<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1998
REGISTRATION NO. 333-58123
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SCHUFF STEEL COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 1791 86-0318760
(STATE OF OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
1841 WEST BUCHANAN STREET
PHOENIX, ARIZONA 85009
(602) 252-7787
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SEE TABLE OF CO-REGISTRANTS BELOW
------------------------
SCOTT A. SCHUFF
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SCHUFF STEEL COMPANY
1841 WEST BUCHANAN STREET
PHOENIX, ARIZONA 85009
(602) 252-7787
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
STEVEN D. PIDGEON, ESQ.
SNELL & WILMER L.L.P.
ONE ARIZONA CENTER
PHOENIX, ARIZONA 85004-0001
(602) 382-6000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
TABLE OF CO-REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY STANDARD IRS
STATE OR OTHER INDUSTRIAL EMPLOYER
NAME, ADDRESS JURISDICTION OF CLASSIFICATION IDENTIFICATION
AND PHONE NUMBER INCORPORATION CODE NUMBER NUMBER
---------------- --------------- ---------------- --------------
<S> <C> <C> <C>
B&K Steel Fabrications, Inc................... Arizona 3441 86-0494204
420 South 19th Avenue
P.O. Box 39670
Phoenix, Arizona 85069
(602) 252-7787
Addison Structural Services, Inc.............. Florida 1798 58-2178447
1920 Lado Road
P.O. Box 3629
Albany, Georgia 31706
(912) 883-4506
Addison Steel, Inc............................ Florida 1798 59-0900504
7351 Overland Road
Lockhart, Florida 32810
(407) 295-6434
Quincy Joist Company.......................... Florida 1798 58-1921954
520 South Virginia Street
P.O. Box 998
Quincy, Florida 32353-0520
(800) 277-1075
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED JULY 21, 1998
PROSPECTUS
SCHUFF STEEL COMPANY
OFFER TO EXCHANGE ITS
10 1/2% SENIOR NOTES DUE JUNE 1, 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR ANY AND ALL OF ITS OUTSTANDING
10 1/2% SENIOR NOTES DUE JUNE 1, 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON AUGUST 28,
1998, UNLESS EXTENDED.
Schuff Steel Company, a Delaware corporation ("Schuff"), hereby offers, upon
the terms and subject to the conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal" and together with this Prospectus, the "Exchange Offer"), to
exchange its 10 1/2% Senior Notes due June 1, 2008 (the "Exchange Notes"), which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a registration statement (the "Registration
Statement") of which this Prospectus is a part, for its outstanding 10 1/2%
Senior Notes due June 1, 2008 (the "Outstanding Notes"), of which $100.0 million
in principal amount is outstanding as of the date hereof.
Schuff will accept for exchange any and all validly tendered Outstanding
Notes prior to 5:00 P.M., New York City time, on August 28, 1998, unless
extended (the "Expiration Date"). Outstanding Notes may be tendered only in
integral multiples of $1,000. Tenders of Outstanding Notes may be withdrawn at
any time prior to 5:00 P.M., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of
Outstanding Notes being tendered for exchange. However, the Exchange Offer is
subject to certain customary conditions. In the event Schuff terminates the
Exchange Offer and does not accept for exchange any Outstanding Notes, Schuff
will promptly return the Outstanding Notes to the holders thereof. Schuff will
not receive any proceeds from the Exchange Offer. See "The Exchange Offer."
The Exchange Notes will be obligations of Schuff evidencing the same debt as
the Outstanding Notes, and will be entitled to the benefits of the same
indenture. See "Description of Exchange Notes." The form and terms of the
Exchange Notes are the same as the form and terms of the Outstanding Notes in
all material respects except that the Exchange Notes have been registered under
the Securities Act and hence do not include certain rights to registration
thereunder and do not contain transfer restrictions or terms with respect to the
special interest payments applicable to the Outstanding Notes. The Outstanding
Notes were issued on June 4, 1998 pursuant to an offering exempt from
registration under the Securities Act. See "The Exchange Offer."
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of Schuff under the Registration Rights Agreement, dated as of June
4, 1998 (the "Registration Rights Agreement"), by and among Schuff and the
Initial Purchasers (as defined herein), a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
Exchange Offer is intended to satisfy Schuff's obligations under the
Registration Rights Agreement to register the Outstanding Notes under the
Securities Act. Once the Exchange Offer is consummated, Schuff will have no
further obligations to register any of the Outstanding Notes not tendered by the
holders of the Outstanding Notes (the "Holders") for exchange. See "Risk
Factors -- Consequences of Failure to Exchange."
(Continued on following page)
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO
HOLDERS OF THE OUTSTANDING NOTES ON OR ABOUT JULY 27, 1998.
SEE "RISK FACTORS" ON PAGE 17 FOR INFORMATION THAT SHOULD BE CONSIDERED IN
CONNECTION WITH THIS EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is July 21, 1998.
<PAGE> 4
(Continuation of Cover Page)
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties with respect to similar
transactions, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Outstanding Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than (i) a
broker-dealer who purchases such Exchange Notes from the Company to resell
pursuant to Rule 144A or any other available exemption under the Securities Act,
or (ii) a person that is an "affiliate" of the Company within the meaning of
Rule 405 of the Securities Act) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holders' business and
such holders are not engaged in, have no arrangement or understanding with any
person to participate in, and do not intend to engage in, any distribution of
the Exchange Notes. However, the Company has not sought a no-action letter with
respect to the Exchange Offer and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer. Each holder of Exchange Notes, other than a broker-dealer, must represent
that such conditions have been met. In addition, each broker-dealer that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
The Letter of Transmittal accompanying this Prospectus states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act. A
broker-dealer may nonetheless be deemed to be an "underwriter" under the
Securities Act notwithstanding such disclaimer. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Outstanding
Notes where such Outstanding Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. Pursuant to the
Registration Rights Agreement, the Company has agreed that, for a period of one
year after the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "The Exchange
Offer -- Purpose and Effect of the Exchange Offer" and "Plan of Distribution."
Any Holder who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution of the
Exchange Notes may not rely on the position of the staff of the Commission
enunciated in no-action letters and, in the absence of an applicable exemption,
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
The Exchange Notes will be available initially only in book-entry form, and
Schuff expects the Exchange Notes will be issued in the form of one or more
Global Notes (as defined herein). The U.S. Global Notes (as defined herein) and
the Reg S Global Notes (as defined herein) will be deposited with or on behalf
of the Depository Trust Company ("DTC") and registered in its name or in the
name of a nominee. Beneficial interests in the U.S. Global Notes will be shown
on, and transfers thereof will be effected through, records maintained by DTC
and its Direct and Indirect Participants (as defined herein). Beneficial
interests in the Reg S Global Notes may be held only through the Euroclear
System ("Euroclear") and Cedel Bank, societe anonyme ("Cedel").
The Exchange Notes will bear interest at a rate of 10 1/2% per annum from
their date of issuance. Interest on the Exchange Notes will be payable
semi-annually in arrears on June 1 and December 1 of each year, commencing
December 1, 1998. Holders whose Outstanding Notes are accepted for exchange will
receive, in cash, accrued interest thereon to, but not including, the date of
issuance of the Exchange Notes. Such interest will be paid with the first
interest payment on the Exchange Notes. Interest on the Outstanding Notes
accepted for exchange will cease to accrue interest upon cancellation of the
Outstanding Notes and issuance of the Exchange Notes.
The Exchange Notes will be redeemable at the option of Schuff, in whole or
in part, at any time on or after June 1, 2003 at the redemption prices set forth
herein, plus accrued and unpaid interest to the date of redemption.
Notwithstanding the foregoing, at any time prior to June 1, 2001, Schuff may
redeem up to 35% of the original aggregate principal amount of the Notes with
the net cash proceeds of Public Equity Offerings
i
<PAGE> 5
(Continuation of Cover Page)
(as defined herein) at a redemption price equal to 110.5% of the principal
amount thereof, plus accrued and unpaid interest to the date of redemption;
provided that at least 65% of the original aggregate principal amount of the
Notes remains outstanding immediately after such redemption. Upon the occurrence
of a Change of Control (as defined herein), Schuff will be required to offer to
purchase the Notes at a purchase price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest to the date of purchase.
The Outstanding Notes are, and the Exchange Notes will be, senior unsecured
obligations of Schuff and will rank pari passu in right of payment with all
Indebtedness (as defined herein) and other liabilities of Schuff that are not
subordinated by their express terms to the Notes and other Indebtedness of
Schuff and senior in right of payment to all Indebtedness of Schuff that by its
terms is so subordinated. Schuff's obligation to pay the principal of, premium,
if any, and interest on, the Notes is unconditionally guaranteed, on a joint and
several basis (the "Guarantees"), by all of its existing Subsidiaries (as
defined herein) and any future subsidiary that guarantees any Indebtedness of
Schuff or any other guarantor of the Notes (collectively, the "Guarantors"). The
Guarantees are senior unsecured obligations of each respective Guarantor and
will rank pari passu in right of payment with all other Indebtedness and
liabilities of such Guarantor that are not subordinated by their express terms
to other Indebtedness of such Guarantor. The Guarantees may be released under
certain circumstances. Schuff's obligations under the Notes will be effectively
subordinated to all existing and future secured Indebtedness of Schuff to the
extent of the value of the assets securing such Indebtedness and will be
structurally subordinated to all existing and future Indebtedness, if any, and
other liabilities of Schuff's subsidiaries that are not and do not become
Guarantors. A Guarantor's Guarantee will be effectively subordinated to all
existing and future secured Indebtedness of such Guarantor to the extent of the
value of the assets securing such Guarantee. As of March 31, 1998, after giving
effect to the sale of the Outstanding Notes and the application of the proceeds
therefrom, including the repayment of certain of Schuff's existing indebtedness,
and the Acquisition (as defined herein), Schuff and its subsidiaries would have
had outstanding $3.2 million of secured Indebtedness and $119.1 million of
unsecured senior Indebtedness and other liabilities. The indenture governing the
Notes (the "Indenture") will permit Schuff and its subsidiaries to incur
additional Indebtedness, subject to certain limitations, including additional
secured Indebtedness under existing and proposed credit facilities. See
"Description of Existing Indebtedness" and "Description of Exchange Notes."
Prior to this offering, there has been no public market for the Outstanding
Notes. Following completion of the Exchange Offer, Schuff does not intend to
list the Exchange Notes on a national securities exchange or to seek approval
for quotation through the Nasdaq National Market. Although the Initial
Purchasers have informed Schuff that they currently intend to make a market in
the Exchange Notes, the Initial Purchasers are not obligated to do so and any
such market-making may be discontinued at any time without notice. Therefore, no
assurance can be given as to whether an active trading market will develop or be
maintained for the Exchange Notes. As the Outstanding Notes were issued and the
Exchange Notes will be issued to a limited number of institutions who typically
hold similar securities for investment, Schuff does not expect that an active
public market for the Exchange Notes will develop. In addition, resales by
certain holders of the Outstanding Notes or the Exchange Notes of a substantial
percentage of the aggregate principal amount of such Notes could constrain the
ability of any market maker to develop or maintain a market for the Exchange
Notes. To the extent that a market for the Exchange Notes should develop, the
market value of the Exchange Notes will depend on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition, performance and prospects of Schuff. Such factors might cause the
Exchange Notes to trade at a discount from face value. See "Risk Factors -- Lack
of Public Market for the Notes; Possible Volatility of Note Price." Schuff has
agreed to pay the expenses of the Exchange Offer.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
THE CHIEF FINANCIAL OFFICER, SCHUFF STEEL COMPANY, 1841 WEST BUCHANAN STREET,
PHOENIX, ARIZONA 85009, TELEPHONE NUMBER (602) 252-7787. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE AT LEAST FIVE
BUSINESS DAYS PRIOR TO THE EXPIRATION DATE.
ii
<PAGE> 6
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Such
forward-looking statements include, among other items, statements regarding the
Company's business strategy, growth strategy, anticipated synergies and benefits
resulting from the acquisition of Addison (as defined herein), other potential
acquisitions and future acquisition plans, anticipated trends in the Company's
business, including trends associated with the effects of national and regional
economic conditions, the availability of and terms of financing to fund the
Company's anticipated growth, the availability and cost of steel, changes in or
the failure to comply with governmental regulations, liability and other claims
asserted against the Company, the ability to maintain stable labor relations,
changes in operating strategy or development plans, including the Company's
capital expenditure plans, the ability to attract and retain qualified personnel
and the ability to service the indebtedness of the Company. Discussions
containing such forward-looking statements may be found in the material set
forth under "Summary," "Risk Factors," "The Acquisition," "Use of Proceeds,"
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Unaudited Pro Forma Condensed Combined Financial
Statements," "Business" and "Description of Exchange Notes," as well as
elsewhere herein. Additional written or oral forward-looking statements may be
made by the Company from time to time in filings with the Commission or
otherwise. The words "believe," "expect," "anticipate," "project" and similar
expressions identify forward-looking statements, which speak only as of the date
the statement is made. Investors are cautioned that all forward-looking
statements involve risks and uncertainties, some of which cannot be predicted or
quantified and are beyond the Company's control. Future events and actual
results could differ materially from those set forth in, contemplated by, or
underlying the forward-looking statements. Important factors that could cause
actual results to differ materially from the Company's expectations are
disclosed in this Prospectus, including those set forth in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." In light of the significant uncertainties inherent
in the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
2
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
As used in this Prospectus, unless the context requires or indicates otherwise,
(i) "Schuff" refers to Schuff Steel Company and its subsidiary and predecessor
Arizona corporation prior to giving effect to the acquisition of Addison
Structural Services, Inc. on June 4, 1998 (the "Acquisition"), (ii) "Addison"
refers to Addison Structural Services, Inc. and its subsidiaries prior to giving
effect to the Acquisition and (iii) the "Company" refers to the combined entity
comprised of Schuff and its consolidated subsidiaries, including Addison and its
subsidiaries. For purposes of this Prospectus, references to pro forma financial
condition and results of operations give effect to (i) the Acquisition and (ii)
the sale of the Outstanding Notes and the application of the net proceeds
therefrom.
THE COMPANY
The Company is one of the leading industrial and commercial steel services
firms in the United States. The Company differentiates itself from its
competitors by providing not only fabrication services but also a fully
integrated range of steel services, including design engineering, detailing,
joist manufacturing and erection, and by providing a level of project management
expertise necessary to accommodate fast track, "design-as-you-go" projects. The
Company believes it has a competitive advantage over many of its smaller
competitors in that its ability to manage all steel related aspects of a project
in-house lowers overall project cost, provides attractive margins to the Company
and offers maximum flexibility and efficiency to the respective general
contractor or project owner. Founded in 1976, the Company operates primarily in
the southwestern and southeastern United States, and has recently expanded its
operations into selected international markets, including South America, Mexico
and the Caribbean. The Company believes it is the largest steel fabrication and
erection firm serving the Arizona industrial and commercial markets, the leading
steel fabricator and erector for the hotel, entertainment and gaming industry in
Nevada and a leading steel fabricator and joist manufacturer serving the Central
Florida and Georgia industrial and commercial markets. On a pro forma basis, for
the last twelve months ended March 31, 1998, the Company's revenues were $206.1
million and its net income before interest, income taxes, depreciation,
amortization, other expenses and other income ("EBITDA") was $25.1 million.
The Company provides its integrated steel services primarily to general
contractors and engineering firms, including, among others, Fluor Daniel, Inc.,
Bechtel Group Inc. and Perini Corporation, that focus on a wide variety of
projects, including hotels and casinos, office complexes, hospitals, mining
facilities, manufacturing plants, shopping malls and centers, sports stadiums,
large diameter water pipes, power plants, dams, bridges, restaurants, convention
facilities, entertainment complexes, airports, schools, churches and warehouses.
