"Line of Credit Advance" means a disbursement of the proceeds
of the Line of Credit Loan.
"Line of Credit Commitment": See Recital A hereto.
"Line of Credit Equipment Advances" means a Line of Credit
Advance the proceeds of which are not to be used for the purchase of real
property.
"Line of Credit Loan": See Recital A hereto.
"Line of Credit Maturity Date" means December 31, 2003.
"Line of Credit Note" means the Promissory Note of even date
herewith in the amount of the Line of Credit Loan executed by Borrower and
delivered pursuant to the terms of this Credit Agreement, together with any
renewals, extensions, modifications or replacements thereof.
"Line of Credit Real Property Advance" means a Line of Credit
Advance the proceeds of which are to be used for the purchase of real property.
"Line of Credit Termination Date" means December 31, 1998.
"Loan" means the Line of Credit Loan.
"Material Adverse Effect" means any circumstance or event
which (i) has any material adverse effect upon the validity or enforceability of
any Credit Document, (ii) materially impairs the ability of Borrower to fulfill
its obligations under the Credit Documents, or (iii) causes an Event of Default
or any event which, with notice or lapse of time or both, would become an Event
of Default.
"Non-Use Fee": See Section 3.1 hereof.
"Note" means the Line of Credit Note.
"Obligation" means all present and future indebtedness,
obligations and liabilities of Borrower to Lender, and all renewals and
extensions thereof, or any part thereof, arising pursuant to this Credit
Agreement or represented by the Note, including without limitation the Loan and
all interest accruing thereon, and attorneys' fees incurred in the enforcement
or collection thereof, regardless of whether such indebtedness, obligations and
liabilities are direct, indirect, fixed, contingent, joint, several or joint and
several; together with all indebtedness, obligations and liabilities of Borrower
evidenced or arising pursuant to any of the other Credit Documents, and all
renewals and extensions thereof, or part thereof.
"Other Credits": See Recital B.
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"Other Security Agreements": See Section 4.1.
"Payment Date" means the last day of each month, commencing
December 31, 1997, provided that if any such day is not a Business Day, then
such Payment Date shall be the next successive Business Day.
"PBGC" means the Pension Benefit Guaranty Corporation, and any
successor to all or substantially all of the Pension Benefit Guaranty
Corporation's functions under ERISA.
"Permitted Liens" means those Liens to which the Collateral is
subject that are prior to the Liens of the Security Documents, and which consist
of the following:
(a) Liens for taxes, assessments or governmental charges not
yet delinquent; and
(b) Liens to which Lender shall consent in writing, in its
sole and absolute discretion.
"Person" includes an individual, a corporation, a joint
venture, a partnership, a trust, a limited liability company, an unincorporated
organization or a government or any agency or political subdivision thereof.
"Plan" means an employee defined benefit plan or other plan
maintained by Borrower for employees of Borrower and covered by Title IV of
ERISA, or subject to the minimum funding standards under Section 412 of the
Code.
"Pledge Agreement" means a Pledge and Irrevocable Proxy
Security Agreement substantially in the form of Exhibit "A" attached hereto,
executed by Borrower.
"Prime Rate" means the interest rate per annum publicly
announced by Lender, or its successors, in Phoenix, Arizona as its "prime rate"
as in effect from time to time. Borrower acknowledges that the Prime Rate is not
necessarily the best or lowest rate offered by Lender and Lender may lend to its
customers at rates that are at, above or below its Prime Rate.
"Purchased Subsidiary" means a Subsidiary whose equity
interest has been purchased by Borrower with the proceeds of a Line of Credit
Advance.
"Real Property": See Section 2.5(c)(ii) hereof.
"Regulation U" means Regulation U promulgated by the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 221, or any other
regulation hereafter promulgated by said Board to replace the prior Regulation U
and having substantially the same function.
"Regulatory Change" means any change effective after the date
of the Note in United States federal, state, or foreign law, regulations, or
rules or the adoption or making after such date of any interpretation,
directive, or request applying to a class of banks including Lender, of or under
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any United States federal, state, or foreign law, regulation or rule (whether or
not having the force of law) by any court or governmental or monetary authority
charged with the interpretation or administration thereof.
"Reportable Event" means any "reportable event" as described
in Section 4043(b) of ERISA with respect to which the thirty (30) day notice
requirement has not been waived by the PBGC.
"SEC" means the Securities and Exchange Commission.
"Security Agreement" means a Security Agreement substantially
in the form of Exhibit "C" attached hereto, executed by a new Purchased
Subsidiary.
"Security Documents": See Section 4.3 hereof.
"Seller": See Section 2.5 hereof.
"Seller Debt Coverage Ratio" means the results obtained by
dividing (A) the Seller's net profit after taxes plus its depreciation and
amortization by (B) the sum of the current maturities of its long-term debt for
its prior period that is to remain outstanding, plus the projected current
maturities of the Line of Credit Advance used to purchase the Seller for the
next period.
"Significant Debt Agreement" means all documents, instruments
and agreements executed by Borrower, evidencing, securing or ensuring any
Indebtedness of Borrower or any guaranty in excess of $100,000 in outstanding
principal (or principal equivalent) amount.
"Subsidiary" means any business association directly or
indirectly controlled by Borrower.
"Variable Rate" means the rate per annum equal to the sum of
(i) one-quarter percent (0.25%) per annum, and (ii) the Prime Rate per annum as
in effect from time to time. The Variable Rate will change on each day that the
"Prime Rate" changes.
"Variable Rate Line of Credit Advance" means a Line of Credit
Advance that bears or that is requested to bear interest at the Variable Rate.
"Working Capital" means the excess of Current Assets over
Current Liabilities.
1.2 Terms Generally.
(a) The definitions in Section 1.1 shall apply equally to both
the singular and plural forms of the terms defined.
(b) Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms.
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(c) All references herein to Articles, Sections, Exhibits and
Schedules shall be deemed references to Articles and Sections of, and
Exhibits and Schedules to, this Agreement unless the context shall
otherwise require.
(d) Except as otherwise expressly provided herein, all terms
of an accounting or financial nature shall be construed in accordance
with GAAP, as in effect from time to time.
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ARTICLE 2
THE LINE OF CREDIT LOAN
2.1 Line of Credit Commitment. Lender agrees to loan to or for the
benefit of Borrower, and Borrower agrees to draw upon and borrow, in the manner
and upon the terms and conditions contained in this Credit Agreement, amounts
that in the aggregate at any time outstanding shall not exceed the Line of
Credit Commitment.
2.2 Line of Credit. Subject to the terms and conditions set forth in
this Credit Agreement, the Line of Credit Loan shall be a non-revolving line of
credit, against which Line of Credit Advances may be made to Borrower as
Borrower may request, provided that (i) no Line of Credit Advance shall be made
if an Event of Default shall be continuing, (ii) no Line of Credit Advance shall
be made that would cause the outstanding principal balance of the Line of Credit
to exceed the Line of Credit Commitment, and (iii) no Line of Credit Advance
shall be made on or after the Line of Credit Termination Date.
2.3 Line of Credit Note. The Line of Credit Loan shall be evidenced by
the Line of Credit Note, and shall bear interest and be payable to Lender upon
the terms and conditions contained therein.
2.4 Line of Credit Payments and Line of Credit Advances.
(a) Interest shall accrue on the unpaid principal of each Line
of Credit Advance:
(i) At the Variable Rate if it is a Variable Rate
Line of Credit Advance.
(ii) At the applicable LIBOR Rate if it is a LIBOR
Rate Line of Credit Advance.
(b) All interest shall be computed on the basis of a 360-day
year and accrue on a daily basis for the actual number of days elapsed.
All accrued interest shall be due and payable on the Payment Date.
(c) Beginning on the Initial Principal Payment Date, principal
shall be due and payable on such date and each Payment Date thereafter
as follows:
(i) An amount equal to the aggregate Line of Credit
Equipment Advances outstanding on the Initial Principal
Payment Date, divided by sixty (60); and
(ii) An amount equal to the aggregate Line of Credit
Real Property Advances outstanding on the Initial Principal
Payment Date, divided by one hundred eighty (180).
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(d) The entire unpaid principal balance, all accrued and
unpaid interest, and all other amounts payable under the Line of Credit
Note shall be due and payable in full on the Line of Credit Maturity
Date.
(e) Each request for a Line of Credit Advance shall, in
addition to complying with Section 2.5 hereof and any other
requirements in this Credit Agreement, (i) specify the date and amount
of the requested Line of Credit Advance, (ii) specify whether the Line
of Credit Advance shall be a Line of Credit Advance that bears interest
at the Variable Rate or shall be a Line of Credit Advance that bears
interest at the LIBOR Rate, and (iii), if the Line of Credit Advance is
to bear interest at the LIBOR Rate, (A) specify the Interest Period,
(B) be delivered to Lender at least two (2) Business Days prior to the
date of the requested Line of Credit Advance, and (C) be in a minimum
amount of $500,000.00 with integral multiples of $1,000.00 in excess
thereof. Any Line of Credit Advance not complying with the foregoing
requirements for a Line of Credit Advance bearing interest at the LIBOR
Rate shall bear interest at the Variable Rate. No more than two (2)
Line of Credit Advances shall bear interest at the LIBOR Rate at the
same time.
(f) If Borrower desires that a LIBOR Rate Line of Credit
Advance continue to bear interest at the LIBOR Rate after the end of an
existing Interest Period, Borrower shall deliver to Lender a notice
making such election and specifying the new Interest Period. If
Borrower does not deliver such notice within such time, then after the
existing Interest Period the LIBOR Rate Line of Credit Advance shall
become a Variable Rate Line of Credit Advance and shall bear interest
at the Variable Rate.
(g) Borrower may on any Business Day, upon written notice to
and received by Lender not later than 12:00 p.m. (Phoenix, Arizona
local time) (i) on the second Business Day, in the case of any
conversion of a Variable Rate Line of Credit Advance into a LIBOR Rate
Line of Credit Advance, and (ii) on the first Business Day, in the case
of any conversion of a LIBOR Rate Line of Credit Advance into a
Variable Rate Line of Credit Advance, prior to the date of the proposed
conversion, convert any Line of Credit Advance of one type into a Line
of Credit Advance of the other type; provided, however, that any
conversion of a LIBOR Rate Line of Credit Advance (A) shall only be
made on the last day of the applicable Interest Period, and (B) shall
be made only as to a Line of Credit Advance in a minimum amount of
$500,000.00 with integral multiples of $1,000.00 in excess thereof.
Each such notice of a conversion shall specify the date of such
conversion and the Line of Credit Advance(s) to be converted.
(h) Notwithstanding any provision of the Credit Documents to
the contrary, Lender shall be entitled to fund and maintain its funding
of all or any part of any Line of Credit Advance in any manner it sees
fit; provided, however, that for the purposes of the Line of Credit
Note, all determinations thereunder shall be made as if Lender had
actually funded and maintained each LIBOR Rate Line of Credit Advance
during the Interest Period therefor through the purchase of deposits
having
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a maturity corresponding to the last day of the Interest Period and
bearing an interest rate equal to the LIBOR Rate for such Interest
Period.
(i) If, due to any Regulatory Change, there shall be any
increase in the cost to Lender of agreeing to make or making, funding,
or maintaining LIBOR Rate Line of Credit Advances (including, without
limitation, any increase in any applicable reserve requirement), then
Borrower shall from time to time, upon demand by Lender, pay to Lender
such amounts as Lender may reasonably determine to be necessary to
compensate Lender for any additional costs that Lender reasonably
determines are attributable to such Regulatory Change and Lender will
notify the Borrower of any Regulatory Change that will entitle Lender
to compensation pursuant to this paragraph as promptly as practicable.
Determinations by Lender of the amounts required to compensate Lender
shall be conclusive, absent manifest error. Lender shall be entitled to
compensation in connection with any Regulatory Change only for costs
actually incurred by Lender.
(j) Notwithstanding any provision of the Credit Documents, if
Lender shall notify Borrower that as a result of a Regulatory Change it
is unlawful for Lender to make Line of Credit Advances at the LIBOR
Rate, or to fund or maintain LIBOR Rate Line of Credit Advances, (i)
the obligations of Lender to make Line of Credit Advances at the LIBOR
Rate and to convert Line of Credit Advances to the LIBOR Rate shall be
suspended until Lender shall notify Borrower that the circumstances
causing such suspension no longer exist, and (ii) in the event such
Regulatory Change makes the maintenance of Line of Credit Advances at
the LIBOR Rate unlawful, Borrower shall forthwith prepay in full all
LIBOR Rate Line of Credit Advances then outstanding, together with
interest accrued thereon and all amounts in connection with such
prepayment specified in the Line of Credit Note, unless Borrower,
within five (5) Business Days of notice from Lender, converts all LIBOR
Rate Line of Credit Advances then outstanding into Variable Rate Line
of Credit Advances pursuant to the conversion procedures in this Note
and pays all amounts in connection with such prepayments or conversions
specified in the Line of Credit Note.
(k) Notwithstanding any other provision of the Credit
Documents, if prior to the commencement of any Interest Period, Lender
shall determine (i) that United States dollar deposits in the amount of
any LIBOR Rate Line of Credit Advance to be outstanding during such
Interest Period are not readily available to Lender in the London
interbank market, or (ii) by reason of circumstances affecting the
London interbank market, adequate and reasonable means do not exist for
ascertaining the LIBOR Rate for such Interest Period in the manner
prescribed in the definition of "LIBOR Rate", then Lender shall
promptly give notice thereof to Borrower and the obligation of Lender
to create, continue, or effect by conversion any LIBOR Rate Line of
Credit Advance in such amount and for such Interest Period shall
terminate until United States dollar deposits in such amount and for
the Interest Period shall again be readily available in the London
interbank market and adequate and reasonable means exist for
ascertaining the LIBOR Rate.
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(l) If any payment required under the Line of Credit Note is
not paid within five (5) days after the date such payment is due, then,
at the option of Lender, Borrower shall pay a "late charge" equal to
four percent (4%) of the amount of that payment to compensate Lender
for administrative expenses and other costs of delinquent payments.
This late charge may be assessed without notice, shall be immediately
due and payable and shall be in addition to all other rights and
remedies available to Lender.
(m) After maturity, including maturity upon acceleration, the
unpaid principal balance, all accrued and unpaid interest and all other
amounts payable under the Line of Credit Note shall bear interest at
the Default Rate.
2.5 Uses of Line of Credit Advances.
(a) Line of Credit Advances shall be made to Borrower solely
to finance the acquisition of other companies and/or their assets.
(b) In addition to complying with Section 2.4(e) hereof,
Paragraph (c) of this Section 2.5, and any other requirements herein,
each request for a Line of Credit Advance shall:
(i) Specify the name of the company being purchased
(the "Seller");
(ii) Specify whether Borrower is purchasing solely
the equity interests in the Seller or the assets of the Seller
and whether the Seller is to become a Subsidiary of Borrower;
(iii) Detail the assets of the Seller being
purchased, directly or, if Borrower is purchasing equity
interests in the Seller, indirectly, their costs and fair
market value based on an appraisal acceptable to Lender and
certify that the Line of Credit Advance does not exceed
seventy-five percent (75%) of the lesser of such costs or such
fair market value;
(iv) Specify the amount of the Line of Credit Advance
to be a Line of Credit Equipment Advance and a Line of Credit
Real Property Advance; and
(v) Certify that the Seller Debt Coverage Ratio,
after giving effect to the Line of Credit Advance, shall not
be less than 1.25 to 1.0.
(c) In addition to complying with Section 2.4(e) hereof,
Paragraph (b) of this Section 2.5, as a condition to making each Line
of Credit Advance to Borrower,
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Lender shall have received with respect to such Line of Credit Advance
the following, each in form and substance satisfactory to Lender:
(i) As to any new Purchased Subsidiary, a Pledge
Agreement executed by Borrower, together with the stock of
said Purchased Subsidiary, a Guaranty executed by the
Purchased Subsidiary, and a Security Agreement executed by the
Purchased Subsidiary;
(ii) As to any real property (together with any
improvements thereon, "Real Property") purchased by a Line of
Credit Advance or owned by a new Purchased Subsidiary:
(A) A Deed of Trust executed by the
owner of said real property;
(B) A current appraisal of the Real Property
by an appraiser acceptable to Lender, reviewed and
found to be satisfactory by Lender and showing a
value for the Real Property satisfactory to Lender.
Lender may require reappraisals at Borrower's
expense;
(C) A current as-built survey of the Real
Property by a licensed surveyor acceptable to Lender
describing the boundaries of the Real Property and
showing the location of any improvements upon the
Real Property and all means of ingress and egress,
rights-of-way, easements (each of which shall be
identified by docket and page or recording number
where recorded) and all other customary and relevant
information pursuant to ALTA standards and any title
company requirements. All surveys shall be certified
to Lender and the title company issuing the Title
Policy;
(D) An ALTA extended coverage mortgagee's
title insurance policy [ALTA Loan Policy - 1970 (Rev.
10-17-70)] or similar policy acceptable to Lender
(the "Title Policy"), with such endorsements as
Lender may require, issued by a title insurance
company satisfactory to Lender in the amount of the
Loan insuring the lien of the Deed of Trust to be a
first and prior lien upon the Real Property as
security for the Loan, subject only to such
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exceptions as Lender may expressly approve in
writing; and
(E) An Environmental Indemnity Agreement
executed substantially in the form attached hereto as
Exhibit "E" with an environmental questionnaire and
disclosure statement completed and signed by Borrower
and any Guarantor covering the current and former
condition and uses of the Real Property and adjacent
property, and, if required by Lender, followed by a
current preliminary environmental assessment (Phase I
assessment) of the Real Property and adjacent
property, plus any sampling and analysis (Phase II
assessment) or special limited assessment that Lender
may require after review of the Phase I assessment,
together with any other environmental investigations
and reports that Lender may require, all of which
shall be by an environmental consulting firm
acceptable to Lender and none of which shall reveal
any existing or potential environmental condition
adversely affecting the use or value of the Real
Property.
(iii) Such other documents and instruments as Lender
may reasonably request.
2.6 Principal Prepayments. Borrower shall have the option to prepay the
Line of Credit Note, in full or in part, at any time prior to maturity. With any
prepayment of a LIBOR Rate Line of Credit Advance or with any conversion of a
LIBOR Rate Line of Credit Advance to a Variable Rate Line of Credit Advance, in
either case other than on the last Business Day of the Interest Period for such
Line of Credit Advance (the "Interest Period Termination Date") (including any
such prepayment made voluntarily or involuntarily as a result of the
acceleration of maturity upon a default or otherwise), Borrower shall also pay
(a) all accrued and unpaid interest on the principal being prepaid, (b) all
Other Amounts then due, and (c) a premium, if any, equal to the product of (i)
the Average Lost Monthly Interest Income and (ii) the number of months from the
date of prepayment or conversion to the Interest Period Termination Date (with
any fraction of a month counted as a month), discounted to present value at the
Discount Rate over a period equal to one-half of the number of months in (ii)
above.
As used in the preceding paragraph:
"Average Lost Monthly Interest Income" means the amount
determined by dividing (i) the product of the Average Principal and the
Lost Rate, by (ii) 12, where:
"Average Principal" means the amount equal to either
(i) one-half the sum of (A) the amount of principal being
prepaid and (B)
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the amount of principal that is scheduled to be due on the
Interest Period Termination Date ("Balloon Amount"), or (ii)
the amount of principal being prepaid, if such amount is less
than the Balloon Amount; and
"Lost Rate" means the rate per annum equal to the
percentage, if any, by which (i) the yield to maturity of
United States Treasury debt obligations having a maturity date
nearest to the Interest Period Termination Date ("Treasury
Obligations") determined on the first day of the Interest
Period exceeds (ii) the yield to maturity of Treasury
Obligations determined on the date of prepayment.
"Discount Rate" means the rate per annum equal to the yield to
maturity of Treasury Obligations determined on the date of prepayment.
"Other Amounts" means all amounts payable by Borrower to
Lender hereunder and all other Credit Documents.
The maturity date and yield to maturity of Treasury Obligations shall be
determined by Lender, in its absolute and sole discretion, on the basis of
quotations published in The Wall Street Journal or other comparable sources.
2.7 Method of Payment. All payments of principal of, and interest on,
the Line of Credit Note shall be made to Lender before 2:00 p.m. (Phoenix,
Arizona time), in immediately available funds. All payments made on the Line of
Credit Note shall be applied in the order of priority to be determined by Lender
in its sole discretion: (i) to the payment of costs, fees or other charges
incurred in connection with the Line of Credit; (ii) to the payment of accrued
interest on the Line of Credit; and (iii) to the reduction of the principal
balance.
2.8 Conditions. Lender shall have no obligation to make any Line of
Credit Advance unless and until all of the conditions and requirements of this
Credit Agreement are fully satisfied. However, Lender in its sole and absolute
discretion may elect to make one or more Line of Credit Advances prior to full
satisfaction of one or more such conditions and/or requirements. Notwithstanding
that such a Line of Credit Advance or Line of Credit Advances are made, such
unsatisfied conditions and/or requirements shall not be waived or released
thereby. Borrower shall be and continue to be obligated to fully satisfy such
conditions and requirements, and Lender, at any time, in Lender's sole and
absolute discretion, may stop making Line of Credit Advances until all
conditions and requirements are fully satisfied.
2.9 Other Line of Credit Advances by Lender. Lender, after giving
written notice to Borrower, from time to time, may make Line of Credit Advances
in any amount in payment of (i) insurance premiums, taxes, assessments, liens or
encumbrances existing against property encumbered by the Security Documents,
(ii) interest accrued and payable upon the Line of Credit, (iii) any charges and
expenses that are the obligation of Borrower under this Credit Agreement or any
Security Document, and (iv) any charges or matters necessary to preserve the
property encumbered by the Security Documents or to cure any Event of Default.
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2.10 Assignment. Borrower shall have no right to any Line of Credit
Advance other than to have the same disbursed by Lender in accordance with the
disbursement provisions contained in this Credit Agreement. Any assignment or
transfer, voluntary or involuntary, of this Credit Agreement or any right
hereunder shall not be binding upon or in any way affect Lender without its
written consent; Lender may make Line of Credit Advances under the disbursement
provisions herein, notwithstanding any such assignment or transfer.
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ARTICLE 3
NON-USE FEE
3.1 Non-Use Fee. Borrower agrees to pay Lender a quarterly fee (the
"Non-Use Fee") in an annualized amount equal to one-half percent (.5%) of the
average daily undrawn balance of the Line of Credit Commitment during the prior
calendar quarterly period. The Non-Use Fee shall initially accrue from the
Closing Date and shall be due and payable in arrears within three (3) Business
Days after written notice of such amount due by Lender to Borrower and shall be
non-refundable.
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ARTICLE 4
SECURITY
4.1 Security. So long as the Loan is outstanding, Borrower shall cause
the Loan and Borrower's obligations under this Credit Agreement to be secured at
all times by the following:
(a) Any and all security agreements (collectively, the "Other
Security Agreements") duly executed and delivered by Borrower to Lender
in connection with the Other Credits, granting Lender a valid and
enforceable security interest in all of the kinds and categories of
personal property described in the Other Security Agreements, including
without limitation its accounts receivable, inventory and equipment,
wherever located, in, to, or under which Borrower now has or hereafter
acquires any right, title, or interest, whether present, future, or
contingent, and in Borrower's expectancy to acquire such property,
subject to no prior Liens except for Permitted Liens.
(b) As to any Real Property purchased by a Line of Credit
Advance or owned by a Purchased Subsidiary:
(i) A Deed of Trust constituting a first and prior
lien on said Real Property and personal property described
therein, subject to no prior Liens except for Permitted Liens;
and
(ii) A valid and effectual assignment of rents and
leases covering said Real Property.
(c) As to any new Purchased Subsidiary, a Pledge Agreement,
granting Lender a valid and enforceable security interest in the stock
of any new Purchased Subsidiary, owned by Borrower, subject to no prior
Liens except for Permitted Liens.
(d) From any new Purchased Subsidiary, a Security Agreement,
granting Lender a valid and enforceable security interest in all of the
kinds and categories of personal property described in the Security
Agreement, subject to no prior Liens except for Permitted Liens.
4.2 Guaranties. Borrower shall obtain and deliver to Lender, and
maintain in full force and effect so long as any obligation of Borrower to
Lender remains unpaid or unperformed, a valid and effective Guaranty from (i)
any Purchased Subsidiary, and (ii) B&K.
4.3 Security Documents. All of the documents required by this Article 4
shall be in form satisfactory to Lender and Lender's counsel, and, together with
any UCC financing statements for filing and/or recording, and any other items
required by Lender to fully perfect and effectuate the liens and security
interests of Lender contemplated by the Other Security Agreements, the Security
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Agreements, the Deed of Trusts, the Pledge Agreements, and this Credit
Agreement, may heretofore or hereinafter be referred to as the "Security
Documents."
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ARTICLE 5
CONDITIONS PRECEDENT
The obligation of Lender to make the Loan and to make each and any
Advance hereunder is subject to the full prior satisfaction at each such time of
each of the following conditions precedent:
5.1 Initial or any Subsequent Advance. Prior to its making the initial
Advance or any subsequent Advance, Lender shall have received the following,
each in form and substance satisfactory to Lender:
(a) This Credit Agreement. This Credit Agreement, duly
executed and delivered to Lender by Borrower.
(b) The Note. The Note, duly executed, drawn to the order of
Lender and otherwise as provided in Article 2.
(c) Arbitration Resolution. An Arbitration Resolution,
executed by Borrower and Guarantor.
(d) Organizational Documents. A copy of the current
Certificate of Incorporation (or other charter documents, however
named) of Borrower, including all amendments thereto, certified as
current and complete by the appropriate authority of the state of said
corporation's incorporation, together with evidence of said
corporation's good standing in said corporation's state of
incorporation and in every other state in which it is doing business or
the conduct of said corporation's business requires such standing for
the enforcement of material contracts.
(e) Officer's Certificate. A certificate signed by an
Authorized Officer of Borrower, stating that (to the best knowledge and
belief of Borrower, after reasonable inquiry and review of matters
pertinent to the subject matter of such certificate): (i) all of the
representations and warranties contained in Article 6 of this Credit
Agreement and in the other Credit Documents are, in all material
respects, true and correct as of the date hereof (other than those of
such representations which by their express terms speak to a date prior
to such date, which representations are, in all material respects, true
and correct as of such respective dates); (ii) no event has occurred
and is continuing, or would result from the advance of the proceeds of
the Loan, which would constitute an Event of Default, and (iii) no
change or changes having a Material Adverse Effect have occurred in the
business or financial condition of Borrower since the date of the last
financial statements of Borrower heretofore delivered to Lender.
(f) Secretary Certificate. A certificate of the corporate
secretary of Borrower, signed by the duly appointed secretary thereof
and issued as of the Closing Date, certifying that (i) attached thereto
is a true and complete copy of the corporate
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by-laws of said corporation in effect on the date of passage of the
corporate resolutions described immediately below and at all subsequent
times to and including the date of the certificate, (ii) attached
thereto is a true and complete copy of the resolutions adopted by the
Board of Directors of said corporation authorizing the Loan, the
execution, delivery, and performance of this Credit Agreement, the
Note, the Credit Documents, and all advances of credit hereunder, and
that such resolutions have not been modified, rescinded, or amended and
are in full force and effect, (iii) no change has been made to said
corporation's charter documents other than as reflected in the
certified copies submitted in connection with the delivery of this
Credit Agreement or as approved in writing by Lender, and (iv) set
forth therein and appropriately identified are the names, current
official titles, and signatures of the officers of said corporation
authorized to sign this Credit Agreement and other documents to be
delivered hereunder and/or to act as Authorized Officers hereunder.
(g) Opinion of Counsel. If requested by Lender, a favorable
opinion of counsel for Borrower, in form and content satisfactory to
Lender.
(h) IPO. Evidence satisfactory to Lender that Borrower shall
have completed an initial public offering of its equity interests.
(i) B&K Consent. A consent to the financial accommodations
extended by Lender to Borrower under this Credit Agreement, executed by
B&K.
(j) Additional Information. Such other information and
documents as may reasonably be required by Lender or Lender's counsel.
5.2 No Event of Default. No Event of Default known to Borrower shall
have occurred and be continuing, or result from Lender's making of the Loan.
5.3 No Material Adverse Change. Since the date of the most recent
financial statements provided to Lender by Borrower, no change shall have
occurred in the business or financial condition of Borrower that could have a
Material Adverse Effect.
5.4 Representations and Warranties. The representations and warranties
contained in Article 6 hereof shall be true and correct in all material
respects, with the same force and effect as though made on and as of the Closing
Date (other than those of such representations which by their express terms
speak to a date prior to that date, which representations shall, in all material
respects, be true and correct as of such respective date).