Representative projects include: Bank One Ballpark, a state-of-the-art baseball
stadium featuring a fully retractable steel roof constructed for Major League
Baseball's Arizona Diamondbacks franchise; Atlas Missile Launch Complex at
Vandenberg Air Force Base in California; MGM Grand Hotel & Casino in Las Vegas,
the world's largest hotel and casino; several projects for Walt Disney World and
Universal Studios in Orlando, Florida; and Bajo de la Alumbrera in Argentina,
one of the largest copper and gold mines in the world. The Company maintains
relationships with a number of national and multi-national general contracting
and engineering firms and is a preferred subcontractor to companies such as
PETsMART, Inc. and Albertson's, Inc.
The Company believes that there is an increasing trend in the industry to
design and build projects according to accelerated time schedules. In many large
projects, only a portion of the detail design drawings are completed when
building begins. The remaining drawings are completed, with numerous design
changes being implemented, throughout the building process. The fast track,
design-as-you-go nature of these projects creates a demand for service providers
such as the Company that can perform the work of numerous subcontractors. By
integrating multiple services, the Company can facilitate rapid and multiple
design changes, reduce logistical problems and minimize project delays and cost
overruns.
3
<PAGE> 8
The steel services industry is highly fragmented. Management estimates that
there are in excess of 1,000 detailing, fabricating and erection firms in the
United States. Many of these firms are small, family-operated businesses that
offer limited services and confine operations to local or regional markets. In
addition, these firms generally do not have the financial resources to address
large, fast track projects, are unable to buy raw materials in volume directly
from steel mills at advantageous pricing and lack state-of-the-art information
systems and shop fabrication equipment. The Company believes these market
dynamics afford an opportunity for businesses like the Company to make strategic
and consolidating acquisitions while providing an attractive exit strategy for
small business owners serving these markets.
The Company's principal executive offices are located at 1841 West Buchanan
Street, Phoenix, Arizona 85009 and its telephone number is (602) 252-7787.
BUSINESS STRENGTHS AND STRATEGY
The Company's objective is to achieve and maintain a leading position in
the geographic and project markets in which it competes by providing timely,
high quality services to its customers, continuing to grow internally, and
making selected strategic and consolidating acquisitions. The Company is
pursuing this objective with a strategy comprised of the following components:
- Pursue Design-As-You-Go Projects. The Company pursues fast track,
design-as-you-go projects as a significant portion of its overall
business. The Company's unique ability to offer a full range of steel
services and project management capabilities makes it a preferred
subcontractor for fast track projects in the markets it serves. This
capability often enables the Company to compete against a few, select
firms in a less traditional, more negotiated selection process on such
projects, thereby allowing the Company to realize attractive margins
while providing overall cost savings and project flexibility and
efficiencies to its customers.
- Expand Revenue Base. The Company is seeking to expand its revenue base
by leveraging its long term relationships with national and
multi-national construction and engineering firms, national and regional
accounts and other customers. The Company also intends to grow its
operations by developing new project capabilities and services and by
targeting specific types of projects in which it has an existing
reputation for expertise, such as semiconductor facilities, sports
stadiums, airports, hotels and casinos and specialty projects such as
large diameter water pipes. The Company believes that continuing to
diversify its revenue base will reduce the impact of periodic adverse
market or economic conditions.
- Manage Capacity Through Outsourcing. The Company increases its project
capacity by outsourcing a significant amount of its detailing and
fabrication work to reputable subcontractors. Outsourcing has enabled the
Company to effectively double the capacity of its Phoenix fabrication
facilities while maintaining margins comparable to in-house services. The
Company believes outsourcing will play a key role in its strategy to
expand its presence in selected international markets, where it typically
provides design engineering and project management services and utilizes
local subcontractors for fabrication and erection. The ability to expand
or contract capacity through the use of outsourcing provides the Company
flexibility to meet changing market demands in a cost effective manner.
- Make Strategic and Consolidating Acquisitions. The Company intends to
pursue selected acquisitions that offer the Company (i) strategically
located facilities, (ii) expansion into new geographic markets, (iii)
access to new domestic and international customers and (iv) penetration
of new product market segments. Such acquisitions may also provide the
additional benefits of increasing purchasing efficiencies with respect to
steel and other raw materials, bonding and insurance, more efficiently
allocating and utilizing its resources, and integrating the "best
practices" of the Company and acquired companies throughout the combined
organization. Schuff is in preliminary negotiations with several
potential acquisition candidates and expects to close additional
acquisitions by the end of 1998.
- Maintain Entrepreneurial Environment. The Company believes its
management and operating structure, which emphasizes quality, innovation,
flexibility, performance and safety, has contributed
4
<PAGE> 9
significantly to increased profitability and the ability to develop new
business in competitive or difficult economic environments. The Company's
operating structure provides incentives to employees at all levels to
focus on pursuing profitable growth opportunities, attaining financial
objectives and delivering superior customer service.
THE ACQUISITION AND EXPECTED BENEFITS
On June 4, 1998, Schuff consummated the Acquisition with Addison. The
purchase price for Addison, net of estimated excess cash on hand of Addison at
the closing and certain non-business related assets sold to Addison's majority
stockholder, was $50.4 million, of which approximately $47.2 million was paid in
cash at closing and approximately $3.2 million was paid in the form of a
promissory note secured by a letter of credit (the "Holdback Note"). Founded in
1960, Addison provides structural steel fabrication and erection services and
manufactures short and long span joists, trusses and girders. Addison maintains
steel fabrication facilities both in Lockhart, Florida and in Albany, Georgia,
and an advanced joist manufacturing plant in Quincy, Florida. Addison operates
primarily in the southeastern United States in the industrial and commercial
markets. Addison's revenues for the last twelve months ended March 31, 1998 were
$66.4 million and its EBITDA, as adjusted for owner's compensation, expenses of
its employee stock ownership plan and certain other expenses, was $11.3 million
for this period. See "The Acquisition."
Schuff believes that the Acquisition provides the following strategic and
operating benefits:
- Access Joist Manufacturing. Quincy Joist Company ("Quincy"), a
subsidiary of Addison, manufactures steel joists, trusses, girders and
related products which are complementary to the steel fabrication and
erection services provided by Schuff and Addison's other operations.
Joists are currently delivered in 16 to 18 weeks from date of order from
third party specialty manufacturers. Schuff believes that its ability to
obtain joists from a captive manufacturer will significantly reduce the
lead time for delivery of these products and will enable it to compete
more effectively for fast track projects where the reliable and timely
supply of joists and related products is critical. With Quincy's recent
plant expansion, the Company believes that Quincy has the capacity to
meet the Company's anticipated internal joist demand for selected fast
track projects as well as continue to grow its own joist business through
sales to other steel fabricators and erectors, which currently comprise
the majority of Quincy's revenues.
- Expand Geographic Reach. The Acquisition provides Schuff with an
operating platform in the growing southeastern United States market,
where Schuff's ability to compete has previously been limited by
transportation costs. In addition, the Company believes expansion into
new geographic markets will increase the Company's resilience to economic
downturns and other conditions that could negatively affect a
geographically focused operation.
- Acquire Growing Revenue Stream and Experienced Management. Addison's
revenues grew from $32.5 million for the fiscal year ended June 30, 1993
to $63.7 million for the fiscal year ended June 30, 1997, a compound
annual growth rate of 18.3%, and its unadjusted EBITDA increased from
$2.0 million to $10.4 million in that same period, a compound annual
growth rate of 51.4%. Addison has an experienced management team with the
top four managers having over 75 years of combined experience in the
steel fabrication, erection and joist manufacturing business with an
average tenure at Addison of approximately 19 years. Addison management's
quality reputation, knowledge of its markets, and strong relationships
with its key customers should continue to enhance its operations and
integration with Schuff. Certain senior members of Addison's management
team have entered into employment agreements with performance-based bonus
and option arrangements and are expected to play integral roles in the
Company's expansion in the southeastern United States.
- Leverage Operating Capabilities. Schuff believes that it can leverage
its fast track, design-as-you-go expertise to increase the number of
larger, high-margin project opportunities for Addison. In addition,
Schuff believes that Addison can increase its fabrication revenues
through the utilization of Schuff's outsourcing expertise. Addison
fabricates all of its steel in-house, while Schuff outsources
approximately half of its fabrication services to third party
fabricators. Schuff believes that these strategies will more efficiently
utilize the Company's infrastructure and plant capacities.
5
<PAGE> 10
- Capitalize on Cross-Selling Opportunities. Management believes that
there are numerous cross-selling opportunities between Schuff and
Addison. In particular, Addison is a preferred subcontractor to a number
of national and regional accounts in the southeastern United States and,
in some cases, across the country. Schuff has strong strategic
relationships with several national and multi-national contractors and
engineering firms. The Company believes that each company will be able to
utilize these relationships to expand the Company's overall business
operations.
RECENT DEVELOPMENTS
The Company is in preliminary negotiations with potential acquisition
candidates that would further expand its geographic, product and customer base.
The potential acquisition candidates have annual revenues ranging from $21
million to $25 million, and are located in various geographic regions, including
Texas, California and select international markets. Although Schuff has not
entered into definitive agreements or binding letters of intent with any of
these targets, it does expect to conclude additional acquisitions during 1998.
6
<PAGE> 11
THE EXCHANGE OFFER
Issuer........................ Schuff Steel Company
Outstanding Notes............. The Outstanding Notes were sold by the Company
on June 4, 1998, to Donaldson, Lufkin &
Jenrette Securities Corporation, Jefferies &
Company, Inc. and Friedman, Billings, Ramsey &
Co., Inc. (collectively, the "Initial
Purchasers") pursuant to a Purchase Agreement
dated June 1, 1998 (the "Purchase Agreement").
The Initial Purchasers subsequently resold the
Outstanding Notes to qualified institutional
buyers pursuant to Rule 144A under the
Securities Act or institutional "accredited
investors" (as defined in Rule 501 (a)(1), (2),
(3) or (7) of Regulation D under the Securities
Act) or outside the United States in compliance
with Regulation S under the Securities Act.
Registration Rights
Agreement..................... Pursuant to the Purchase Agreement, the Company
and the Initial Purchasers entered into the
Registration Rights Agreement, which grants the
holders of the Outstanding Notes certain
exchange and registration rights. The Exchange
Offer is intended to satisfy such exchange and
registration rights, which will terminate upon
the consummation of the Exchange Offer.
Securities Offered............ $100,000,000 aggregate principal amount of
10 1/2% Senior Notes due 2008 (the "Exchange
Notes").
The Exchange Offer............ The Company is offering to exchange $1,000
principal amount of Exchange Notes for each
$1,000 principal amount of Outstanding Notes
that are properly tendered and accepted. The
Company will issue Exchange Notes on or
promptly after the Expiration Date. As of the
date hereof, there is $100,000,000 in aggregate
principal amount of Outstanding Notes
outstanding. The terms of the Exchange Notes
are identical in all material respects to the
terms of the Outstanding Notes for which they
may be exchanged pursuant to the Exchange
Offer, except that the Exchange Notes are
freely transferable by holders thereof (other
than as provided herein), and are not subject
to any covenant restricting transfer absent
registration under the Securities Act. See "The
Exchange Offer." The Exchange Offer is not
conditioned upon any minimum aggregate
principal amount of Outstanding Notes being
tendered for exchange.
Based on no-action letters issued by the staff
of the Commission to third parties with respect
to similar transactions, the Company believes
that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Outstanding
Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other
than (i) a broker-dealer who purchases such
Exchange Notes from the Company to resell
pursuant to Rule 144A or any other available
exemption under the Securities Act, or (ii) a
person that is an "affiliate" of the Company
within the meaning of Rule 405 of the
Securities Act) without compliance with the
registration and prospectus delivery
requirements of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holders' business and
such holders are not engaged in, have no
arrangement or understanding with any person to
participate in,
7
<PAGE> 12
and do not intend to engage in, any
distribution of the Exchange Notes. However,
the Company has not sought a no-action letter
with respect to the Exchange Offer and there
can be no assurance that the staff of the
Commission would make a similar determination
with respect to the Exchange Offer. Each holder
of Exchange Notes, other than a broker-dealer,
must represent that such conditions have been
met. In addition, each broker-dealer that
receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection
with any resale of such Exchange Notes.
The Letter of Transmittal accompanying this
Prospectus states that by so acknowledging and
by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. A broker-dealer may nonetheless
be deemed to be an "underwriter" under the
Securities Act notwithstanding such disclaimer.
This Prospectus, as it may be amended or
supplemented from time to time, may be used by
a broker-dealer in connection with resales of
Exchange Notes received in exchange for
Outstanding Notes where such Outstanding Notes
were acquired by such broker-dealer as a result
of market-making activities or other trading
activities. Pursuant to the Registration Rights
Agreement, the Company has agreed that, for a
period of one year after the Expiration Date,
it will make this Prospectus available to any
broker-dealer for use in connection with any
such resale. See "The Exchange Offer -- Purpose
and Effect of the Exchange Offer" and "Plan of
Distribution."
Any Holder who tenders in the Exchange Offer
with the intention to participate, or for the
purpose of participating, in a distribution of
the Exchange Notes may not rely on the position
of the staff of the Commission enunciated in
no-action letters and, in the absence of an
applicable exemption, must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction. Failure
to comply with such requirements in such
instance may result in such Holder incurring
liability under the Securities Act for which
the Holder is not indemnified by the Company.
Expiration Date............... 5:00 p.m., New York City time, on August 28,
1998, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange
Offer is extended. See "The Exchange
Offer -- Expiration Date; Extensions;
Amendments."
Accrued Interest on the
Exchange Notes................ Each Exchange Note will bear interest from the
most recent date to which interest has been
paid on the Outstanding Notes or, if no
interest has been paid on such Outstanding
Notes, from June 4, 1998.
Exchange Date................. As soon as practicable after the close of the
Exchange Offer, the Company will accept for
exchange all Outstanding Notes properly
tendered and not validly withdrawn prior to
5:00 p.m., New York
8
<PAGE> 13
City time, on the Expiration Date. See "The
Exchange Offer -- Withdrawal of Tenders."
Conditions to the Exchange
Offer......................... The Exchange Offer is subject to customary
conditions, certain of which may be waived by
the Company. The Company reserves the right to
terminate or amend the Exchange Offer at any
time prior to the Expiration Date upon the
occurrence of any such condition. The Exchange
Offer is not conditioned on any minimum
aggregate principal amount of Outstanding Notes
being tendered for exchange. See "The Exchange
Offer -- Conditions."
Consequences of Failure to
Exchange...................... Any Outstanding Notes not tendered pursuant to
the Exchange Offer will remain outstanding and
continue to accrue interest. Such Outstanding
Notes will remain "restricted securities" under
the Securities Act, subject to the transfer
restrictions described herein. As a result, the
liquidity of the market for such Outstanding
Notes could be adversely affected upon
completion of the Exchange Offer. See "Risk
Factors -- Consequences of Failure to Exchange"
and "The Exchange Offer -- Consequences of
Failure to Exchange."
Certain Federal Income Tax
Considerations.............. The exchange of the Outstanding Notes for
Exchange Notes by tendering holders should not
be a taxable event for U.S. Federal income tax
purposes, and such holders should not recognize
any taxable gain or loss for U.S. Federal
income tax purposes as a result of such
exchange. Holders of Exchange Notes will
continue to be required to include interest on
such Exchange Notes in gross income in
accordance with their method of accounting for
U.S. Federal income tax purposes. Holders
should review the information set forth under
"Certain Federal Income Tax Consequences" for a
discussion of certain U.S. Federal income tax
consequences relating to the Outstanding Notes
and the Exchange Notes prior to tendering the
Outstanding Notes in the Exchange Offer.