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ARTICLE 6
REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Loan, Borrower represents and warrants to
Lender that:
6.1 Organization and Good Standing. It is duly organized, validly
existing and in good standing in all states in which the nature of its business
and property makes such qualifications necessary or appropriate. It has the
legal power and authority to own its properties and assets and to transact the
business in which it is engaged and is or will be qualified in those states
wherein the nature of its proposed business and property will make such
qualifications necessary or appropriate in the future.
6.2 Authorization and Power. It has the corporate power and requisite
authority to execute, deliver and perform this Credit Agreement, the Note and
the other Credit Documents to be executed by it; it is duly authorized to, and
has taken all action, corporate or otherwise, necessary to authorize it to,
execute, deliver and perform this Credit Agreement, the Note and such other
Credit Documents and is and will continue to be duly authorized to perform this
Credit Agreement, the Note and such other Credit Documents.
6.3 No Conflicts or Consents. Neither the execution and delivery of
this Credit Agreement, the Note or the other Credit Documents to which it is a
party, nor the consummation of any of the transactions herein or therein
contemplated, nor compliance with the terms and provisions hereof or with the
terms and provisions thereof, (a) will materially contravene or conflict with:
(i) any provision of law, statute or regulation to which it is subject, (ii) any
judgment, license, order or permit applicable to it, (iii) any indenture, loan
agreement, mortgage, deed of trust, or other agreement or instrument to which it
is a party or by which it may be bound, or to which it may be subject, or (b)
will violate any provision of its Certificate of Incorporation. No consent,
approval, authorization or order of any court or Governmental Authority or other
Person is required in connection with the execution and delivery by it of the
Credit Documents or to consummate the transactions contemplated hereby or
thereby, or if required, such consent, approval, authorization or order shall
have been obtained.
6.4 Enforceable Obligations. This Credit Agreement, the Note and the
other Credit Documents are the legal, valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms, except
as limited by bankruptcy, insolvency or other laws or equitable principles of
general application relating to the enforcement of creditors' rights.
6.5 Financial Condition. It has delivered to Lender copies of the
Borrower's most recent audited consolidated financial statements. Such financial
statements, in all material respects, fairly and accurately present the
financial position of Borrower as of such date and have been prepared in
accordance with GAAP and neither contain any untrue statement of a material fact
nor fail to state a material fact required in order to make such financial
statements not misleading. Since the date thereof, Borrower has not discovered
any obligations, liabilities or indebtedness (including contingent and indirect
liabilities and obligations or unusual forward or long-term commitments) which
in the aggregate are material and adverse to the financial position or business
of Borrower that
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should have been but were not reflected in such financial statements. No changes
having a Material Adverse Effect have occurred in the financial condition or
business of Borrower since the date thereof.
6.6 Full Disclosure. There is no material fact that it has not
disclosed to Lender that would have a Material Adverse Effect. No certificate or
statement delivered herewith or heretofore by it to Lender in connection with
negotiations of this Credit Agreement, contains any untrue statement of a
material fact or omits to state any material fact necessary to keep the
statements contained herein or therein from being misleading.
6.7 No Default. No event or condition has occurred and is continuing
that constitutes an Event of Default.
6.8 Significant Debt Agreements. It is not in default in any material
respect under any Significant Debt Agreement.
6.9 No Litigation. There are no actions, suits or legal, equitable,
arbitration or administrative proceedings pending, or to its actual knowledge
overtly threatened, against Borrower that would, if adversely determined, have a
Material Adverse Effect.
6.10 Taxes. It has filed or caused to be filed all returns and reports
which are required to be filed by any jurisdiction, and has paid or made
provision for the payment of all taxes, assessments, fees or other governmental
charges imposed upon its properties, income or franchises, as to which the
failure to file or pay would have a Material Adverse Effect, except such
assessments or taxes, if any, which are being contested in good faith by
appropriate proceedings.
6.11 ERISA. (a) No Reportable Event has occurred and is continuing with
respect to any Plan; (b) PBGC has not instituted proceedings to terminate any
Plan; (c) neither the Borrower, any member of the Controlled Group, nor any
duly-appointed administrator of a Plan (i) has incurred any liability to PBGC
with respect to any Plan other than for premiums not yet due or payable or (ii)
except as disclosed in writing to Lender, has instituted or intends to institute
proceedings to terminate any Plan under Section 4041 or 4041A of ERISA; and (d)
each Plan of Borrower has been maintained and funded in all material respects in
accordance with its terms and in all material respects in accordance with all
provisions of ERISA applicable thereto. Neither the Borrower nor any of its
Subsidiaries participates in, or is required to make contributions to, any
Multi-employer Plan (as that term is defined in Section 3(37) of ERISA) except
as disclosed in writing to Lender.
6.12 Compliance with Law. It is in substantial compliance with all
laws, rules, regulations, orders and decrees that are applicable to it, or its
properties, noncompliance with which would have a Material Adverse Effect.
6.13 Survival of Representations, Etc. All representations and
warranties by Borrower herein shall survive the making of the Loan and the
execution and delivery of the Note; any investigation at any time made by or on
behalf of Lender shall not diminish Lender's right to rely on the
representations and warranties herein.
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6.14 Recitals. The recitals and statements of intent appearing in this
Credit Agreement are true and correct.
6.15 No Stock Purchase. No part of the proceeds of any financial
accommodation made by Lender in connection with this Credit Agreement will be
used to purchase or carry "margin stock," as that term is defined in Regulation
U, or to extend credit to others for the purpose of purchasing or carrying such
margin stock.
6.16 Solvent. It (both before and after giving effect to the Loan
contemplated hereby) is solvent, has assets having a fair value in excess of the
amount required to pay its probable liabilities on its existing debts as they
become absolute and matured, and has, and will have, access to adequate capital
for the conduct of its business and the ability to pay its debts from time to
time incurred in connection therewith as such debts mature.
6.17 Advances. Each request for an Advance or for the extension of any
financial accommodation by Lender whatsoever shall constitute an affirmation
that the representations and warranties contained herein are, true and correct
as of the time of such request. All representations and warranties made herein
shall survive the execution of this Credit Agreement, all advances of proceeds
of the Loan and the execution and delivery of all other documents and
instruments in connection with the Loan and/or this Credit Agreement, so long as
Lender has any commitment to lend hereunder and until the Loan have been paid in
full and all of Borrower's obligations under this Credit Agreement, the Note and
all Security Documents have been fully discharged.
6.18 Title to Collateral. It has good and marketable title to any
Collateral.
6.19 Security Documents. The liens, security interests and assignments
created by the Security Documents will, when granted, be valid, effective and
enforceable liens, security interests and assignments, except to the extent (if
any) otherwise agreed in writing by Lender.
6.20 Environmental Matters. Borrower, to the best of its knowledge
after due investigation, is in compliance in all material respects with all
applicable environmental, health and safety statutes and regulations and
Borrower does not have any material contingent liability in connection with any
improper treatment, storage, disposal or release into the environment of any
hazardous or toxic waste or substance.
6.21 Investment Company Act. Borrower is not, and is not directly or
indirectly controlled by, or acting on behalf of, any person which is, an
"Investment Company" within the meaning of the Investment Company Act of 1940,
as amended.
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ARTICLE 7
AFFIRMATIVE COVENANTS
Until payment in full of the Note and the complete performance of the
Obligation, Borrower agrees that:
7.1 Financial Statements, Reports and Documents. It shall deliver, or
cause to be delivered, to Lender each of the following:
(a) Consolidated Monthly Statements of Borrower. As soon as
available, and in any event within sixty (60) days after the end of
each month of Borrower, copies of the consolidated balance sheet of
Borrower as of the end of such month, and consolidated statements of
income of Borrower for that month and for the portion of the fiscal
year ending with such month, in each case setting forth in comparative
form the figures for the corresponding period of the preceding fiscal
year, all in reasonable detail and fairly stated and prepared in
accordance with GAAP.
(b) Consolidated Annual Statements of Borrower. As soon as
available and in any event within one hundred twenty (120) days after
the close of each fiscal year of Borrower, audited consolidated
financial statements of Borrower, including its consolidated balance
sheet as of the close of such fiscal year and consolidated statements
of income of Borrower for such fiscal year, in each case setting forth
in comparative form the figures for the preceding fiscal year, all in
reasonable detail and accompanied by an unqualified opinion thereon of
independent public accountants of recognized national standing selected
by Borrower and acceptable to Lender, to the effect that such financial
statements have been prepared in accordance with GAAP (except for
changes in which such accountants concur) and that the examination of
such accounts in connection with such financial statements has been
made in accordance with generally accepted auditing standards and,
accordingly, includes such tests of the accounting records and such
other auditing procedures as were considered necessary in the
circumstances.
(c) Quarterly Certificate Respecting Financial Covenants. As
soon as available but in any event within forty-five (45) days after
the end of each fiscal quarter of Borrower hereafter, a certificate
signed by an Authorized Officer of the Borrower, or other financial
officer acceptable to Lender, setting forth in such level of detail as
Lender shall reasonably require a calculation of the Financial
Covenants as of the end of that fiscal quarter.
(d) Annual Tax Return. As soon as available but in any event
within thirty (30) days after its filing, a copy of Borrower's federal
tax return together with all schedules thereto.
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(e) Management Letters. With the audited fiscal year-end
statements submitted under Section 7.1(b) above, the management letter,
if any, of Borrower's certified public accountants issued in connection
with such audit.
(f) Other Information. Such other information concerning the
business, properties or financial condition of Borrower as Lender shall
reasonably request.
7.2 Payment of Taxes and Other Indebtedness. It will pay and discharge
(i) all income taxes and payroll taxes, (ii) all taxes, assessments, fees and
other governmental charges imposed upon it or upon its income or profits, or
upon any property belonging to it, before delinquent, which become due and
payable, (iii) all lawful claims (including claims for labor, materials and
supplies), which, if unpaid, might become a Lien upon any of its property and
(iv) all of its Indebtedness as it becomes due and payable, except as prohibited
hereunder; provided, however, that it shall not be required to pay any such tax,
assessment, charge, levy, claims or Indebtedness if and so long as the amount,
applicability or validity thereof shall currently be contested in good faith by
appropriate actions and appropriate accruals and reserves therefor have been
established in accordance with GAAP.
7.3 Maintenance of Existence and Rights; Conduct of Business. It will
preserve and maintain its corporate existence and all of its rights, privileges,
licenses, permits, franchises and other rights necessary or desirable in the
normal conduct of its business, and conduct its business in an orderly and
efficient manner consistent with good business practices.
7.4 Notice of Default. It will furnish to Lender immediately upon
becoming actually aware of the existence of any event or condition that
constitutes an Event of Default, a written notice specifying the nature and
period of existence thereof and the action which it is taking or proposes to
take with respect thereto.
7.5 Other Notices. It will promptly notify Lender of (a) any Material
Adverse Effect, (b) any waiver, release or default under any Significant Debt
Agreement, (c) any claim not covered by insurance against Borrower or any of
Borrower's properties, and (d) the commencement of, and any material
determination in, any litigation with any third party or any proceeding before
any Governmental Authority affecting it, except litigation or proceedings which,
if adversely determined, would not have a Material Adverse Effect.
7.6 Compliance with Credit Documents. It will comply with any and all
covenants and provisions of this Credit Agreement, the Note and all other Credit
Documents.
7.7 Compliance with Significant Debt Agreements. It will comply in all
material respects with all Significant Debt Agreements.
7.8 Operations and Properties. It will keep in good working order and
condition, ordinary wear and tear excepted, all of its assets and properties
which are necessary to the conduct of its business.
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7.9 Books and Records; Access. It will give any authorized
representative of Lender access during normal business hours to, and permit such
representative to examine, copy or make excerpts from, any and all books,
records and documents in its possession of and relating to the Loan, and to
inspect any of its properties. It will maintain complete and accurate books and
records of its transactions in accordance with good accounting practices.
7.10 Compliance with Law. It will comply with all applicable laws,
rules, regulations, and all final, nonappealable orders of any Governmental
Authority applicable to it or any of its property, business operations or
transactions, a breach of which could result in a Material Adverse Effect.
7.11 Authorizations and Approvals. It will promptly obtain, from time
to time at its own expense, all such governmental licenses, authorizations,
consents, permits and approvals as may be required to enable it to comply with
its obligations hereunder and under the other Credit Documents and to operate
its businesses as presently or hereafter duly conducted.
7.12 ERISA Compliance. With respect to its Plans, it shall (a) at all
times comply with the minimum funding standards set forth in Section 302 of
ERISA and Section 412 of the Code or shall have duly obtained a formal waiver of
such compliance from the proper authority; (b) at Lender's request, within
thirty (30) days after the filing thereof, furnish to Lender copies of each
annual report/return (Form 5500 Series), as well as all schedules and
attachments required to be filed with the Department of Labor and/or the
Internal Revenue Service pursuant to ERISA, in connection with each of its Plans
for each year of the plan; (c) notify Lender within a reasonable time of any
fact, including, but not limited to, any Reportable Event arising in connection
with any of its Plans, which constitutes grounds for termination thereof by the
PBGC or for the appointment by the appropriate United States District Court of a
trustee to administer such Plan, together with a statement, if requested by
Lender, as to the reason therefor and the action, if any, proposed to be taken
with respect thereto; and (d) furnish to Lender within a reasonable time, upon
Lender's request, such additional information concerning any of its Plans as may
be reasonably requested.
7.13 Further Assurances. It will make, execute or endorse, and
acknowledge and deliver or file or cause the same to be done, all such notices,
certifications and additional agreements, undertakings or other assurances, and
take any and all such other action, as Lender may, from time to time, deem
reasonably necessary or proper to fully evidence the Loan.
7.14 News Releases. It shall promptly forward to Lender copies of all
news releases made by it to the news media as to anything of material
significance with respect to its financial status.
7.15 Insurance. It shall maintain in full force and effect at all times
all insurance coverages required under the terms of this Credit Agreement and/or
the Security Documents to which it is a party. In addition, it shall maintain in
full force and effect at all times:
(a) Policies of all risk coverage insurance covering (i) its
real property of every kind and description, and wherever located, in
which Lender has been granted or has obtained a lien to secure any
portion of the Obligation, in respective coverage amounts not less
than, from time to time, the full replacement value of all insurable
improvements situated thereon and (ii) all tangible personalty in which
Lender has
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been granted or obtained a security interest to secure the Obligation,
in respective coverage amounts not less than, from time to time, the
fair market value thereof.
(b) Policies of insurance evidencing personal liability and
property damage liability coverages in amounts not less than $1,000,000
single occurrence and $2,000,000.00 aggregate (combined single limit
for bodily injury and property damage), and an umbrella excess
liability coverage in an amount not less than $20,000,000.00 shall be
in effect with respect to Borrower.
(c) Policies of workers' compensation insurance in amounts and
with coverages as legally required.
Without limitation of the foregoing, it shall at all times maintain insurance
coverages in scope and amount not less than, and not less extensive than, the
scope and amount of insurance coverages customary in the trades or businesses in
which it is from time to time engaged. All of the aforesaid insurance coverages
shall be issued by insurers reasonably acceptable to Lender. Copies of all
policies of insurance evidencing such coverages in effect from time to time
shall be delivered to Lender prior to the initial Advance under this Credit
Agreement and upon reasonable notice upon issuance of new policies thereafter.
From time to time, promptly upon Lender's request, it shall provide evidence
satisfactory to Lender (i) that required coverage in required amounts is in
effect, and (ii) that Lender is shown as an additional loss payee with respect
to all such coverages, as Lender's interest may appear, by standard
(non-attribution) loss payable endorsement, additional insured endorsement,
insurer's certificate or other means acceptable to Lender in its reasonable
discretion. At Lender's option, it shall deliver to Lender certified copies of
all such policies of insurance in effect from time to time, to be retained by
Lender so long as Lender shall have any commitment to lend hereunder and/or any
portion of the Obligation shall be outstanding or unsatisfied. All such
insurance policies shall provide for at least thirty (30) days prior written
notice of the cancellation or modification thereof to Lender.
7.16 Change in Control. Should there be a Change in Control as to
Borrower, the Loan shall be immediately due and payable.
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ARTICLE 8
NEGATIVE COVENANTS
Until payment in full of the Note and the performance of the
Obligation, Borrower agrees that:
8.1 Amendments to Organizational Documents. It will not amend its
organizational documents if the result thereof could result in the occurrence
directly or indirectly of a Material Adverse Effect.
8.2 Margin Stock. It shall not use any proceeds of the Loan, or any
proceeds of any other or future financial accommodation from Lender for the
purpose, whether immediate, incidental or ultimate, of purchasing or carrying
any "margin stock" as that term is defined in Regulation U or to reduce or
retire any indebtedness undertaken for such purposes within the meaning of said
Regulation U, and will not use such proceeds in a manner that would involve
Borrower in a violation of Regulation U or of any other Regulation of the Board
of Governors of its Federal Reserve System, nor use such proceeds for any
purpose not permitted by Section 7 of the Exchange Act, or any of the rules or
regulations respecting the extensions of credit promulgated thereunder.
8.3 Fiscal Year. Except with prior notice to Lender, it will not change
the times of commencement or termination of its fiscal year or other accounting
periods; or change its methods of accounting other than to conform to GAAP
applied on a consistent basis. After any such changes, its method of accounting
shall conform to GAAP.
8.4 Liens. On and after the date hereof, it will not create or suffer
to exist Liens upon the Collateral, except (i) Liens, if any, for the benefit of
Lender, and (ii) Permitted Liens.
8.5 Merger, Sale of Assets. It will not, without Lender's prior written
consent: (i) sell, lease, transfer or dispose of substantially all of its assets
to another entity; or (ii) consolidate with or merge into another entity, permit
any other entity to merge into it or consolidate with it, or permit any transfer
of the ownership of, or power to control, Borrower.
8.6 Insider Loan or Dividends. It will neither make Loan, receivables
or investments, on a consolidated basis, to officers of Borrower or any other
companies of said officers, except for normal advances for travel and
entertainment, nor declare or pay cash dividends.
8.7 Transfer Collateral. It will not assign, transfer or convey any of
its right, title and interest in the Collateral (whether real or personal)
encumbered by the Security Documents.
8.8 Financial Covenants. It will not permit at the end of any fiscal
quarter:
(a) Its Tangible Net Worth to be less than $19,000,000.00;
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(b) Its Tangible Owner's Equity Percentage to be less than
thirty-three percent (33.0%) prior to the December 31, 1997 fiscal
quarter end, or forty percent (40.0%) thereafter;
(c) Its Current Ratio to be less than 1.25 to 1.0; or
(d) Its Debt Coverage Ratio for the prior four (4) quarters to
be less than 1.50 to 1.0;
where:
"Tangible Net Worth" means Net Worth plus Subordinated
Indebtedness.
"Net Worth" means the sum of the following: capital, capital
surplus and retained earnings, less the sum of the value of Borrower's
books of all intangible assets, including, but not limited to,
goodwill, patents, franchises, trademarks, copyrights and the write-up
in the book value of any assets resulting therefrom after acquisition.
"Subordinated Indebtedness" means any and all Indebtedness of
Borrower to any other creditor, the repayment of which is subordinated
in writing to that of Lender.
"Tangible Owner's Equity Percentage" means the results
obtained by dividing (A) Tangible Net Worth, by (B) Borrower's total
assets less its Tangible Net Worth.
"Debt Coverage Ratio" means the results obtained by dividing
(A) the sum of (A) its net profit after taxes, less its cash dividends,
plus its depreciation and amortization, plus or less any change in its
deferred taxes, by (B) the current maturities of its long-term debt for
its prior period.
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ARTICLE 9
EVENTS OF DEFAULT
9.1 Events of Default. An "Event of Default" shall exist if any one or
more of the following events (herein collectively called "Events of Default")
shall occur and be continuing:
(a) Borrower shall fail to pay any principal of, or interest
on, the Note when the same shall become due or payable;
(b) Any failure or neglect to perform or observe any of the
covenants, conditions, provisions or agreements of Borrower contained
herein, or in any of the other Credit Documents or of a Guarantor in
any of the other Credit Documents;
(c) Any warranty, representation or statement contained in
this Credit Agreement or any of the other Credit Documents, or which is
contained in any certificate or statement furnished or made to Lender
pursuant hereto or in connection herewith or with the Loan, shall be or
shall prove to have been false when made or furnished;
(d) The occurrence of any"event of default" or "default" by
Borrower or a Guarantor under any Security Document, any other Credit
Document or any agreement, now or hereafter existing, to which Lender
or an Affiliate of Lender, and Borrower or a Guarantor are a party,
including without limitation the Other Credits;
(e) Borrower shall (i) fail to pay any Indebtedness of
Borrower (other than the Note) due under any Significant Debt
Agreement, or any interest or premium thereon, when due (whether by
scheduled maturity, required prepayment, acceleration, demand, or
otherwise) or within any applicable grace period, (ii) fail to perform
or observe any term, covenant, or condition on its part to be performed
or observed under any agreement or instrument relating to such
Indebtedness, within any applicable grace period when required to be
performed or observed, if the effect of such failure to perform or
observe is to accelerate the maturity of such Indebtedness, or any such
Indebtedness shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled prepayment), prior to the
stated maturity thereof, or (iii) allow the occurrence of any material
event of default with respect to such Indebtedness;
(f) Any one or more of the Credit Documents shall have been
determined to be invalid or unenforceable against Borrower executing
the same in accordance with the respective terms thereof, or shall in
any way be terminated or become or be declared ineffective or
inoperative, so as to deny Lender the substantial benefits contemplated
by such Credit Document or Credit Documents;
(g) Borrower or any Guarantor shall (i) apply for or consent
to the appointment of a receiver, trustee, custodian, intervenor or
liquidator of itself or of
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all or a substantial part of its assets, (ii) file a voluntary petition
in bankruptcy or admit in writing that it is unable to pay its debts as
they become due, (iii) make a general assignment for the benefit of
creditors, (iv) file a petition or answer seeking reorganization of an
arrangement with creditors or to take advantage of any bankruptcy or
insolvency laws, (v) file an answer admitting the material allegations
of, or consent to, or default in answering, a petition filed against it
in any bankruptcy, reorganization or insolvency proceeding, or (vi)
take corporate action for the purpose of effecting any of the
foregoing;
(h) An involuntary petition or complaint shall be filed
against Borrower or any Guarantor seeking bankruptcy or reorganization
of Borrower, or the appointment of a receiver, custodian, trustee,
intervenor or liquidator of Borrower, or all or substantially all of
its assets, and such petition or complaint shall not have been
dismissed within sixty (60) days of the filing thereof; or an order,
order for relief, judgment or decree shall be entered by any court of
competent jurisdiction or other competent authority approving a
petition or complaint seeking reorganization of Borrower, appointing a
receiver, custodian, trustee, intervenor or liquidator of Borrower, or
all or substantially all of its assets, and such order, judgment or
decree shall continue unstayed and in effect for a period of sixty (60)
days;
(i) Any final judgment(s) (excluding those the enforcement of
which is suspended pending appeal) for the payment of money in excess
of the sum of $100,000.00 in the aggregate (other than any judgment
covered by insurance where coverage has been acknowledged by the
insurer) shall be rendered against Borrower, and such judgment or
judgments shall not be satisfied, settled, bonded or discharged at
least ten (10) days prior to the date on which any of its assets could
be lawfully sold to satisfy such judgment;
(j) Either (i) proceedings shall have been instituted to
terminate, or a notice of termination shall have been filed with
respect to, any Plans (other than a Multi-Employer Pension Plan as that
term is defined in Section 4001(a)(3) of ERISA) by Borrower, any member
of the Controlled Group, PBGC or any representative of any thereof, or
any such Plan shall be terminated, in each case under Section 4041 or
4042 of ERISA, and such termination shall give rise to a liability of
the Borrower or the Controlled Group to the PBGC or the Plan under
ERISA having an effect in excess of $100,000.00 or (ii) a Reportable
Event, the occurrence of which would cause the imposition of a lien in
excess of $100,000.00 under Section 4062 of ERISA, shall have occurred
with respect to any Plan (other than a Multi-Employer Pension Plan as
that term is defined in Section 4001(a)(3) of ERISA) and be continuing
for a period of sixty (60) days;
(k) Any of the following events shall occur with respect to
any Multi-Employer Pension Plan (as that term is defined in Section
4001(a)(3) of ERISA) to which Borrower contributes or contributed on
behalf of its employees and Lender determines in good faith that the
aggregate liability likely to be incurred by Borrower, as a result of
any of the events specified in Subsections (i), (ii) and (iii)
-33-
<PAGE> 35
below, will have an effect in excess of $100,000.00; (i) Borrower
incurs a withdrawal liability under Section 4201 of ERISA; (ii) any
such plan is "in reorganization" as that term is defined in Section
4241 of ERISA; or (iii) any such Plan is terminated under Section 4041A
of ERISA;
(l) The occurrence of a Change in Control without the written
consent of Lender;
(m) The dissolution, liquidation, sale, transfer, lease or
other disposal of all or substantially all of the assets or business of
Borrower;
(n) Any levy or execution upon, or judicial seizure of, any
property of Borrower that has a fair market value in excess of
$100,000.00 or any Collateral that is not bonded or released within
thirty (30) days;
(o) Any attachment or garnishment of, or the existence or
filing of any lien or encumbrance other than any Permitted Exceptions
against, any portion of the Collateral that is not removed or released
within thirty (30) days after its creation;
(p) The institution of any legal action or proceedings to
enforce any lien or encumbrance upon any portion of the Collateral that
is not dismissed within fifteen (15) days after its institution;
(q) Any failure to comply with a Financial Covenant; or
(r) The occurrence of any adverse change in the financial
condition of Borrower that Lender, in its reasonable discretion, deems
material, or if Lender in good faith shall believe that the prospect of
payment or performance of the Loan is impaired.
9.2 Remedies Upon Event of Default. If an Event of Default shall have
occurred and be continuing, then Lender may, at its sole option, exercise any
one or more of the following rights and remedies, and any other remedies
provided in any of the Credit Documents, as Lender in its sole discretion may
deem necessary or appropriate, all of which remedies shall be deemed cumulative,
and not alternative:
(i) cease making Advances or extensions of financial
accommodations in any form to or for the benefit of Borrower
and declare the principal of, and all interest then accrued
on, the Note and any other liabilities hereunder to be
forthwith due and payable, whereupon the same shall become
immediately due and payable without presentment, demand,
protest, notice of default, notice of acceleration or of
intention to accelerate or other notice of any kind all of
which Borrower hereby expressly waives, anything contained
herein or in the Note to the contrary notwithstanding;
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<PAGE> 36
(ii) reduce any claim to judgment; and/or
(iii) without notice of default or demand, pursue and
enforce any of Lender' rights and remedies under the Credit
Documents, or otherwise provided under or pursuant to any
applicable law or agreement; provided, however, that if any
Event of Default specified in Sections 9.1(g) and 9.1(h) shall
occur, the principal of, and all interest on, the Note and
other liabilities hereunder shall thereupon become due and
payable concurrently therewith, without any further action by
Lender and without presentment, demand, protest, notice of
default, notice of acceleration or of intention to accelerate
or other notice of any kind, all of which Borrower hereby
expressly waives.
Upon the occurrence and during the continuance of any Event of Default,
Lender is hereby authorized at any time and from time to time, without notice to
Borrower (any such notice being expressly waived by Borrower), to set off and
apply any and all moneys, securities or other property of Borrower and the
proceeds therefrom, now or hereafter held or received by or in transit to Lender
or its agents, from or for the account of Borrower, whether for safe keeping,
custody, pledge, transmission, collection or otherwise, and also upon any and
all deposits (general or special) and credits of Borrower, and any and all
claims of Borrower against Lender at any time existing. Lender agrees promptly
to notify Borrower after any such setoff and application, provided that the
failure to give such notice shall not affect the validity of such setoff and
application. The rights of Lender under this Section 9.2 are in addition to
other rights and remedies (including, without limitation, other rights of
setoff) which Lender may have.
9.3 Performance by Lender. Should Borrower fail to perform any
covenant, duty or agreement with respect to the payment of taxes, obtaining
licenses or permits, or any other requirement contained herein or in any of the
Credit Documents within the period provided herein, if any, for correction of
such failure, Lender may, at its option, perform or attempt to perform such
covenant, duty or agreement on behalf of Borrower. In such event, Borrower
shall, at the request of Lender, promptly pay any amount expended by Lender in
such performance or attempted performance to Lender at its main office in
Phoenix, Arizona, together with interest thereon at the Default Rate, from the
date of such expenditure until paid. Notwithstanding the foregoing, it is
expressly understood that Lender does not assume any liability or responsibility
for the performance of any duties of Borrower hereunder or under any of the
Credit Documents or other control over the management and affairs of Borrower.