Use of Proceeds............... There will be no cash proceeds to the Company
from the Exchange Offer. See "Use of Proceeds."
PROCEDURES FOR TENDERING OUTSTANDING NOTES
Tendering Outstanding Notes... Each beneficial owner owning interests in
Outstanding Notes ("Beneficial Owner") through
a DTC Participant (as defined below) must
instruct such DTC Participant to cause
Outstanding Notes to be tendered in accordance
with the procedures set forth in this
Prospectus and in the applicable Letter of
Transmittal. See "The Exchange
Offer -- Procedures for
Tendering -- Outstanding Notes held through
DTC."
Each participant (a "DTC Participant") in the
Depository Trust Company ("DTC") holding
Outstanding Notes through DTC must (i)
electronically transmit its acceptance to DTC
through the
9
<PAGE> 14
DTC Automated Tender Offer Program ("ATOP"),
for which the transaction will be eligible, and
DTC will then verify the acceptance, execute a
book-entry delivery to the Exchange Agent's (as
defined herein) account at DTC and send an
Agent's Message (as defined herein) to the
Exchange Agent for its acceptance, or (ii)
comply with the guaranteed delivery procedures
set forth in this Prospectus and in the Letter
of Transmittal. By tendering through ATOP, DTC
Participants will expressly acknowledge receipt
of the accompanying Letter of Transmittal and
agree to be bound by its terms and the Company
will be able to enforce such agreement against
such DTC Participants. See "The Exchange
Offer -- Procedures for
Tendering -- Outstanding Notes held through
DTC" and "-- Guaranteed Delivery
Procedures -- Outstanding Notes held through
DTC."
Each Holder must (i) complete and sign a Letter
of Transmittal, and mail or deliver such Letter
of Transmittal, and all other documents
required by the Letter of Transmittal, together
with certificate(s) representing all tendered
Outstanding Notes, to the Exchange Agent at its
address set forth in this Prospectus and in the
Letter of Transmittal, or (ii) comply with the
guaranteed delivery procedures set forth in
this Prospectus. See "The Exchange
Offer -- Procedures for Tendering,"
"-- Exchange Agent" and "-- Guaranteed Delivery
Procedures -- Outstanding Notes held by
Holders."
By tendering, each Holder will represent to the
Company that, among other things, (i) it is not
an affiliate of the Company or the Guarantors,
(ii) it is not a broker-dealer tendering
Outstanding Notes acquired directly from the
Company for its own account, (iii) the Exchange
Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of
business of such Holder and (iv) it has no
arrangements or understandings with any person
to participate in the Exchange Offer for the
purpose of distributing the Exchange Notes. See
"The Exchange Offer -- Purpose and Effect of
the Exchange Offer."
Guaranteed Delivery
Procedures.................... DTC Participants holding Outstanding Notes
through DTC who wish to cause their Outstanding
Notes to be tendered, but who cannot transmit
their acceptances through ATOP prior to the
Expiration Date, may effect a tender in
accordance with the procedures set forth in
this Prospectus and in the Letter of
Transmittal. See "The Exchange
Offer -- Guaranteed Delivery Procedures."
Holders who wish to tender their Outstanding
Notes but (i) whose Outstanding Notes are not
immediately available and will not be available
for tendering prior to the Expiration Date, or
(ii) who cannot deliver their Outstanding
Notes, the Letter of Transmittal or any other
required documents to the Exchange Agent prior
to the Expiration Date, may effect a tender in
accordance with the procedures set forth in
this Prospectus. See "The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights............. The tender of Outstanding Notes pursuant to the
Exchange Offer may be withdrawn at any time
prior to 5:00 p.m., New York City
10
<PAGE> 15
time, on the Expiration Date, in accordance
with the procedures set forth in this
Prospectus. See "The Exchange
Offer -- Withdrawal of Tenders."
Exchange Agent................ Harris Trust and Savings Bank is serving as
Exchange Agent in connection with the Exchange
Offer. See "The Exchange Offer -- Exchange
Agent."
Shelf Registration
Statement..................... Under certain circumstances described in the
Registration Rights Agreement, certain Holders
of Outstanding Notes (including Holders who are
not permitted to participate in the Exchange
Offer or who may not freely resell Exchange
Notes received in the Exchange Offer) may
require the Company to file and use its best
efforts to cause to become effective a shelf
registration statement under the Securities
Act, which would cover resales of Outstanding
Notes by such Holders. See "The Exchange
Offer -- Purpose and Effect of the Exchange
Offer."
11
<PAGE> 16
THE EXCHANGE NOTES
Securities Offered............ $100,000,000 aggregate principal amount of
10 1/2% Senior Notes due 2008 that have been
registered under the Securities Act. The form
and terms of the Exchange Notes are identical
in all material respects to the form and terms
of the Outstanding Notes for which they may be
exchanged pursuant to the Exchange Offer,
except for certain transfer restrictions and
registration rights relating to the Outstanding
Notes and except for certain provisions
providing for an increase in the interest rate
on the Outstanding Notes under circumstances
relating to the Exchange Offer. Unless the
context otherwise requires, the Outstanding
Notes and the Exchange Notes are sometimes
referred to herein together as the "Notes." See
"Description of Exchange Notes."
Maturity Date................. June 1, 2008.
Interest Rate and Payment
Dates......................... Interest on the Notes will accrue from June 4,
1998 at a rate of 10 1/2% per annum and will be
payable semi-annually in cash in arrears on
each June 1 and December 1 commencing December
1, 1998.
Subsidiary Guarantees......... The Outstanding Notes are, and the Exchange
Notes will be, unconditionally guaranteed, on a
joint and several basis, by all of Schuff's
existing subsidiaries and any future subsidiary
that guarantees any Indebtedness of Schuff or
the other guarantors of the Notes. The
Guarantees may be released under certain
circumstances. The Guarantees will be senior
unsecured obligations of each respective
Guarantor and will rank pari passu in right of
payment with all other Indebtedness and
liabilities of such Guarantor that are not
subordinated by their express terms to the
Guarantees and other Indebtedness of such
Guarantor. The Guarantees will be effectively
subordinated to all existing and future secured
Indebtedness of the Guarantors to the extent of
the value of the assets securing such
Indebtedness. In addition, Schuff's obligations
under the Notes will be effectively
subordinated to existing and future claims of
creditors (other than Schuff and the
Guarantors) of Schuff's subsidiaries other than
the Guarantors. Claims of creditors (other than
Schuff and the Guarantors) of such
subsidiaries, including trade creditors, tort
claimants, secured creditors, taxing
authorities and creditors holding guarantees,
generally will have priority as to assets of
such subsidiaries over the claims and equity
interest of Schuff and thereby, indirectly, the
holders of Indebtedness of Schuff, including
the Notes and the Guarantees. See "Description
of Exchange Notes -- Guarantees of Notes."
Optional Redemption........... On or after June 1, 2003, Schuff may redeem the
Notes, in whole or in part, at the redemption
prices set forth herein, plus accrued and
unpaid interest to the date of redemption.
Notwithstanding the foregoing, at any time
prior to June 1, 2001, Schuff may redeem up to
35% of the original aggregate principal amount
of the Notes with the net cash proceeds of one
or more Public Equity Offerings at a redemption
price equal to 110.5% of the principal amount
thereof, plus accrued and unpaid interest to
the date of redemption; provided that at least
65% of the original aggregate principal
12
<PAGE> 17
amount of the Notes remains outstanding
immediately after such redemption. See
"Description of Exchange Notes -- Optional
Redemption."
Ranking....................... The Outstanding Notes are, and the Exchange
Notes will be, senior unsecured obligations of
Schuff and will rank pari passu in right of
payment to all Indebtedness and other
liabilities of Schuff that are not subordinated
by their terms to the Notes and other
Indebtedness of Schuff and senior in right of
payment to all Indebtedness of Schuff that by
its terms is so subordinated. The Outstanding
Notes are, and the Exchange Notes will be,
effectively subordinated to all existing and
future secured Indebtedness of Schuff to the
extent of the value of the assets securing such
Indebtedness and will be structurally
subordinated to all existing and future
Indebtedness, if any, and other liabilities of
its Subsidiaries that are not Guarantors. As of
March 31, 1998, on a pro forma basis after
giving effect to the issuance of the
Outstanding Notes and the application of the
proceeds therefrom and the Acquisition, Schuff
and its subsidiaries would have had outstanding
$3.2 million of secured Indebtedness and $119.1
million of unsecured senior Indebtedness and
other liabilities. The Indenture will permit
Schuff and its subsidiaries to incur additional
Indebtedness, subject to certain limitations,
including additional secured Indebtedness under
existing and proposed credit facilities.
Change of Control............. Upon a Change of Control (as defined below),
each holder of Notes will have the right to
require Schuff to repurchase all or a portion
of such holder's Notes at a purchase price
equal to 101% of the principal amount thereof
plus accrued and unpaid interest to the date of
repurchase. See "Description of Exchange
Notes -- Change of Control."
Certain Covenants............. The Indenture contains certain covenants which,
among other things, will limit the ability of
Schuff and its subsidiaries to: (i) incur
additional Indebtedness and issue Preferred
Stock; (ii) pay dividends or make other
Restricted Payments, including certain
Investments; (iii) consummate certain Asset
Sales; (iv) enter into certain transactions
with Affiliates; (v) enter into Sale and
Lease-Back Transactions; (vi) incur Liens;
(vii) merge or consolidate with any other
Person; (viii) sell, assign, transfer, lease,
convey or otherwise dispose of all or
substantially all of the assets of Schuff and
its Subsidiaries, taken as a whole; or (ix)
engage in lines of business other than a
Related Business. Under certain circumstances,
Schuff will be required to make an offer to
purchase the Notes at a price equal to 100% of
the principal amount thereof, plus accrued and
unpaid interest to the date of purchase, with
the proceeds from certain Asset Sales. In
addition, the Indenture imposes restrictions on
the ability of the Subsidiaries to issue
guarantees or to create restrictions on their
ability to make distributions on their capital
stock or make loans to Schuff and its
Subsidiaries. These covenants are subject to
important exceptions and qualifications. See
"Description of Exchange Notes -- Certain
Covenants."
13
<PAGE> 18
Transferability............... The Exchange Notes, if issued, will generally
be freely transferable (subject to the
restrictions discussed elsewhere herein) but
will be new securities for which there will not
initially be a trading market. The Outstanding
Notes have been designated for trading in the
PORTAL market. Schuff and the Guarantors do not
intend to apply for a listing of the Exchange
Notes on any securities exchange. See "Plan of
Distribution."
RISK FACTORS
Holders of the Outstanding Notes should carefully consider all of the
information set forth in this Prospectus, and in particular, the information set
forth on page 17 under "Risk Factors" before tendering the Outstanding Notes in
exchange for the Exchange Notes.
14
<PAGE> 19
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following table sets forth summary unaudited pro forma condensed
combined income statement data and supplemental information of the Company for
the year ended December 31, 1997, the last twelve months ended March 31, 1998
and the three months ended March 31, 1998, and the summary unaudited pro forma
condensed combined balance sheet data of the Company at March 31, 1998. The pro
forma condensed combined income statement data and supplemental information give
effect to (i) the Acquisition and related pro forma adjustments and (ii) the
offering of the Outstanding Notes (the "Offering") and the application of the
net proceeds therefrom as if they had occurred on January 1, 1997 for the year
ended December 31, 1997, April 1, 1997 for the last twelve months ended March
31, 1998 and January 1, 1998 for the three months ended March 31, 1998. The pro
forma condensed combined balance sheet data gives effect to (i) the Acquisition
and related pro forma adjustments and (ii) the Offering and the application of
the net proceeds therefrom as if they had occurred on March 31, 1998. The
following information should be read in conjunction with, and is qualified by
reference to, the Consolidated Financial Statements of each of Schuff and
Addison, including the Notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Unaudited Pro Forma
Condensed Combined Financial Statements" included elsewhere herein.
<TABLE>
<CAPTION>
LAST TWELVE
YEAR ENDED MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998 MARCH 31, 1998
----------------- -------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................................... $205,220 $206,075 $ 41,405
Gross profit............................... 36,068 36,953 7,962
General and administrative expenses........ 14,275 14,464 3,599
Operating income........................... 20,688 21,384 4,086
SUPPLEMENTAL INFORMATION:
EBITDA(1).................................. $ 24,293 $ 25,054 $ 5,031
Depreciation and amortization.............. 3,605 3,670 945
Cash interest expense(2)................... 10,939 10,903 2,706
EBITDA/cash interest expense(2)............ 2.2x 2.3x 1.9x
Backlog (at end of period)................. $ 80,574 $ 97,408 $ 97,408
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents(3)............... $ 47,536
Working capital............................ 81,098
Total assets............................... 148,542
Total debt, including current portion...... 103,853
Stockholders' equity....................... 26,278
</TABLE>
- ---------------
(1) EBITDA for the relevant period presented above is defined as net income plus
interest expense, income taxes, depreciation, amortization and other
expenses less other income. EBITDA should not be construed as a substitute
for operating income, as an indicator of liquidity or as a substitute for
net cash provided by operating activities, which are determined in
accordance with generally accepted accounting principles. EBITDA is included
because management believes that certain investors may find it to be a
useful tool for analyzing operating performance, leverage, liquidity and the
Company's ability to service debt.
(2) Cash interest expense represents total interest expense less amortization of
deferred financing costs.
(3) Excludes $2.7 million of restricted funds on deposit at March 31, 1998.
Restricted funds on deposit represent funds on deposit in an interest
bearing escrow account which are maintained in lieu of retentions for
specific contracts. Retentions on contract receivables are amounts which are
withheld until the completed project has been accepted by the customer in
accordance with the contract. See Note 1 to Schuff's Consolidated Financial
Statements included elsewhere herein.
15
<PAGE> 20
SUMMARY HISTORICAL FINANCIAL DATA
The following information should be read in conjunction with, and is
qualified by reference to, the Consolidated Financial Statements of each of
Schuff and Addison, including the Notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere herein. The summary historical consolidated financial data for each of
the three years ended December 31, 1997 for Schuff and for each of the three
fiscal years ended June 30, 1997 for Addison set forth below have been derived
from the respective audited consolidated financial statements of Schuff and
Addison. The summary historical consolidated financial data for Schuff set forth
below for the three months ended March 31, 1997 and 1998 have been derived from
the unaudited consolidated financial statements of Schuff. The summary
historical consolidated financial data for Addison set forth below for the nine
months ended March 31, 1997 and 1998 have been derived from the unaudited
consolidated financial statements of Addison. The historical consolidated
financial data for Schuff for the three months ended March 31, 1997 and 1998 and
for Addison for the nine months ended March 31, 1997 and 1998 are unaudited and
are not necessarily indicative of the results of operations of Schuff or Addison
for the full year. The unaudited historical consolidated financial data reflects
all adjustments (consisting of normal, recurring adjustments) which are, in the
opinion of management of the Company, necessary for a fair presentation of
Schuff's and Addison's results of operations for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------------
SCHUFF 1995 1996 1997 1997 1998
- ------ ------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................... $62,090 $103,912 $138,218 $25,507 $27,426
Gross profit........................... 7,868 16,914 20,263 3,852 4,992
Operating income....................... 2,584 10,199 11,383 1,771 2,598
SUPPLEMENTAL INFORMATION:
EBITDA(1).............................. $ 3,832 $ 11,466 $ 12,903 $ 2,132 $ 3,021
Depreciation and amortization.......... 1,248 1,267 1,520 361 423
Capital expenditures................... 814 2,337 3,188 310 592
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
----------------------------- ------------------
ADDISON 1995 1996 1997 1997 1998
- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................................. $50,463 $57,638 $63,700 $46,195 $48,880
Gross profit............................. 11,488 14,224 15,926 11,314 11,179
Operating income......................... 5,906 8,223 9,394 6,672 6,007
SUPPLEMENTAL INFORMATION:
EBITDA(1)................................ $ 6,797 $ 9,145 $10,372 $ 7,404 $ 6,744
Depreciation and amortization............ 891 922 978 732 737
Capital expenditures(2).................. 690 2,665 4,620 1,580 1,132
</TABLE>
- ---------------
(1) EBITDA for the relevant period presented above is defined as net income plus
interest expense, income taxes, depreciation, amortization, and other
expenses less other income. EBITDA should not be construed as a substitute
for operating income, as an indicator of liquidity or as a substitute for
net cash provided by operating activities, which are determined in
accordance with generally accepted accounting principles. EBITDA is included
because management believes that certain investors may find it to be a
useful tool for analyzing operating performance, leverage, liquidity, and
the Company's ability to service debt.