-35-
<PAGE> 37
ARTICLE 10
MISCELLANEOUS
10.1 Modification. All modifications, consents, amendments or waivers
of any provision of any Loan Document, or consent to any departure by Borrower
therefrom, shall be effective only if the same shall be in writing and accepted
by Lender.
10.2 Waiver. No failure to exercise, and no delay in exercising, on the
part of Lender, any right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise thereof preclude any other further exercise
thereof or the exercise of any other right. The rights of Lender hereunder and
under the Credit Documents shall be in addition to all other rights provided by
law. No modification or waiver of any provision of this Credit Agreement, the
Note or any Credit Documents, nor consent to departure therefrom, shall be
effective unless in writing and no such consent or waiver shall extend beyond
the particular case and purpose involved. No notice or demand given in any case
shall constitute a waiver of the right to take other action in the same, similar
or other instances without such notice or demand.
10.3 Payment of Expenses. Borrower shall pay all costs and expenses of
Lender (including, without limitation, the attorneys' fees of Lender's legal
counsel) incurred by Lender in connection with the documentation of the Loan,
and the preservation and enforcement of Lender's rights under this Credit
Agreement, the Note, and/or the other Credit Documents; provided, however, that
notwithstanding the aforesaid, with respect to any legal action between the
parties hereto that is pursued to judgment the prevailing party only shall be
reimbursed by the other party for all costs and expenses (including, without
limitation, reasonable attorneys' fees and costs) incurred in connection with
the preservation and enforcement of its rights under this Credit Agreement, the
Note and/or other Credit Documents. In addition, Borrower shall pay all costs
and expenses of Lender in connection with the negotiation, preparation,
execution and delivery of any and all amendments, modifications and supplements
of or to this Credit Agreement, the Note or any other Loan Document.
10.4 Notices. Except for telephonic notices permitted herein, any
notices or other communications required or permitted to be given by this Credit
Agreement or any other documents and instruments referred to herein must be (i)
given in writing and personally delivered or mailed by prepaid certified or
registered mail, or (ii) made by telefacsimile delivered or transmitted, to the
party to whom such notice or communication is directed, to the address of such
party as follows:
Borrower: Schuff Steel Company
Post Office Box 39670
Phoenix, Arizona 85069
Lender: Bank One, Arizona, NA
Post Office Box 71
Phoenix, Arizona 85001
Attention: Commercial Banking AZ1-1178
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<PAGE> 38
Any notice to be personally delivered may be delivered to the principal offices
(determined as of the date of such delivery) of the party to whom such notice is
directed. Any such notice or other communication shall be deemed to have been
given (whether actually received or not) on the day it is personally delivered
as aforesaid; or, if mailed, on the third day after it is mailed as aforesaid;
or, if transmitted by telefacsimile, on the day that such notice is transmitted
as aforesaid. Any party may change its address for purposes of this Credit
Agreement by giving notice of such change to the other parties pursuant to this
Section 10.4.
10.5 Governing Law. This Credit Agreement has been prepared, is being
executed and delivered, and is intended to be performed in the State of Arizona.
The substantive laws of the State of Arizona and the applicable federal laws of
the United States of America shall govern the validity, construction,
enforcement and interpretation of this Credit Agreement and all of the other
Credit Documents, without regard to Arizona conflicts of law rules.
10.6 Invalid Provisions. If any provision of any Loan Document is held
to be illegal, invalid or unenforceable under present or future laws during the
term of this Credit Agreement, such provision shall be fully severable; such
Loan Document shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of such Loan Document; and
the remaining provisions of such Loan Document shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance from such Loan Document. Furthermore, in lieu of
each such illegal, invalid or unenforceable provision there shall be added as
part of such Loan Document a provision mutually agreeable to Borrower and Lender
as similar in terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable.
10.7 Binding Effect. The Credit Documents shall be binding upon and
inure to the benefit of Borrower and Lender and their respective successors,
assigns and legal representatives; provided, however, that Borrower may not,
without the prior written consent of Lender, assign any rights, powers, duties
or obligations thereunder.
10.8 Entirety. The Credit Documents embody the entire agreement between
the parties and supersede all prior agreements and understandings, if any,
relating to the subject matter hereof and thereof.
10.9 Time. Time is of the essence hereof.
10.10 Headings. Section headings are for convenience of reference only
and shall in no way affect the interpretation of this Credit Agreement.
10.11 Survival. All representations and warranties made by Borrower
herein shall survive delivery of the Note and the making of the Loan.
10.12 No Third Party Beneficiary. The parties do not intend the
benefits of this Credit Agreement to inure to any third party, nor shall this
Credit Agreement be construed to make or render Lender liable to any
materialman, supplier, contractor, subcontractor, purchaser or lessee of any
property owned by Borrower, or for debts or claims accruing to any such persons
against
-37-
<PAGE> 39
Borrower. Notwithstanding anything contained herein or in the Note, or in any
other Loan Document, or any conduct or course of conduct by any or all of the
parties hereto, before or after signing this Credit Agreement or any of the
other Credit Documents, neither this Credit Agreement nor any other Loan
Document shall be construed as creating any right, claim or cause of action
against Lender, or any of its officers, directors, agents or employees, in favor
of any materialman, supplier, contractor, subcontractor, purchaser or lessee of
any property owned by Borrower, nor to any other person or entity other than
Borrower.
10.13 Indemnity. Borrower agrees to and shall indemnify, hold harmless
and defend Lender from any liability, claims or losses resulting from the
disbursement of the proceeds of the Loan. This provision shall survive repayment
of the Loan and shall continue in full force and effect so long as the
possibility of such liability, claims or losses exists.
10.14 Schedules and Exhibits Incorporated. All schedules and exhibits
attached hereto, if any, are hereby incorporated into this Credit Agreement by
each reference thereto as if fully set forth at each such reference.
10.15 Counterparts. This Credit Agreement may be executed in multiple
counterparts, each of which, when so executed, shall be deemed an original but
all such counterparts shall constitute but one and the same agreement.
IN WITNESS WHEREOF, the undersigned have executed this Credit Agreement
as of the day and year first above written.
SCHUFF STEEL COMPANY, a Delaware
corporation
By
Its
BANK ONE, ARIZONA, NA, a national banking
association
By
Its
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<PAGE> 40
CONSENT OF B&K
The undersigned hereby consents to those financial accommodations
extended by Bank One, Arizona, NA ("Lender") to Schuff Steel Company, a Delaware
corporation ("Borrower"), pursuant to that Credit Agreement dated as of December
10, 1997 between the Borrower and Lender and agrees that its guaranty delivered
to Lender with respect to all the indebtedness of Borrower to Lender continues
in full force and effect.
B&K STEEL FABRICATIONS, INC., an Arizona
corporation
By:
Name:
Its:
<PAGE> 41
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
RECITALS..........................................................................................................1
ARTICLE 1 DEFINITION OF TERMS.........................................................................2
1.1 Definitions.................................................................................2
1.2 Terms Generally.............................................................................9
ARTICLE 2 THE LINE OF CREDIT LOAN....................................................................10
2.1 Line of Credit Commitment..................................................................10
2.2 Line of Credit.............................................................................10
2.3 Line of Credit Note........................................................................10
2.4 Line of Credit Payments and Line of Credit Advances........................................10
2.5 Uses of Line of Credit Advances............................................................13
2.6 Principal Prepayments......................................................................15
2.7 Method of Payment..........................................................................16
2.8 Conditions.................................................................................17
2.9 Other Line of Credit Advances by Lender....................................................17
2.10 Assignment.................................................................................17
ARTICLE 3 NON-USE FEE................................................................................18
3.1 Non-Use Fee................................................................................18
ARTICLE 4 SECURITY...................................................................................19
4.1 Security...................................................................................19
4.2 Guaranties.................................................................................19
4.3 Security Documents.........................................................................19
ARTICLE 5 CONDITIONS PRECEDENT.......................................................................21
5.1 Initial or any Subsequent Advance..........................................................21
5.2 No Event of Default........................................................................22
5.3 No Material Adverse Change.................................................................22
5.4 Representations and Warranties.............................................................22
ARTICLE 6 REPRESENTATIONS AND WARRANTIES.............................................................23
6.1 Organization and Good Standing.............................................................23
6.2 Authorization and Power....................................................................23
6.3 No Conflicts or Consents...................................................................23
6.4 Enforceable Obligations....................................................................23
6.5 Financial Condition........................................................................23
6.6 Full Disclosure............................................................................24
6.7 No Default.................................................................................24
6.8 Significant Debt Agreements................................................................24
6.9 No Litigation..............................................................................24
-i-
</TABLE>
<PAGE> 42
<TABLE>
<S> <C>
6.10 Taxes......................................................................................24
6.11 ERISA......................................................................................24
6.12 Compliance with Law........................................................................24
6.13 Survival of Representations, Etc...........................................................25
6.14 Recitals...................................................................................25
6.15 No Stock Purchase..........................................................................25
6.16 Solvent....................................................................................25
6.17 Advances...................................................................................25
6.18 Title to Collateral........................................................................25
6.19 Security Documents.........................................................................25
6.20 Environmental Matters......................................................................25
6.21 Investment Company Act.....................................................................25
ARTICLE 7 AFFIRMATIVE COVENANTS......................................................................26
7.1 Financial Statements, Reports and Documents................................................26
7.2 Payment of Taxes and Other Indebtedness....................................................27
7.3 Maintenance of Existence and Rights; Conduct of Business...................................27
7.4 Notice of Default..........................................................................27
7.5 Other Notices..............................................................................27
7.6 Compliance with Credit Documents...........................................................27
7.7 Compliance with Significant Debt Agreements................................................27
7.8 Operations and Properties..................................................................27
7.9 Books and Records; Access..................................................................28
7.10 Compliance with Law........................................................................28
7.11 Authorizations and Approvals...............................................................28
7.12 ERISA Compliance...........................................................................28
7.13 Further Assurances.........................................................................28
7.14 News Releases..............................................................................28
7.15 Insurance..................................................................................28
7.16 Change in Control..........................................................................29
ARTICLE 8 NEGATIVE COVENANTS.........................................................................30
8.1 Amendments to Organizational Documents.....................................................30
8.2 Margin Stock...............................................................................30
8.3 Fiscal Year................................................................................30
8.4 Liens......................................................................................30
8.5 Merger, Sale of Assets.....................................................................30
8.6 Insider Loan or Dividends..................................................................30
8.7 Transfer Collateral........................................................................30
8.8 Financial Covenants........................................................................30
ARTICLE 9 EVENTS OF DEFAULT..........................................................................32
9.1 Events of Default..........................................................................32
9.2 Remedies Upon Event of Default.............................................................34
9.3 Performance by Lender......................................................................35
-ii-
</TABLE>
<PAGE> 43
<TABLE>
<S> <C>
ARTICLE 10 MISCELLANEOUS..............................................................................37
10.1 Modification...............................................................................37
10.2 Waiver.....................................................................................37
10.3 Payment of Expenses........................................................................37
10.4 Notices....................................................................................37
10.5 Governing Law..............................................................................38
10.6 Invalid Provisions.........................................................................38
10.7 Binding Effect.............................................................................38
10.8 Entirety...................................................................................38
10.9 Time.......................................................................................38
10.10 Headings...................................................................................39
10.11 Survival...................................................................................39
10.12 No Third Party Beneficiary.................................................................39
10.13 Indemnity..................................................................................39
10.14 Schedules and Exhibits Incorporated........................................................39
10.15 Counterparts...............................................................................40
</TABLE>
Exhibit "A" - Form of Pledge Agreement
Exhibit "B" - Form of Guaranty
Exhibit "C" - Form of Security Agreement
Exhibit "D" - Form of Deed of Trust
Exhibit "E" - Form of Environmental Indemnity Agreement
-iii-
<PAGE> 44
EXHIBIT "A"
FORM OF PLEDGE AGREEMENT
<PAGE> 45
EXHIBIT "B"
FORM OF GUARANTY
<PAGE> 46
EXHIBIT "C"
FORM OF SECURITY AGREEMENT
<PAGE> 47
EXHIBIT "D"
FORM OF DEED OF TRUST
<PAGE> 48
EXHIBIT "E"
FORM OF ENVIRONMENTAL INDEMNITY AGREEMENT
<PAGE> 49
EXHIBIT "A"
PLEDGE AND IRREVOCABLE PROXY SECURITY AGREEMENT
THIS PLEDGE AND IRREVOCABLE PROXY SECURITY AGREEMENT is made and
entered into as of the _____ day of _____________, 19___, by SCHUFF STEEL
COMPANY, a Delaware corporation (hereinafter called "Pledgor"), whose chief
executive office is located at Post Office Box 39670, Phoenix, Arizona 85069, in
favor of BANK ONE, ARIZONA, NA, a national banking association, and its
successors and assigns (hereinafter called "Secured Party"), whose address is
Post Office Box 71, Phoenix, Arizona 85001, Attention: Commercial Banking Dept.
AZ1-1178.
1. RECITALS
1.1 Secured Party has agreed to make certain financial accommodations
to Pledgor (hereinafter when referred to in this capacity called "Borrower").
1.2 Secured Party's agreement to make financial accommodations to
Pledgor is conditioned upon Secured Party's receiving a pledge and security
interest in all stock and securities issued by the Company (as defined on
Schedule A attached hereto) now owned or hereafter acquired by Pledgor.
1.3 Pledgor is the owner of _______________ shares of the stock of the
Company that are described on Schedule A and Pledgor desires to pledge them to
Secured Party in connection with Secured Party's financial accommodations to
Pledgor.
2. PLEDGE OF STOCK
2.1 Pledgor hereby assigns, transfers, pledges and delivers to Secured
Party and grants Secured Party a security interest in all issued and outstanding
stock in the Company now owned or hereafter acquired by Pledgor, including
without limitation the stock described on Schedule "A" attached hereto and by
this reference made a part hereof, together with all earnings thereon, all
additions thereto, all proceeds thereof from sale or otherwise, all
substitutions therefor, and all securities issued with respect thereto as a
result of any stock dividend, stock split, warrants or other rights,
reclassification, readjustment or other change in the capital structure of the
Company, and the securities of any corporation or other properties received upon
the conversion or exchange thereof pursuant to any merger, consolidation,
reorganization, sale of assets or other agreement or received upon any
liquidation of the Company or such other corporation (all hereinafter called the
"Pledged Securities").
2.2 Upon the execution of this Agreement, Pledgor shall deliver to
Secured Party certificates for the Pledged Securities, together with appropriate
stock transfer powers therefor duly executed by Pledgor in blank substantially
in the form attached hereto as Exhibit 1. Immediately upon receipt, Pledgor
shall deliver to Secured Party all certificates and other evidences of the
Pledged Securities that come into the possession, custody or control of Pledgor,
together with
<PAGE> 50
appropriate stock transfer powers therefor duly executed by Pledgor in blank,
and any other property constituting part of the Pledged Securities, free and
clear of any prior lien, claim, charge or encumbrance.
2.3 Secured Party may receive, hold and/or dispose of the Pledged
Securities subject and pursuant to all the terms, conditions and provisions
hereof and of the Loan Agreement (defined below) until the Obligation (defined
below) has been discharged in full. Secured Party is hereby authorized and
empowered to take any and all action with respect to such property as authorized
hereunder. In its discretion and without notice to Pledgor, Secured Party may
take any one or more of the following actions, without liability except to
account for property actually received by it:
(a) transfer to or register in its name or the name of its
nominee any of the Pledged Securities, with or without indication of
the security interest herein created, and whether or not so transferred
or registered, receive the income, dividends and other distributions
thereon and hold them or apply them to the Obligation in any order of
priority;
(b) exercise or cause to be exercised all voting and corporate
powers with respect to any of the Pledged Securities so registered or
transferred, including all rights of conversion, exchange, subscription
or any other rights, privileges or options pertaining to such Pledged
Securities, as if the absolute owner thereof;
(c) insure any of the Pledged Securities;
(d) exchange any of the Pledged Securities for other property
upon a reorganization, recapitalization or other readjustment and, in
connection therewith, deposit any of the Pledged Securities with any
committee or depositary upon such terms as the Secured Party may
determine;
(e) in its name, or in the name of Pledgor, demand, sue for,
collect or receive any money or property at any time payable or
receivable on account of, or in exchange for, any of the Pledged
Securities and, in connection therewith, endorse notes, checks, drafts,
money orders, documents of title or other evidences of payment,
shipment or storage in the name of Pledgor; and
(f) make any compromise or settlement deemed advisable with
respect to any of the Pledged Securities.
Secured Party shall be under no duty to exercise, or to withhold the exercise
of, any of the rights, powers, privileges and options expressly or implicitly
granted to Secured Party in this Agreement, and shall not be responsible for any
failure to do so or delay in so doing.
3. OBLIGATION SECURED
This Agreement shall secure, in such order of priority as Secured Party
may elect:
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<PAGE> 51
(a) Payment of the sum of $10,000,000.00 with interest
thereon, extension and other fees, late charges, prepayment premiums
and attorneys' fees, according to the terms of that Promissory Note
dated December 10, 1997, made by Pledgor, payable to the order of
Secured Party, and all extensions, modifications, renewals or
replacements thereof (hereinafter called the "Line Note");
(b) Payment of the sum of $10,000,000.00 according to the
terms of that Promissory Note dated June 30, 1995, made by Pledgor,
payable to the order of Secured Party, evidencing a revolving line of
credit, all or any part of which may be advanced to Pledgor, repaid by
Pledgor and readvanced to Pledgor, from time to time, subject to the
terms and conditions thereof, with interest thereon, extension and
other fees, late charges, prepayment premiums and attorneys' fees,
according to the terms thereof, and all extensions, modifications,
renewals or replacements thereof (hereinafter called with the Line Note
the "Note");
(c) Payment, performance and observance by Pledgor of each
covenant, condition, provision and agreement contained herein and of
all monies expended or advanced by Secured Party pursuant to the terms
hereof, or to preserve any right of Secured Party hereunder, or to
protect or preserve the Pledged Securities or any part thereof;
(d) Payment, performance and observance by Pledgor of each
covenant, condition, provision and agreement contained in that Credit
Agreement dated December 10, 1997, by and between Pledgor and Secured
Party (hereinafter called the "Loan Agreement") and in any other
document or instrument related to the indebtedness hereby secured and
of all monies expended or advanced by Secured Party pursuant to the
terms thereof or to preserve any right of Secured Party thereunder; and
(e) Payment and performance of any and all other indebtedness,
obligations and liabilities of Pledgor to Secured Party of every kind
and character, direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter incurred, whether such
indebtedness is from time to time reduced and thereafter increased or
entirely extinguished and thereafter reincurred.
All of the indebtedness and obligations secured by this Agreement are
hereinafter collectively called the "Obligation."
4. REPRESENTATIONS AND WARRANTIES OF PLEDGOR
Pledgor hereby represents and warrants that:
4.1 The address of Pledgor set forth at the beginning of this Agreement
is the chief executive office of Pledgor.
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<PAGE> 52
4.2 The Pledged Securities are and shall be duly and validly issued and
pledged in accordance with applicable law, and this Agreement shall not
contravene any law, agreement or commitment binding Pledgor or the Company, and
Pledgor shall defend the right, title, lien and security interest of Secured
Party in and to the Pledged Securities against the claims and demands of all
persons and other entities whatsoever.
4.3 Pledgor has the right, power and authority to convey good and
marketable title to the Pledged Securities; and the Pledged Securities and the
proceeds thereof are and shall be free and clear of all claims, mortgages,
pledges, liens, encumbrances and security interest of every nature whatsoever
other than as imposed hereby or as set forth, if at all, on Schedule "A"
attached hereto.
5. IRREVOCABLE PROXY
5.1 Pledgor irrevocably constitutes and appoints Secured Party, whether
or not the Pledged Securities have been transferred into the name of Secured
Party or its nominee, as Pledgor's proxy with full power, in the same manner, to
the same extent and with the same effect as if Pledgor were to do the same, in
the sole discretion of Secured Party:
(a) To call a meeting of the stockholders of the Company and
to vote the Pledged Securities, to seek the consent of such
stockholders, to remove the directors of the Company, or any of them,
and to elect new directors of the Company, who thereafter shall manage
the affairs of the Company, operate its properties and carry on its
business, and otherwise take any action with respect to the business,
properties and affairs of the Company that such new directors shall
deem necessary or appropriate, including, but not limited to, the
maintenance, repair, renewal or alteration of any or all of the
properties of the Company, the leasing, subleasing, sale or other
disposition of any or all of such properties, the borrowing of money on
the credit of the Company (whether from Secured Party or others) that
in the judgment of such new directors shall be necessary to preserve
any of such properties or to discharge the obligations of the Company,
and the employment of any or all agents, attorneys, counsel, or other
employees as deemed by such new directors to be necessary for the
proper operation or conduct of the business, properties and affairs of
the Company;
(b) To consent to any and all actions by or with respect to
the Company for which consent of the stockholders of the Company is or
may be necessary or appropriate; and
(c) Without limitation, to do all things that Pledgor can do
or could do as stockholder of the Company, giving Secured Party full
power of substitution and revocation;
provided, however, that (i) the foregoing irrevocable proxy shall not be
exercisable by Secured Party, and Pledgor alone shall have the foregoing powers,
so long as there is no Event of Default hereunder, and (ii) this irrevocable
proxy shall terminate at such time as this Agreement is no longer in full force
and effect. The foregoing proxy is coupled with an interest sufficient in law to
support an
-4-
<PAGE> 53
irrevocable power and shall be irrevocable and shall survive the death or
incapacity of Pledgor. Pledgor hereby revokes any proxy or proxies heretofore
given to any person or persons and agrees not to give any other proxies in
derogation hereof until such time as this Agreement is no longer in full force
and effect.
6. COVENANTS OF PLEDGOR
6.1 Pledgor shall not sell, transfer, assign or otherwise dispose of
any of the Pledged Securities or any interest therein without obtaining the
prior written consent of Secured Party and shall keep the Pledged Securities
free of all security interests or other encumbrances except the lien and
security interests granted herein.
6.2 Pledgor shall pay when due all taxes, assessments, expenses and
other charges which may be levied or assessed against the Pledged Securities.
6.3 Pledgor shall give Secured Party immediate written notice of any
change in Pledgor's name as set forth above and of any change in the location of
Pledgor's chief executive office (or residence if Pledgor is an individual
without an office).
6.4 Pledgor, at its cost and expense, shall protect and defend the
Pledged Securities, this Agreement and all of the rights of Secured Party
hereunder against all claims and demands of other parties. Pledgor shall pay all
claims and charges that in the opinion of Secured Party might prejudice, imperil
or otherwise affect the Pledged Securities. Pledgor shall promptly notify
Secured Party of any levy, distraint or other seizure, by legal process or
otherwise, of all or any part of the Pledged Securities and of any threatened or
filed claims or proceedings that might in any way affect or impair the terms of
this Agreement.
6.5 If Pledgor shall fail to pay any taxes, assessments, expenses or
charges, to keep all of the Pledged Securities free from other security
interests, encumbrances or claims, or to perform otherwise as required herein,
Secured Party may advance the monies necessary to pay the same or to so perform.
6.6 All rights, powers and remedies granted Secured Party herein, or
otherwise available to Secured Party, are for the sole benefit and protection of
Secured Party, and Secured Party may exercise any such right, power or remedy at
its option and in its sole and absolute discretion without any obligation to do
so. In addition, if, under the terms hereof, Secured Party is given two or more
alternative courses of action, Secured Party may elect any alternative or
combination of alternatives at its option and in its sole and absolute
discretion. All monies advanced by Secured Party under the terms hereof, all
amounts paid, suffered or incurred by Secured Party under the terms hereof and
all amounts paid, suffered or incurred by Secured Party in exercising any
authority granted herein, including reasonable attorneys' fees, shall be added
to the Obligation, shall be secured hereby, shall bear interest at the highest
rate payable on any of the Obligation until paid, and shall be due and payable
by Pledgor to Secured Party immediately without demand.
6.7 Secured Party shall use such reasonable care in handling,
preserving and protecting the Pledged Securities in its possession as it uses in
handling similar property for its own account.
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<PAGE> 54
Secured Party, however, shall have no liability for the loss, destruction or
disappearance of any Pledged Securities unless there is affirmative proof of a
lack of due care; the lack of due care shall not be implied solely by virtue of
any loss, destruction or disappearance. Secured Party shall not be required to
take any steps necessary to preserve any rights in the Pledged Securities
against prior parties or to protect, perfect, preserve or maintain any security
interest given to secure the Pledged Securities.
6.8 Immediately upon demand by Secured Party, Pledgor shall execute and
deliver to Secured Party such other and additional applications, acceptances,
stock powers, authorizations, irrevocable proxies, dividend and other orders,
chattel paper, instruments or other evidences of payment and such other
documents as Secured Party may reasonably request to secure to Secured Party the
rights, powers and authorities intended to be conferred upon Secured Party by
this Agreement. All assignments and endorsements by Pledgor shall be in such
form and substance as may be satisfactory to Secured Party.
7. EVENTS OF DEFAULT; REMEDIES
7.1 "Event of Default" hereunder shall mean any "Event of Default" as
defined in the Loan Agreement.
7.2 Upon the occurrence of any Event of Default and at any time while
such Event of Default is continuing, Secured Party shall have the following
rights and remedies and may do one or more of the following:
(a) Declare all or any part of the Obligation to be
immediately due and payable, and the same, with all costs and charges,
shall be collectible thereupon by action at law;
(b) Transfer the Pledged Securities or any part thereof into
its own name or that of its nominee so that Secured Party or its
nominee may appear of record as the sole owner thereof;
(c) Vote any or all of the Pledged Securities and give all
consents, waivers and ratifications in respect thereof and otherwise
acting with respect thereto as though it were the absolute owner
thereof;
(d) Exercise any and all rights of conversion, exchange,
subscription, or any other rights, privileges or options pertaining to
any of the Pledged Securities including, but not limited to, the right
to exchange, at its discretion, any or all of the Pledged Securities
upon the merger, consolidation, reorganization, recapitalization or
other readjustment of the Company or upon the exercise by Pledgor or
Secured Party of any right, privilege or option pertaining to any of
the shares of the Pledged Securities, and in connection therewith to
deposit and deliver such shares of Pledged Securities with any
committee, depository, transfer agent, registrar or any other agency
upon such terms as Secured Party may determine without liability except
to account for the property actually received by it;
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<PAGE> 55
(e) Receive and retain any dividend or other distribution on
account of the Pledged Securities; and
(f) Sell any or all of the Pledged Securities in accordance
with the provisions hereof;
but Secured Party shall have no duty to exercise any of the aforesaid rights,
privileges or options and shall not be responsible for any failure to do so or
delay in so doing. Pledgor waives all rights to be advised or to receive any
notices, statements or communications received by Secured Party or its nominee
as the record owner of all or any of the Pledged Securities. Any cash received
and retained by Secured Party as additional collateral hereunder may be applied
to payment in the manner provided in Subparagraph 7.3(c) below.
7.3 In connection with Secured Party's right to sell any or all of the
Pledged Securities, upon the occurrence of any Event of Default and at any time
while such Event of Default is continuing:
(a) (i) Secured Party shall have the right at any time and
from time to time to sell, resell, assign and deliver, in its
discretion, all or any part of the Pledged Securities in one
or more units, at the same or different times, and all right,
title and interest, claim and demand therein, and right of
redemption thereof, at private sale, or at public sale to the
highest bidder for cash, upon credit or for future delivery,
Pledgor hereby waiving and releasing to the fullest extent
permitted by law any and all equity or right of redemption. If
any of the Pledged Securities are sold by Secured Party upon
credit or for future delivery, Secured Party shall not be
liable for the failure of the purchaser to purchase or pay for
same, and, in the event of any such failure, Secured Party may
resell such Pledged Securities. In no event shall Pledgor be
credited with any part of the proceeds of the sale of any
Pledged Securities until cash payment thereof has actually
been received by Secured Party.
(ii) No demand, advertisement or notice, all of which
are hereby expressly waived, shall be required in connection
with any sale or other disposition of all or any part of the
Pledged Securities that threatens to decline speedily in value
or that is of a type customarily sold on a recognized market;
otherwise Secured Party shall give Pledgor at least five (5)
days' prior notice of the time and place of any public sale or
of the time after which any private sale or other dispositions
are to be made, which Pledgor agrees is reasonable, all other
demands, advertisements and notices being hereby waived. Upon
any sale, whether under this Agreement or by virtue of
judicial proceedings, Secured Party may bid for and purchase
any or all of the Pledged Securities and, upon compliance with
the terms of the sale, may hold, retain, possess and dispose
of such items in its own
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absolute right without further accountability, and as
purchaser at such sale, in paying the purchase price, may turn
in any note or notes held by Secured Party in lieu of cash up
to the amount that would, upon distribution of the net
proceeds of such sale in accordance with Subparagraph 7.3(c)
hereof, be payable to Secured Party. In case the amount so
payable thereon shall be less than the amount due thereon, the
note or notes turned in (in lieu of cash) shall be returned to
the holder thereof after being properly stamped to show the
partial payment effected by such purchase.
(b) Pledgor recognizes that Secured Party may be unable to
effect a sale to the public of all or a part of the Pledged Securities
by reason of prohibitions contained in applicable securities laws, but
may be compelled to resort to one or more sales to a restricted group
of purchasers who will be obliged to agree, among other things, to
acquire such Pledged Securities for their own account, for investment
and not with a view to the distribution or resale thereof. Pledgor
agrees that sales so made may be at prices and other terms less
favorable to the seller than if such Pledged Securities were sold to
the public, and that Secured Party has no obligation to delay sale of
any such Pledged Securities for the period of time necessary to permit
the issuer of such Pledged Securities to register the same for sale to
the public under applicable securities laws. Pledgor agrees that
negotiated sales made under the foregoing circumstances shall be deemed
to have been made in a commercially reasonable manner.
(c) In all sales of Pledged Securities, public or private,
Secured Party shall apply the proceeds of sale as follows:
(i) First, to the payment of all costs and expenses
incurred hereunder or for the sale, transfer, or delivery,
including broker's and attorneys' fees;
(ii) Next to the payment of the Obligation; and
(iii) The balance, if any, to Pledgor or to the
person or persons entitled thereto upon proper demand.
7.4 Secured Party shall have the right, for and in the name, place and
stead of Pledgor, to execute endorsements, assignments or other instruments of
conveyance or transfer with respect to all or any of the Pledged Securities and
any instruments, documents and statements that Pledgor is obligated to furnish
or execute hereunder. Pledgor shall execute and deliver such additional
documents as may be necessary to enable Secured Party to implement such right.
7.5 Pledgor shall pay all costs and expenses, including without
limitation court costs and reasonable attorneys' fees, incurred by Secured Party
in enforcing payment and performance of the Obligation or in exercising the
rights and remedies of Secured Party hereunder. All such costs and expenses
shall be secured by this Agreement and by all other lien and security documents
securing
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<PAGE> 57
the Obligation. In the event of any court proceedings, court costs and
attorneys' fees shall be set by the court and not by jury and shall be included
in any judgment obtained by Secured Party.
7.6 In addition to any remedies provided herein for an Event of
Default, Secured Party shall have all the rights and remedies afforded a secured
party under the Uniform Commercial Code and all other legal and equitable
remedies allowed under applicable law. No failure on the part of Secured Party
to exercise any of its rights hereunder arising upon any Event of Default shall
be construed to prejudice its rights upon the occurrence of any other or
subsequent Event of Default. No delay on the part of Secured Party in exercising
any such rights shall be construed to preclude it from the exercise thereof at
any time while that Event of Default is continuing. Secured Party may enforce
any one or more rights or remedies hereunder successively or concurrently. By
accepting payment or performance of any of the Obligation after its due date,
Secured Party shall not thereby waive the agreement contained herein that time
is of the essence, nor shall Secured Party waive either its right to require
prompt payment or performance when due of the remainder of the Obligation or its
right to consider the failure to so pay or perform an Event of Default.
8. MISCELLANEOUS PROVISIONS
8.1 The acceptance of this Agreement by Secured Party shall not be
considered a waiver of or in any way to affect or impair any other security that
Secured Party may have, acquire simultaneously herewith, or hereafter acquire
for the payment or performance of the Obligation, nor shall the taking by
Secured Party at any time of any such additional security be construed as a
waiver of or in any way to affect or impair the right and interest granted
herein; Secured Party may resort, for the payment or performance of the
Obligation, to its several securities therefor in such order and manner as it
may determine.
8.2 Without notice or demand, without the necessity for any additional
endorsements, without affecting the obligations of Pledgor hereunder or the
personal liability of any person for payment or performance of the Obligation,
and without affecting the rights and interests granted herein, Secured Party,
from time to time, may: (i) extend the time for payment of all or any part of
the Obligation, accept a renewal note therefor, reduce the payments thereon,
release any person liable for all or any part thereof, or otherwise change the
terms of all or any part of the Obligation; (ii) take and hold other security
for the payment or performance of the Obligation and enforce, exchange,
substitute, subordinate, waive or release any such security; (iii) join in any
extension or subordination agreement; or (iv) release any part of the Pledged
Securities from this Agreement.
8.3 Pledgor waives and agrees not to assert: (i) any right to require
Secured Party to proceed against any guarantor, to proceed against or exhaust
any other security for the Obligation, to pursue any other remedy available to
Secured Party, or to pursue any remedy in any particular order or manner; (ii)
the benefits of any statute of limitations affecting the enforcement hereof;
(iii) the benefits of any legal or equitable doctrine or principle of
marshalling; (iv) demand, diligence, presentment for payment, protest and
demand, and notice of extension, dishonor, protest, demand and nonpayment,
relating to the Obligation; and (v) any benefit of, and any right to participate
in, any other security now or hereafter held by Secured Party.
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8.4 The terms herein shall have the meanings in and be construed under
the Uniform Commercial Code. This Agreement shall be governed by and construed
according to the internal laws of the State of Arizona. Each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be void or
invalid, the same shall not affect the remainder hereof which shall be effective
as though the void or invalid provision had not been contained herein.
8.5 No modification, rescission, waiver, release or amendment of any
provision of this Agreement shall be made except by a written agreement executed
by Pledgor and a duly authorized officer of Secured Party.
8.6 This is a continuing agreement, which shall remain in full force
and effect until actual receipt by Secured Party of written notice of its
revocation as to future transactions and shall remain in full force and effect
thereafter until all of the Obligation incurred before the receipt of such
notice, and all of the Obligation incurred thereafter under commitments extended
by Secured Party before the receipt of such notice, shall have been paid and
performed in full.
8.7 No setoff or claim that Pledgor now has or may in the future have
against Secured Party shall relieve Pledgor from paying or performing its
obligations hereunder.
8.8 Time is of the essence hereof. If more than one Pledgor or more
than one Borrower is named herein, the word Pledgor and the word "Borrower,"
respectively, shall mean all and any one or more of them, severally and
collectively. All liability hereunder shall be joint and several. This Agreement
shall be binding upon, and shall inure to the benefit of, the parties hereto and
their heirs, personal representatives, successors and assigns. The term "Secured
Party" shall include not only the original Secured Party hereunder but also any
future owner and holder, including pledgees, of the note or notes evidencing the
Obligation. The provisions hereof shall apply to the parties according to the
context thereof and without regard to the number or gender of words or
expressions used.
8.9 All notices required or permitted to be given hereunder shall be in
writing and may be given in person or by United States mail, by delivery service
or by electronic transmission. Any notice directed to a party to this Agreement
shall become effective upon the earliest of the following: (i) actual receipt by
that party; (ii) delivery to the designated address of that party, addressed to
that party; or (iii) if given by certified or registered United States mail,
twenty-four (24) hours after deposit with the United States Postal Service,
postage prepaid, addressed to that party at its designated address. The
designated address of a party shall be the address of that party shown at the
beginning of this Agreement or such other address as that party, from time to
time, may specify by notice to the other parties.
8.10 A carbon, photographic or other reproduced copy of this Agreement
and/or any financing statement relating hereto shall be sufficient for filing
and/or recording as a financing statement.
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<PAGE> 59
IN WITNESS WHEREOF, these presents are executed as of the date
indicated above.
Witnessed by: SCHUFF STEEL COMPANY, a Delaware
(Other than notary) corporation
By
Name
Its
PLEDGOR
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<PAGE> 60
STATE OF ___________ )
) ss.
County of ____________ )
The foregoing instrument was acknowledged before me this _____ day of
_______________________, _____, by
_______________________________________________, the ___________________________
of SCHUFF STEEL COMPANY, a Delaware corporation, on behalf of that corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
---------------------------
Notary Public
My commission expires:
- ----------------------
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<PAGE> 61
SCHEDULE "A"
All issued and outstanding shares of stock in
_______________________________ _________________________________, a(n)
_________________ corporation ("Company"), now or hereafter owned by Pledgor,
which as of the date hereof consists of _________ shares of __________ stock.
<PAGE> 62
EXHIBIT "1"
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and
transfer to __________________________________________, ____________ (_____)
shares of common stock of ___________________________________________________,
an ___________________ corporation (the "Corporation"), represented by
certificate number __ in the name of the undersigned on the books of the
Corporation.
The undersigned does hereby irrevocably constitute and appoint any
officer of the Corporation as attorney to transfer said stock on the books of
the Corporation with full power of substitution in the premises.
Dated as of _____________________.
Witnessed by: SCHUFF STEEL COMPANY, a Delaware
(Other than notary) corporation
By
Name
Its
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<PAGE> 63
STATE OF ___________ )
) ss.
County of ____________ )
The foregoing instrument was acknowledged before me this _____ day of
_______________________, _____, by
_______________________________________________, the ___________________________
of SCHUFF STEEL COMPANY, a Delaware corporation, on behalf of that corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
---------------------------
Notary Public
My commission expires:
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<PAGE> 64
EXHIBIT "B"
CONTINUING GUARANTEE
TO: BANK ONE, ARIZONA, NA, a national banking association
1. For valuable consideration, the undersigned (hereinafter called
"Guarantor"), whose address is set forth after Guarantor's signature below,
jointly and severally, and unconditionally, guarantees and promises to pay to
BANK ONE, ARIZONA, NA, a national banking association (hereinafter called
"Lender"), or order, on demand, in lawful money of the United States, any and
all indebtedness of SCHUFF STEEL COMPANY, a Delaware corporation (hereinafter
called "Borrower") to Lender. If more than one Borrower is named herein, or if
this Guarantee is executed by more than one Guarantor, the word "Borrower" and
the word "Guarantor" respectively shall mean all and any one or more of them,
severally and collectively. The word "indebtedness" is used in its most
comprehensive sense and includes any and all advances, debts, obligations and
liabilities of Borrower heretofore, now or hereafter made, incurred or created,
with or without notice to Guarantor, whether voluntary or involuntary and
however arising, whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether Borrower is liable
individually or jointly with others, or whether recovery upon such indebtedness
may be or hereafter become barred by any statute of limitations, or whether such
indebtedness may be or hereafter become otherwise unenforceable, exclusive,
however, of any indebtedness of Borrower to Lender presently covered by existing
guaranties executed by Guarantor, but without derogation to such existing
guaranties, if any, which are hereby ratified and reaffirmed.
2. Guarantor agrees that to the extent Borrower or Guarantor makes any
payment to Lender in connection with the Indebtedness, and all or any part of
such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid by Lender or paid over to a
trustee, receiver or any other entity, whether under any bankruptcy act or
otherwise (any such payment is hereinafter referred to as a "Preferential
Payment"), then this Guarantee shall continue to be effective or shall be
reinstated, as the case may be, and, to the extent of such payment or repayment
by Lender, the Indebtedness or part thereof intended to be satisfied by such
Preferential Payment shall be revived and continued in full force and effect as
if said Preferential Payment had not been made.
3. This is a continuing guarantee that shall remain in full force and
effect and includes all indebtedness arising under future transactions or under
successive transactions which either continue then existing indebtedness or from
time to time renew it after it has been satisfied, but shall not apply to any
indebtedness created after actual receipt by Lender of written notice of the
revocation of this Guarantee as to future transactions. Any such revocation of
this Guarantee at any time by any Guarantor as to future transactions shall not
affect the liability of any other guarantor for indebtedness of Borrower and
shall not affect the liability of that Guarantor or any other guarantor for
indebtedness incurred or credit committed by Lender to Borrower prior to the
effective time of that revocation; this Guarantee shall remain in full force and
effect as to all such indebtedness. The death of any Guarantor shall not operate
as a revocation of liability hereunder of the estate of that Guarantor for
indebtedness created or incurred or credit committed by Lender to
<PAGE> 65
Borrower subsequent to such death until actual receipt by Lender of written
notice of the death of that Guarantor. Guarantor waives notice of revocation
given by any other guarantor.
4. Guarantor is providing this Guarantee at the instance and request of
Borrower to induce Lender to extend or continue financial accommodations to
Borrower. Guarantor hereby represents and warrants that Guarantor is and will
continue to be fully informed about all aspects of the financial condition and
business affairs of Borrower that Guarantor deems relevant to the obligations of
Guarantor hereunder and hereby waives and fully discharges Lender from any and
all obligations to communicate to Guarantor any information whatsoever regarding
Borrower or Borrower's financial condition or business affairs.
5. Guarantor authorizes Lender, without notice or demand and without
affecting Guarantor's liability hereunder, from time to time, to: (a) renew,
modify, compromise, extend, accelerate or otherwise change the time for payment
of, or otherwise change the terms of the indebtedness or any part thereof,
including increasing or decreasing the rate of interest thereon; (b) release,
substitute or add any one or more endorsers, Guarantor or other guarantors; (c)
take and hold security for the payment of this Guarantee or the indebtedness,
and enforce, exchange, substitute, subordinate, waive or release any such
security; (d) proceed against such security and direct the order or manner of
sale of such security as Lender in its discretion may determine; and (e) apply
any and all payments from Borrower, Guarantor or any other guarantor, or
recoveries from such security, in such order or manner as Lender in its
discretion may determine.
6. Guarantor waives and agrees not to assert: (a) any right to require
Lender to proceed against Borrower or any other guarantor, to proceed against or
exhaust any security for the indebtedness, to pursue any other remedy available
to Lender, or to pursue any remedy in any particular order or manner; (b) the
benefit of any statute of limitations affecting Guarantor's liability hereunder
or the enforcement thereof; (c) demand, diligence, presentment for payment,
protest and demand, and notice of extension, dishonor, protest, demand,
nonpayment and acceptance of this Guarantee; (d) notice of the existence,
creation or incurring of new or additional indebtedness of Borrower to Lender;
(e) the benefits of any statutory provision limiting the liability of a surety,
including without limitation the provisions of A.R.S. Sections 12-1641, et seq.;
(f) any defense arising by reason of any disability or other defense of Borrower
or by reason of the cessation from any cause whatsoever (other than payment in
full) of the liability of Borrower for the indebtedness; and (g) the benefits of
any statutory provision limiting the right of Lender to recover a deficiency
judgment, or to otherwise proceed against any person or entity obligated for
payment of the indebtedness, after any foreclosure or trustee's sale of any
security for the indebtedness, including without limitation the benefits, if
any, to Guarantor of A.R.S. Section 33-814. Guarantor shall have no right of
subrogation and hereby waives any right to enforce any remedy which Lender now
has, or may hereafter have, against Borrower, and waives any benefit of, and any
right to participate in, any security now or hereafter held by Lender.
7. All existing and future indebtedness of Borrower to Guarantor is
hereby subordinated to the indebtedness of Borrower to Lender and such
indebtedness of Borrower to Guarantor, if Lender so requests, shall be
collected, enforced and received by Guarantor as trustee for Lender and shall be
paid over to Lender on account of the indebtedness of Borrower to Lender, but
without
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<PAGE> 66
reducing or affecting in any manner the liability of Guarantor under the other
provisions of this Guarantee.
8. In addition to all liens upon, and rights of setoff against, the
monies, securities or other property of Guarantor given to Lender by law, Lender
shall have a lien and a right of setoff against, and Guarantor hereby grants to
Lender a security interest in, all monies, securities and other property of
Guarantor now and hereafter in the possession of or on deposit with Lender,
whether held in a general or special account or deposit, or for safekeeping or
otherwise; every such lien and right of setoff may be exercised without demand
upon or notice to Guarantor. No lien or right of setoff shall be deemed to have
been waived by any act or conduct on the part of Lender, by any neglect to
exercise such right of setoff or to enforce such lien, or by any delay in so
doing.
9. If Guarantor is a corporation, a limited liability company or a
partnership, Guarantor represents and warrants that: (a) it has the necessary
power under law and its governing documents to make the agreements on its part
herein contained; (b) the execution of this Guarantee has been authorized by all
necessary and proper actions; (c) the execution and delivery of this Guarantee,
the consummation of the transactions contemplated hereby, and the fulfillment of
or compliance with the terms and conditions of this Guarantee do not conflict
with or result in a breach of any of the terms, conditions or provisions of any
agreement or instrument to which it is a party or by which it is bound; and (d)
Guarantor agrees that during the term of this Guarantee it will maintain its
separate existence, and will not dissolve, terminate, merge or consolidate.
10. Guarantor agrees to pay all attorneys' fees and all other costs and
expenses which may be incurred by Lender in enforcing this Guarantee.
11. The obligations of Guarantor hereunder are joint and several if
Guarantor is more than one person or entity, are separate and independent of the
obligations of Borrower and of any other guarantor, and a separate action or
actions may be brought and prosecuted against Guarantor whether action is
brought against Borrower or any other guarantor or whether Borrower or any other
guarantor is joined in any action or actions. The obligations of Guarantor
hereunder shall survive and continue in full force and effect until payment in
full of the indebtedness is actually received by Lender, notwithstanding any
release or termination of Borrower's liability by express or implied agreement
with Lender or by operation of law and notwithstanding that the indebtedness or
any part thereof is deemed to have been paid or discharged by operation of law
or by some act or agreement of Lender. For purposes of this Guarantee, the
indebtedness shall be deemed to be paid only to the extent that Lender actually
receives immediately available funds and to the extent of any credit bid by
Lender at any foreclosure or trustee's sale of any security for the
indebtedness.
12. This Guarantee sets forth the entire agreement of Guarantor and
Lender with respect to the subject matter hereof and supersedes all prior oral
and written agreements and representations by Lender to Guarantor. No
modification or waiver of any provision of this Guarantee or any right of Lender
hereunder and no release of Guarantor from any obligation hereunder shall be
effective unless in a writing executed by an authorized officer of Lender.
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<PAGE> 67
13. This Guarantee shall inure to the benefit of Lender and its
successors and assigns and shall be binding upon Guarantor and its heirs,
personal representatives, successors and assigns. Lender may assign this
Guarantee in whole or in part without notice.
14. Notwithstanding anything else herein to the contrary, if the
Guarantor's obligations hereunder are subject to avoidance by a trustee or
debtor-in-possession in any bankruptcy proceedings under the United States
Bankruptcy Code or any comparable provisions or subject to avoidance by any
creditor under applicable state fraudulent transfer acts then, in such event,
the Guarantor's obligations hereunder shall be reduced to the maximum amount
which would not be subject to such avoidance.
15. Guarantor acknowledges that the execution of this Guarantee shall
not entitle Guarantors to rely on the Lender to preserve or maintain any
collateral or other security that Lender may not have or hereafter acquire in
connection with the Indebtedness. Guarantor hereby releases Lender from any
obligation to inspect, preserve or maintain any collateral or other security
that Lender may now have or hereafter acquire in connection with the
Indebtedness, and any obligation to monitor, control or see to the use of any
monies advanced to the Borrower. Guarantor further waives any and all rights to
receive reports or other information Bank may have relating to Borrower.
16. Guarantor agrees that during the term of this Guarantee it will not
transfer or dispose of any material part of its assets except in the ordinary
course of business for a full and fair consideration. Guarantor agrees that
during the term of this Guarantee it will furnish annually, within 90 days after
the close of each year or fiscal year, as the case may be, a financial statement
consisting of a balance sheet and such other financial information as Lender may
reasonably request.
17. If any part of parts of this Guarantee shall at any time be held to
be invalid or unenforceable by binding arbitration or by a court of competent
jurisdiction, the remaining part or parts of the Guarantee shall be and remain
in full force and effect.
18. Guarantor acknowledges the Lender would not have allowed the
indebtedness to exist except for the consideration received from Guarantor's
promise to pay pursuant to this Guarantee.
19. This Guarantee shall be governed by and construed according to the
laws of the State of Arizona.
IN WITNESS WHEREOF these presents are executed as of the _____ day of
________________, 19___.
WITNESS: GUARANTOR:
Address:
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EXHIBIT "C"
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into as of the _____ day of
_________________, 19___, by __________________________________________________
_____________________________________ (hereinafter called "Debtor"), whose chief
executive office is located at
______________________________________________________________
___________________________________________________________________, in favor of
BANK ONE, ARIZONA, NA, a national banking association, and its successors and
assigns (hereinafter called "Secured Party"), whose address is Post Office Box
71, Phoenix, Arizona 85001, Attention: Commercial Banking Dept. AZ1-1178.
1. SECURITY INTEREST
Debtor hereby grants to Secured Party a security interest (hereinafter
called the "Security Interest") in all of Debtor's right, title and interest in
and to the following described personal property described on Schedule "A"
attached hereto (the "Collateral"):
2. OBLIGATION SECURED
The Security Interest shall secure, in such order of priority as
Secured Party may elect:
(a) Payment of the sum of $10,000,000.00 with interest
thereon, extension and other fees, late charges, prepayment premiums
and attorneys' fees, according to the terms of that Promissory Note
dated December 10, 1997, made by SCHUFF STEEL COMPANY, a Delaware
corporation ("Borrower"), payable to the order of Secured Party, and
all extensions, modifications, renewals or replacements thereof
(hereinafter called the "Line Note");
(b) Payment of the sum of $10,000,000.00 according to the
terms of that Promissory Note dated June 30, 1995, made by Borrower,
payable to the order of Secured Party, evidencing a revolving line of
credit, all or any part of which may be advanced to Borrower, repaid by
Borrower and readvanced to Borrower, from time to time, subject to the
terms and conditions thereof, with interest thereon, extension and
other fees, late charges, prepayment premiums and attorneys' fees,
according to the terms thereof, and all extensions, modifications,
renewals or replacements thereof (hereinafter called with the Line
Note, the "Note");
(c) Payment, performance and observance by Debtor of each
covenant, condition, provision and agreement contained herein and of
all monies expended or advanced by Secured Party pursuant to the terms
hereof, or to preserve any right of Secured Party hereunder, or to
protect or preserve the Collateral or any part thereof;
<PAGE> 69
(d) Payment, performance and observance by Borrower of each
covenant, condition, provision and agreement contained in that Credit
Agreement dated December 10, 1997, by and between Borrower and Secured
Party (hereinafter called the "Loan Agreement") and in any other
document or instrument related to the indebtedness described in
subparagraph (a) above and of all monies expended or advanced by
Secured Party pursuant to the terms thereof or to preserve any right of
Secured Party thereunder;
(e) Payment and performance of any and all other indebtedness,
obligations and liabilities of Debtor and/or Borrower to Secured Party
of every kind and character, direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter incurred,
whether such indebtedness is from time to time reduced and thereafter
increased or entirely extinguished and thereafter reincurred.
All of the indebtedness and obligations secured by this Agreement are
hereinafter collectively called the "Obligation."
3. USE; LOCATION; CONSTRUCTION
3.1 The Collateral is or will be used or produced primarily for
business purposes:
3.2 The Collateral will be kept at Debtor's address set forth at the
beginning of this Agreement and/or at the following location(s):
__________________________________________.
3.3 Debtor's records concerning the Collateral will be kept at Debtor's
address set forth at the beginning of this Agreement and/or at the following
location(s): ____________.
3.4 If any portion of the Collateral is or will be a fixture, it will
be affixed to real property having the following legal description:
______________________________________________________________________; and a
financing statement relating hereto is to be filed (recorded) in the office
where a mortgage of that real property would be recorded.
4. REPRESENTATIONS AND WARRANTIES OF DEBTOR
Debtor hereby represents and warrants that:
4.1 If Debtor is a corporation, limited liability company, partnership
or trust, it (i) is duly organized, validly existing and in good standing under
the laws of the state in which it is organized; (ii) is qualified to do business
and is in good standing under the laws of the state in which the
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Collateral is located and in each state in which it is doing business; (iii) has
full power and authority to own its properties and assets and to carry on its
businesses as now conducted; and (iv) is fully authorized and permitted to
execute and deliver this Agreement and to enter into any transactions evidenced
by any portion of the Collateral. The execution, delivery and performance by
Debtor of this Agreement and all other documents and instruments relating to the
Obligation will not result in any breach of the terms and conditions or
constitute a default under any agreement or instrument under which Debtor is a
party or is obligated. Debtor is not in default in the performance or observance
of any covenants, conditions or provisions of any such agreement or instrument.
4.2 Debtor is the owner of the Collateral free of all security
interests or other encumbrances except the Security Interest and no financing
statement covering the Collateral is filed or recorded in any public office.
4.3 The Collateral is, and is intended to be, used, produced or
acquired by Debtor for use primarily for the purpose marked in Section 3 above.
The address of Debtor set forth at the beginning of this Agreement is the chief
executive office of Debtor or Debtor's residence if Debtor is an individual
without an office. If a portion of the Collateral is or will become a fixture,
it will be affixed to the real property as described above.
4.4 Each account, chattel paper or general intangible included in the
Collateral is genuine and enforceable in accordance with its terms against the
party named therein who is obligated to pay the same (hereinafter called
"Obligor"), and the security interests that are part of each item of chattel
paper included in the Collateral are valid, first and prior perfected security
interests. Each Obligor is solvent, and the amount that Debtor has represented
to Secured Party as owing by each Obligor is the amount actually and
unconditionally owing by that Obligor, without deduction except for normal cash
discounts where applicable; no Obligor has any defense, setoff, claim or
counterclaim against Debtor that can be asserted against Secured Party whether
in any proceeding to enforce the Security Interest or otherwise. Each document,
instrument and chattel paper included in the Collateral is complete and regular
on its face and free from evidence of forgery or alteration. No default has
occurred in connection with any instrument, document or chattel paper included
in the Collateral, no payment in connection therewith is overdue and no
presentment, dishonor or protest has occurred in connection therewith.
5. COVENANTS OF DEBTOR
5.1 Debtor shall not sell, transfer, assign or otherwise dispose of any
Collateral or any interest therein (except as permitted herein) without
obtaining the prior written consent of Secured Party and shall keep the
Collateral free of all security interests or other encumbrances except the
Security Interest. Although proceeds of Collateral are covered by this
Agreement, this shall not be construed to mean that Secured Party consents to
any sale of the Collateral.
5.2 Debtor shall keep and maintain the Collateral in good condition and
repair and shall not use the Collateral in violation of any provision of this
Agreement or any applicable statute, ordinance or regulation or any policy of
insurance insuring the Collateral.
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5.3 Debtor shall provide and maintain insurance insuring the Collateral
against risks, with coverage and in form and amount satisfactory to Secured
Party. At Secured Party's request, Debtor shall deliver to Secured Party the
original policies of insurance containing endorsements naming Secured Party as a
loss payee.
5.4 Debtor shall pay when due all taxes, assessments and other charges
which may be levied or assessed against the Collateral.
5.5 Debtor shall prevent any portion of the Collateral that is not a
fixture from being or becoming a fixture and shall prevent any portion of the
Collateral from being or becoming an accession to other goods that are not part
of the Collateral.
5.6 If the Collateral includes motor vehicles, Debtor shall not remove
or permit such motor vehicles to be removed from the State of Arizona without
the prior written consent of Secured Party, shall keep all titled vehicles
properly registered with and licensed by the State of Arizona, shall provide
Secured Party with the license numbers of all titled vehicles, shall cause the
Security Interest to be shown as a valid first lien on the Certificate of Title
for all titled vehicles and shall deliver lien filing receipts to Secured Party
as evidence thereof.
5.7 Debtor, upon demand, shall promptly deliver to Secured Party all
instruments, documents and chattel paper included in the Collateral and all
invoices, shipping or delivery records, purchase orders, contracts or other
items related to the Collateral. Debtor shall notify Secured Party immediately
of any default by any Obligor in the payment or performance of its obligations
with respect to any Collateral. Debtor, without Secured Party's prior written
consent, shall not make or agree to make any alteration, modification or
cancellation of, or substitution for, or credit, adjustment or allowance on, any
Collateral.
5.8 Debtor shall give Secured Party immediate written notice of any
change in the location of: (i) Debtor's chief executive office (or residence if
Debtor is an individual without an office); (ii) the Collateral or any part
thereof; or (iii) Debtor's records concerning the Collateral.
5.9 Secured Party or its agents may inspect the Collateral at
reasonable times and may enter into any premises where the Collateral is or may
be located. Debtor shall keep records concerning the Collateral in accordance
with generally accepted accounting principles and, unless waived in writing by
Secured Party, shall mark its records and the Collateral to indicate the
Security Interest. Secured Party shall have free and complete access to Debtor's
records and shall have the right to make extracts therefrom or copies thereof.
Upon request of Secured Party from time to time, Debtor shall submit up-to-date
schedules of the items comprising the Collateral in such detail as Secured Party
may require and shall deliver to Secured Party confirming specific assignments
of all accounts, instruments, documents and chattel paper included in the
Collateral.