(2) Includes expenditures of $2.0 million for the fiscal year ended June 30,
1997 and $716,000 for the nine months ended March 31, 1998 for non-business
related assets sold to Addison's majority stockholder upon consummation of
the Acquisition.
16
<PAGE> 21
RISK FACTORS
The Exchange Notes offered hereby involve a high degree of risk. In
addition to the other information contained or incorporated by reference in this
Prospectus, Holders of Outstanding Notes should carefully consider the following
factors together with other information contained herein before tendering their
Outstanding Notes in the Exchange Offer.
RISKS RELATED TO THE NOTES
Substantial Leverage and Ability to Service Debt
Following the consummation of the Offering, the Company is highly
leveraged, with substantial debt service in addition to operating expenses and
planned capital expenditures. At March 31, 1998, as adjusted to give effect to
the issuance of the Outstanding Notes, the total Indebtedness of the Company
would have been approximately $103.9 million. The Indenture will permit the
Company to incur additional Indebtedness, subject to certain limitations,
including additional secured Indebtedness under the Company's Existing Credit
Facility (as defined herein). See "Description of Existing Indebtedness" and
"Description of Exchange Notes -- Certain Covenants."
Schuff has historically operated at substantially lower levels of debt than
are currently outstanding after giving effect to the Acquisition and the
Offering and the application of the net proceeds therefrom. The Company's level
of indebtedness will have several important effects on its future operations,
including, without limitation, (i) a substantial portion of the Company's cash
flow from operations must be dedicated to the payment of interest and principal
on its indebtedness, reducing the funds available for operations and for capital
expenditures, including acquisitions, (ii) covenants contained in the Indenture
or the Existing Credit Facility (as defined below) or other credit facilities
will require the Company to meet certain financial tests, and other restrictions
will limit its ability to borrow additional funds or to dispose of assets, and
may affect the Company's flexibility in planning for, and reacting to, changes
in its business, including possible acquisition activities, (iii) the Company's
leveraged position will substantially increase its vulnerability to adverse
changes in general economic, industry and competitive conditions, (iv) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate and other purposes may be limited,
and (v) the Company's leveraged position and the various covenants contained in
the Indenture and the Existing Credit Facility may place the Company at a
relative competitive disadvantage as compared to certain of its competitors. The
Company's ability to meet its debt service obligations and to reduce its total
indebtedness will be dependent upon the Company's future performance, which will
be subject to general economic, industry and competitive conditions and to
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control. There can be no assurance that the
Company's business will continue to generate cash flow at or above current
levels. If the Company is unable to generate sufficient cash flow from
operations in the future to service its debt, it may be required, among other
things, to seek additional financing in the debt or equity markets, to refinance
or restructure all or a portion of its indebtedness, including the Notes, to
sell selected assets, or to reduce or delay planned capital expenditures and
growth or business strategies. There can be no assurance that any such measures
would be sufficient to enable the Company to service its debt, or that any of
these measures could be effected on satisfactory terms, if at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Restrictions Imposed by Terms of Indebtedness
The Indenture contains certain covenants that, among other things, will
limit the ability of the Company and its subsidiaries to make restricted
payments, to make certain acquisitions, to incur additional indebtedness, to pay
dividends and make certain other distributions, payments and investments, to
create liens, to issue preferred or other capital stock of subsidiaries, to sell
assets, to permit restrictions on dividend and other payments by subsidiaries to
the Company, to consolidate, merge or sell all or substantially all of its
assets, to engage in transactions with affiliates or to engage in unrelated
businesses. In addition, the Existing Credit Facility contains other, more
restrictive covenants (and other new credit facilities may contain more
restrictive
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covenants), and, under certain circumstances, may prohibit the Company from
prepaying the Notes. There can be no assurance that the Company's leverage and
such restrictions will not materially and adversely affect the Company's ability
to finance its future operations or capital needs or to engage in other business
activities, including implementation of its business and growth strategies.
The Existing Credit Facility requires the Company to maintain specified
financial ratios and satisfy certain financial tests. The Company's ability to
maintain or meet such financial ratios and tests may be affected by events
beyond its control, and there can be no assurance that the Company will maintain
or meet such ratios and tests. A breach of any of these covenants could result
in an event of default under the Existing Credit Facility in which case the
lender could elect to declare all amounts borrowed, together with accrued
interest, to be immediately due and payable and to terminate all commitments
under the Existing Credit Facility. If the Company were unable to repay all
amounts declared due and payable, the lender could proceed against the
collateral granted to satisfy the indebtedness and other obligations due and
payable. Substantially all of the assets of the Company and its subsidiaries are
pledged as security under the Existing Credit Facility. An acceleration of the
indebtedness under the Existing Credit Facility will also trigger an event of
default under the Indenture. If the obligations under the Existing Credit
Facility or the Notes were to be accelerated, there can be no assurance that the
assets of the Company and its subsidiaries would be sufficient to repay in full
such indebtedness and the other indebtedness of the Company, including the
Notes. See "Description of Existing Indebtedness" and "Description of Exchange
Notes -- Certain Covenants."
Effective Subordination; Future Dependence on Subsidiaries
The Notes and the Guarantees will be effectively subordinated to all
current and future senior secured indebtedness, including indebtedness under the
Existing Credit Facility, to the extent of any pledged assets. The Company's
obligations under the Existing Credit Facility are secured by a pledge of
substantially all of the assets of the Company. In the event of a bankruptcy,
liquidation or reorganization of the Company, the assets of the Company would be
available to pay obligations on the Notes only after all indebtedness under the
Existing Credit Facility has been paid in full, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Notes then outstanding.
The indebtedness under the Existing Credit Facility will become due prior to the
time the principal obligations under the Notes become due. Schuff's subsidiaries
have issued a guarantee under the Existing Credit Facility. As of June 30, 1998,
the Company had approximately $25.0 million of unused senior secured borrowing
capacity under the Existing Credit Facility.
In addition, following the Acquisition, a substantial portion of the
operations of the Company will be conducted through its subsidiaries. Therefore,
the Company's ability to make required principal and interest payments with
respect to the Company's indebtedness, including the Notes, will depend on the
earnings of its direct and indirect subsidiaries and on its ability to receive
funds from such subsidiaries through dividends or other payments. Other than the
Guarantees by the Guarantors, the Company's subsidiaries are not obligated or
required to pay any amounts due pursuant to the Notes or to make funds available
therefor in the form of dividends or advances to the Company. Furthermore, the
Notes and the Guarantees effectively will be subordinated to all outstanding
indebtedness and other liabilities and commitments (including trade payables and
operating lease obligations) of the Company's subsidiaries other than the
Guarantors. Any right of the Company to receive assets of any of its
subsidiaries that are not Guarantors upon their liquidation or reorganization
(and the consequent right of holders of Notes to participate in those assets)
effectively will be subordinated to the claims of that subsidiary's creditors,
except to the extent that the Company or a Guarantor itself is recognized as a
creditor of such subsidiary, in which case the claims of the Company or such
Guarantor would still be subordinate to any security interest in the assets of
such subsidiary and any indebtedness of such subsidiary senior to that held by
the Company.
Fraudulent Transfer Statutes
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the issuance of the Notes or the Guarantors' issuance of the
Guarantees. Under federal or state fraudulent transfer laws, if a court were to
find that, at the time the Notes were issued or the Guarantees were incurred,
the Company or the Guarantor (i) issued the Notes or incurred the Guarantees
with the intent of hindering, delaying or
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defrauding current or future creditors or (ii)(A) received less than fair
consideration or reasonably equivalent value for incurring the indebtedness
represented by the Notes or for issuing its Guarantee and (B)(1) was insolvent
or was rendered insolvent or contemplated insolvency by reason of the issuance
of the Notes or the issuance of such Guarantee, (2) was engaged, or about to
engage, in a business or transaction for which its assets or capital were
unreasonably small or (3) intended to incur, or believed (or should have
believed) it would incur, debts beyond its ability to pay as such debts mature
(as all of the foregoing terms are defined in or interpreted under such
fraudulent transfer statutes), such court could avoid all or a portion of the
Company's or the Guarantors' obligations to the holders of the Notes, avoid or
subordinate the Company's obligations to the holders of the Notes or avoid or
subordinate such Guarantee in favor of the Company's or the Guarantor's
creditors or to other existing and future indebtedness of the Company or such
Guarantors, the effect of which would be to entitle such other creditors to be
paid in full before any payment could be made on the Notes, and take other
action detrimental to the holders of the Notes, including in certain
circumstances, invalidating the Notes. In that event, there would be no
assurance that any repayment on the Notes would ever be recovered by the holders
of the Notes.
In addition, a legal challenge of a Guarantee on fraudulent conveyance
grounds may focus on the benefits, if any, realized by the Guarantor as a result
of the Company's issuance of the Notes. The Indenture will contain a savings
clause, which generally will limit the obligations of each Guarantor under its
Guarantee to the maximum amount as will, after giving effect to all of the
liabilities of such Guarantor, result in such obligations not constituting a
fraudulent conveyance. To the extent a Guarantee of any Guarantor was avoided or
limited as a fraudulent conveyance or held unenforceable for any other reason,
holders of the Notes would cease to have any claim against such Guarantor and
would be creditors solely of the Company and any Guarantor whose Guarantee was
not avoided or held unenforceable. In such event, the claims of the holders of
the Notes against the issuer of an invalid Guarantee would be subject to the
prior payment of all liabilities (including trade payables) of such Guarantor.
There can be no assurance that, after providing for all prior claims, there
would be sufficient assets to satisfy the claims of the holders of the Notes
relating to any avoided portions of any of the Guarantees.
The definition of insolvency for purposes of the foregoing consideration
varies among jurisdictions depending upon the federal or state law that is being
applied in any such proceeding. Generally, however, the Company or a Guarantor
would be considered insolvent at the time it incurs the indebtedness
constituting the Notes or the Guarantees, if (i) the fair market value (or fair
saleable value) of its assets is less than the amount required to pay its total
existing debts and liabilities (including the probable liability on contingent
liabilities) as they become absolute or matured or (ii) it is incurring debts
beyond its ability to pay as such debts mature. Based upon financial and other
information, the Company and the Guarantors believe that they are solvent and
will continue to be solvent following the issuance of the Notes and the
Guarantees, will have sufficient capital for carrying on their business after
such issuance, will be able to pay their debts as they mature and that the
Guarantees are being incurred for proper purposes and in good faith. There can
be no assurance, however, that a court passing on such standards would agree
with the Company. There can also be no assurance as to what standard a court
would apply in order to determine whether the Company or a Guarantor was
"insolvent" as of the date the Notes were issued, or that, regardless of the
method of valuation, a court would not determine that the Company or a Guarantor
was insolvent on that date or otherwise agree with the Company with respect to
the above standards. Nor can there be any assurance that a court would not
determine, regardless of whether the Company or a Guarantor was insolvent on the
date the Notes were issued, that the payments constituted fraudulent transfers
on another ground. To the extent that proceeds from the sale of the Notes were
or are used to repay indebtedness under the Company's existing indebtedness, a
court may find that the Company did not receive fair consideration or reasonably
equivalent value for the incurrence of the indebtedness represented by the
Notes.
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Preferential Transfer
The Indenture will require the Subsidiaries created or acquired after the
issuance of the Notes to guarantee the Notes. If bankruptcy or insolvency
proceedings were initiated by or against the Company or any Subsidiary Guarantor
within 90 days (or, in certain cases, one year) after any such guarantee, or if
any such guarantee were made in contemplation of insolvency, such guarantee
would be vulnerable to avoidance as a preferential transfer. In addition, a
court could require holders of the Notes to return any payments made during the
90-day (or one-year) period.
Consequences of Failure to Exchange
The Outstanding Notes have not been registered under the Securities Act or
any state securities laws, and therefore, may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions, including the right
of the Company and the Trustee (as defined) in certain cases to require the
delivery of opinions of counsel, certifications and other information prior to
any such transfer. Outstanding Notes that remain outstanding after the
consummation of the Exchange Offer will continue to bear a legend reflecting
such restrictions on transfer. In addition, upon consummation of the Exchange
Offer, Holders of Outstanding Notes that remain outstanding will not be entitled
to any rights to have such Outstanding Notes registered under the Securities Act
or to any similar rights under the Registration Rights Agreement (subject to
certain limited exceptions). The Company currently intends to register under the
Securities Act Outstanding Notes that remain outstanding after consummation of
the Exchange Offer only if such Outstanding Notes are held by Initial Purchasers
or persons ineligible to participate in the Exchange Offer (other than due
solely to the status of such holder as an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act). If Outstanding Notes are tendered
and accepted in the Exchange Offer, the market for untendered Outstanding Notes
is likely to diminish accordingly. Holders who do not tender their Outstanding
Notes may encounter difficulties in selling such Outstanding Notes following the
Exchange Offer. The Exchange Notes and any Outstanding Notes that remain
outstanding after consummation of the Exchange Offer will constitute a single
series of debt securities under the Indenture and, accordingly, will vote
together as a single class for purposes of determining whether holders of the
requisite percentage in outstanding principal amount of the Notes have taken
certain actions or exercised certain rights under the Indenture.
Lack of Public Market for the Notes; Possible Volatility of Note Price
The Outstanding Notes were issued to, and the Company believes are
currently owned by, a relatively small number of beneficial owners. The
Outstanding Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for the Exchange Notes. See "-- Consequences of Failure to Exchange."
Although the Exchange Notes generally will be permitted to be resold or
otherwise transferred by the holders (who are not affiliates of the Company)
without compliance with the registration and prospectus delivery requirements
under the Securities Act, they will constitute a new issue of securities with no
established trading market. In addition, the Company does not intend to apply
for listing of the Exchange Notes on any securities exchange or to seek approval
for quotation through any automated quotation system. If an active market for
the Exchange Notes does not develop, the market price and liquidity of the
Exchange Notes will be adversely affected. Even if such a market were to
develop, the Exchange Notes could trade at prices that may be higher or lower
than their initial offering price depending upon many factors, including
prevailing interest rates, the Company's operating results and the markets for
similar securities. Although the Initial Purchasers have informed the Company
that they currently intend to make a market in the Outstanding Notes and
Exchange Notes, the Initial Purchasers are not obligated to do so and any such
market-making activity may be discontinued at any time without notice.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Exchange Notes. In addition, such market-
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making activity may be limited during the Exchange Offer and the pendency of any
shelf registration statement.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Outstanding Notes, where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. Subject to certain provisions set forth in the Registration
Rights Agreement, the Company has agreed that, for a period of up to one year
after the consummation of the Exchange Offer, it will make this Prospectus
available to any participating broker-dealer for use in connection with any such
resale. However, under certain circumstances, the Company has the right to
require that participating broker-dealers suspend the resale of Exchange Notes
pursuant to this Prospectus. Notwithstanding that the Company may cause the
resale of Exchange Notes pursuant to this Prospectus to be suspended, the
Company has no obligation to extend the one year period referred to above during
which participating broker-dealers are entitled to use this Prospectus in
connection with such resales. See "The Exchange Offer -- Resale of the Exchange
Notes."