5.10 Debtor, at its cost and expense, shall protect and defend this
Agreement, all of the rights of Secured Party hereunder, and the Collateral
against all claims and demands of other parties, including without limitation
defenses, setoffs, claims and counterclaims asserted by any Obligor against
Debtor and/or Secured Party. Debtor shall pay all claims and charges that in the
opinion of Secured Party might prejudice, imperil or otherwise affect the
Collateral or the Security Interest.
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<PAGE> 72
Debtor shall promptly notify Secured Party of any levy, distraint or other
seizure by legal process or otherwise of any part of the Collateral and of any
threatened or filed claims or proceedings that might in any way affect or impair
the terms of this Agreement.
5.11 The Security Interest, at all times, shall be perfected and shall
be prior to any other interests in the Collateral. Debtor shall act and perform
as necessary and shall execute and file all security agreements, financing
statements, continuation statements and other documents requested by Secured
Party to establish, maintain and continue the perfected Security Interest.
Debtor, on demand, shall promptly pay all costs and expenses of filing and
recording, including the costs of any searches, deemed necessary by Secured
Party from time to time to establish and determine the validity and the
continuing priority of the Security Interest.
5.12 If Debtor shall fail to pay any taxes, assessments, expenses or
charges, to keep all of the Collateral free from other security interests,
encumbrances or claims, to keep the Collateral in good condition and repair, to
procure and maintain insurance thereon, or to perform otherwise as required
herein, Secured Party may advance the monies necessary to pay the same, to
accomplish such repairs, to procure and maintain such insurance or to so
perform; Secured Party is hereby authorized to enter upon any property in the
possession or control of Debtor for such purposes.
5.13 All rights, powers and remedies granted Secured Party herein, or
otherwise available to Secured Party, are for the sole benefit and protection of
Secured Party, and Secured Party may exercise any such right, power or remedy at
its option and in its sole and absolute discretion without any obligation to do
so. In addition, if under the terms hereof, Secured Party is given two or more
alternative courses of action, Secured Party may elect any alternative or
combination of alternatives at its option and in its sole and absolute
discretion. All monies advanced by Secured Party under the terms hereof and all
amounts paid, suffered or incurred by Secured Party in exercising any authority
granted herein, including reasonable attorneys' fees, shall be added to the
Obligation, shall be secured by the Security Interest, shall bear interest at
the highest rate payable on any of the Obligation until paid, and shall be due
and payable by Debtor to Secured Party immediately without demand.
6. NOTIFICATION AND PAYMENTS; COLLECTION OF COLLATERAL; USE OF
COLLATERAL BY DEBTOR
6.1 Secured Party, before or after the occurrence of any Event of
Default, defined below, and without notice to Debtor, may notify any or all
Obligors of the existence of the Security Interest and may direct the Obligors
to make all payments on the Collateral to Secured Party. Until Secured Party has
notified the Obligors to remit payments directly to it, Debtor, at Debtor's own
cost and expense, shall collect or cause to be collected the accounts and monies
due under the accounts, documents, instruments and general intangibles or
pursuant to the terms of the chattel paper. Secured Party shall not be liable or
responsible for any embezzlement, conversion, negligence or default by Debtor or
Debtor's agents with respect to such collections; all agents used in such
collections shall be agents of Debtor and not agents of Secured Party. Unless
Secured Party notifies Debtor in writing that it waives one or more of the
requirements set forth in this sentence, any payments or other proceeds of
Collateral received by Debtor, before or after notification to Obligors, shall
be held by Debtor in trust for Secured Party in the same form in which received,
shall not be
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commingled with any assets of Debtor and shall be turned over to Secured Party
not later than the next business day following the day of receipt. All payments
and other proceeds of Collateral received by Secured Party directly or from
Debtor shall be applied to the Obligation in such order and manner and at such
time as Secured Party, in its sole discretion, shall determine. In addition,
Debtor shall promptly notify Secured Party of the return to or possession by
Debtor of goods underlying any Collateral; Debtor shall hold the same in trust
for Secured Party and shall dispose of the same as Secured Party directs.
6.2 Secured Party, before or after the occurrence of an Event of
Default and without notice to Debtor, may demand, collect and sue on the
Collateral (either in Debtor's or Secured Party's name), enforce, compromise,
settle or discharge the Collateral and endorse Debtor's name on any instruments,
documents, or chattel paper included in or pertaining to the Collateral; Debtor
hereby irrevocably appoints Secured Party its attorney in fact for all such
purposes.
6.3 Until the occurrence of an Event of Default, Debtor may: (i) use,
consume and sell any inventory included in the Collateral in any lawful manner
in the ordinary course of Debtor's business provided that all sales shall be at
commercially reasonable prices; and (ii) subject to Paragraphs 6.1 and 6.2
above, retain possession of any other Collateral and use it in any lawful manner
consistent with this Agreement.
7. COLLATERAL IN THE POSSESSION OF SECURED PARTY
7.1 Secured Party shall use such reasonable care in handling,
preserving and protecting the Collateral in its possession as it uses in
handling similar property for its own account. Secured Party, however, shall
have no liability for the loss, destruction or disappearance of any Collateral
unless there is affirmative proof of a lack of due care; the lack of due care
shall not be implied solely by virtue of any loss, destruction or disappearance.
7.2 Debtor shall be solely responsible for taking any and all actions
to preserve rights against all Obligors; Secured Party shall not be obligated to
take any such actions whether or not the Collateral is in Secured Party's
possession. Debtor waives presentment and protest with respect to any instrument
included in the Collateral on which Debtor is in any way liable and waives
notice of any action taken by Secured Party with respect to any instrument,
document or chattel paper included in any Collateral that is in the possession
of Secured Party.
8. EVENTS OF DEFAULT; REMEDIES
8.1 The occurrence of any of the following events or conditions shall
constitute and is hereby defined to be an "Event of Default":
(a) Any failure or neglect to perform or observe any of the
terms, provisions, or covenants of this Agreement.
(b) The occurrence of any event of default under the Loan
Agreement.
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8.2 Secured Party, so far as may be lawful, may purchase all or any
part of the Collateral offered at any public or private sale made in the
enforcement of Secured Party's rights and remedies hereunder.
8.3 Any demand or notice of sale, disposition or other intended action
hereunder or in connection herewith, whether required by the Uniform Commercial
Code or otherwise, shall be deemed to be commercially reasonable and effective
if such demand or notice is given to Debtor at least five (5) days prior to such
sale, disposition or other intended action, in the manner provided herein for
the giving of notices.
8.4 Debtor shall pay all costs and expenses, including without
limitation costs of Uniform Commercial Code searches, court costs and reasonable
attorneys' fees, incurred by Secured Party in enforcing payment and performance
of the Obligation or in exercising the rights and remedies of Secured Party
hereunder. All such costs and expenses shall be secured by this Agreement and by
all deeds of trust and other lien and security documents securing the
Obligation. In the event of any court proceedings, court costs and attorneys'
fees shall be set by the court and not by jury and shall be included in any
judgment obtained by Secured Party.
8.5 In addition to any remedies provided herein for an Event of
Default, Secured Party shall have all the rights and remedies afforded a secured
party under the Uniform Commercial Code and all other legal and equitable
remedies allowed under applicable law. No failure on the part of Secured Party
to exercise any of its rights hereunder arising upon any Event of Default shall
be construed to prejudice its rights upon the occurrence of any other or
subsequent Event of Default. No delay on the part of Secured Party in exercising
any such rights shall be construed to preclude it from the exercise thereof at
any time while that Event of Default is continuing. Secured Party may enforce
any one or more rights or remedies hereunder successively or concurrently. By
accepting payment or performance of any of the Obligation after its due date,
Secured Party shall not thereby waive the agreement contained herein that time
is of the essence, nor shall Secured Party waive either its right to require
prompt payment or performance when due of the remainder of the Obligation or its
right to consider the failure to so pay or perform an Event of Default.
9. MISCELLANEOUS PROVISIONS
9.1 The acceptance of this Agreement by Secured Party shall not be
considered a waiver of or in any way to affect or impair any other security that
Secured Party may have, acquire simultaneously herewith, or hereafter acquire
for the payment or performance of the Obligation, nor shall the taking by
Secured Party at any time of any such additional security be construed as a
waiver of or in any way to affect or impair the Security Interest; Secured Party
may resort, for the payment or performance of the Obligation, to its several
securities therefor in such order and manner as it may determine.
9.2 Without notice or demand, without affecting the obligations of
Debtor hereunder or the personal liability of any person for payment or
performance of the Obligation, and without affecting the Security Interest or
the priority thereof, Secured Party, from time to time, may: (i) extend the time
for payment of all or any part of the Obligation, accept a renewal note
therefor, reduce the payments thereon, release any person liable for all or any
part thereof, or otherwise
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change the terms of all or any part of the Obligation; (ii) take and hold other
security for the payment or performance of the Obligation and enforce, exchange,
substitute, subordinate, waive or release any such security; (iii) join in any
extension or subordination agreement; or (iv) release any part of the Collateral
from the Security Interest.
9.3 Debtor waives and agrees not to assert: (i) any right to require
Secured Party to proceed against any guarantor, to proceed against or exhaust
any other security for the Obligation, to pursue any other remedy available to
Secured Party, or to pursue any remedy in any particular order or manner; (ii)
the benefits of any legal or equitable doctrine or principle of marshalling;
(iii) the benefits of any statute of limitations affecting the enforcement
hereof; (iv) demand, diligence, presentment for payment, protest and demand, and
notice of extension, dishonor, protest, demand and nonpayment, relating to the
Obligation; and (v) any benefit of, and any right to participate in, any other
security now or hereafter held by Secured Party.
9.4 The terms herein shall have the meanings in and be construed under
the Uniform Commercial Code. This Agreement shall be governed by and construed
according to the laws of the State of Arizona. Each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be void or
invalid, the same shall not affect the remainder hereof which shall be effective
as though the void or invalid provision had not been contained herein.
9.5 No modification, rescission, waiver, release or amendment of any
provision of this Agreement shall be made except by a written agreement executed
by Debtor and a duly authorized officer of Secured Party.
9.6 This is a continuing Agreement which shall remain in full force and
effect until actual receipt by Secured Party of written notice of its revocation
as to future transactions and shall remain in full force and effect thereafter
until all of the Obligation incurred before the receipt of such notice, and all
of the Obligation incurred thereafter under commitments extended by Secured
Party before the receipt of such notice, shall have been paid and performed in
full.
9.7 No setoff or claim that Debtor now has or may in the future have
against Secured Party shall relieve Debtor from paying or performing the
Obligation.
9.8 Time is of the essence hereof. If more than one Debtor, or more
than one Borrower, is named herein, the word "Debtor" and the word "Borrower,"
respectively, shall mean all and any one or more of them, severally and
collectively. All liability hereunder shall be joint and several. This Agreement
shall be binding upon, and shall inure to the benefit of, the parties hereto and
their heirs, personal representatives, successors and assigns. The term "Secured
Party" shall include not only the original Secured Party hereunder but also any
future owner and holder, including pledgees, of note or notes evidencing the
Obligation. The provisions hereof shall apply to the parties according to the
context thereof and without regard to the number or gender of words or
expressions used.
9.9 All notices required or permitted to be given hereunder shall be in
writing and may be given in person or by United States mail, by delivery service
or by electronic transmission. Any
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notice directed to a party to this Agreement shall become effective upon the
earliest of the following: (i) actual receipt by that party; (ii) delivery to
the designated address of that party, addressed to that party; or (iii) if given
by certified or registered United States mail, twenty-four (24) hours after
deposit with the United States Postal Service, postage prepaid, addressed to
that party at its designated address. The designated address of a party shall be
the address of that party shown at the beginning of this Agreement or such other
address as that party, from time to time, may specify by notice to the other
parties.
9.10 A carbon, photographic or other reproduced copy of this Agreement
and/or any financing statement relating hereto shall be sufficient for filing
and/or recording as a financing statement.
10. NON-DEBTOR BORROWER PROVISIONS
10.1 All advances of principal under the Note shall be made to Borrower
subject to and in accordance with the terms thereof. If Borrower is a
corporation, limited liabiilty company or partnership, it is not necessary for
Secured Party to inquire into the powers of Borrower or the officers, directors,
partners or agents acting or purporting to act on its behalf. Debtor is and
shall continue to be fully informed as to all aspects of the business affairs of
Borrower that it deems relevant to the risks it is assuming and hereby waives
and fully discharges Secured Party from any and all obligations to communicate
to Debtor any facts of any nature whatsoever regarding Borrower and Borrower's
business affairs.
10.2 Debtor authorizes Secured Party, without notice or demand, without
affecting the obligations of Debtor hereunder or the personal liability of any
person for payment or performance of the Obligation and without affecting the
lien or the priority of the Security Interest, from time to time, at the request
of any person primarily obligated therefor, to renew, compromise, extend,
accelerate or otherwise change the time for payment or performance of, or
otherwise change the terms of, all or any part of the Obligation, including
increase or decrease any rate of interest thereon. Debtor waives and agrees not
to assert: (i) any right to require Secured Party to proceed against Borrower;
(ii) the benefits of any statutory provision limiting the liability of a surety,
including without limitation the benefit of Section 12-1641, et seq., of the
Arizona Revised Statutes; and (iii) any defense arising by reason of any
disability or other defense of Borrower or by reason of the cessation from any
cause whatsoever of the liability of Borrower. Debtor shall have no right of
subrogation and hereby waives any right to enforce any remedy which Secured
Party now has, or may hereafter have, against Borrower.
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IN WITNESS WHEREOF, these presents are executed as of the date
indicated above.
Witnessed by:
________________________________________
(other than notary)
By:
_______________________________________
Name:
__________________________ _____________________________________
Title:
____________________________________
DEBTOR
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STATE OF ___________ )
) ss.
County of ____________ )
The foregoing instrument was acknowledged before me this _____ day of
_______________________, _____, by
_______________________________________________, the ___________________________
of ____________________________________________, on behalf of that
_____________.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
___________________________
Notary Public
My commission expires:
_________________________________
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SCHEDULE "A"
COLLATERAL DESCRIPTION
All of the property described below in, to or under which Debtor now
has or hereafter acquires any right, title or interest, whether present, future
or contingent, and in Debtor's expectancy to acquire such property (all of the
property described on this schedule is herein called the "Collateral"):
10.3 All money, accounts, general intangibles, instruments,
documents and chattel paper now existing or hereafter arising or
acquired from time to time in the course of Debtor's business as now or
hereafter conducted, including all accounts receivable, notes, drafts,
lease agreements and security agreements, and all goods, if any,
represented thereby;
10.4 All inventory now owned or hereafter arising or acquired,
including all goods held for sale or lease in Debtor's business, as now
or hereafter conducted, and all materials, work in process and finished
goods used or to be consumed in Debtor's business (whether or not
Debtor holds legal title thereto or whether any such inventory is
represented by warehouse receipts or bills of lading or has been or may
be placed in transit or delivered to a public warehouse);
10.5 All equipment, including all furniture, fixtures,
furnishings, vehicles (whether titled or non-titled), machinery,
materials and supplies, wherever located, including but not limited to
such items used in connection with Debtor's business and/or described
on the Collateral Schedule (if any) attached hereto and by this
reference made a part hereof, together with all parts, accessories,
attachments, additions thereto or replacements therefor;
10.6 All rights as unpaid seller or lienor that arise in
connection with any of the Collateral, including the rights of
replevin, reclamation and stoppage in transit, and the right to sue or
file mechanics' or materialmen's liens in the name of Debtor or
otherwise for the unpaid balances due thereunder;
10.7 All tax refund claims, all policies or certificates of
insurance covering any of the Collateral, all contracts, agreements or
rights of indemnification, guaranty or surety relating to any of the
Collateral, and all claims, awards, loss payments, proceeds and premium
refunds that may become payable with respect to any such policies,
certificates, contracts, agreements or rights;
10.8 All ledger cards, invoices, delivery receipts,
worksheets, books of accounts, statements, correspondence, customer
lists, files, journals, ledgers and records in any form, written or
otherwise, related to any of the Collateral;
<PAGE> 80
10.9 Tradenames, trademarks and service marks (subject to any
franchise or license agreements relating thereto);
10.10 All claims for loss or damage to or in connection with
any of the Collateral, all other claims in any form for the payment of
money, including tort claims, and all rights with respect to such
claims and all proceeds thereof;
10.11 All accessions to any of the Collateral;
10.12 All products and proceeds of the Collateral, in any
form, including all proceeds received, due or to become due from any
sale, exchange or other disposition of any of the Collateral, whether
such proceeds are cash or noncash in nature or are represented by
checks, drafts, notes or other instruments for the payment of money;
and
10.13 All property that is now or at any time hereafter may be
in Secured Party's possession or control in any capacity, including
without limitation all money owed or that becomes owed to Debtor and
all money deposited for the account of Debtor.
All "Collateral Schedules," if any, attached hereto are hereby incorporated into
this collateral description as if set forth here and at each reference thereto.
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EXHIBIT "D"
When recorded, return to:
BANK ONE, ARIZONA, NA
Post Office Box 71
Phoenix, Arizona 85001
Attention: Commercial Banking Dept. AZ1-1178
DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
This Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing (hereinafter called "Deed of Trust") is made as of the _____ day of
_____________, 19___, by and among
____________________________________________________________________
_________________________________________________________________, whose mailing
address and whose chief executive office is located at
____________________________________ ______________________________, hereinafter
called "Trustor," ARIZONA TRUST DEED CORPORATION, an Arizona corporation, whose
mailing address is Post Office Box 71, Phoenix, Arizona 85001, hereinafter
called "Trustee," and BANK ONE, ARIZONA, NA, a national banking association,
whose mailing address is Post Office Box 71, Phoenix, Arizona 85001, Attention:
Commercial Banking Dept. AZ1-1178, hereinafter called "Beneficiary."
WITNESSETH:
SECTION 1. GRANTING CLAUSE; WARRANTY OF TITLE
1.1 Trustor hereby irrevocably grants, transfers, conveys and assigns
to Trustee, in trust, with power of sale, for the benefit of Beneficiary, all of
Trustor's present and future estate, right, title and interest in and to that
real property and all buildings and other improvements now thereon or hereafter
constructed thereon (the "Premises"), in the County of ________________, State
of _______, described on Schedule "A" attached hereto and by this reference made
a part hereof, together with all of the following which, with the Premises
(except where the context otherwise requires), are hereinafter collectively
called the "Trust Property":
(a) All appurtenances in and to the Premises;
(b) All water and water rights, ditches and ditch rights,
reservoir and reservoir rights, stock or interests in irrigation or ditch
companies, minerals, oil and gas rights, royalties, lease or leasehold interests
owned by Trustor, now or hereafter used or useful in connection with,
appurtenant to or related to the Premises;
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(c) All right, title and interest of Trustor now owned or
hereafter acquired in and to all streets, roads, alleys and public places, and
all easements and rights of way, public or private, now or hereafter used in
connection with the Premises;
(d) All machinery, equipment, fixtures and materials now or at
any time attached to the Premises together with all processing, manufacturing
and service equipment and other personal property now or at any time hereafter
located on or appurtenant to the Premises and used in connection with the
management and operation thereof;
(e) Any licenses, contracts, permits and agreements required
or used in connection with the ownership, operation or maintenance of the
Premises, and the right to the use of any tradename, trademark, or service mark
now or hereafter associated with the operation of any business conducted on the
Premises;
(f) Any and all insurance proceeds, and any and all awards,
including interest, previously and hereafter made to Trustor for taking by
eminent domain of the whole or any part of the Premises or any easements
therein;
(g) Subject to the rights of Beneficiary under Section 3
hereof, all existing and future leases, subleases, licenses and other agreements
for the use and occupancy of all or any portion of the Premises and all income,
receipts, revenues, rents, issues and profits arising from the use or enjoyment
of all or any portion of the Premises.
1.2 Trustor warrants that it is well and truly seized of a good and
marketable title in fee simple to the Premises, that it is the lawful owner of
the rest of the Trust Property, and that, except for those matters approved by
Beneficiary and specifically described on Schedule B to the title insurance
policy insuring this Deed of Trust (hereinafter called the "Permitted
Exceptions"), the title to all the Trust Property is clear, free and
unencumbered; Trustor shall forever warrant and defend the same unto
Beneficiary, its successors and assigns, against all claims whatsoever.
TRUSTOR FURTHER REPRESENTS, WARRANTS, COVENANTS AND AGREES AS
FOLLOWS:
SECTION 2. OBLIGATION SECURED
This Deed of Trust is given for the purpose of securing, in such order
of priority as Beneficiary may elect:
2.1 Payment of the sum of TEN MILLION AND NO/100 DOLLARS
($10,000,000.00), which may include, without limitation, future advances of
principal made after the date hereof, with interest thereon, extension and other
fees, late charges, prepayment premiums and attorneys' fees, according to the
terms of that Promissory Note dated December 10, 1997, made by SCHUFF STEEL
COMPANY, a Delaware corporation ("Borrower"), payable to the order of
Beneficiary, and all extensions, modifications, renewals or replacements thereof
(hereinafter called the "Line Note"). The Note bears interest at a variable rate
in accordance with the terms and provisions thereof which are by this reference
incorporated herein;
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2.2 Payment of the sum of TEN MILLION AND NO/100 DOLLARS
($10,000,000.00) according to the terms of that Promissory Note dated June 30,
1995, made by Borrower, payable to the order of Beneficiary, evidencing a
revolving line of credit, all or any part of which may be advanced to Borrower,
repaid by Borrower and readvanced to Borrower, from time to time, subject to the
terms and conditions thereof, provided that the principal balance outstanding at
any time shall not exceed the sum set forth above in this Paragraph 2.2, with
interest thereon, extension and other fees, late charges, prepayment premiums
and attorneys' fees, according to the terms thereof, and all extensions,
modifications, renewals or replacements thereof (hereinafter called the "RLC
Note") (the Line Note and the RLC Note are hereinafter severally and
collectively called the "Note"). The RLC Note bears interest at a variable rate
in accordance with the terms and provisions thereof which are by this reference
incorporated herein;
2.3 Payment, performance and observance by Trustor of each covenant,
condition, provision and agreement contained herein and of all monies expended
or advanced by Beneficiary pursuant to the terms hereof, or to preserve any
right of Beneficiary hereunder, or to protect or preserve the Trust Property or
any part thereof;
2.4 Payment, performance and observance by Borrower of each covenant,
condition, provision and agreement contained in that Credit Agreement dated
December 10, 1997, by and between Borrower and Beneficiary (hereinafter called
the "Loan Agreement") and in any other document or instrument related to the
indebtedness hereby secured and of all monies expended or advanced by
Beneficiary pursuant to the terms thereof or to preserve any right of
Beneficiary thereunder;
2.5 Payment of any and all additional loans and advances made by
Beneficiary to Borrower, Trustor and/or to the then record owner or owners of
the Trust Property and any other indebtedness or obligation of Trustor, Borrower
and/or the then record owner or owners of the Trust Property to Beneficiary of
any kind, direct or indirect (excluding, however, any such loan to, or
indebtedness or obligation of, an individual for personal, family or household
purposes) with interest thereon, late charges, extension and other fees,
prepayment premiums and attorneys' fees, according to the terms of the
promissory note(s), credit agreement(s) and/or guarantees evidencing such loans,
advances, indebtedness and obligations, and all extensions, modifications,
renewals or replacements thereof.
All of the indebtedness and obligations secured by this Deed of Trust are
hereinafter collectively called the "Obligation."
SECTION 3. LEASES; ASSIGNMENT OF RENTS AND LEASES
3.1 To facilitate payment and performance of the Obligation, Trustor
hereby absolutely transfers and assigns to Beneficiary all right, title and
interest of Trustor in and to (i) all existing and future leases, subleases,
licenses and other agreements for the use and occupancy of all or any part of
the Trust Property, whether written or oral and whether for a definite term or
month to month, together with all guarantees of the lessee's obligations
thereunder and together with all extensions, modifications and renewals thereof
(hereinafter called the "Leases"), and (ii) all income, receipts, revenues,
rents, issues and profits now or hereafter arising from or out of the Leases or
from or out
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of the Trust Property or any part thereof, including without limitation room
rents, minimum rents, additional rents, percentage rents, occupancy and user
fees and charges, license fees, parking and maintenance charges and fees, tax
and insurance contributions, proceeds of the sale of utilities and services,
cancellation premiums, claims for damages arising from any breach of the Leases,
proceeds from any sale or other disposition of all or any portion of the Trust
Property, and all other benefits arising from the use or enjoyment of, or the
lease, sale or other disposition of, all or any portion of the Trust Property,
together with the immediate and continuing right to receive all of the foregoing
(hereinafter called the "Rents"). In furtherance of this Assignment, and not in
lieu hereof, Beneficiary may require a separate assignment of rents and leases
and/or separate specific assignments of rents and leases covering one or more of
the Leases; the terms of all such assignments are incorporated herein by
reference.
3.2 Trustor hereby authorizes and directs the lessees and tenants under
the Leases that, upon written notice from Beneficiary, all Rents shall be paid
directly to Beneficiary as they become due. Trustor hereby relieves the lessees
and tenants from any liability to Trustor by reason of the payment of the Rents
to Beneficiary. Nevertheless, Trustor shall be entitled to collect the Rents
until Beneficiary notifies the lessees and tenants in writing to pay the Rents
to Beneficiary. Beneficiary is hereby authorized to give such notification upon
the occurrence of an Event of Default and at any time thereafter while such
Event of Default is continuing. Receipt and application of the Rents by
Beneficiary shall not constitute a waiver of any right of Beneficiary under this
Deed of Trust or applicable law, shall not cure any Event of Default hereunder,
and shall not invalidate or affect any act done in connection with such Event of
Default, including, without limitation, any trustee's sale or foreclosure
proceeding.
3.3 All Rents collected by Trustor shall be applied in the following
manner:
First, to the payment of all taxes and lien assessments levied
against the Trust Property, where provision for paying such is not otherwise
made;
Second, to the payment of ground rents (if any) payable with
respect to the Trust Property;
Third, to the payment of any amounts due and owing under the
Obligation;
Fourth, to the payment of current operating costs and expenses
(including repairs, maintenance and necessary acquisitions of property and
expenditures for capital improvements) arising in connection with the Trust
Property;
Fifth, to Trustor or its designee.
All Rents collected by Beneficiary may be applied to the items above listed in
any manner that Beneficiary deems advisable and without regard to the
aforestated priorities.
3.4 Trustor represents and warrants that: (i) the Leases are in full
force and effect and have not been modified or amended; (ii) the Rents have not
been waived, discounted, compromised, setoff or paid more than one month in
advance; (iii) there are no other assignments, transfers,
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pledges or encumbrances of any Leases or Rents; and (iv) neither Trustor nor the
lessees and tenants are in default under the Leases.
3.5 Trustor shall (i) fulfill or perform each and every term, covenant
and provision of the Leases to be fulfilled or performed by the lessor
thereunder; (ii) give prompt notice to Beneficiary of any notice received by
Trustor of default thereunder or of any alleged default or failure of
performance that could become a default thereunder, together with a complete
copy of any such notice; and (iii) enforce, short of termination thereof, the
performance or observance of each and every term, covenant and provision of each
Lease to be performed or observed by the lessees and tenants thereunder.
3.6 Trustor, without the prior written consent of Beneficiary, shall
not: (i) cancel, modify or alter, or accept the surrender of, any Lease; (ii)
assign, transfer, pledge or encumber, the whole or any part of the Leases and
Rents to anyone other than Beneficiary; (iii) accept any Rents more than one
month in advance of the accrual thereof; (iv) do or permit anything to be done,
the doing of which, or omit or refrain from doing anything, the omission of
which, could be a breach or default under the terms of any Lease or a basis for
termination thereof; or (v) enter in to any new tenant leases.
3.7 Beneficiary does not assume and shall not be liable for any
obligation of the lessor under any of the Leases and all such obligations shall
continue to rest upon Trustor as though this assignment had not been made.
Beneficiary shall not be liable for the failure or inability to collect any
Rents.
3.8 Neither the Assignment of Rents and Leases contained herein or in
any separate assignment nor the exercise by Beneficiary of any of its rights or
remedies thereunder or in connection therewith, prior to Beneficiary obtaining
actual possession of the Trust Property as provided in Paragraph 8.2 hereof,
shall constitute Beneficiary a "mortgagee in possession" or otherwise make
Beneficiary responsible or liable in any manner with respect to the Trust
Property or the occupancy, operation or use thereof. In the event Beneficiary
obtains actual possession of the Trust Property as provided in Paragraph 8.2
hereof, Beneficiary shall have the rights, and Beneficiary's liability shall be
limited, as provided in that Paragraph.
SECTION 4. SECURITY AGREEMENT
4.1 This Deed of Trust shall cover, and the Trust Property shall
include, all property now or hereafter affixed or attached to or incorporated
upon the Premises, which, to the fullest extent permitted by law, shall be
deemed fixtures and a part of the Premises. To the extent any of the Trust
Property consists of rights in action or personal property covered by the
Uniform Commercial Code, this Deed of Trust shall also constitute a security
agreement, and Trustor hereby grants to Beneficiary, as secured party, a
security interest in such property, including all proceeds thereof, for the
purpose of securing the Obligation. In addition, for the purpose of securing the
Obligation, Trustor hereby grants to Beneficiary, as secured party, a security
interest in all of the property described below in, to, or under which Trustor
now has or hereafter acquires any right, title or interest, whether present,
future, or contingent: all equipment, inventory, accounts, general intangibles,
instruments, documents, and chattel paper, as those terms are defined in the
Uniform
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Commercial Code, and all other personal property of any kind (including without
limitation money and rights to the payment of money), whether now existing or
hereafter created, that are now or at any time hereafter (i) in the possession
or control of Beneficiary in any capacity; (ii) erected upon, attached to, or
appurtenant to, the Premises; (iii) located or used on the Premises or
identified for use on the Premises (whether stored on the Premises or
elsewhere); or (iv) used in connection with, arising from, related to, or
associated with the Premises or any of the personal property described herein,
the construction of any improvements on the Premises, the ownership,
development, maintenance, leasing, management, or operation of the Premises, the
use or enjoyment of the Premises, or the operation of any business conducted on
the Premises; including without limitation all such property more particularly
described as follows:
(a) Buildings, structures and improvements, and building
materials, fixtures and equipment to be incorporated into any buildings,
structures or improvements;
(b) Goods, materials, supplies, fixtures, equipment,
machinery, furniture and furnishings, including without limitation, all such
items used for (i) generation, storage or transmission of air, water, heat,
steam, electricity, light, fuel, refrigeration or sound; (ii) ventilation,
air-conditioning, heating, refrigeration, fire prevention and protection,
sanitation, drainage, cleaning, transportation, communications, maintenance or
recreation; (iii) removal of dust, refuse, garbage or snow; (iv) transmission,
storage, processing or retrieval of information; and (v) floor, wall, ceiling
and window coverings and decorations;
(c) Income, receipts, revenues, rents, issues and profits,
including without limitation, room rents, minimum rents, additional rents,
percentage rents, occupancy and user fees and charges, license fees, parking and
maintenance charges and fees, tax and insurance contributions, proceeds of the
sale of utilities and services, cancellation premiums, and claims for damages
arising from the breach of any leases;
(d) Water and water rights, ditches and ditch rights,
reservoirs and reservoir rights, stock or interest in irrigation or ditch
companies, minerals, oil and gas rights, royalties, and lease or leasehold
interests;
(e) Plans and specifications prepared for the construction of
any improvements, including without limitation, all studies, estimates, data,
and drawings;
(f) Documents, instruments and agreements relating to, or in
any way connected with, the operation, control or development of the Premises,
including without limitation, any declaration of covenants, conditions and
restrictions and any articles of incorporation, bylaws and other membership
documents of any property owners association or similar group;
(g) Claims and causes of action, legal and equitable, in any
form whether arising in contract or in tort, and awards, payments and proceeds
due or to become due, including without limitation those arising on account of
any loss of, damage to, taking of, or diminution in value of, all or any part of
the Premises or any personal property described herein;
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(h) Sales agreements, escrow agreements, deposit receipts, and
other documents and agreements for the sale or other disposition of all or any
part of the Premises or any of the personal property described herein, and
deposits, proceeds and benefits arising from the sale or other disposition of
all or any part of the Premises or any of the personal property described
herein;
(i) Policies or certificates of insurance, contracts,
agreements or rights of indemnification, guaranty or surety, and awards, loss
payments, proceeds, and premium refunds that may be payable with respect to such
policies, certificates, contracts, agreements or rights;
(j) Contracts, agreements, permits, licenses, authorizations
and certificates, including without limitation all architectural contracts,
construction contracts, management contracts, service contracts, maintenance
contracts, franchise agreements, license agreements, building permits and
operating licenses;
(k) Trade names, trademarks, and service marks (subject to any
franchise or license agreements relating thereto);
(l) Refunds and deposits due or to become due from any utility
companies or governmental agencies;
(m) Replacements and substitutions for, modifications of, and
supplements, accessions, addenda and additions to, all of the personal property
described herein;
(n) Books, records, correspondence, files and electronic
media, and all information stored therein;
together with all products and proceeds of all of the foregoing, in any form,
including all proceeds received, due or to become due from any sale, exchange or
other disposition thereof, whether such proceeds are cash or non-cash in nature,
and whether represented by checks, drafts, notes or other instruments for the
payment of money. The personal property described or referred to in this
Paragraph 4.1 is hereinafter called the "Personal Property." The security
interests granted in this Paragraph 4.1 are hereinafter severally and
collectively called the "Security Interest."
4.2 The Security Interest shall be self-operative with respect to the
Personal Property, but Trustor shall execute and deliver on demand such
additional security agreements, financing statements and other instruments as
may be requested in order to impose the Security Interest more specifically upon
the Personal Property. The Security Interest, at all times, shall be prior to
any other interests in the Personal Property except any lien or security
interest granted in connection with any Permitted Exception. Trustor shall act
and perform as necessary and shall execute and file all security agreements,
financing statements, continuation statements and other documents requested by
Beneficiary to establish, maintain and continue the perfected Security Interest.
Trustor, on demand, shall promptly pay all costs and expenses of filing and
recording, including the costs of any searches, deemed necessary by Beneficiary
from time to time to establish and determine the validity and the continuing
priority of the Security Interest.
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4.3 Trustor shall not sell, transfer, assign or otherwise dispose of
any Personal Property or any interest therein without obtaining the prior
written consent of Beneficiary, except Personal Property that Trustor is obliged
to replace pursuant to the terms hereof. Unless Beneficiary then agrees
otherwise in writing, all proceeds from any permitted sale or disposition in
excess of that required for replacements shall be paid to Beneficiary to be
applied to the Obligation, whether or not then due. Trustor shall keep the
Personal Property free of all security interests or other encumbrances, except
the Security Interest and any security interests and encumbrances granted in
connection with any Permitted Exception. Although proceeds of Personal Property
are covered hereby, this shall not be construed to mean that Beneficiary
consents to any sale of the Personal Property.
4.4 Trustor shall keep and maintain the Personal Property in good
condition and repair, and shall promptly replace any part thereof that from time
to time may become obsolete, badly worn or in a state of disrepair. All such
replacements shall be free of any other security interest or encumbrance, except
any security interest or encumbrance granted in connection with any Permitted
Exception.
4.5 Except for purposes of replacement and repair, Trustor, without the
prior written consent of Beneficiary, shall not remove, or permit the removal
of, any Personal Property from the Premises.
4.6 Trustor hereby warrants, covenants and agrees that: (i) the
Personal Property is or will be used primarily for business (other than farm)
purposes; (ii) the Personal Property will be kept at the Premises; and (iii)
Trustor's records concerning the Personal Property will be kept at Trustor's
address as set forth in the beginning of this Deed of Trust.
4.7 Trustor represents and warrants that (i) the name specified above
for Trustor is the true and correct legal name of Trustor, and (ii) the address
specified above is the address of Trustor's chief executive office (or residence
if Trustor is an individual without an office). Trustor shall give Beneficiary
immediate written notice of any change in the location of: (i) Trustor's chief
executive office (or residence if Trustor is an individual without an office),
as set forth in the beginning of this Deed of Trust; (ii) the Personal Property
or any part thereof; or (iii) Trustor's records concerning the Personal
Property. Trustor shall give Beneficiary immediate written notice of any change
in the name, identity or structure of Trustor.
4.8 All covenants and warranties of Trustor contained in this Deed of
Trust shall apply to the Personal Property whether or not expressly referred to
in this Section 4. The covenants and warranties of Trustor contained in this
Section 4 are in addition to, and not in limitation of, those contained in the
other provisions of this Deed of Trust.
4.9 Upon its recording in the real property records, this Deed of Trust
shall be effective as a financing statement filed as a fixture filing. In
addition, a carbon, photographic or other reproduced copy of this Deed of Trust
and/or any financing statement relating hereto shall be sufficient for filing
and/or recording as a financing statement. The filing of any other financing
statement relating to any personal property, rights or interests described
herein shall not be construed to diminish any right or priority hereunder.
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SECTION 5. PROTECTION AND PRESERVATION OF THE TRUST PROPERTY
5.1 Trustor shall neither commit nor permit to occur any waste upon the
Trust Property but shall at all times make or cause to be made all repairs,
maintenance, renewals and replacements as may be necessary to maintain the Trust
Property in good condition and repair. Trustor shall keep the Trust Property
free of termites, dry rot, fungus, beetles and all other harmful or destructive
insects and shall keep all plants, trees and shrubs included in the Trust
Property neatly pruned and in good condition. Trustor shall keep the Trust
Property free of rubbish and other unsightly or unhealthful conditions. Trustor
shall neither use nor permit the use of the Trust Property in violation of any
applicable statute, ordinance or regulation, including, without limitation, the
Americans With Disabilities Act of 1990 and corresponding rules and regulations
(the "ADA"), or any policy of insurance insuring the Trust Property.
5.2 Trustor shall promptly complete any improvements that may be
commenced, in good and workmanlike manner and in conformity with the ADA and
with plans and specifications approved by Beneficiary. Trustor shall repair and
restore, in conformity with the ADA, any portions of the Trust Property that may
be damaged or destroyed. Trustor shall pay when due all claims for work
performed and materials furnished on or in connection with the Trust Property or
any part thereof and shall pay, discharge, or cause to be removed, all
mechanic's, artisan's, laborer's or materialman's charges, liens, claims of
liens or encumbrances upon the Trust Property. Trustor shall comply with all
laws, ordinances and regulations now or hereafter enacted, including, without
limitation, the ADA, affecting the Trust Property or requiring any alterations
or improvements to be made. Except as required by law, Trustor shall not remove,
substantially alter, or demolish any building or improvement included in the
Trust Property without Beneficiary's prior written consent.
5.3 (a) Trustor shall provide and maintain policies of fire and
extended coverage insurance on the Trust Property in an amount not less than the
full insurable value, on a replacement-cost basis, of the Trust Property and,
when requested by Beneficiary, shall also provide and maintain policies of
insurance in amounts required by Beneficiary covering vandalism and malicious
mischief, sprinkler leakage, rent abatement and/or business loss, flood damage,
earthquake and all other risks commonly insured against by persons owning like
properties in the locality of the Trust Property or commonly required by prudent
institutional lenders making loans secured by liens against such properties. All
such policies shall contain standard, non-contributory trust beneficiary clauses
making losses payable to Beneficiary. Trustor shall also provide and maintain
comprehensive public liability insurance in amounts required by Beneficiary and
containing endorsements naming Beneficiary as an additional insured. All
insurance policies shall be with companies from time to time approved by
Beneficiary, shall provide that Beneficiary is to receive thirty (30) days'
notice prior to cancellation and shall otherwise be in form and substance
satisfactory to Beneficiary. Original policies of insurance shall be delivered
to Beneficiary; renewal policies shall be delivered to Beneficiary thirty (30)
days before the expiration of the then-existing policies with satisfactory proof
that the premiums for renewal have been paid.
(b) In the event of loss, Trustor shall give immediate notice
to Beneficiary, and Beneficiary may make proof of loss if not made promptly by
Trustor. Each insurance company is hereby authorized and directed to make
payment for loss directly to Beneficiary, instead of to Trustor or to Trustor
and Beneficiary jointly; Beneficiary may apply all or any part of such insurance
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proceeds to the payment of the Obligation, whether or not then due, or the
restoration or repair of the Trust Property. Beneficiary shall not be
responsible for any insurance, for the collection of any insurance proceeds, or
for the insolvency of any insurer. Application of insurance proceeds by
Beneficiary shall not cure nor waive any Event of Default nor invalidate any act
done hereunder because of any such Event of Default. In the event of the sale of
the Trust Property under the power of sale herein granted to Trustee, or upon
foreclosure of this Deed of Trust as a mortgage, or in the event Beneficiary or
a receiver appointed by the court shall take possession of the Trust Property
without sale, then all right, title and interest of Trustor in and to all
insurance policies then in force shall inure to the benefit of and pass to the
beneficiary in possession, receiver or purchaser at such sale, as the case may
be. Beneficiary is hereby appointed attorney in fact for Trustor to assign and
transfer such policies.
(c) If the insurance proceeds are to be used for the
restoration and repair of the Trust Property, they shall be held by Beneficiary
in a non-interest bearing account selected by Beneficiary in its sole and
absolute discretion (the "Restoration Account"). Trustor, at its expense, shall
promptly prepare and submit to Beneficiary all plans and specifications
necessary for the restoration and repair of the damaged Trust Property, together
with evidence acceptable to Beneficiary setting forth the total expenditure
needed for the restoration and repair based upon a fixed price contract with a
reputable builder and covered by performance and labor and material payment
bonds. The plans and specifications and all other aspects of the proposed
restoration and repair shall be subject to Beneficiary's approval. In the event
the insurance proceeds held in the Restoration Account are insufficient to
complete the restoration and repair, Trustor shall deposit in the Restoration
Account an amount equal to the difference between the amount then held in the
Restoration Account and the total contract price for the restoration and repair.
Trustor may commence restoration and repair of the damaged Trust Property only
when authorized in writing by Beneficiary to do so and thereafter shall proceed
diligently with the restoration and repair until completed. Disbursements shall
be made from the Restoration Account for the restoration and repair in
accordance with a disbursement schedule, and subject to other terms and
conditions, acceptable to Beneficiary. Disbursements from the Restoration
Account shall be charged first against funds deposited by Trustor and, after
such funds are exhausted, against the insurance proceeds deposited therein. In
the event the amounts held in the Restoration Account exceed the cost of the
restoration and repair of the damaged Trust Property, the excess funds shall be
disbursed to Trustor to the extent of any amounts deposited therein by Trustor.
Any funds remaining after such disbursement, at Beneficiary's option, may be
applied by Beneficiary to the payment of the Obligation, whether or not then
due, or may be disbursed to Trustor. All funds held in the Restoration Account
are hereby assigned to Beneficiary as further security for the Obligation.
Beneficiary, at any time, may apply all or any part of the funds held in the
Restoration Account to the curing of any Event of Default.
5.4 Trustor shall pay or cause to be paid all taxes and assessments of
every kind, nature and description levied or assessed on or against the Trust
Property and shall deliver to Beneficiary, at least ten (10) days before they
become delinquent, receipts showing payment of all such taxes and assessments
and shall pay when due all dues and charges for water and water delivery,
electricity, gas, sewers, waste removal, bills for repairs, and any and all
other claims, encumbrances and expenses incident to the ownership of the Trust
Property. Trustor may contest in good faith the validity or amount of any tax,
assessment, charge or encumbrance in the manner provided by law, provided that
Trustor shall have furnished Beneficiary a cash deposit or other security in an
amount
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and form satisfactory to Beneficiary to protect Beneficiary against the creation
of any lien on, or any sale or forfeiture of, the Trust Property. Upon the final
determination of Trustor's contest, Trustor shall promptly pay all sums
determined to be due. Any deposit or security provided by Trustor shall be
returned to Trustor upon the final determination of Trustor's contest and the
payment by Trustor of the sums, if any, determined to be due.
5.5 Beneficiary may contest, by appropriate legal proceedings, the
validity of any valuation for real or personal property tax purposes or of any
levy or assessment of any real or personal property taxes against the Trust
Property either in the name of Beneficiary or the name of Trustor or both.
Trustor, upon notice and request by Beneficiary, shall join in any such
proceedings. Trustor shall cooperate with Beneficiary in any such proceeding and
execute any documents or pleadings required for such purposes. Trustor shall
provide Beneficiary with a copy of the Notice of Valuation within ten (10) days
after receipt (five (5) days in the case of personal property). Trustor shall
reimburse Beneficiary for all costs and legal expenses incurred by Beneficiary
in connection with any such proceedings, but in no event shall such
reimbursement exceed the tax savings achieved for the period covered by the
Notice of Valuation. To facilitate the right of Beneficiary to contest any real
or personal property tax valuation, levy, or assessment as described above,
Trustor does hereby make, constitute and appoint Beneficiary, and its successors
and assigns, Trustor's true and lawful attorney-in-fact, in Trustor's name,
place and stead, or otherwise, to file any claim or proceeding or to take any
action, either in its own name, in that of its nominee, in the name of Trustor,
or otherwise, to contest any real or personal property tax valuation, levy, or
assessment. The power of attorney given herein is a power coupled with an
interest and shall be irrevocable so long as any part of the Obligation remains
unpaid or unperformed. Beneficiary shall have no obligation to exercise any of
the foregoing rights and powers in any event.
5.6 In order to insure the payment of taxes and assessments that are
now, or hereafter may be, a lien upon the Trust Property, and to insure the
payment of all premiums on policies of insurance required herein, Trustor, if
required by Beneficiary after the occurrence of any Event of Default or any
failure to pay taxes, assessments or insurance premiums as required herein,
shall pay to Beneficiary each month, in addition to any other payments required
hereunder, an amount equal to the taxes and special assessments levied or to be
levied against the Trust Property and the premium or premiums that will become
due and payable to maintain the insurance on the Trust Property, all as
reasonably estimated by Beneficiary (giving due consideration to the previous
year's taxes, assessments and premiums) less all deposits therefore already
made, divided by the number of months remaining before one month prior to the
date when the taxes, assessments and premiums become delinquent. If amounts paid
to Beneficiary under the terms of this paragraph are insufficient to pay all
taxes, assessments and premiums as they become due, Trustor shall pay to
Beneficiary upon demand all additional sums necessary to fully pay and discharge
these items. All moneys paid to Beneficiary under the terms of this paragraph
may be either held by Beneficiary to pay the taxes, assessments and premiums
before the same become delinquent or applied to the Obligation upon payment by
Beneficiary from its own funds of the taxes, assessments and premiums. To the
extent provision is not made for payment pursuant to this paragraph, Trustor
shall remain obligated to pay all taxes, assessments and premiums as they become
due and payable. Deposits made under this paragraph may be commingled with
Beneficiary's general funds; Beneficiary shall have no liability to Trustor for
interest on any deposits.
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5.7 Trustor hereby assigns, transfers and conveys to Beneficiary all
compensation and each and every award of damages in connection with any
condemnation for public or private use of, or injury to, the Trust Property or
any part thereof, to the extent of the Obligation then remaining unpaid, and all
such compensation and awards shall be paid directly to Beneficiary. Beneficiary
may apply all or any part of such compensation and awards to the payment of the
Obligation, whether or not then due, or to the restoration or repair of the
Trust Property in accordance with the procedures specified in Paragraph 5.3(c)
above for insurance proceeds.
SECTION 6. PROTECTION AND PRESERVATION OF BENEFICIARY'S INTEREST
6.1 Trustor, by the payment of any such tax or taxes, shall protect
Beneficiary against any and all loss from any taxation of indebtedness or deeds
of trust, direct or indirect, that may be imposed upon this Deed of Trust, the
lien of this Deed of Trust on the Trust Property, or upon the Obligation, by any
law, rule, regulation or levy of the federal government, any state government,
or any political subdivision thereof. In the event the burden of such taxation
cannot lawfully be shifted from Beneficiary to Trustor, Beneficiary may declare
the entire Obligation due and payable sixty (60) days after notice to Trustor.
6.2 If Trustor shall fail to pay any taxes, assessments, expenses or
charges, to keep all of the Trust Property free from liens and claims of liens,
to maintain and repair the Trust Property, or to procure and maintain insurance
thereon, or otherwise fail to perform as required herein, Beneficiary may
advance the monies necessary to pay the same, to accomplish such maintenance and
repairs, to procure and maintain such insurance or to so perform; Beneficiary is
hereby authorized to enter upon the Trust Property for such purposes.
6.3 Upon written request by Beneficiary, Trustor shall appear in and
prosecute or defend any action or proceeding that may affect the lien or the
priority of the lien of this Deed of Trust or the rights of Beneficiary
hereunder and shall pay all costs, expenses (including the cost of searching
title) and attorneys' fees incurred in such action or proceeding. Beneficiary
may appear in and defend any action or proceeding purporting to affect the lien
or the priority of the lien of this Deed of Trust or the rights of Beneficiary.
Beneficiary may pay, purchase, contest or compromise any adverse claim,
encumbrance, charge or lien that in the judgment of Beneficiary appears to be
prior or superior to the lien of this Deed of Trust, other than any Permitted
Exceptions.
6.4 Without obtaining the prior written consent of Beneficiary, Trustor
shall not sell, transfer, convey, assign or otherwise dispose of, or further
encumber, all or any part of the Trust Property or any interest therein,
voluntarily or involuntarily, by operation of law or otherwise. If Trustor is a
corporation, limited liability company, partnership, joint venture or trust, any
material change in the ownership or management of, or interest in, Trustor, or
any pledge or encumbrance of any interest in Trustor, shall be deemed to be a
transfer of the Trust Property. Upon the occurrence of any such transaction with
Beneficiary's consent, or without Beneficiary's consent if Beneficiary elects
not to exercise its rights and remedies for an Event of Default, Beneficiary (i)
may increase the interest rate on all or any part of the Obligation to its then
current market rate for similar indebtedness; (ii) may charge a loan fee and a
processing fee in connection with the change; and (iii) shall not be obligated
to release Trustor from any liability hereunder or for the Obligation except to
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the extent required by law. Consent to any such transaction shall not be deemed
to be consent or a waiver of the requirement of consent to any other such
transaction.
6.5 Without obtaining the prior written consent of Beneficiary, Trustor
shall not consent to, or vote in favor of, the inclusion of all or any part of
the Trust Property in any Community Facilities District formed pursuant to the
Community Facilities District Act, A.R.S. Section 48-701, et seq., as amended
from time to time. Trustor shall immediately give notice to Beneficiary of any
notification or advice that Trustor may receive from any municipality or other
third party of any intent or proposal to include all or any part of the Trust
Property in a Community Facilities District. Beneficiary shall have the right to
file a written objection to the inclusion of all or any part of the Trust
Property in a Community Facilities District, either in its own name or in the
name of Trustor, and to appear at, and participate in, any hearing with respect
to the formation of any such district.
6.6 All rights, powers and remedies granted Beneficiary herein, or
otherwise available to Beneficiary, are for the sole benefit and protection of
Beneficiary, and Beneficiary may exercise any such right, power or remedy at its
option and in its sole and absolute discretion without any obligation to do so.
In addition, if, under the terms hereof, Beneficiary is given two or more
alternative courses of action, Beneficiary may elect any alternative or
combination of alternatives, at its option and in its sole and absolute
discretion. All monies advanced by Beneficiary under the terms hereof and all
amounts paid, suffered or incurred by Beneficiary in exercising any authority
granted herein, including reasonable attorneys' fees, shall be added to the
Obligation, shall be secured by this Deed of Trust, shall bear interest at the
highest rate payable on any of the Obligation until paid, and shall be due and
payable by Trustor to Beneficiary immediately without demand.
6.7 Trustor, upon request of Beneficiary, shall promptly correct any
defect, error or omission that may be discovered in the content of this Deed of
Trust or in the execution or acknowledgment hereof. In addition, Trustor shall
do such further acts as may be necessary or that Beneficiary may reasonably
request to carry out more effectively the purposes of this Deed of Trust, to
subject any property intended to be encumbered hereby to the lien and security
interest hereof, and to perfect and maintain the lien and security interest
hereof.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 If Trustor is a corporation, limited liability company, partnership
or trust, it (i) is duly organized, validly existing and in good standing under
the laws of the state in which it is organized; (ii) is qualified to do business
and is in good standing under the laws of the state in which the Trust Property
is located and in each state in which it is doing business; (iii) has full power
and authority to own its properties and assets and to carry on its business as
now conducted; and (iv) is fully authorized and permitted to execute and deliver
this Deed of Trust. The execution, delivery and performance by Trustor of this
Deed of Trust and all other documents and instruments relating to the Obligation
will not result in any breach of the terms or conditions or constitute a default
under any agreement or instrument under which Trustor is a party or is
obligated. Trustor is not in default in the performance or observance of any
covenants, conditions or provisions of any such agreement or instrument.
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7.2 The liens, security interests and assignments created hereby will
be valid, effective, properly perfected and enforceable liens, security
interests and assignments.
7.3 All financial statements, profit and loss statements, statements as
to ownership and other statements or reports previously or hereafter given to
Beneficiary by or on behalf of Trustor are and shall be true, complete and
correct as of the date thereof. There has been no material adverse change in the
financial condition or the results of the operation of Trustor since the latest
financial statement of Trustor given to Beneficiary.
7.4 Trustor has filed all federal, state and local tax returns and has
paid all of its current obligations before delinquent, including all federal,
state and local taxes and all other payments required under federal, state or
local law.
7.5 The Trust Property is not in violation of the ADA and is not
subject to any existing, pending or threatened investigation in connection with
the ADA.
7.6 All representations and warranties made herein shall survive the
execution hereof, the execution and delivery of all other documents and
instruments in connection with the Obligation, and until the Obligation has been
fully paid and performed.
SECTION 8. DEFAULTS; REMEDIES
8.1 The occurrence of any of the following events or conditions shall
constitute an "Event of Default" under this Deed of Trust:
(a) The occurrence of any Event of Default, as that term is
defined in the Loan Agreement.
(b) The abandonment by Trustor of all or any part of the Trust
Property.
(c) The existence of any encroachment upon the Trust Property
that has occurred without the approval of Beneficiary that is not removed or
corrected within thirty (30) days after its creation.
(d) The demolition or destruction of, or any substantial
damage to, any portion of the Trust Property that is not adequately covered by
insurance, or the loss, theft or destruction of, or any substantial damage to,
any portion of the Personal Property or any other collateral or security for the
Obligation, that is not adequately covered by insurance.
8.2 Upon the occurrence of any Event of Default, and at any time while
such Event of Default is continuing, Beneficiary may do one or more of the
following:
(a) Declare the entire Obligation to be immediately due and
payable, and the same, with all costs and charges, shall be collectible
thereupon by action at law.
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(b) Give such notice of default and of election to cause the
Trust Property to be sold as may be required by law or as may be necessary to
cause Trustee to exercise the power of sale granted herein. Trustee shall then
record and give such notice of trustee's sale as then required by law and, after
the expiration of such time as may be required by law, may sell the Trust
Property at the time and place specified in the notice of sale, as a whole or in
separate parcels as directed by Beneficiary, or by Trustor to the extent
required by law, at public auction to the highest bidder for cash in lawful
money of the United States, payable at time of sale, all in accordance with
applicable law. Trustee, from time to time, may postpone or continue the sale of
all or any portion of the Trust Property by public declaration at the time and
place last appointed for the sale. No other notice of the postponed sale shall
be required. Upon any sale, Trustee shall deliver its deed conveying the
property sold, without any covenant or warranty, express or implied, to the
purchaser or purchasers at the sale. The recitals in such deed of any matters or
facts shall be conclusive as to the accuracy thereof. Any person, including
Trustor, Trustee or Beneficiary, may purchase at the sale.
(c) Commence proceedings for foreclosure of this Deed of Trust
in the manner provided by law for the foreclosure of a real property mortgage.
(d) Exercise any or all of the remedies of a secured party
under the Uniform Commercial Code with respect to the Personal Property. If
Beneficiary should proceed to dispose of any of the Personal Property in
accordance with the provisions of the Uniform Commercial Code, five (5) days'
notice by Beneficiary to Trustor shall be deemed to be commercially reasonable
notice under any provision of the Uniform Commercial Code requiring notice.
Trustor, however, agrees that all property of every nature and description,
whether real or personal, covered by this Deed of Trust, together with all
personal property used on or in connection with the Premises or any business
conducted thereon by the Trustor and covered by separate security agreements, is
encumbered as one unit, that this Deed of Trust and such security interests, at
Beneficiary's option, may be foreclosed or sold in the same proceeding, and that
all property encumbered (both realty and personalty), at Beneficiary's option,
may be sold as such in one unit as a going business, subject to the provisions
of applicable law.
(e) Without regard to the adequacy of any security for the
Obligation or the solvency of Trustor or any other person or entity, send
notifications to any and all lessees and tenants under the Leases that all Rents
shall be paid to Beneficiary. Thereafter, Beneficiary shall be entitled to
collect the Rents until Trustor cures all Events of Default and may apply the
Rents collected at its sole discretion to the maintenance of the Trust Property
and/or the payment of the Obligation.
(f) Apply any funds in the possession or control of
Beneficiary under the provisions of Paragraph 5.6 hereof to the payment of the
Obligation, in lieu of the purposes specified in that paragraph.