Exchange Offer Eligibility and Procedures
Any Holder of the Outstanding Notes who is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act or any broker-dealer who
purchased Outstanding Notes from the Company to resell pursuant to Rule 144A or
any other available exemption under the Securities Act will not be permitted or
entitled to tender such Outstanding Notes in the Exchange Offer and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any sale or other transfer of such Outstanding Notes unless
such sale or transfer is made pursuant to an exemption from such requirements.
See "The Exchange Offer -- Resale of the Exchange Notes."
Each holder of Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company set forth in "The Exchange Offer -- Purpose and
Effect of the Exchange Offer."
Issuance of the Exchange Notes in exchange for the Outstanding Notes
pursuant to the Exchange Offer will be made only after timely receipt by the
Exchange Agent of the required documents. Therefore, Holders of the Outstanding
Notes desiring to tender such Outstanding Notes in exchange for Exchange Notes
should allow sufficient time to ensure timely delivery. The Company is under no
duty to give notification of defects or irregularities with respect to tenders
of Outstanding Notes for exchange. See "The Exchange Offer -- Procedures for
Tendering."
Possible Inability to Repurchase Notes Upon a Change of Control
Upon a Change of Control, each holder of the Notes will have the right to
require the Company to repurchase any or all of the Notes owned by such holder
at a price equal to 101% of the principal amount thereof, together with accrued
and unpaid interest. However, the Company's ability to repurchase the Notes upon
a Change of Control may be limited by the terms of then existing contractual
obligations of the Company and its subsidiaries. Furthermore, under the Existing
Credit Facility, an event constituting a Change in Control would likely
constitute an event of default, thereby giving the lender the right to require
the Company to repay all Indebtedness outstanding thereunder. In addition, the
Company may not have adequate financial resources to effect such a repurchase,
and there can be no assurance that the Company would be able to obtain such
resources through a refinancing of the Notes to be repurchased or otherwise. If
the Company fails to repurchase all of the Notes tendered for purchase upon the
occurrence of a Change of Control, such failure will constitute an Event of
Default under the Indenture. See "Description of Exchange Notes -- Change of
Control."
With respect to the sale of assets referred to in the definition of "Change
of Control," the phrase "all or substantially all" as used in such definition
varies according to the facts and circumstances of the subject transaction, has
no clearly established meaning under the relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a
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particular transaction would involve a disposition of "all or substantially all"
of the assets of a person and therefore it may be unclear whether a Change of
Control has occurred and whether the Notes are subject to an offer to purchase.
The Change of Control provision may not necessarily afford the holders
protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger or other similar transaction involving the
Company that may adversely affect the holders, because such transactions may not
involve a shift in voting power of beneficial ownership or, even if they do, may
not involve a shift of the magnitude required under the definition of Change of
Control to trigger such provisions. Except as described under "Description of
Exchange Notes -- Change of Control," the Indenture does not contain provisions
that permit the holders of the Notes to require the Company to repurchase or
redeem the Notes in the event of a takeover, recapitalization or similar
transaction.
RISKS RELATED TO THE COMPANY
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, entertainment, 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.
No Assurance of Successful Acquisitions
In addition to the acquisition of Addison, the Company intends to consider,
and is currently pursuing, 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 or obtain the necessary funding for such acquisitions. In
addition, the covenants contained in the Indenture or any other agreement
governing indebtedness of the Company may directly or indirectly limit the
ability of the Company 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 or to retain key customers and employees
of acquired businesses. If the costs of such integration exceed expectations or
if the Company experiences unexpected costs or liabilities in the acquired
businesses, the Company's operating results and financial condition could be
materially and adversely affected. In addition, any acquisition may result in
incurrence of additional debt and assumption of additional liabilities,
including contingent liabilities, all of which could adversely affect the
Company's cash flow. Acquisitions involve numerous other 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 acquisition of Addison has consumed and will continue to consume
substantial management attention and resources of the Company, and will require
substantial efforts and entail certain risks in the integration of its
operations. There can be no assurance that anticipated cost savings or synergies
will be achieved. The Company will be dependent on the retention and performance
of Addison's existing management and employees for the day-to-day management and
future operating results of Addison.
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
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Company's control. In particular, the Company's operating results may vary
because of downturns in one or more segments of the building construction
industry, changes in economic conditions, the Company's failure to obtain, or
delays in awards of, major projects or the cancellation of major projects or the
Company's failure to timely replace projects that have been completed or are
nearing completion. 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.
Fixed Price Contracts
Of the Company's $97.4 million backlog at March 31, 1998 (on a pro forma
basis giving effect to the Acquisition), most consisted 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, 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. See
"Business -- Contracting Methods and Performance Bonding."
Variations in Backlog; Dependence on Large Contracts
The Company's backlog can be significantly affected by the receipt, or
loss, of individual contracts. For example, approximately $24.5 million, or
25.2%, of the Company's backlog at March 31, 1998 (on a pro forma basis giving
effect to the Acquisition) was attributable to two 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Backlog."
Capacity Constraints; Dependence on Subcontractors
Schuff routinely relies on subcontractors to perform a significant portion
of its fabrication and project detailing to fulfill projects that Schuff cannot
fulfill in-house due to capacity constraints or that are in markets in which
Schuff has not established a strong local presence. Addison currently
subcontracts to others all of its erection services and most of its project
detailing. 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.
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 prior to the maturity of the Notes. 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. See "Business -- Employees."
Revenue Recognition Estimates
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
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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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
Geographic Concentration
The Company's fabrication and erection operations currently are conducted
primarily in Arizona, Nevada, Florida and Georgia, states in which the
construction industry has experienced substantial growth during recent years. Of
the $138.2 million in revenues earned by Schuff in 1997, management estimates
that approximately $120.6 million, or 87.3%, of those revenues were related to
projects in Arizona and Nevada. Of the $67.3 million in revenues earned by
Addison in fiscal 1997, a substantial majority were related to projects in
Florida and Georgia. 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 these states and in the southwestern and
southeastern 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, retail shopping
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. See
"Business -- Primary Markets" and "-- Representative Projects."
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, and expenses litigation costs as incurred. 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. See "Business -- Legal Proceedings" and
"-- Insurance."
Risks of International Operations
The Company currently operates in selected international markets and is
seeking to further expand its presence in these markets. Approximately 3.7% of
Schuff's revenues in 1997 were related to projects outside the United States.
Addison's revenues in 1997 related to projects outside the United States were
not significant. 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
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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 with available
equipment 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 and are less leveraged 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.
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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
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. 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. See "Management."
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
("CERCLA") 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. See "Business -- Environmental Regulation."
25
<PAGE> 30
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 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. See "Business -- Governmental
Regulation."
THE ACQUISITION
On June 4, 1998, Schuff acquired all of the capital stock of Addison. The
purchase price, net of estimated excess cash on hand of Addison at the closing
and non-business related assets sold at closing to Addison's majority
stockholder, was approximately $50.4 million, of which approximately $47.2
million was payable in cash at the closing (approximately $3.5 million of which
was paid into escrow accounts) and $3.2 million was paid by delivery of the
Holdback Note. See "Use of Proceeds." The Acquisition closed contemporaneously
with the consummation of the Offering. The Acquisition was accounted for under
the purchase method of accounting and Schuff did not acquire any long-term
indebtedness of Addison.
The Holdback Note bears interest at 1% below the floating prime rate and is
secured by a letter of credit. The Holdback Note is due and payable to the
majority stockholder of Addison in three equal annual installments of principal
plus accrued interest, subject to any indemnity claims against or amounts
deducted from the Holdback Note and retained by Schuff. Of the escrowed amounts,
$2.8 million is due and payable to the participants of Addison's Leveraged
Employee Stock Ownership Plan (the "ESOP") in the same manner as the Holdback
Note and is subject to the same indemnity offsets, all of which will be made on
a ratable basis, and approximately $740,000 was paid into a separate escrow
account to cover environmental remediation and related costs with respect to
certain of the properties of Addison acquired by Schuff (with the balance, if
any, payable on a proportionate basis to Addison's stockholders). Schuff may
only offset against the Holdback Note and the $2.8 million escrowed amount for
claims related to the operations of Addison prior to the closing, except with
respect to title or tax matters or in the event of fraud or intentional
misrepresentation or omission, in which case the stockholders of Addison have
agreed to indemnify the Company for all damages arising therefrom.
26
<PAGE> 31
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. The Exchange Offer is intended to satisfy certain
of the Company's obligations under the Registration Rights Agreement.
The net proceeds from the issuance and sale of the Outstanding Notes were
used (i) to pay the cash portion of the purchase price of the Acquisition
payable at the closing, (ii) to repay certain existing indebtedness of Schuff
and (iii) the balance for working capital and general corporate purposes of the
Company, including, when and if available, the acquisition of additional
businesses complementary to the Company's business. Schuff is engaged in
negotiations in connection with potential acquisitions but has no pending
binding commitments as of the date hereof.
The following table summarizes the estimated sources and uses of funds
contemplated from the Offering:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Sale of Outstanding Notes................................. $100.0
Holdback Note............................................. 3.2
Addison cash on hand at closing available to fund purchase
price of Acquisition(1)................................ 6.0
Proceeds from sale of non-business related assets......... 2.8
------
$112.0
======
USES OF FUNDS:
Total Addison purchase price(1)........................... $ 59.4
Fees and expenses of Acquisition.......................... 1.1
Repayment of existing Schuff indebtedness(2).............. 3.3
Offering expenses(3)...................................... 4.0
Working capital, including for future acquisitions(4)..... 44.2
------
$112.0
======
</TABLE>
- ---------------
(1) The total purchase price of the Acquisition includes the sum of (i) $50.4
million plus (ii) $9.0 million, the amount of Addison's cash on hand at the
closing (subject to certain adjustments). The above table reflects a total
purchase price of $59.4 million and that Addison had $9.0 million of cash on
hand at the closing, of which $6.0 million was used by Schuff to fund part
of the purchase price and $3.0 million will remain with Addison for working
capital.
(2) The existing indebtedness of Schuff as of March 31, 1998 repaid by it from
the proceeds of the Offering includes (i) approximately $1.6 million that
was outstanding under the revolving line of credit portion of its Prior
Credit Facility (as defined herein) and (ii) approximately $1.7 million that
was outstanding under a subordinated note payable to certain affiliates of
Schuff, which accrued interest at a variable rate per annum equal to the
prime rate plus 0.75% (which effective rate was 9.25% per annum as of March
31, 1998) and was scheduled to mature on April 30, 2003. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Certain Relationships and
Related Transactions" and "Description of Existing Indebtedness."
(3) Includes discounts and commissions paid to the Initial Purchasers of
approximately $3.0 million and expenses incurred by Schuff in connection
with the Offering, which were approximately $1.0 million. See "Plan of
Distribution."
(4) Until applied as set forth above, all proceeds will be invested in
short-term, interest bearing investment grade or equivalent securities or
deposits.
27
<PAGE> 32
CAPITALIZATION
The following table sets forth the actual and pro forma cash and
equivalents, long-term debt and total capitalization of the Company as of March
31, 1998. The actual capitalization reflects such data of Schuff at March 31,
1998. The pro forma capitalization gives effect to (i) the Acquisition and (ii)
the issuance of the Outstanding Notes and the application of the net proceeds
therefrom as if they had occurred on March 31, 1998. This table should be read
in conjunction with "Use of Proceeds," "Unaudited Pro Forma Condensed Combined
Financial Statements," "Schuff Steel Company Selected Historical Financial
Data," "Addison Structural Services, Inc. Selected Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements, including the Notes
thereto, of each of Schuff and Addison included elsewhere herein.
<TABLE>
<CAPTION>
AT MARCH 31, 1998
--------------------
ACTUAL PRO FORMA
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents(1)............................ $ 303 $ 47,536
Long-term debt, including current maturities:
Prior Credit Facility(2)........................... 1,573 --
Existing notes payable(2).......................... 2,396 639
Holdback Notes, including current portion.......... -- 3,214
Senior Notes due 2008.............................. -- 100,000
------- --------
Total long-term debt, including current
maturities.................................. 3,969 103,853
Stockholders' equity.................................... 26,278 26,278
------- --------
Total capitalization.......................... $30,247 $130,131
======= ========
</TABLE>
- ---------------
(1) Excludes $2.7 million of restricted funds on deposit at March 31, 1998.
Restricted funds on deposit represent funds on deposit in interest bearing
accounts which are maintained in lieu of retention for specific contracts.
Retentions on contract receivables are amounts which are withheld until the
completed project has been accepted by the customer in accordance with the
contract. See Note 1 to Schuff's Consolidated Financial Statements.
(2) See "Use of Proceeds," "Description of Existing Indebtedness" and Note 5 to
Schuff's Consolidated Financial Statements. On an actual basis as of June
30, 1998, the Company had approximately $25.0 million of unused senior
secured borrowing capacity under its Existing Credit Facility.
28
<PAGE> 33
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined statement of income data and
supplemental information gives effect to (i) the Acquisition and (ii) the
Offering and the application of the net proceeds therefrom, as if they had
occurred on January 1, 1997 for the year ended December 31, 1997, April 1, 1997
for the last twelve months ended March 31, 1998 and January 1, 1998 for the
three months ended March 31, 1998. The unaudited pro forma condensed combined
balance sheet as of March 31, 1998 gives effect to (i) the Acquisition and (ii)
the Offering and the application of the net proceeds therefrom, as if they had
occurred on March 31, 1998. The unaudited pro forma condensed combined
statements of income are derived from the historical and calendarized financial
statements of Schuff and Addison for the periods indicated. Addison's 1997
fiscal year end was June 30, 1997 and Schuff's 1997 year end was December 31,
1997. Accordingly, for the statement of income for the period ended December 31,
1997, the unaudited six month period ended December 31, 1997 has been added to
Addison's statement of income for the fiscal year ended June 30, 1997 and the
unaudited results for the six month period ended December 31, 1996 have been
deducted. For the statement of income for the twelve month period ended March
31, 1998, (i) the unaudited three month period ended March 31, 1998 has been
added to Schuff's statement of income for the year ended December 31, 1997 and
the unaudited results for the three month ended March 31, 1997 have been
deducted and (ii) the unaudited nine month period ended March 31, 1998 has been
added to Addison's statement of income for the fiscal year ended June 30, 1997
and the unaudited results for the nine month period ended March 31, 1997 have
been deducted.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the notes thereto and the assumptions and adjustments
set forth therein, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of each of
Schuff and Addison, including the Notes thereto, included elsewhere herein.
The pro forma adjustments which give effect to the various events described
above are based upon currently available information and upon certain
assumptions and adjustments that management of the Company believes are
reasonable and that meet the factually supportable criteria of the Commission
for pro forma financial information. The Acquisition was accounted for by the
Company under the purchase method and the resulting assets acquired and
liabilities assumed were recorded at their estimated fair market values at the
date of acquisition. No interest income was assumed to have been earned on the
portion of the proceeds of the Offering that were not used to fund the cash
portion of the purchase price of the Acquisition or to pay other existing
indebtedness of Schuff, although such funds were available to the Company for
investment purposes. The adjustments included in the unaudited pro forma
condensed combined financial statements reflect the Company's preliminary
assumptions and estimates based upon available information. There can be no
assurance that the actual adjustments will not vary significantly from the
estimated adjustments reflected in the unaudited pro forma condensed combined
financial statements.
The unaudited pro forma condensed combined financial statements do not
purport to be indicative of the results of operations that would have occurred
or that may be obtained in the future if the transactions described above had
occurred as presented in such statements. In addition, future results may vary
significantly from the results reflected in such statements due to general
economic conditions, labor and materials costs, competition, Schuff's ability to
successfully integrate the operations of Addison with its current business and
several other factors, many of which are beyond the Company's control. See "Risk
Factors."
29
<PAGE> 34
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SCHUFF ADDISON PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 303 $ 7,346 $ 39,887(1) $ 47,536
Receivables.................................. 21,904 8,767 -- 30,671
Restricted funds on deposit.................. 2,662 -- -- 2,662
Costs and recognized earnings in excess of
billings on uncompleted contracts......... 6,129 3,928 -- 10,057
Inventories.................................. 2,463 3,929 -- 6,392
Other current assets......................... 827 393 -- 1,220
------- ------- -------- --------
Total current assets................. 34,288 24,363 39,887 98,538
Property and equipment, net.................... 7,583 12,114 (2,657)(2) 17,040
Goodwill....................................... -- -- 27,633(3) 27,633
Other assets................................... 100 1,231 4,000(4) 5,331
------- ------- -------- --------
Total assets......................... $41,971 $37,708 $ 68,863 $148,542
======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 2,796 $ 2,872 $ -- $ 5,668
Billings in excess of costs and recognized
earnings on uncompleted contracts......... 4,290 1,348 -- 5,638
Accrued expenses............................. 4,142 1,831 -- 5,973
Notes payable and current portion of
long-term debt............................ 304 169 (312)(5) 161
------- ------- -------- --------
Total current liabilities............ 11,532 6,220 (312) 17,440
Other liabilities.............................. 496 636 -- 1,132
Bank indebtedness.............................. 3,665 882 (4,069)(5) 478
Holdback Notes payable......................... -- -- 3,214(6) 3,214
Senior Notes................................... -- -- 100,000(7) 100,000
------- ------- -------- --------
Total long-term debt................. 3,665 882 99,145 103,692
------- ------- -------- --------
Stockholders' equity........................... 26,278 29,970 (29,970)(8) 26,278
------- ------- -------- --------
Total liabilities and stockholders'
equity............................. $41,971 $37,708 $ 68,863 $148,542
======= ======= ======== ========
</TABLE>
- ---------------
(1) Represents $96,000 of net proceeds from the issuance of Outstanding Notes
less repayments of existing indebtedness of Schuff of $3,330, net cash paid
in connection with the Acquisition of $51,683 (cash portion of Acquisition
based on March 31, 1998 financial information, less $2,750 of proceeds from
sale of certain assets of Addison sold to Addison's majority stockholder
contemporaneously with the closing of the Acquisition), and $1,100 cash paid
for the Company's estimate of direct acquisition costs.
(2) Represents the net book value of certain assets of Addison sold to Addison's
majority stockholder contemporaneously with the closing of the Acquisition.
(3) Schuff has not completed its assessment of the fair value of the net assets
being acquired for purposes of allocating the purchase price. Accordingly,
the excess of the purchase price over the historic net asset value of the
acquired companies has been allocated entirely to goodwill which will be
amortized over a
30
<PAGE> 35
25-year period. The estimated purchase price allocation based upon balances
as of March 31, 1998 is as follows:
<TABLE>
<S> <C>
Cash consideration.......................................... $54,433
Holdback Note............................................... 3,214
Direct acquisition costs.................................... 1,100
-------
Total purchase price........................................ 58,747
Net book value of net assets acquired....................... 31,114
-------
Goodwill.................................................... $27,633
=======
</TABLE>
The net book value of net assets acquired entities represents the historic
net book value of Addison increased by the elimination of the $1,051 ESOP
debt guarantee reflected historically as a reduction of equity and the $93
excess of the sales price of the assets not being acquired over the
related net book value.
(4) Represents debt issuance costs related to the Outstanding Notes.
(5) Represents elimination of ESOP debt guaranteed by Addison of $1,051 and the
repayment of $3,330 of other existing indebtedness.
(6) Represents the Holdback Note delivered as part of the purchase price of the
Acquisition. See "The Acquisition."
(7) Represents face value of the Outstanding Notes.
(8) Represents elimination of net book value of acquired entities.
31
<PAGE> 36
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SCHUFF ADDISON PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues..................................... $138,218 $67,285 $ (283)(1) $205,220
Cost of revenues............................. 117,955 51,314 (117)(1) 169,152
-------- ------- -------- --------
Gross profit............................... 20,263 15,971 (166) 36,068
General and administrative expenses........ 8,880 7,002 (1,607)(2) 14,275
Goodwill amortization...................... -- -- 1,105(3) 1,105
-------- ------- -------- --------
Operating income........................ 11,383 8,969 336 20,688
Interest expense............................. (348) (15) (10,976)(4) (11,339)
Other income................................. 520 1,011 -- 1,531
-------- ------- -------- --------
Income before income taxes................. 11,555 9,965 (10,640) 10,880
Provision for income taxes................... 2,823 3,836 (3,814)(5) 2,845
-------- ------- -------- --------
Net income................................. 8,732 6,129 (6,826) 8,035
Pro forma income taxes....................... 1,513 -- -- 1,513
-------- ------- -------- --------
Pro forma net income....................... $ 7,219 $ 6,129 $ (6,826) $ 6,522
======== ======= ======== ========
SUPPLEMENTAL INFORMATION:
EBITDA....................................... $ 12,903 $ 9,949 $ 1,441 $ 24,293
Depreciation and amortization................ 1,520 980 1,105 3,605
Cash interest expense........................ 348 15 10,576 10,939
EBITDA/cash interest expense................. 2.2x
Backlog...................................... $ 56,793 $23,781 $ -- $ 80,574
</TABLE>
- ---------------
(1) Represents historic revenues and expenses of operating certain assets of
Addison sold to Addison's majority stockholder contemporaneously with the
closing of the Acquisition.
(2) Represents cost reductions of $850 for chief executive officer salary in
excess of future consulting contract costs, $300 for costs related to the
ESOP of Addison that is being terminated and $457 for costs related to
certain assets of Addison sold to Addison's majority stockholder
contemporaneously with the closing of the Acquisition.
(3) Represents amortization of excess of purchase price over fair value of net
assets acquired related to the Acquisition.
(4) Represents interest expense on the Outstanding Notes at an interest rate of
10.5% per annum, the Holdback Note and the amortization of the related debt
issuance costs over a ten-year period offset by the elimination of interest
on existing indebtedness of Schuff repaid from the proceeds of the Offering.
See "Use of Proceeds."
(5) Represents income tax expense on the pro forma adjustments at an effective
rate of 40%, except for goodwill amortization which is not deductible for
financial reporting or tax purposes.
32
<PAGE> 37
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE LAST TWELVE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SCHUFF ADDISON PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues..................................... $140,137 $66,385 $ (447)(1) $206,075
Cost of revenues............................. 118,734 50,595 (207)(1) 169,122
-------- ------- -------- --------
Gross profit............................... 21,403 15,790 (240) 36,953
General and administrative expenses........ 9,193 7,061 (1,790)(2) 14,464
Goodwill amortization...................... -- -- 1,105(3) 1,105
-------- ------- -------- --------
Operating income........................ 12,210 8,729 445 21,384
Interest expense............................. (351) (20) (10,932)(4) (11,303)
Other income................................. 665 1,071 -- 1,736
-------- ------- -------- --------
Income before income taxes................. 12,524 9,780 (10,487) 11,817
Provision for income taxes................... 3,969 3,858 (3,752)(5) 4,075
-------- ------- -------- --------
Net income................................. 8,555 5,922 (6,735) 7,742
Pro forma income taxes....................... 803 -- -- 803
-------- ------- -------- --------
Pro forma net income....................... $ 7,752 $ 5,922 $ (6,735) $ 6,939
======== ======= ======== ========
SUPPLEMENTAL INFORMATION:
EBITDA....................................... $ 13,792 $ 9,712 $ 1,550 $ 25,054
Depreciation and amortization................ 1,582 983 1,105 3,670
Cash interest expense........................ 351 20 10,532 10,903
EBITDA/cash interest expense................. 2.3x
Backlog...................................... $ 66,539 $30,869 $ -- $ 97,408
</TABLE>
- ---------------
(1) Represents historic revenues and expenses of operating certain assets of
Addison sold to Addison's majority stockholder contemporaneously with the
closing of the Acquisition.
(2) Represents cost reductions of $850 for chief executive officer salary in
excess of future consulting contract costs, $300 for costs related to the
ESOP of Addison that is being terminated and $640 for costs related to
certain assets of Addison sold to Addison's majority stockholder
contemporaneously with the closing of the Acquisition.
(3) Represents amortization of excess of purchase price over fair value of net
assets acquired related to the Acquisition.
(4) Represents interest expense on the Outstanding Notes at a rate of 10.5% per
annum, the Holdback Note and the amortization of the related debt issuance
costs over a ten-year period offset by the elimination of interest on
existing indebtedness of Schuff repaid from the proceeds of the Offering.
See "Use of Proceeds."
(5) Represents income tax expense on the pro forma adjustments at an effective
rate of 40%, except for goodwill amortization which is not deductible for
financial reporting or tax purposes.
33
<PAGE> 38
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SCHUFF ADDISON PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues...................................... $27,426 $14,141 $ (162)(1) $41,405
Cost of revenues.............................. 22,434 11,100 (91)(1) 33,443
------- ------- ------- -------
Gross profit................................ 4,992 3,041 (71) 7,962
General and administrative expenses......... 2,394 1,679 (474)(2) 3,599
Goodwill amortization....................... -- -- 277(3) 277
------- ------- ------- -------
Operating income......................... 2,598 1,362 126 4,086
Interest expense.............................. (98) (5) (2,703)(4) (2,806)
Other income.................................. 241 132 -- 373
------- ------- ------- -------
Income before income taxes.................. 2,741 1,489 (2,577) 1,653
Provision for income taxes.................... 1,146 559 (920)(5) 785
------- ------- ------- -------
Net income.................................. $ 1,595 $ 930 $(1,657) $ 868
======= ======= ======= =======
SUPPLEMENTAL INFORMATION:
EBITDA........................................ $ 3,021 $ 1,607 $ 403 $ 5,031
Depreciation and amortization................. 423 245 277 945
Cash interest expense......................... 98 5 2,603 2,706
EBITDA/cash interest expense.................. 1.9x
Backlog....................................... $66,539 $30,869 $ -- $97,408
</TABLE>
- ---------------
(1) Represents historic revenues and expenses of operating certain assets of
Addison sold to Addison's majority stockholder contemporaneously with the
closing of the Acquisition.
(2) Represents cost reductions of $213 for chief executive officer salary in
excess of future consulting contract costs, $75 for costs related to the
ESOP of Addison that is being terminated and $186 for costs related to
certain assets of Addison sold to Addison's majority stockholder
contemporaneously with the closing of the Acquisition.
(3) Represents amortization of excess of purchase price over fair value of net
assets acquired related to the Acquisition.
(4) Represents interest expense on the Outstanding Notes at a rate of 10.5% per
annum, the Holdback Note and the amortization of the related debt issuance
costs over a ten-year period offset by the elimination of interest on
existing indebtedness of Schuff repaid from the proceeds of the Offering.
See "Use of Proceeds."
(5) Represents income tax expense on the pro forma adjustments at an effective
rate of 40%, except for goodwill amortization which is not deductible for
financial reporting or tax purposes.
34
<PAGE> 39
SCHUFF STEEL COMPANY
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data derived
from the audited financial statements of Schuff as of and for the years ended
December 31, 1993 through 1997 and contains selected financial data derived from
the unaudited financial statements of Schuff for the three months ended March
31, 1997 and 1998 and as of March 31, 1997 and 1998. The unaudited financial
statements of Schuff as of and for the three months ended March 31, 1997 and
1998 reflect all adjustments necessary in the opinion of management of Schuff
(consisting only of normal recurring adjustments) for a fair presentation of
such data. The following information should be read in conjunction with Schuff's
Consolidated Financial Statements, including the Notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.................... $58,640 $68,199 $62,090 $103,912 $138,218 $25,507 $27,426
Cost of revenues............ 50,376 58,874 54,222 86,998 117,955 21,655 22,434
------- ------- ------- -------- -------- ------- -------
Gross profit.............. 8,264 9,325 7,868 16,914 20,263 3,852 4,992
General and administrative
expenses................ 4,367 4,915 5,284 6,715 8,880 2,081 2,394
------- ------- ------- -------- -------- ------- -------
Operating income.......... 3,897 4,410 2,584 10,199 11,383 1,771 2,598
Interest expense............ (627) (718) (752) (452) (348) (95) (98)
Other income................ 60 67 618 303 520 96 241
------- ------- ------- -------- -------- ------- -------
Income before income
taxes................... 3,330 3,759 2,450 10,050 11,555 1,772 2,741
Provision for income
taxes(1).................. -- -- -- -- 2,823 -- 1,146
------- ------- ------- -------- -------- ------- -------
Net income.................. 3,330 3,759 2,450 10,050 8,732 1,772 1,595
Pro forma income taxes(1)... 1,330 1,500 980 4,020 1,513 710 --
------- ------- ------- -------- -------- ------- -------
Pro forma net income(1)..... $ 2,000 $ 2,259 $ 1,470 $ 6,030 $ 7,219 $ 1,062 $ 1,595
======= ======= ======= ======== ======== ======= =======
SUPPLEMENTAL INFORMATION:
EBITDA(2)................... $ 4,765 $ 5,658 $ 3,832 $ 11,466 $ 12,903 $ 2,132 $ 3,021
Depreciation and
amortization.............. 868 1,248 1,248 1,267 1,520 361 423
Capital expenditures........ 3,290 1,615 814 2,337 3,188 310 592
Ratio of earnings to fixed
charges(3)................ 5.0x 4.8x 3.4x 14.0x 10.3x 10.4x 9.1x
BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital............. $ 4,804 $ 8,498 $ 7,965 $ 8,476 $ 22,548 $ 8,598 $22,756
Total assets................ 25,387 26,244 25,260 36,397 42,038 48,160 41,971
Total debt.................. 10,130 7,554 5,676 2,897 5,231 3,094 3,969
Stockholders' equity........ 5,320 6,032 6,768 10,682 24,673 11,436 26,278
</TABLE>
- ---------------
(1) Prior to the completion of its initial public offering, Schuff elected to be
treated as an S corporation under the Internal Revenue Code of 1986, as
amended. As an S corporation, Schuff was not subject to income taxes. Pro
forma net income reflects the provision for income taxes that would have
been recorded had Schuff 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 Schuff's
revocation of its S corporation election in June 1997.
35
<PAGE> 40
(2) EBITDA for any relevant period presented above is defined as net income plus
interest expense, income taxes, depreciation, amortization, and other
expenses less other income. EBITDA should not be construed as a substitute
for operating income, as an indicator of liquidity or as a substitute for
net cash provided by operating activities, which are determined in
accordance with generally accepted accounting principles. EBITDA is included
because management of Schuff believes that certain investors may find it to
be a useful tool for analyzing operating performance, leverage, liquidity
and Schuff's ability to service debt.
(3) Ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings from continuing operations before income tax and minority
interests plus fixed charges. Fixed charges consist of interest expense,
amortization of financing costs and the estimated interest component of rent
expense.
36
<PAGE> 41
ADDISON STRUCTURAL SERVICES, INC.