(g) Apply for and obtain, without regard to the adequacy of
any security for the Obligation or the solvency of the Trustor or any other
person or entity, a receiver by any court of competent jurisdiction to take
charge of all the Trust Property, to manage, operate and carry on any business
then being conducted or that could be conducted on the Premises, to carry on,
protect, preserve, replace and repair the Trust Property, and receive and
collect all Rents and to apply the same to pay the receiver's expenses for the
operation of the Trust Property and then in the manner
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provided in Paragraph 3.3 herein. Upon appointment of said receiver, Trustor
shall immediately deliver possession of all of the Trust Property to such
receiver. Neither the appointment of a receiver for the Trust Property by any
court at the request of Beneficiary or by agreement with Trustor nor the
entering into possession of all or any part of the Trust Property by such
receiver shall constitute Beneficiary a "mortgagee in possession" or otherwise
make Beneficiary responsible or liable in any manner with respect to the Trust
Property or the occupancy, operation or use thereof. Trustor agrees that
Beneficiary shall have the absolute and unconditional right to the appointment
of a receiver in any independent and/or separate action brought by Beneficiary
regardless of whether Beneficiary seeks any relief in such action other than the
appointment of a receiver. In that respect, Trustor waives any express or
implied requirement under common law or A.R.S. Section 12-1241 that a receiver
may be appointed only ancillary to other judicial or non-judicial relief.
(h) Without regard to the adequacy of any security for the
Obligation or the solvency of Trustor or any other person or entity, enter upon
and take possession of all or any part of the Trust Property, either in person
or by agent or employee, or by a receiver appointed by a court of competent
jurisdiction; Trustor shall on demand peaceably surrender possession of the
Trust Property to Beneficiary. Beneficiary, in its own name or in the name of
Trustor, may operate and maintain all or any part of the Trust Property to such
extent as Beneficiary deems advisable, may rent and lease the same to such
persons, for such periods of time, and on such terms and conditions as
Beneficiary in its sole discretion may determine, and may sue for or otherwise
collect any and all Rents, including those past due and unpaid. In dealing with
the Trust Property as a beneficiary in possession, Beneficiary shall not be
subject to any liability, charge, or obligation therefor to Trustor, other than
for wilful misconduct, and shall be entitled to operate any business then being
conducted or which could be conducted thereon or therewith at the expense of and
for the account of Trustor (and all net losses, costs and expenses thereby
incurred shall be advances governed by Paragraph 6.6 hereof), to the same extent
as the owner thereof could do, and to apply the Rents to pay the receiver's
expenses, if any, for the operation of the Trust Property and then in the manner
provided in Paragraph 3.3 herein.
8.3 Trustor shall pay all costs and expenses, including without
limitation costs of title searches and title policy commitments, Uniform
Commercial Code searches, court costs and reasonable in-house and outside
attorneys' fees, incurred by Beneficiary in enforcing payment and performance of
the Obligation or in exercising the rights and remedies of Beneficiary
hereunder. All such costs and expenses shall be secured by this Deed of Trust
and by all other lien and security documents securing the Obligation. In the
event of any court proceedings, court costs and attorneys' fees shall be set by
the court and not by jury and shall be included in any judgment obtained by
Beneficiary.
8.4 In addition to any remedies provided herein for an Event of
Default, Beneficiary shall have all other legal or equitable remedies allowed
under applicable law (including specifically that of foreclosure of this
instrument as though it were a mortgage). No failure on the part of Beneficiary
to exercise any of its rights hereunder arising upon any Event of Default shall
be construed to prejudice its rights upon the occurrence of any other or
subsequent Event of Default. No delay on the part of Beneficiary in exercising
any such rights shall be construed to preclude it from the exercise thereof at
any time while that Event of Default is continuing. Beneficiary may enforce any
one or more remedies or rights hereunder successively or concurrently. By
accepting payment or
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performance of any of the Obligation after its due date, Beneficiary shall not
thereby waive the agreement contained herein that time is of the essence, nor
shall Beneficiary waive either its right to require prompt payment or
performance when due of the remainder of the Obligation or its right to consider
the failure to so pay or perform an Event of Default. In any action by
Beneficiary to recover a deficiency judgment for any balance due under the Note
upon the foreclosure of this Deed of Trust or in any action to recover the
Obligation or Obligations secured hereby, and as a material inducement to making
the loan evidenced by the Note, Trustor acknowledges and agrees that the
successful bid amount made at any judicial or non-judicial foreclosure sale, if
any, shall be conclusively deemed to constitute the fair market value of the
Premises, that such bid amount shall be binding against Trustor in any
proceeding seeking to determine or contest the fair market value of the Premises
and that such bid amount shall be the preferred alternative means of determining
and establishing the fair market value of the Premises. Trustor hereby waives
and relinquishes any right to have the fair market value of the Premises
determined by a judge or jury in any action seeking a deficiency judgment or any
action on the Obligation or Obligations secured hereby, including, without
limitation, a hearing to determine fair market value pursuant to A.R.S.
Section 12-1566, Section 33-814, Section 33-725 or Section 33-727.
SECTION 9. GENERAL PROVISIONS
9.1 Trustor shall defend, indemnify and hold harmless Beneficiary, any
successors to Beneficiary's interest in the Trust Property, any purchaser of the
Trust Property upon foreclosure, and all shareholders, directors, officers,
employees and agents of all of the foregoing and their heirs, personal
representatives, successors and assigns from and against all claims, costs,
expenses, actions, suits, proceedings, losses, damages and liabilities of any
kind whatsoever, including but not limited to all amounts paid in settlement of,
and all costs and expenses (including attorneys' fees) incurred in defending or
settling, any actual or threatened claim, action, suit or proceeding, directly
or indirectly arising out of or relating to the Obligation, this Deed of Trust,
or the Trust Property, including but not limited to (i) any violation of or
claim of violation of the ADA with respect to the Trust Property; or (ii) any
breach of any of the warranties, representations and covenants contained herein.
This indemnity provision shall continue in full force and effect and shall
survive the payment and performance of the Obligation, the release of record of
the lien of this Deed of Trust, any foreclosure (or action in lieu of
foreclosure) of this Deed of Trust, the exercise by Beneficiary of any other
remedy under this Deed of Trust or any other document or instrument evidencing
or securing the Obligation, and any suit, proceeding or judgment against Trustor
by Beneficiary hereon.
9.2 The acceptance of this Deed of Trust by Beneficiary shall not be
considered a waiver of or in any way to affect or impair any other security that
Beneficiary may have, acquire simultaneously herewith, or hereafter acquire for
the payment or performance of the Obligation, nor shall the taking by
Beneficiary at any time of any such additional security be construed as a waiver
of or in any way to affect or impair the security of this Deed of Trust;
Beneficiary may resort, for the payment or performance of the Obligation, to its
several securities therefor in such order and manner as it may determine.
9.3 Without notice or demand, without affecting the obligations of
Trustor hereunder or the personal liability of any person for payment or
performance of the Obligation, and without affecting the lien or the priority of
the lien of this Deed of Trust, Beneficiary, from time to time,
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may: (i) extend the time for payment of all or any part of the Obligation,
accept a renewal note therefor, reduce the payments thereon, release any person
liable for all or any part thereof, or otherwise change the terms of all or any
part of the Obligation; (ii) take and hold other security for the payment or
performance of the Obligation and enforce, exchange, substitute, subordinate,
waive or release any such security; (iii) consent to the making of any map or
plat of the Trust Property; (iv) join in granting any easement on or in creating
any covenants, conditions or restrictions affecting the use or occupancy of the
Trust Property; (v) join in any extension or subordination agreement; or (vi)
release or direct Trustee to release any part of the Trust Property from this
Deed of Trust. Any such action by Beneficiary, or Trustee at Beneficiary's
direction, may be taken without the consent of any junior lienholder and shall
not affect the priority of this Deed of Trust over any junior lien.
9.4 Trustor waives and agrees not to assert: (i) any right to require
Beneficiary to proceed against any guarantor, to proceed against or exhaust any
other security for the Obligation, to pursue any other remedy available to
Beneficiary, or to pursue any remedy in any particular order or manner; (ii) the
benefits of any legal or equitable doctrine or principle of marshalling; (iii)
the benefits of any statute of limitations affecting the enforcement hereof;
(iv) demand, diligence, presentment for payment, protest and demand, and notice
of extension, dishonor, protest, demand and nonpayment, relating to the
Obligation; and (v) any benefit of, and any right to participate in, any other
security now or hereafter held by Beneficiary.
9.5 Upon written request of Beneficiary stating that all of the
Obligation has been paid, and upon surrender of this Deed of Trust and the Note
to Trustee for cancellation and retention or, if requested, delivery, then
Trustee (and Beneficiary if necessary to clear title), upon payment of Trustee's
fees, shall reconvey, without warranty, the Trust Property. The recitals in such
reconveyance of any matters or facts shall be conclusive as to the accuracy
thereof. The grantee in such reconveyance may be described as "the person or
persons legally entitled thereto." Five years after issuance of such full
reconveyance, Trustee may destroy the Note and this Deed of Trust (unless
directed in such request to retain them), unless prior thereto Trustee has been
directed to deliver them to the person or persons to whom the property was
reconveyed.
9.6 Beneficiary or Trustee, or both, shall have the right to inspect
the Trust Property at all reasonable times.
9.7 Time is of the essence hereof. If more than one Trustor, or more
than one Borrower, is named herein, the word "Trustor" and the word "Borrower,"
respectively, shall mean all and any one or more of them, severally and
collectively. All liability hereunder shall be joint and several. This Deed of
Trust shall be binding upon, and shall inure to the benefit of, the parties
hereto and their heirs, personal representatives, successors and assigns. The
term "Beneficiary" shall include not only the original Beneficiary hereunder but
also any future owner and holder, including pledgees, of the Note. The
provisions hereof shall apply to the parties according to the context thereof
and without regard to the number or gender of words or expressions used.
9.8 The acceptance by Trustee of this trust shall be evidenced when
this Deed of Trust, duly executed and acknowledged, is made a public record as
provided by law. The trust created hereby is irrevocable by Trustor.
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9.9 This Deed of Trust cannot be changed except by agreement, in
writing, signed by Trustor and Beneficiary.
9.10 No setoff or claim that Trustor now has or may in the future have
against Beneficiary shall relieve Trustor from paying or performing the
Obligation.
9.11 Each term, condition and provision of this Deed of Trust shall be
interpreted in such manner as to be effective and valid under applicable law but
if any term, condition or provision of this Deed of Trust shall be held to be
void or invalid, the same shall not affect the remainder hereof which shall be
effective as though the void or invalid term, condition or provision had not
been contained herein. In addition, should this instrument be or become
ineffective as a deed of trust, then these presents shall be construed and
enforced as a realty mortgage with the Trustor being the Mortgagor and
Beneficiary being the Mortgagee.
9.12 This Deed of Trust, the Obligation and the agreements of any
person or entity to pay or perform the Obligation shall be governed by and
construed according to the laws of the State of Arizona, without giving effect
to conflict of laws principles, the state in which the Trust Property is located
may require that its laws be applied to the creation and priority of liens, to
the perfection of security interests and to any foreclosure, trustee's sale,
appointment of receiver or other remedy with respect to the Trust Property. Any
procedures provided herein for such remedies shall be modified by and replaced
with, where inconsistent with or required by, any procedures or requirements of
the laws of the state in which the Trust Property is located.
9.13 All notices required or permitted to be given hereunder shall be
in writing and may be given in person or by United States mail, by delivery
service or by electronic transmission. Any notice directed to a party to this
Deed of Trust shall become effective upon the earliest of the following: (i)
actual receipt by that party; (ii) delivery to the designated address of that
party, addressed to that party; or (iii) if given by certified or registered
United States mail, twenty-four (24) hours after deposit with the United States
Postal Service, postage prepaid, addressed to that party at its designated
address. The designated address of a party shall be the address of that party
shown at the beginning of this Deed of Trust or such other address as that
party, from time to time, may specify by notice to the other parties.
SECTION 10. NON-TRUSTOR BORROWER PROVISIONS (If Applicable)
10.1 All advances of principal under the Note shall be made to Borrower
subject to and in accordance with the terms thereof. If Borrower is a
corporation, limited liability company, partnership or trust, it is not
necessary for Beneficiary or Trustee to inquire into the powers of Borrower or
the officers, directors, members, managers, partners, trustees or agents acting
or purporting to act on its behalf. Trustor is and shall continue to be fully
informed as to all aspects of the business affairs of Borrower that it deems
relevant to the risks it is assuming and hereby waives and fully discharges
Beneficiary and Trustee from any and all obligations to communicate to Trustor
any facts of any nature whatsoever regarding Borrower and Borrower's business
affairs.
10.2 Trustor authorizes Beneficiary, without notice or demand, without
affecting the obligations of Trustor hereunder or the personal liability of any
person for payment or performance
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of the Obligation and without affecting the lien or the priority of the lien of
this Deed of Trust, from time to time, at the request of any person primarily
obligated therefor, to renew, compromise, extend, accelerate or otherwise change
the time for payment or performance of, or otherwise change the terms of, all or
any part of the Obligation, including increase or decrease any rate of interest
thereon. Trustor waives and agrees not to assert: (i) any right to require
Beneficiary to proceed against Borrower; (ii) the benefits of any statutory
provision limiting the liability of a surety, including without limitation the
benefit of Section 12-1641, et seq., of the Arizona Revised Statutes; and (iii)
any defense arising by reason of any disability or other defense of Borrower or
by reason of the cessation from any cause whatsoever of the liability of
Borrower. Trustor shall have no right of subrogation and hereby waives any right
to enforce any remedy which Beneficiary now has, or may hereafter have, against
Borrower.
(a) All costs and expenses of Beneficiary relating to all
partial releases shall be paid by Trustor, including but not limited to
reconveyance fees, title fees, recording fees and legal expenses.
(b) No partial release shall impair or adversely affect
Beneficiary's security in the Trust Property remaining subject to this Deed of
Trust or any term or provision of this Deed of Trust as it pertains to the Trust
Property remaining subject to this Deed of Trust.
IN WITNESS WHEREOF, these presents are executed as of the date
indicated above.
Witnessed by: __________________________________________
(other than notary)
By
Name
Its
TRUSTOR
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STATE OF ___________ )
) ss.
County of _____________ )
The foregoing instrument was acknowledged before me this _____ day of
_______________________, 1997, by __________________________________________,
the ______________________________ of ________________________________________,
a(n) _________________________________, on behalf of that
_______________________.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
__________________________________________
Notary Public
My commission expires:
______________________
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SCHEDULE "A"
Legal Description:
All that real property situate in the County of ____________, State of
___________, more particularly described as follows:
<PAGE> 103
EXHIBIT "E"
ENVIRONMENTAL INDEMNITY AGREEMENT
BY THIS AGREEMENT, executed as of the _____ day of _______________,
199__, in connection with and as partial consideration for financial
accommodations by BANK ONE, ARIZONA, NA, a national banking association
("Lender"), to SCHUFF STEEL COMPANY, a Delaware corporation ("Borrower"),
guaranteed by __________________________________
____________________________________________________ ("Guarantor(s)") (Borrower
and Guarantor(s) are hereinafter severally and collectively called "Indemnitor")
in the amount of TWENTY MILLION AND NO/100 DOLLARS ($20,000,000.00)
(collectively the "Loan"), evidenced by one or more promissory notes
(collectively the "Note"), secured or to be secured in part by one or more deeds
of trust (severally and collectively, the "Deed of Trust") on the property
described on Schedule "A" attached hereto and by this reference incorporated
herein (the "Property"), Indemnitor hereby certifies, represents, and warrants
to Lender, and agrees as follows:
1. As used herein, the following terms shall have the meanings
specified below:
DEFINITIONS
1.1 The term "Agreement" shall mean this Environmental
Indemnity Agreement and all modifications, supplements, and amendments thereto.
1.2 The term "De Minimis Amounts" shall mean any Hazardous
Substance either (1) being transported on or from the Property or being stored
for use by Borrower or its tenant on the Property within a year from original
arrival on the Property in connection with Borrower's current operations or (2)
being currently used by Borrower or its tenant on Property, in both instances in
a manner that both (a) does not constitute a violation or threatened violation
of any Environmental Law or require any reporting or disclosure under any
Environmental Law and (b) is consistent with customary business practice for
such operations in the state where the Property is located.
1.3 The term "Environmental Claim" shall mean any and all
actual or threatened liabilities, claims, actions, causes of action, judgments,
orders, inquiries, investigations, studies or notices relating to any Hazardous
Substance or any Environmental Law, including, without limitation, those arising
as a result of strict liability, whether under Environmental Law or otherwise,
and those arising out of the negligence of the Indemnified Party.
1.4 The term "Environmental Law" shall mean any federal, state or local
law, whether common law, statute, ordinance, rule, regulation, or judicial or
administrative decision or policy or guideline, pertaining to Hazardous
Substances, health, industrial hygiene, environmental conditions, or the
regulation or protection of the environment, and all amendments thereto as of
this date and to be added in the future and any successor statute or rule or
regulation promulgated thereto.
1.5 The term "Hazardous Substance" shall mean all of the following:
<PAGE> 104
(a) Any substance, material, or waste that is
included within the definitions of "hazardous substances," "hazardous
materials," "hazardous waste," "toxic substances," "toxic materials,"
"toxic waste," or words of similar import in any Environmental Law;
(b) Those substances listed as hazardous substances
by the United States Department of Transportation (or any successor
agency) (49 C.F.R. 172.101 and amendments thereto) or by the
Environmental Protection Agency (or any successor agency) (40 C.F.R.
Part 302 and amendments thereto); and
(c) Any substance, material, or waste that is
petroleum, petroleum-related, or a petroleum by-product, asbestos or
asbestos-containing material, polychlorinated biphenyls, flammable,
explosive, radioactive, freon gas, radon, or a pesticide, herbicide, or
any other agricultural chemical.
1.6 The term "Indemnified Parties" shall mean and includes
Lender, any parent, subsidiary, or affiliated company of Lender, any assignee or
successor in interest of all or part of Lender's interest in the Loan or the
Loan Documents, any owner of a participation interest in the Loan or the Loan
Documents, any purchaser who acquires all or part of the Property from Lender,
its parent, or any of its subsidiaries or affiliates, any recipient of a deed or
assignment in lieu of foreclosure of all or part of the Property, any court
appointed receiver, and the officers, directors, employees and agents of each of
them.
1.7 The term "Loan Documents" shall mean the Note, the Deed of
Trust and any other documents evidencing, securing or otherwise relating to the
Loan, specifically excluding, however, this Agreement. Notwithstanding anything
contained in the Loan Documents to the contrary, the obligations of Indemnitor
under this Agreement shall not be secured by the Deed of Trust, and in the event
of any conflict between this paragraph and the terms and conditions of the Loan
Documents, this paragraph shall control.
1.8 The term "Note Rate" shall mean at any given time, (a) the
rate of interest then applicable to the balance outstanding under the Note, or,
(b) if the Note is in default, the default rate of interest under the Note. If
the Note has been paid in full, the Note Rate shall mean the rate of interest
that would have been applicable under the Note, if it had not been paid in full
and there was a balance outstanding.
1.9 The term "Property" shall mean all property that is or was
at any time affected by the Deed of Trust, which may later include any and all
property previously released from the Deed of Trust.
1.10 The term "Release" shall mean any releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, migrating, disposing, or dumping of any substance into the
environment.
2. Except as disclosed in writing by Borrower to Lender, Borrower
represents and warrants to the Indemnified Parties that neither the Property nor
Borrower nor, to Borrower's
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knowledge, any tenant are in violation of any Environmental Law applicable to
the Property, and neither the Property nor Borrower nor, to Borrower's
knowledge, any tenant are subject to any existing, pending or threatened
investigation pertaining to the Property by any federal, state or local
governmental authority or are subject to any remedial obligation or lien under
or in connection with any Environmental Law.
3. Except as disclosed in writing by Borrower to Lender, Borrower
represents and warrants to the Indemnified Parties that (a) neither Borrower
nor, to Borrower's knowledge, any tenant has obtained, or is not required by any
Environmental Law to obtain, any permit, approval, or license or file any
registration to construct or use any improvements, fixtures or equipment that
are or are intended to be part of, or are located on, the Property or to operate
any business that is being conducted or intended to be conducted on the
Property, and (b) there are no factors or circumstances related to Hazardous
Substances or any environmental conditions known to Borrower that would
materially impair the ability of Borrower or its tenant to obtain any permit,
approval, registration, or license necessary for the future development of the
Property or to otherwise continue the contemplated development of the Property.
4. Borrower has undertaken an appropriate inquiry into the previous
ownership and uses of the Property consistent with good commercial practice. If
any environmental questionnaire is executed by Borrower and delivered to Lender,
Borrower represents and warrants to the Indemnified Parties that, to Borrower's
knowledge, the information disclosed in any such environmental questionnaire is
true, complete and correct. Based on Borrower's inquiry, Borrower represents and
warrants to the Indemnified Parties that Borrower, including, without
limitation, any officer, director, employee, agent, affiliate, tenant, partner
or joint venturer of Borrower, has no actual knowledge or notice of the actual,
alleged or threatened presence or release of Hazardous Substances in, on, around
or potentially affecting any part of the Property or the soil, groundwater or
soil vapor on or under the Property, or the migration of any Hazardous
Substance, from or to any other property adjacent to or in the vicinity of the
Property, provided that the foregoing representation and warranty does not apply
to De Minimis Amounts. Borrower's intended future use of Property will not
result in the Release of any Hazardous Substance other than De Minimis Amounts,
in, on, around or potentially affecting any part of the Property or in the soil,
groundwater or soil vapor on or under the Property, or the migration of any
Hazardous Substance from or to any other property adjacent to or in the vicinity
of the Property. Indemnitor shall promptly notify Lender in writing if
Indemnitor, including, without limitation, any officer, director, employee,
agent, affiliate, partner, or joint venturer, of Indemnitor, has any actual
knowledge or notice that any statement in this Paragraph 4 is no longer
accurate.
5. Borrower shall neither use nor permit any third party to use,
generate, manufacture, produce, store, or Release, on, under or about the
Property, or transfer to or from the Property, any Hazardous Substance except in
compliance with all applicable Environmental Laws, provided that if any third
party, by act or omission or by intent or accident, allows any foregoing action
to occur, Indemnitor shall promptly remedy such condition, at its sole expense
and responsibility, in accordance with Paragraph 8 below. Furthermore,
Indemnitor shall not permit any environmental liens to be placed on any portion
of the Property.
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6. Borrower has complied, and shall comply and require all occupants of
the Property, regardless of length of occupancy, to comply, at Borrower's sole
expense and responsibility, with all Environmental Laws governing or applicable
to Hazardous Substances, including those requiring disclosures to prospective
and actual buyers of all or any portion of the Property.
7. Borrower shall give prompt written notice to Lender at the address
set forth in the Loan Documents executed in connection with the Loan if any of
the following occur:
(a) Borrower knows, suspects or believes there may be any
Hazardous Substance, except in De Minimis Amounts, in, on, around or
potentially affecting the Property or the soil, groundwater or soil
vapor on or under the Property, or that Borrower or the Property or, to
Borrower's knowledge, any tenant may be subject to any threatened or
pending investigation by any governmental agency under any law,
regulation or ordinance pertaining to any Hazardous Substance;
(b) Any proceeding, including lawsuit, investigation or
settlement by or with any federal, state or local governmental
authority (including, without limitation, the U.S. Environmental
Protection Agency or any other federal, state or local governmental
agency) with respect to the presence of any Hazardous Substance on the
Property or the migration thereof from or to any other property
adjacent to, or in the vicinity of, the Property;
(c) All claims made or threatened by any third party against
Borrower or the Property relating to any loss or injury resulting from
any Hazardous Substance;
(d) Borrower's discovery of any occurrence or condition on any
property adjoining or in the vicinity of the Property that could cause
the Property or any part thereof to be subject to any restrictions on
its ownership, occupancy, transferability or use under any
Environmental Law;
(e) Borrower's discovery of a violation of any Environmental
Law that Borrower is legally required to report to any federal, state
or local governmental authority or the discovery of a Release of a
Hazardous Substance in sufficient quantities to be reportable under any
Environmental Law to any federal, state or local governmental
authority;
(f) Borrower's discovery, receipt, or notice that an
environmental lien has been or will be placed on the Property; and
(g) Borrower knows, suspects or believes that an Environmental
Claim has been or will be asserted against either Borrower or the
Property.
8. Indemnitor has complied and shall comply, to Lender's satisfaction,
with the reasonable recommendations of any qualified environmental engineer or
other expert, who shall be acceptable to Lender, which apply or pertain to the
Property. Indemnitor shall conduct and complete, to Lender's satisfaction, all
investigations, studies, sampling, and testing as may be (i)
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recommended by any qualified environmental engineer or other expert, who shall
be acceptable to Lender and (ii) required by Lender. Indemnitor shall provide to
Lender copies of all results and reports relating to such investigations,
studies, sampling and testing. Indemnitor shall conduct and complete, to
Lender's satisfaction, all remedial, removal, and other actions necessary to
clean up and remove Hazardous Substances in, on, or materially affecting the
Property:
(a) In accordance with all applicable Environmental Laws; and
(b) In accordance with all applicable orders and directives of
all governmental authorities.
Indemnitor shall provide to Lender copies of all results and reports relating to
such remedial, removal, and other actions.
9. Indemnitor shall, within thirty (30) days after demand by Lender,
provide Lender with a bond, letter of credit, or similar financial assurance
evidencing to Lender's satisfaction that sufficient funds are available to pay
the cost of complying with the requirements of Paragraph 8 above.
10. Indemnitor's obligations under this Agreement shall not be
diminished or affected in any respect as a result of any notice, disclosure or
knowledge, if any, to or by any of the Indemnified Parties of the release,
presence, existence or threatened release of Hazardous Substances in, on,
around, or potentially affecting the Property or the soil, groundwater or soil
vapor on or under the Property, or of any matter covered by Indemnitor's
obligations hereunder. No Indemnified Party shall be deemed to have permitted,
caused, contributed to or acquiesced in any such release, presence, existence or
threatened release of Hazardous Substances or any other matter covered by
Indemnitor's obligations hereunder solely because Lender or any other
Indemnified Party had notice, disclosure or knowledge thereof, whether at the
time this Agreement is delivered or at any other time.
11. If at any time any Indemnified Party reasonably believes that there
exists on the Property any condition that could result in any material (in the
sole judgment of Lender) liability, cost, or expense to the owner, occupier, or
operator of the Property arising under any Environmental Law, then the
Indemnified Parties and their contractors, agents and representatives
(hereinafter, "Site Reviewers") shall have the right at any time and from time
to time to enter upon and visit the Property for the purposes of observing the
Property, taking and removing soil or groundwater samples, and conducting tests
and/or site assessments on any part of the Property (collectively, "Site
Assessments") for the purpose of determining whether there exists on the
Property any such condition. The Indemnified Parties have no duty, however, to
conduct any Site Assessment, and no Site Assessment shall impose any liability
on any Indemnified Party. In no event shall the completion of any Site
Assessment be a representation that Hazardous Substances are or are not present
in, on, under or around the Property, or that there has been or shall be
compliance with any Environmental Law or any other law or governmental
regulatory or liability pronouncement. The Indemnified Parties owe no duty of
care to protect Indemnitor or any other party against, or to inform Indemnitor
(except as provided herein) or any other party of, any Hazardous Substances or
any other adverse condition affecting the Property. The Indemnified Party shall
make reasonable
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efforts to avoid interfering with Borrower's use of the Property in exercising
any rights provided in this Section. The Site Reviewers are hereby authorized to
enter upon the Property for the purpose of conducting Site Assessments. The Site
Reviewers are further authorized to perform both above and below the ground
testing for environmental conditions or the presence of Hazardous Substances on
the Property and such other tests on the Property as may be necessary to conduct
the Site Assessments in the reasonable opinion of the Site Reviewers. Indemnitor
will supply to the Site Reviewers such historical and operational information
regarding the Property as may be reasonably requested by the Site Reviewers to
facilitate the Site Assessments and will make available for meetings with the
Site Reviewers appropriate personnel having knowledge of such matters. The cost
of performing such Site Assessments shall be paid by Indemnitor upon demand of
Lender. On request, Lender shall make the results of such Site Assessments fully
available to Indemnitor provided (i) that Indemnitor has fully reimbursed Lender
for the cost of such Site Assessments, and (ii) neither Indemnitor nor any other
party is entitled to rely on any Site Assessment conducted by or on behalf of
any Indemnified Party, which Site Assessment shall be for the sole benefit and
use of the Indemnified Party.