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data derived
from the audited financial statements of Addison as of and for the fiscal years
ended June 30, 1993 through 1997 and contains selected financial data derived
from the unaudited financial statements of Addison for the nine months ended
March 31, 1997 and 1998 and as of March 31, 1997 and 1998. The unaudited
financial statements of Addison as of and for the nine months ended March 31,
1997 and 1998 reflect all adjustments necessary in the opinion of management of
the Company (consisting only of normal recurring adjustments) for a fair
presentation of such data. The following information should be read in
conjunction with the Addison's Consolidated Financial Statements, including the
Notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
--------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues................................... $32,509 $52,831 $50,463 $57,638 $63,700 $46,195 $48,880
Cost of revenues........................... 27,610 46,159 38,975 43,414 47,774 34,881 37,701
------- ------- ------- ------- ------- ------- -------
Gross profit............................. 4,899 6,672 11,488 14,224 15,926 11,314 11,179
General and administrative expenses...... 3,860 4,655 5,582 6,001 6,532 4,642 5,172
------- ------- ------- ------- ------- ------- -------
Operating income......................... 1,039 2,017 5,906 8,223 9,394 6,672 6,007
Interest expense........................... (521) (312) (236) (153) (38) (30) (12)
Other income............................... 376 75 195 421 737 442 775
------- ------- ------- ------- ------- ------- -------
Income before income taxes............... 894 1,780 5,865 8,491 10,093 7,084 6,770
Provision for income taxes................. 319 741 2,178 3,186 4,033 2,715 2,539
------- ------- ------- ------- ------- ------- -------
Net income................................. $ 575 $ 1,039 $ 3,687 $ 5,305 $ 6,060 $ 4,369 $ 4,231
======= ======= ======= ======= ======= ======= =======
SUPPLEMENTAL INFORMATION:
EBITDA(1)................................ $ 1,975 $ 2,955 $ 6,797 $ 9,145 $10,372 $ 7,404 $ 6,744
Depreciation and amortization............ 936 938 891 922 978 732 737
Capital expenditures..................... 485 769 690 2,665 4,620 1,580 1,132
Ratio of earnings to fixed charges(2).... 2.6x 5.9x 21.4x 42.4x 125.6x 113.4x 136.4x
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital.......................... $ 5,906 $ 6,801 $ 9,498 $12,516 $15,298 $15,533 $18,142
Total assets............................. 24,001 20,276 23,949 29,346 34,539 28,769 37,708
Total debt............................... 6,087 3,117 1,898 1,791 1,277 1,230 1,050
Stockholders' equity..................... 10,422 11,591 15,365 19,593 25,656 22,911 29,970
</TABLE>
- ---------------
(1) EBITDA for any relevant period presented above is defined as net income plus
interest expense, income taxes, depreciation, amortization, and other
expenses less other income. EBITDA should not be construed as a substitute
for operating income, as an indicator of liquidity or as a substitute for
net cash provided by operating activities, which are determined in
accordance with generally accepted accounting principles. EBITDA is included
because management of the Company believes that certain investors may find
it to be a useful tool for analyzing operating performances, leverage,
liquidity and the ability to service debt.
(2) Ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings from continuing operations before income taxes and minority
interests plus fixed charges. Fixed charges consist of interest expense,
amortization of financing costs and the estimated interest component of rent
expense.
37
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Schuff
Steel Company Selected Historical Financial Data," "Addison Structural Services,
Inc. Selected Historical Financial Data" and Consolidated Financial Statements
and Notes thereto of each of Schuff and Addison included elsewhere herein.
OVERVIEW
The Company's results of operations are affected primarily by (i) the level
of commercial and industrial construction in its principal markets, (ii) its
ability to win project contracts, (iii) the amount and complexity of project
changes requested by customers or general contractors, (iv) its success in
utilizing its resources at or near full capacity and (v) its ability to complete
contracts on a timely and cost effective basis. The level of commercial and
industrial construction activity is subject to several factors, including local,
regional and national economic conditions, interest rates, availability of
financing and the supply of existing facilities relative to demand. Schuff's
results of operations in 1997 were affected by the acquisition of B&K Steel
Fabrications, Inc. ("B&K Steel") on January 31, 1997. Included in Schuff's
revenues for the year ended December 31, 1997 were $10.1 million of revenues of
B&K Steel from the date of acquisition.
The Company obtains contracts through competitive bidding or negotiation,
which generally are either fixed price or cost-plus arrangements. Schuff's
project duration typically lasts from three to twelve months. During the year
ended 1997 and the three months ended March 31, 1998, approximately $134.6
million (97.4%) and $26.5 million (96.5%), respectively, of Schuff's revenues
were derived from projects performed pursuant to fixed price contracts. Addison
has two distinct construction capabilities: fabrication and erection operations
and joist manufacturing. All of Addison's revenues in fiscal 1997 and in the
nine months ended March 31, 1998 were derived from projects performed pursuant
to fixed price arrangements. Addison's fabrication projects typically approach
six months in duration from bid acceptance through completion, while its joist
manufacturing contracts are typically much shorter in duration and for smaller
average amounts. While Addison utilizes its joists in fulfilling some of its
fabrication and erection contracts, a majority of its joist sales are to third
party fabricators and erectors. In bidding or negotiating contracts, the Company
must estimate its costs, including projected increases in labor, material and
service costs.
Both Schuff and Addison recognize 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. Revenues for both Schuff and Addison relating to changes in the
scope of a contract are recognized when the customer has authorized the change,
the work is commenced and an estimate is made 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 by Schuff and Addison in the period in
which these revisions become known.
Revenue recognition for Schuff 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. Estimated losses on contracts are recognized by Schuff in
full when it is determined that a loss will be incurred.
Addison applies similar practices in using the percentage of completion
accounting method but generally begins recognizing revenues and expense at an
earlier stage of the fabrication process, ordinarily when material is taken from
inventory. Estimated losses on contracts are generally recognized by Addison
throughout the duration of the contract based on the percentage of completion of
the work to be performed unless it becomes apparent that a loss will be material
to operations, in which case Addison would recognize its estimated total loss on
the contract when it is determined that such loss will be incurred.
The Company has performed an assessment of the estimated impact of the
differences in the timing of recognizing revenue by Schuff and Addison for the
twelve month and three month periods ended December 31, 1997 and March 31, 1998,
respectively, and believes that such differences are not material. Following
38
<PAGE> 43
completion of the Acquisition, the Company will conform Addison's revenue
recognition and other methodologies to those of Schuff.
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
operating efficiencies. Gross profit margins can be adversely affected by
construction delays or inefficient use 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 the amount of backlog at any given date.
The large, complex projects targeted by the Company have caused, and are
expected to continue to cause, variations in quarterly and annual results of
operations. Such variations are inherent in the nature of such projects due to,
among other things, the timing and terms of major contract awards, the starting
and completion date of such projects and variations in project schedules.
Prior to the completion of Schuff's initial public offering in July 1997,
Schuff was taxed as an S corporation for income tax purposes. Accordingly, its
income was taxed directly to its stockholders. Immediately prior to the initial
public offering, Schuff revoked its S corporation election and 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.
RESULTS OF OPERATIONS
Schuff
The following table sets forth for the periods indicated certain of
Schuff's financial data as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------- ----------------
1995 1996 1997 1997 1998
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................... 87.3 83.7 85.3 84.9 81.8
----- ----- ----- ----- -----
Gross profit............................. 12.7 16.3 14.7 15.1 18.2
General and administrative expenses........ 8.5 6.5 6.4 8.2 8.7
----- ----- ----- ----- -----
Operating income......................... 4.2 9.8 8.3 6.9 9.5
Interest expense........................... (1.2) (0.4) (0.3) (0.4) (0.4)
Other income............................... 1.0 0.3 0.4 0.4 0.9
----- ----- ----- ----- -----
Income before income taxes............... 4.0 9.7 8.4 6.9 10.0
Provision for income taxes................. -- -- 2.1 -- 4.2
Pro forma income taxes..................... 1.6 3.9 1.1 2.7 --
----- ----- ----- ----- -----
Pro forma net income..................... 2.4% 5.8% 5.2% 4.2% 5.8%
===== ===== ===== ===== =====
</TABLE>
39
<PAGE> 44
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
Revenues. Revenues increased by $1.9 million, or 7.5%, to $27.4 million
for the three months ended March 31, 1998 from $25.5 million for the three
months ended March 31, 1997. The increase was attributable primarily to an
increase in the average revenues for Schuff's top ten contracts. Excluding the
Bank One Ballpark project, the average revenues for Schuff's ten largest revenue
generating contracts for the three month period ended March 31, 1998 increased
to an average of $1.9 million from an average of $1.2 million for the three
months ended March 31, 1997, an aggregate increase of approximately $7.0
million. The increase in average contract revenues was partially offset by a
decrease in the revenues recognized on the Bank One Ballpark project. The Bank
One Ballpark contract contributed revenues of $3.6 million for the first quarter
of 1998 compared to revenues of $9.0 million for the first quarter of 1997.
Gross Profit. Gross profit increased by $1.1 million, or 29.6%, to $5.0
million for the three months ended March 31, 1998 from $3.9 million for the
three months ended March 31, 1997. As a percentage of revenues, gross profit
increased to 18.2% in the first quarter of 1998 from 15.1% in the comparable
1997 period. The increase was primarily attributable to recognition of revenues
related to work performed on the Bank One Ballpark project in prior periods that
became recognizable as an authorized change in the billable scope of the
contract during the quarter.
General and administrative expenses. General and administrative expenses
increased by $313,000, or 15.0%, to $2.4 million for the three months ended
March 31, 1998 from $2.1 million for the three months ended March 31, 1997.
General and administrative expenses as a percentage of revenues increased to
8.7% for the first quarter of 1998 from 8.2% in the comparable 1997 period due
to costs associated with the acquisition of B&K Steel for a full three months in
1998 compared to two months in 1997. B&K Steel has higher general and
administrative costs as a percentage of revenue than Schuff. Other factors
contributing to the increase in general and administrative expenses were
increased lease expenses due to assumption of additional space and increased
costs associated with being a publicly held company. General and administrative
expenses include those for contract bids, estimating, sales and marketing,
facilities, project management and support services. Schuff believes that it
currently has sufficient management and administrative resources to support
continued growth in revenues without a proportionate increase in general and
administrative expenses.
Interest expense. Interest expense increased slightly in the three months
ended March 31, 1998 from the comparable 1997 period.
Income tax expense. Income tax expense increased by $436,000, or 61.4%, to
$1.1 million, or a 41.8% effective tax rate, for the three months ended March
31, 1998 from pro forma income tax expense of $710,000, or a 40.1% effective tax
rate, for the three months ended March 31, 1997.
Net income. Net income increased by $533,000, or 50.2%, to $1.6 million
for the three months ended March 31, 1998 from pro forma net income of $1.1
million for the three months ended March 31, 1997, primarily due to the factors
described above.
Backlog. Backlog at March 31, 1998 was $66.5 million, representing a
$989,000 increase over backlog at March 31, 1997 of $65.5 million. Backlog at
March 31, 1997 included $26.8 million relating to the second and third phases of
the Bank One Ballpark project. The March 31, 1997 backlog that related to the
Bank One Ballpark project was substantially recognized as revenue in 1997 and
the first quarter of 1998, and such backlog was substantially replaced by two
other significant contracts for $13.0 million and $11.5 million at March 31,
1998 with separate customers.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenues. Revenues increased by $34.3 million, or 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 Schuff on January 31,
40
<PAGE> 45
1997 for which there were no respective revenues in 1996, as well as $5.0
million in internal growth. The average revenues for Schuff'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 by $3.4 million, or 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 than
expected costs in 1997 related to additional construction on the Bank One
Ballpark project for which Schuff 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 Schuff's larger average contracts during 1997 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 increase in other income was primarily attributable to
interest on higher available cash balances.
Income tax expense. Income tax expense for 1997 was $2.8 million, which
represents a 40.0% effective tax rate on earnings of Schuff from the termination
of its S corporation status on June 26, 1997. The 1997 expense is offset by a
$300,000 credit to deferred taxes generated upon Schuff's revocation of its S
corporation status for the effect of cumulative temporary differences as of the
date of the S corporation termination. Prior to 1997, Schuff's 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, primarily as a result of the factors
discussed above.
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 at December 31, 1997
from $34.3 million at December 31, 1996 relating to the Bank One Ballpark
project. This decrease was partially offset by an increase in backlog related to
three significant projects awarded in 1997 having a total original contract
amount of $31.5 million for which backlog was approximately $21.6 million at
December 31, 1997. Of the backlog at December 31, 1997, approximately $12.2
million was attributable to two projects for a single customer and approximately
$9.4 million was attributable to one project.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues. Revenues increased by $41.8 million, or 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 project, which contributed $19.8 million in revenues in 1996. The
average revenues for Schuff's ten largest revenue generating projects was $7.8
million in 1996 versus $3.3 million in 1995. Excluding the Bank One Ballpark
project, 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.
41
<PAGE> 46
Gross profit. Gross profit increased by $9.0 million, or 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% in 1995. The increase as a percentage of revenues was attributable
primarily to higher than anticipated revenues from requested contract
modifications. By obtaining larger average value and more complex contracts,
Schuff was able to realize higher gross margins on such projects. In addition,
many of Schuff's fixed costs, such as depreciation, increased proportionately
less than the 67.4% increase in revenues, which further improved 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. Schuff'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, Schuff 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 from
$752,000 in 1995. The decrease was attributable to the lower average line of
credit borrowings, which reflected in large part Schuff's ability in increase
its billings in excess of costs and recognized earnings on uncompleted
contracts. See "-- Liquidity and Capital Resources" below.
Pro forma net income. Pro forma net income increased by 310.2% to $6.0
million in 1996 from $1.5 million in 1995, primarily as a result of the factors
described above.
Backlog. Backlog decreased 16.7% to $67.3 million at December 31, 1996
from $80.8 million at December 31, 1995. The $13.5 million net decrease was 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 Schuff to become more selective in
the pursuit of new contract awards during the remainder of the year. Of the
backlog at December 31, 1996, $13.1 million was attributable to three projects
for a single customer and approximately $34.3 million was attributable to the
Bank One Ballpark project.
Addison
The following table sets forth for the periods indicated certain of
Addison's financial data as a percentage of revenues:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
-------------------------- --------------
1995 1996 1997 1997 1998
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................... 77.2 75.3 75.0 75.5 77.1
----- ----- ----- ----- -----
Gross profit............................. 22.8 24.7 25.0 24.5 22.9
General and administrative expenses........ 11.1 10.4 10.3 10.0 10.6
----- ----- ----- ----- -----
Operating income......................... 11.7 14.3 14.7 14.5 12.3
Other income (expense), net................ (0.1) 0.4 1.1 0.9 1.6
----- ----- ----- ----- -----
Income before taxes........................ 11.6 14.7 15.8 15.4 13.9
Income tax expense......................... 4.3 5.5 6.3 5.9 5.2
----- ----- ----- ----- -----
Net income............................... 7.3% 9.2% 9.5% 9.5% 8.7%
===== ===== ===== ===== =====
</TABLE>
42
<PAGE> 47
COMPARISON OF NINE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
Revenues. Revenues increased by $2.7 million, or 5.8%, to $48.9 million
for the nine month period ended March 31, 1998 from $46.2 million for the
comparable 1997 period. Fabrication and erection operations (excluding joist
portions of fabrication contracts) increased by $200,000, or 0.1%, to $28.6
million. Joist operations (including joists manufactured for its own fabrication
and erection projects) increased by $2.1 million, or 11.8%, to $19.8 million,
with the remainder of the increase relating to $440,000 of revenues from a
property acquired by Addison in 1997 that is unrelated to its steel services and
joist operations. Revenues increased during the nine month period ended March
31, 1998 due to a larger number of projects compared to the comparable 1997
period. The average revenues for the three largest revenue producing contracts
during the nine month period ended March 31, 1998 were $2.4 million.