12. Lender shall have the right, but not the obligation, without in any
way limiting Lender's other rights and remedies under the Loan Documents, to
enter onto the Property or to take such other actions as it deems necessary or
advisable to clean up, remove, resolve, or minimize the impact of, or otherwise
deal with, any Hazardous Substances on or affecting the Property following
receipt of any notice from any person or entity asserting the existence or
possible existence of any Hazardous Substances pertaining to the Property or any
part thereof that, if true, could result in an Environmental Claim, order,
notice, suit, imposition of a lien on the Property, or other action and/or that,
in Lender's sole opinion, could jeopardize Lender's security under the Loan
Documents. All reasonable costs and expenses paid or incurred by Lender in the
exercise of any such rights shall be secured by the Loan Documents and shall be
payable by Indemnitor upon demand.
13. Lender shall have the right at any time to appear in and to
participate in, as a party if it elects, and be represented by counsel of its
own choice in, any action or proceeding in connection with any Environmental Law
that affects the Property. Upon demand by any Indemnified Party, Indemnitor
shall defend any investigation, action or proceeding involving any matter
covered by Indemnitor's obligations hereunder which is brought or commenced
against any Indemnified Party, whether alone or together with Borrower or any
other person, all at Indemnitor's own cost and by counsel to be approved by the
Indemnified Party in the exercise of its reasonable judgment. In the
alternative, any Indemnified Party may elect to conduct its own defense at the
expense of Indemnitor.
14. Indemnitor shall indemnify and hold the Indemnified Parties
harmless from, for and against any and all Environmental Claims, liabilities,
damages (including foreseeable and unforeseeable consequential damages), losses,
fines, penalties, judgments, awards, settlements, and costs and expenses
(including, without limitation, reasonable attorneys' fees, experts', engineers'
and consultants' fees, and costs and expenses of investigation, testing,
remediation and dispute resolution) (collectively referred to as "Environmental
Costs") that directly or indirectly arise out of or relate in any way to:
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(a) Any investigation, cleanup, remediation, removal, or
restoration work of site conditions of the Property relating to
Hazardous Substances (whether on the Property or any other property);
(b) Any resulting damages, harm, or injuries to the person or
property of any third parties or to any natural resources involving
Hazardous Substances relating to the Property;
(c) Any actual or alleged past or present disposal,
generation, manufacture, presence, processing, production, Release,
storage, transportation, treatment, or use of any Hazardous Substance
on, under, or about the Property;
(d) Any actual or alleged presence of any Hazardous Substance
on the Property;
(e) Any actual or alleged past or present violation of any
Environmental Law relating to the Property;
(f) Any actual or alleged past or present migration of any
Hazardous Substance from the Property to any other property, whether
adjoining, in the vicinity, or otherwise, or migration of any Hazardous
Substance onto the Property from any other property, whether adjoining,
in the vicinity, or otherwise;
(g) Any lien on any part of the Property under any
Environmental Law;
(h) Any Environmental Claim by any federal, state, or local
governmental agency and any claim that any Indemnified Party is liable
for any such asserted Environmental Claim allegedly because it is an
"owner" or "operator" of the Property under any Environmental Law;
(i) Any Environmental Claim asserted against any Indemnified
Party by any person other than a governmental agency, including any
person who may purchase or lease all or any portion of the Property
from Borrower, from any Indemnified Party, or from any other purchaser
or lessee; any person who may at any time have any interest in all or
any portion of the Property; any person who may at any time be
responsible for any cleanup costs or other Environmental Claims
relating to the Property; and any person claiming to have been injured
in any way as a result of exposure to any Hazardous Substance relating
to the Property;
(j) Any Environmental Claim which any Indemnified Party
reasonably believes at any time may be incurred to comply with any law,
judgment, order, regulation, or regulatory directive relating to
Hazardous Substances and the Property, or which any Indemnified Party
reasonably believes at any time may be incurred to protect the public
health or safety;
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(k) Any Environmental Claim resulting from currently existing
conditions in, on, around, or materially affecting the Property,
whether known or unknown by Borrower or the Indemnified Parties at the
time this Agreement is executed, and any such Environmental Claim
resulting from the activities of Borrower, Borrower's tenants, or any
other person, in, on, around, or materially affecting the Property; or
(l) Breach of any representation or warranty by or covenant of
Indemnitor in this Agreement.
Notwithstanding anything contained herein to the contrary, the foregoing
indemnity shall not apply to (i) matters resulting from the gross negligence or
willful misconduct of any Indemnified Party, or (ii) matters resulting solely
from the actions of Indemnified Parties taken after such parties have taken
title to, or exclusive possession of the Property, provided that, in both cases,
such matters shall not arise from or be accumulated with any condition of the
Property, which condition was not caused by an Indemnified Party. THE FOREGOING
INDEMNITY IS EXPRESSLY INTENDED TO INCLUDE, AND DOES INCLUDE, ANY ENVIRONMENTAL
COSTS ARISING AS A RESULT OF ANY STRICT LIABILITY IMPOSED OR THREATENED TO BE
IMPOSED ON AN INDEMNIFIED PARTY IN CONNECTION WITH ANY OF THE INDEMNIFIED
MATTERS DESCRIBED IN THIS PARAGRAPH 14 OR ARISING AS A RESULT OF THE NEGLIGENCE
OF AN INDEMNIFIED PARTY IN CONNECTION WITH SUCH MATTERS.
15. Nothing in this Agreement shall be construed to limit any claim or
right which any Indemnified Party may otherwise have at any time against
Indemnitor or any other person arising from any source other than this
Agreement, including any claim for fraud, misrepresentation, waste, or breach of
contract other than this Agreement, and any rights of contribution or indemnity
under federal, state or local environmental law or other applicable law,
regulation or ordinance.
16. If any Indemnified Party delays or fails to exercise any right or
remedy against Indemnitor, that alone shall not be construed as a waiver of that
right or remedy. All remedies of any Indemnified Party against Indemnitor are
cumulative.
17. This Agreement shall be binding upon Indemnitor and its successors
and assigns and shall inure to the benefit of the Indemnified Parties.
18. The indemnity obligations of Indemnitor pursuant to Paragraph 14
and all other obligations of Indemnitor hereunder shall survive until terminated
in accordance with this Paragraph 18, which termination shall occur upon the
full satisfaction of either of the following conditions:
(a) The Loan shall have been repaid in full and in accordance
with its terms, and all obligations under the Loan Documents shall have
been performed in full in accordance with their terms, in both cases
rather than through the occurrence of one or more of (i) the acceptance
by Lender of the surrender of the Note and reconveyance of the Deed of
Trust, (ii) the foreclosure of the Deed of Trust, (iii) the
extinguishment of the Deed of Trust by any means, including deed or
assignment in lieu of foreclosure, (iv) the acquisition of the Property
or any portion of it by any of the Indemnified Parties, and (v) the
transfer of all of Lender's rights in the Loan
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Documents, or through the exercise of any other rights and remedies by
Lender (including, without limitation, foreclosure, trustee's sale or
actions on promissory notes, guaranties or other obligations); or
(b) One or more of the events described in (i) - (v) of
subparagraph (a) above has occurred, Lender has not received notice of
any Environmental Claim relating to the Property that has not been
fully satisfied or settled to Lender's satisfaction, and two (2) years
have elapsed from the date which is the latest of (i) the date of the
occurrence of one or more of the events described in (i) - (v) of
subparagraph (a) above, (ii) the date Indemnitor has been fully
released of all of its obligations under the Loan Documents, and (iii)
the date any Environmental Claim relating to the Property is fully
satisfied or settled to Lender's satisfaction. Notwithstanding the
foregoing and in addition to its rights under Paragraph 11, Lender, or
any Site Reviewer selected by Lender, shall have the right at any time
and from time to time to enter upon and visit the Property to conduct a
Site Assessment and prepare, at Lender's own expense, an environmental
report regarding environmental conditions on the Property prior to the
Termination Date. Based upon such report, Lender may assert an
Environmental Claim.
19. The indemnity contained herein shall not be subject to any
nonrecourse or other limitation of liability provisions contained in any
document or instrument executed and delivered in connection with the Loan and
the liability of Indemnitor hereunder shall not be limited by any such
nonrecourse or similar limitation of liability provisions.
20. If any material warranty, representation or statement contained
herein shall be or shall prove to have been false when made or if Indemnitor
shall fail or neglect to perform or observe any of the terms, provisions or
covenants contained herein, the same shall constitute an Event of Default (as
defined in the Loan Documents) under the Loan Documents.
21. Any notice required or permitted in connection herewith shall be
given in the manner provided in any Loan Document.
22. Indemnitor acknowledges that Lender has and will rely upon the
representations, warranties and agreements herein set forth in closing and
funding (or modifying as the case may be) the Loan and that the execution and
delivery of this Agreement is an essential condition but for which Lender would
not close or fund (or modify) the Loan.
23. Indemnitor waives any right or claim of right to cause a marshaling
of the assets of Indemnitor or to cause Lender to proceed against any of the
security for the Loan before proceeding under this Agreement against Indemnitor;
Indemnitor agrees that any payments required to be made hereunder shall become
due on demand; Indemnitor expressly waives and relinquishes all rights and
remedies accorded by applicable law to sureties, indemnitors or guarantors,
except any rights of subrogation that Indemnitor may have, provided that the
indemnity provided for hereunder shall neither be contingent upon the existence
of any such rights of subrogation nor subject to any claims or defenses
whatsoever that may be asserted in connection with the enforcement or attempted
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enforcement of such subrogation rights, including, without limitation, any claim
that such subrogation rights were abrogated by any acts or omissions of Lender.
24. Notwithstanding any law to the contrary, the parties expressly
agree that a separate right of action hereunder shall arise each time Lender
acquires knowledge of any matter indemnified by Indemnitor under this Agreement.
Separate and successive actions may be brought hereunder to enforce any of the
provisions hereof at any time and from time to time. No action hereunder shall
preclude any subsequent action, and Indemnitor hereby waives and covenants not
to assert any defense in the nature of splitting of causes of action or merger
of judgments.
25. In this Agreement, the word "person" includes any individual,
company, trust or other legal entity of any kind. If this Agreement is executed
by more than one person, the words "Indemnitor," "Guarantor" and "Borrower"
include all such persons. The word "include(s)" means "include(s), without
limitation," and the word "including" means "including, but not limited to."
When the context and construction so require, all words used in the singular
shall be deemed to have been used in the plural and vice versa. All headings
appearing in this Agreement are for convenience only and shall be disregarded in
construing this Agreement.
26. Every provision of this Agreement is intended to be severable. If
any term, provision, section or subsection of this Agreement is declared to be
illegal or invalid, for any reason whatsoever, by a court of competent
jurisdiction, such illegality or invalidity shall not affect the other terms,
provisions, sections or subsections of this Agreement, which shall remain
binding and enforceable.
27. On demand, Indemnitor agrees to pay all of the Indemnified Parties'
costs and expenses, including attorneys' fees, which may be incurred in any
effort to enforce any term of this Agreement, including all such costs and
expenses which may be incurred by any Indemnified Party in any legal action,
reference, mediation or arbitration proceeding. From the time(s) incurred until
paid in full to the Indemnified Party, those sums shall bear interest at the
Note Rate.
28. Time is of the essence of this Agreement, and of each and every
provision hereof. The waiver by Indemnified Party of any breach or breaches
hereof shall not be deemed, nor shall the same constitute, a waiver of any
subsequent breach of breaches.
29. This Agreement and the transaction contemplated hereunder shall be
governed by and construed in accordance with the laws of the State of Arizona,
without giving effect to conflict of laws principles.
30. This Agreement may be executed in any number of counterparts each
of which shall be deemed an original, but all such counterparts together shall
constitute but one Agreement.
32. Each party executing this Agreement as an Indemnitor shall be
jointly and severally liable for all obligations of Indemnitor hereunder.
31. JURY WAIVER. THE UNDERSIGNED AND LENDER (BY ITS ACCEPTANCE HEREOF)
HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND
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UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE
UNDERSIGNED AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT OR
ANY OTHER AGREEMENTS, DOCUMENTS OR INSTRUMENTS EXECUTED OR DELIVERED IN
CONNECTION WITH, OR OTHERWISE RELATING TO, THIS AGREEMENT OR THE LOAN (TOGETHER
WITH THIS AGREEMENT, THE "RELATED DOCUMENTS"). THIS PROVISION IS A MATERIAL
INDUCEMENT TO LENDER TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN THE OTHER
RELATED DOCUMENTS.
IN WITNESS WHEREOF, Indemnitor has executed this Agreement as of the
date first indicated above.
SCHUFF STEEL COMPANY, a Delaware
corporation
By:
Name:
Title:
BORROWER
GUARANTOR(S)
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SCHEDULE "A"
REAL PROPERTY LEGAL DESCRIPTION
<PAGE> 115
ARBITRATION RESOLUTION
(a) Binding Arbitration.
The undersigned hereby agree that all controversies and claims of any
nature arising directly or indirectly out of any and all loan
transactions between them and any related agreements, instruments or
documents, shall at the written request of any party be arbitrated
pursuant to the applicable rules of the American Arbitration
Association. The arbitration shall occur in the State of Arizona.
Judgment upon any award rendered by the arbitrator(s) may be entered in
any court having jurisdiction. The Federal Arbitration Act shall apply
to the construction and interpretation of this arbitration agreement.
(b) Arbitration Panel.
A single arbitrator shall have the power to render a maximum award of
one hundred thousand dollars. When any party files a claim in excess of
this amount, the arbitration decision shall be made by the majority
vote of three arbitrators. No arbitrator shall have the power to
restrain any act of any party.
(c) Provisional Remedies, Self-Help, and Foreclosure.
No provision of subparagraph (a) shall limit the right of any party to
exercise self-help remedies, to foreclose against any real or personal
property collateral, or to obtain any provisional or ancillary remedies
(including but not limited to injunctive relief or the appointment of a
receiver) from a court of competent jurisdiction. At Lender's option,
it may enforce its rights under a mortgage by judicial foreclosure, and
under a deed of trust either by exercise of power of sale or by
judicial foreclosure. The institution and maintenance of any remedy
permitted above shall not constitute a waiver of the right to submit
any controversy or claim to arbitration. The statute of limitations,
estoppel, waiver, laches, and similar doctrines which would otherwise
be applicable in an action brought by a party shall be applicable in
any arbitration proceeding.
(d) Counterparts.
This Arbitration Resolution may be executed in counterparts, all of
which executed counterparts shall together constitute a single
document. Signature pages may be detached
<PAGE> 116
from the counterparts and attached to a single copy of this Arbitration
Resolution to physically form one document.
Agreed to this 10th day of December, 1997.
BANK ONE, ARIZONA, NA, a national banking
association
By:
Name:
Title:
LENDER
SCHUFF STEEL COMPANY, a Delaware
corporation
By:
Name:
Title:
BORROWER
-2-
<PAGE> 1
EXHIBIT 10.15(b)
PROMISSORY NOTE
$10,000,000.00 Phoenix, Arizona
December 10, 1997
FOR VALUE RECEIVED, the undersigned SCHUFF STEEL COMPANY (hereinafter
called "Maker"), promises to pay to the order of BANK ONE, ARIZONA, NA, a
national banking association (the "Payee"; Payee and each subsequent transferee
and/or owner of this Note, whether taking by endorsement or otherwise, are
herein successively called "Holder") at Post Office Box 71, Phoenix, Arizona
85001, Attention: Commercial Banking Dept. AZ1-1178, or at such other place as
Holder may from time to time designate in writing, the principal sum of TEN
MILLION AND NO/100 DOLLARS ($10,000,000.00) or so much thereof as Holder may
advance to or for the benefit of Maker plus interest calculated on a daily basis
from the date hereof on the principal balance from time to time outstanding as
hereinafter provided, principal, interest and all other sums payable hereunder
to be paid in lawful money of the United States of America as follows:
A. Interest shall accrue on the unpaid principal of each Line of
Credit Advance:
(i) At the Variable Rate if it is a Variable Rate Line of
Credit Advance.
(ii) At the applicable LIBOR Rate if it is a LIBOR Rate Line
of Credit Advance.
B. All interest shall be computed on the basis of a 360-day year and
accrue on a daily basis for the actual number of days elapsed. All accrued
interest shall be due and payable on each Payment Date.
C. Beginning on the Initial Principal Payment Date, principal shall
be due and payable on such date and each Payment Date thereafter as
follows:
(i) An amount equal to the aggregate Line of Credit Equipment
Advances outstanding on the Initial Principal Payment Date, divided
by sixty (60); and
(ii) An amount equal to the aggregate Line of Credit Real
Property Advances outstanding on the Initial Principal Payment Date,
divided by one hundred eighty (180).
D. The entire unpaid principal balance, all accrued and unpaid
interest, and all other amounts payable hereunder shall be due and payable
in full on the Line of Credit Maturity Date.
<PAGE> 2
Maker agrees to an effective rate of interest that is the rate stated
above plus any additional rate of interest resulting from any other charges in
the nature of interest paid or to be paid by or on behalf of Maker, or any
benefit received or to be received by Holder, in connection with this Note.
If any payment required under this Note is not paid within five (5) days
after the date such payment is due, then, at the option of Holder, Maker shall
pay a "late charge" equal to four percent (4%) of the amount of that payment to
compensate Holder for administrative expenses and other costs of delinquent
payments. This late charge may be assessed without notice, shall be immediately
due and payable and shall be in addition to all other rights and remedies
available to Holder.
All payments on this Note shall be applied first to the payment of any
costs, fees or other charges incurred in connection with the indebtedness
evidenced hereby, next to the payment of accrued interest and then to the
reduction of the principal balance.
This Note is issued pursuant to that Credit Agreement (the "Loan
Agreement") of even date herewith between Maker and Payee and is secured by,
among other things, one or more Deeds of Trust, Assignments of Rents, Security
Agreements and Fixture Filings (collectively, the "Deed of Trust"), executed by
Maker, as trustor, in favor of Payee, as beneficiary. The Deed of Trust and all
other documents or instruments securing the indebtedness evidenced by this Note
or executed or delivered in connection with the indebtedness evidenced by this
Note are hereinafter called the "Security Documents." The capitalized terms used
herein and not otherwise defined shall have the same meanings as set forth in
the Loan Agreement.
Time is of the essence of this Note. At the option of Holder, the entire
unpaid principal balance, all accrued and unpaid interest and all other amounts
payable hereunder shall become immediately due and payable without notice upon
the failure to pay any sum due and owing hereunder as provided herein if such
failure continues for ten (10) days after notice thereof to Maker or upon the
occurrence of any Event of Default, as defined in the Loan Agreement or any of
the Security Documents.
Upon the occurrence of an Event of Default and during the continuation
thereof, and after maturity, including maturity upon acceleration, the unpaid
principal balance, all accrued and unpaid interest and all other amounts payable
hereunder shall bear interest at that rate that is four percent (4%) above the
rate that would otherwise be payable under the terms hereof. Maker shall pay all
costs and expenses, including reasonable attorneys' fees and court costs,
incurred in the collection or enforcement of all or any part of this Note. All
such costs and expenses shall be secured by the Deed of Trust and by all other
Security Documents. In the event of any court proceedings, court costs and
attorneys' fees shall be set by the court and not by jury and shall be included
in any judgment obtained by Holder.
Maker shall have the option to prepay this Note, in full or in part, at
any time prior to maturity. With any prepayment of a LIBOR Rate Line of Credit
Advance or with any conversion of a LIBOR Rate Line of Credit Advance to a
Variable Rate Line of Credit Advance, in either case other than on the last
Business Day of the Interest Period for such LIBOR Rate Line of Credit Advance
(the "Interest Period Termination Date") (including any such prepayment made
voluntarily or involuntarily as a result of the acceleration of maturity upon a
default or otherwise), Maker shall
-2-
<PAGE> 3
also pay (a) all accrued and unpaid interest on the principal being prepaid, (b)
all Other Amounts then due, and (c) a premium, if any, equal to the product of
(i) the Average Lost Monthly Interest Income and (ii) the number of months from
the date of prepayment or conversion to the Interest Period Termination Date
(with any fraction of a month counted as a month), discounted to present value
at the Discount Rate over a period equal to one-half of the number of months in
(ii) above. At the option of Holder, in its absolute and sole discretion, any
prepayment shall be applied to installments coming due hereunder in the inverse
order of their due dates.
As used in the preceding paragraph:
"Average Lost Monthly Interest Income" means the amount determined
by dividing (i) the product of the Average Principal and the Lost Rate, by
(ii) 12, where:
"Average Principal" means the amount equal to either (i)
one-half the sum of (A) the amount of principal being prepaid and
(B) the amount of principal that is scheduled to be due on the
Interest Period Termination Date ("Balloon Amount"), or (ii) the
amount of principal being prepaid, if such amount is less than the
Balloon Amount; and
"Lost Rate" means the rate per annum equal to the percentage,
if any, by which (i) the yield to maturity of United States Treasury
debt obligations having a maturity date nearest to the Interest
Period Termination Date ("Treasury Obligations") determined on the
first day of the Interest Period exceeds (ii) the yield to maturity
of Treasury Obligations determined on the date of prepayment.
"Discount Rate" means the rate per annum equal to the yield to
maturity of Treasury Obligations determined on the date of prepayment.
"Other Amounts" means all amounts payable by Maker to Holder under
this Note and all other documents related to the indebtedness evidenced by
this Note.
The maturity date and yield to maturity of Treasury Obligations shall be
determined by Holder, in its absolute and sole discretion, on the basis of
quotations published in The Wall Street Journal or other comparable sources.
Failure of Holder to exercise any option hereunder shall not constitute a
waiver of the right to exercise the same in the event of any subsequent default
or in the event of continuance of any existing default after demand for strict
performance hereof.
Maker and all sureties, guarantors and/or endorsers hereof (or of any
obligation hereunder) and accommodation parties hereon (all of which, including
Maker, are severally each hereinafter called a "Surety") each: (a) agree that
the liability under this Note of all parties hereto is joint and several; (b)
severally waive any homestead or exemption laws and right thereunder affecting
the full collection of this Note; (c) severally waive any and all formalities in
connection with this Note to
-3-
<PAGE> 4
the maximum extent allowed by law, including (but not limited to) demand,
diligence, presentment for payment, protest and demand, and notice of extension,
dishonor, protest, demand and nonpayment of this Note; and (d) consent that
Holder may extend the time of payment or otherwise modify the terms of payment
of any part or the whole of the debt evidenced by this Note, at the request of
any other person liable hereon, and such consent shall not alter nor diminish
the liability of any person hereon.
In addition, each Surety waives and agrees not to assert: (a) any right to
require Holder to proceed against Maker or any other Surety, to proceed against
or exhaust any security for the Note, to pursue any other remedy available to
Holder, or to pursue any remedy in any particular order or manner; (b) the
benefit of any statute of limitations affecting its liability hereunder or the
enforcement hereof; (c) the benefits of any legal or equitable doctrine or
principle of marshalling; (d) notice of the existence, creation or incurring of
new or additional indebtedness of Maker to Holder; (e) the benefits of any
statutory provision limiting the liability of a surety, including without
limitation the provisions of Sections 12-1641, et seq., of the Arizona Revised
Statutes; (f) any defense arising by reason of any disability or other defense
of Maker or by reason of the cessation from any cause whatsoever (other than
payment in full) of the liability of Maker for payment of this Note; and (g) the
benefits of any statutory provision limiting the right of Holder to recover a
deficiency judgment, or to otherwise proceed against any person or entity
obligated for payment of this Note, after any foreclosure or trustee's sale of
any security for this Note, including without limitation the benefits, if any,
to a Surety of Arizona Revised Statutes Section 33-814. Until payment in full of
this Note and Holder has no obligation to make any further advances of the
proceeds hereof, no Surety shall have any right of subrogation and each hereby
waives any right to enforce any remedy which Holder now has, or may hereafter
have, against Maker or any other Surety, and waives any benefit of, and any
right to participate in, any security now or hereafter held by Holder.
Maker agrees that to the extent Maker or any Surety makes any payment to
Holder in connection with the indebtedness evidenced by this Note, and all or
any part of such payment is subsequently invalidated, declared to be fraudulent
or preferential, set aside or required to be repaid by Holder or paid over to a
trustee, receiver or any other entity, whether under any bankruptcy act or
otherwise (any such payment is hereinafter referred to as a "Preferential
Payment"), then the indebtedness of Maker under this Note shall continue or
shall be reinstated, as the case may be, and, to the extent of such payment or
repayment by Holder, the indebtedness evidenced by this Note or part thereof
intended to be satisfied by such Preferential Payment shall be revived and
continued in full force and effect as if said Preferential Payment had not been
made.
Without limiting the right of Holder to bring any action or proceeding
against Maker or any Surety or against any property of Maker or any Surety (an
"Action") arising out of or relating to this Note or any indebtedness evidenced
hereby in the courts of other jurisdictions, Maker and each Surety hereby
irrevocably submit to the jurisdiction, process and venue of any Arizona State
or Federal court sitting in Phoenix, Arizona, and hereby irrevocably agree that
any Action may be heard and determined in such Arizona State court or in such
Federal court. Maker and all Sureties each hereby irrevocably waives, to the
fullest extent it may effectively do so, the defenses of lack of jurisdiction
over any person, inconvenient forum or improper venue, to the maintenance of any
Action in any jurisdiction.
-4-
<PAGE> 5
This Note shall be binding upon Maker and its successors and assigns and
shall inure to the benefit of Payee, and any subsequent holders of this Note,
and their successors and assigns.
All notices required or permitted in connection with this Note shall be
given at the place and in the manner provided in the Loan Agreement for the
giving of notices.
This Note shall be governed by and construed according to the laws of the
State of Arizona, without giving effect to conflict of laws principles.
IN WITNESS WHEREOF, these presents are executed as of the date first
written above.
SCHUFF STEEL COMPANY, a Delaware
corporation
By_________________________________________
Name_______________________________________
Its________________________________________
MAKER
-5-
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-45829) pertaining to the 1997 Stock Option Plan of Schuff
Steel Company of our report dated February 20, 1998, except for Note 16 as to
which the date is March 18, 1998, with respect to the consolidated financial
statements of Schuff Steel Company included in the Annual Report (Form 10-K)
for the year ended December 31, 1997.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
March 27, 1998
<PAGE> 1
EXHIBIT 24.1
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Scott A. Schuff and Kenneth F. Zylstra, and each of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place, and stead, in any and all
capacities, to sign the Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, for filing with the Securities and Exchange Commission by
Schuff Steel Company, a Delaware corporation, together with any and all
amendments to such Form 10-K, and to file the same with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting to such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents, or each of them, may
lawfully do or cause to be done by virtue hereof.
DATED: January 31, 1998
/s/ David A. Schuff
David A. Schuff
<PAGE> 2
STATE OF Arizona )
)
County of Maricopa )
On this 31st day of January, 1998, before me, the undersigned Notary
Public, personally appeared David A. Schuff, known to me to be the person whose
name is subscribed to the within instrument and acknowledged that he executed
the same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Evelin R. Lackey
Notary Public
My commission expires:
July 14, 2000
<PAGE> 1
EXHIBIT 24.2
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Scott A. Schuff and Kenneth F. Zylstra, and each of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place, and stead, in any and all
capacities, to sign the Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, for filing with the Securities and Exchange Commission by
Schuff Steel Company, a Delaware corporation, together with any and all
amendments to such Form 10-K, and to file the same with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting to such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents, or each of them, may
lawfully do or cause to be done by virtue hereof.
DATED: January 31, 1998
/s/ Dennis DeConcini
Dennis DeConcini
<PAGE> 2
STATE OF Arizona )
)
County of Maricopa )
On this 31st day of January, 1998, before me, the undersigned Notary
Public, personally appeared David A. Schuff, known to me to be the person whose
name is subscribed to the within instrument and acknowledged that he executed
the same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Evelin R. Lackey
Notary Public
My commission expires:
July 14, 2000
<PAGE> 1
EXHIBIT 24.3
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Scott A. Schuff and Kenneth F. Zylstra, and each of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place, and stead, in any and all
capacities, to sign the Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, for filing with the Securities and Exchange Commission by
Schuff Steel Company, a Delaware corporation, together with any and all
amendments to such Form 10-K, and to file the same with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting to such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents, or each of them, may
lawfully do or cause to be done by virtue hereof.
DATED: January 31, 1998
/s/ Edward M. Carson
Edward M. Carson
<PAGE> 2
STATE OF Arizona )
)
County of Maricopa )
On this 31st day of January, 1998, before me, the undersigned Notary
Public, personally appeared David A. Schuff, known to me to be the person whose
name is subscribed to the within instrument and acknowledged that he executed
the same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Evelin R. Lackey
Notary Public
My commission expires:
July 14, 2000
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<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,293
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<PP&E> 17,894
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0
0
<COMMON> 7
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<TOTAL-LIABILITY-AND-EQUITY> 42,038
<SALES> 138,218
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