Gross Profit. Gross profit decreased by $135,000, or 1.2%, to 11.2 million
for the nine month period ending March 31, 1998 from $11.3 million for the nine
month period ended March 31, 1997. As a percentage of revenues, gross profit
declined to 22.9% in the nine month period ended March 31, 1998 from 24.5% in
the comparable 1997 period. The decline in gross profit as a percentage of
revenues was primarily attributable to increased material costs of 12% in joist
operations, which costs were not offset by a corresponding increase in steel
pricing passed on to customers.
General and administrative expenses. General and administrative expenses
increased by 11.4% to $5.2 million for the nine month period ended March 31,
1998, from $4.6 million for the comparable 1997 period. As a percentage of
revenues, general and administrative expenses increased to 10.6% in the nine
month period ended March 31, 1998 from 10.0% in the comparable 1997 period. The
increase in absolute dollars and as a percentage of revenues was attributable to
operating costs of the newly acquired non-business related assets in 1997.
Other income, net. Other income, net, increased $351,000, or 85.3%, to
$763,000 for the nine month period ended March 31, 1998 from $412,000 for the
comparable 1997 period. The increase was primarily attributable to a $430,000
gain on the sale of assets offset by a net decrease in other miscellaneous
income and expense items.
Income tax expense. Income tax expense for the nine month period ended
March 31, 1998 was $2.5 million, which represents an effective tax rate of
37.5%. Income tax expense for the nine month period ended March 31, 1997 was
$2.7 million, which represents an effective tax rate of 38.3%.
Net income. Net income decreased by 3.1% to $4.2 million in the nine month
period ended March 31, 1998 from $4.4 million in the comparable 1997 period,
primarily as a result of the factors described above.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1997 AND 1996
Revenues. Revenues increased by $6.1 million, or 10.5%, to $63.7 million
in fiscal 1997 from $57.6 million in fiscal 1996. Fabrication and erection
operations (excluding joist portions of fabrication contracts) increased by $6.5
million, or 18.9%, to $40.8 million in fiscal 1997 from $34.3 million in fiscal
1996. Joist operations (including joists manufactured for its own fabrication
and erection projects) increased by $700,000, or $3.0%, to $24.5 million in
fiscal 1997 from $23.8 million in fiscal 1996. The increase in revenues was
attributable to an increase in the number of projects in 1997 compared to 1996
which was largely a result of increased steel construction demand in Addison's
primary markets.
Gross profit. Gross profit increased by $1.7 million, or 12.0%, to $15.9
million is fiscal 1997 from $14.2 million in fiscal 1996, which was consistent
with the increase in revenues in fiscal 1997 from fiscal 1996. As a percentage
of revenues, gross profit remained relatively stable at 25.0% in fiscal 1997
from 24.7% in fiscal 1996. The stability in gross profit as a percentage of
revenues was primarily attributable to the stability of material and production
costs and the ability to maintain pricing levels.
General and administrative expense. General and administrative expenses
increased by $531,000 million, or 8.8%, to $6.5 million in fiscal 1997 from $6.0
million in fiscal 1996. As a percentage of revenues, general and administrative
expenses decreased slightly to 10.3% in fiscal 1997 from 10.4% in fiscal 1996.
The
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small decrease was the result of Addison's efforts to keep its general and
administrative costs in line with its operating levels.
Other income, net. Other income, net, increased $431,000, or 160.4%, to
$699,000 in fiscal 1997 from $268,000 in fiscal 1996. The increase was primarily
attributable to an increase in interest income of $271,000 as a result of higher
average cash balances in fiscal 1997 compared to fiscal 1996 and other net
increases in miscellaneous income.
Income tax expense. Income tax expense for fiscal 1997 was $4.0 million,
which represents an effective tax rate of 40.0%. Income tax expense for fiscal
1996 was $3.2 million, which represents an effective tax rate of 37.5%.
Net income. Net income increased by $755,000, or 14.2%, to $6.1 million in
fiscal 1997 from $5.3 million in fiscal 1996, primarily as a result of the
factors described above.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1996 AND 1995
Revenues. Revenues increased by $7.1 million, or 14.2%, to $57.6 million
in fiscal 1996 from $50.5 million in fiscal 1995. Fabrication and erection
operations (excluding joist portions of fabrication contracts) increased by $2.8
million, or 8.9%, to $34.3 million in fiscal 1996 from $31.5 million in fiscal
1995. Joist operations (including joists manufactured for its own fabrication
and erection projects) increased by $4.4 million, or 22.7%, to $23.8 million in
fiscal 1996 from $19.4 million in fiscal 1995. The increase in revenues was
attributable to an increase in the number of projects in 1996 compared to 1995
which was largely the result of increased demand for steel construction services
in Addison's primary markets and Addison's focus on its joist operations.
Gross profit. Gross profit increased by $2.7 million, or 23.8%, to $14.2
million in fiscal 1996 from $11.5 million in fiscal 1995. As a percentage of
revenues, gross profit increased to 24.7% in fiscal 1996 from 22.8% in fiscal
1995. The increase in gross profit as a percentage of revenues was primarily
attributable to lower than expected fiscal 1995 gross profits, which was caused
by an additional $1.0 million in pricing discounts in fiscal 1995 compared to
fiscal 1996 to meet competitive demands.
General and administrative expenses. General and administrative expenses
increased by $419,000, or 7.5%, to $6.0 million in fiscal 1996 from $5.6 million
in fiscal 1995. As a percentage of revenues, general and administrative expenses
decreased to 10.4% in fiscal 1996 from 11.1% in fiscal 1995. The decrease was
attributable to an increase in revenues in fiscal 1996 without a corresponding
increase in general and administrative expenses to support the increase in
revenues.
Other income, net. Other income, net, in fiscal 1996 was $268,000 compared
to other expense, net, of $41,000 in fiscal 1995. The increase was primarily
attributable to increased interest income due to higher average cash balances.
Income tax expense. Income tax expense for fiscal 1996 was $3.2 million,
which represents an effective tax rate of 37.5%. Income tax expense for fiscal
1995 was $2.2 million, which represents an effective tax rate of 37.1%.
Net income. Net income increased by $1.6 million, or 43.9%, to $5.3
million in fiscal 1996 from $3.7 million in fiscal 1995, primarily as a result
of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Schuff completed its initial public offering of 2,000,000 shares of common
stock, $.001 par value (the "Common Stock"), in July 1997. The initial public
offering yielded $14.0 million in proceeds net of underwriting discounts and
other costs. Schuff used approximately $7.0 million of the proceeds to fund S
corporation distributions and used the remaining proceeds to purchase
specialized fabrication equipment and to fund general corporate purposes.
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Schuff attempts to structure the payment arrangements under its contracts
to match costs incurred under the project. To the extent Schuff 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
Schuff is not able to bill in advance of costs, it relies on bank credit
facilities to meet its working capital needs. At March 31, 1998, Schuff had $1.6
million of outstanding indebtedness under its revolving line of credit. At March
31, 1998, Schuff had working capital of approximately $22.8 million.
Schuff'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 $1.8
million for the three months ended March 31, 1998. For the year ended December
31, 1997, operating cash flows were less than net income (excluding 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 decrease in billings
in excess of costs and recognized earnings on uncompleted contracts was a result
of project advance billings being recognized as revenues under percentage of
completion accounting as the contracts move toward completion. The increase in
receivables was due to an increase of $1.5 million in retentions as projects
move toward total completion and the continued growth of revenues. For the three
months ended March 31, 1998, operating cash flows approximated net income for
the period. Investing activities required $3.6 million for the year ended
December 31, 1997 and $452,000 during the three months ended March 31, 1998,
substantially all of which were related to purchases of property and equipment
in 1997 and 1998 and the cash portion of the acquisition of B&K Steel in 1997.
Financing activities provided $1.0 million for the year ended December 31, 1997
and consumed $1.3 million for the three months ended March 31, 1998. Cash
provided by financing activities in 1997 was primarily a result of $14.0 million
net proceeds from the issuance of 2,000,000 additional shares of Common Stock
offset by $13.8 million in S corporation stockholder distributions, of which
$7.0 million was distributed at the closing date of the offering. Cash consumed
by financing activities in 1998 was related primarily to repayments of long-term
debt and line of credit balances.
Schuff's Existing Credit Facility consists of a $25.0 million revolving
line of credit that matures on June 30, 2001 and is collateralized by
essentially all of the assets of the Company. Schuff has two other long-term
debt commitments that are related to its property and equipment and to the
acquisition of B&K Steel. See "Certain Relationships and Related Transactions"
and "Description of Existing Indebtedness." Schuff leases its fabrication and
office facilities from a partnership in which certain executive officers of
Schuff and their family members are the general and limited partners. See
"Certain Relationships and Related Transactions."
Addison has historically funded its growth through cash flow from
operations. Net cash provided by operating activities was $9.5 million for the
fiscal year ended June 30, 1997 and $551,000 for the nine months ended March 31,
1998. Investing activities required $4.6 million during the fiscal year ended
June 30, 1997 and $1.6 million for the nine months ended March 31, 1998.
Financing activities utilized approximately $511,000 for debt repayments for the
fiscal year ended June 30, 1997 and $144,000 for the nine month period ended
March 31, 1998. The primary reason for the large level of investing activities
during the fiscal year ended June 30, 1997 was a $2.7 million purchase of
certain real property not used in the operations of the business (and which was
not acquired by Schuff in the Acquisition).
The Company estimates that its combined capital expenditures for 1998 will
be approximately $3.0 million. Of these combined capital expenditures,
approximately $1.5 million will be expended on Schuff's routine maintenance,
$750,000 on maintenance at Quincy and the completion of the Quincy joist plant
expansion and $750,000 on maintenance and computer system upgrades of Addison.
The Company believes that its available funds, cash generated by operating
activities, the net proceeds of the Offering and funds available under its
Existing Credit Facility (or a replacement credit facility) will be sufficient
to fund these capital expenditures and its operating needs. However, the Company
may expand its operations through future acquisitions and may require additional
equity or debt financing.
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Schuff consummated the Acquisition with Addison on June 4, 1998. The
purchase price of the Acquisition, net of excess cash on hand at Addison at the
closing and non-business related assets sold to Addison's majority stockholder,
was $50.4 million, all but $3.2 million of which was paid in cash. As a result
of the Acquisition and the Offering and the application of the net proceeds
therefrom, the Company currently has a substantial amount of indebtedness. As of
March 31, 1998, after giving pro forma effect to the Acquisition and the
Offering and the use of proceeds therefrom, the Company had consolidated debt of
$103.9 million, consisting of (i) $639,000 under existing notes payable, (ii)
$3.2 million outstanding (subject to adjustment) under the Holdback Note and
(iii) $100.0 million outstanding under the Notes. See "Use of Proceeds" and
"Capitalization."
YEAR 2000
Schuff 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. Schuff 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 is
operations. Schuff is assessing the extent to which its operations are
vulnerable should those organizations fail to remediate properly their computer
systems.
Schuff's assessment and necessary modifications for the year 2000 issue is
estimated to be completed in early 1999. Schuff 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 are not completed in a
timely manner, the year 2000 issue could have a material impact on the
operations of Schuff. There can also be no assurance that the systems of any
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 Schuff. Any
remaining costs of year 2000 initiatives are not expected to be material to
Schuff's results of operation or financial position.
Addison has determined that the majority of its financial accounting,
inventory and other software and its computer systems are not year 2000
compliant. Addison has not assessed the necessary modifications and costs
associated with the year 2000 issue and has not assessed the compliance of its
customers' and suppliers' software and computer systems or the steps, if any,
taken or expected to be taken by them to remediate potential year 2000 issues
where their systems interface with Addison's systems. Following the Acquisition,
Schuff intends to upgrade Addison's software and computer systems and to
integrate such software and systems with those utilized by Schuff.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" ("SFAS No. 128"), which was adopted by Schuff on December 31, 1997. SFAS
No. 128 replaced the previously reported primarily 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
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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"), which 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 No. 131 will have no
impact on the Company's consolidated results of operations, financial position
or cash flows.
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BUSINESS
OVERVIEW
The Company is one of the leading industrial and commercial steel services
firms in the United States. The Company differentiates itself from its
competitors by providing not only fabrication services but also a fully
integrated range of steel services, including design engineering, detailing,
joist manufacturing and erection, and by providing a level of project management
expertise necessary to accommodate fast track, design-as-you-go projects. The
Company believes it has a competitive advantage over many of its smaller
competitors in that its ability to manage all steel related aspects of a project
in-house lowers overall project cost, provides attractive margins to the Company
and offers maximum flexibility and efficiency to the respective general
contractor or project owner. Founded in 1976, the Company operates primarily in
the southwestern and southeastern United States, and has recently expanded its
operations into selected international markets, including South America, Mexico
and the Caribbean. The Company believes it is the largest steel fabrication and
erection firm serving the Arizona industrial and commercial markets, the leading
steel fabricator and erector for the hotel, entertainment and gaming industry in
Nevada and a leading steel fabricator and joist manufacturer serving the Central
Florida and Georgia industrial and commercial markets. On a pro forma basis, for
the last twelve months ended March 31, 1998, the Company's revenues were $206.1
million and its EBITDA was $25.1 million.
The Company provides its integrated steel services primarily to general
contractors and engineering firms, including, among others, Fluor Daniel, Inc.,
Bechtel Group Inc. and Perini Corporation, who focus on a wide variety of
projects, including hotels and casinos, office complexes, hospitals, mining
facilities, manufacturing plants, shopping malls and centers, sports stadiums,
large diameter water pipes, power plants, dams, bridges, restaurants, convention
facilities, entertainment complexes, airports, schools, churches and warehouses.
The Company maintains relationships with a number of national and multi-national
general contracting and engineering firms and is a preferred subcontractor to
several national and regional companies.
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. The Common Stock trades on the Nasdaq National Market under the
symbol "SHUF."
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, private corporations,
including those with multiple national or international locations, 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.
The Company believes that there is an increasing trend in the industry to
design and build projects according to accelerated time schedules. In many large
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. The fast track,
design-as-you-go nature of these projects creates a demand for service providers
such as the Company that can perform the work of numerous subcontractors. By
integrating multiple services, the Company can facilitate rapid and multiple
design changes, reduce logistical problems and minimize project delays and cost
overruns.
The steel services industry is highly fragmented. Management estimates that
there are in excess of 1,000 detailing, fabricating and erection firms in the
United States. Many of these firms are small, family-operated
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businesses that offer limited services and confine operations to local or
regional markets. In addition, these firms generally do not have the financial
resources to address large, fast track projects, are unable to buy raw materials
in volume directly from steel mills at advantageous pricing and lack
state-of-the-art information systems and shop fabrication equipment. The Company
believes these market dynamics afford an opportunity for businesses like the
Company to make strategic and consolidating acquisitions while providing an
attractive exit strategy for small business owners serving these markets.
BUSINESS STRENGTHS AND STRATEGY
The Company's objective is to achieve and maintain a leading position in
the geographic and project markets in which it competes by providing timely,
high quality services to its customers, continuing to grow internally and making
selected strategic and consolidating acquisitions. The Company is pursuing this
objective with a strategy comprised of the following components:
- Pursue Design-As-You-Go Projects. The Company pursues fast track,
design-as-you-go projects as a significant portion of its overall
business. The Company's unique ability to offer a full range of steel
services and project management capabilities makes it a preferred
subcontractor for fast track projects in the markets it serves. This
capability often enables the Company to compete against a few, select
firms in a less traditional, more negotiated selection process on such
projects, thereby allowing the Company to realize attractive margins
while providing overall cost savings and project flexibility and
efficiencies to its customers.
- Expand Revenue Base. The Company is seeking to expand its revenue base
by leveraging its long term relationships with national and
multi-national construction and engineering firms, national and regional
accounts and other customers. The Company also intends to grow its
operations by developing new project capabilities and services and by
targeting specific types of projects in which it has an existing
reputation for expertise, such as semiconductor facilities, sports
stadiums, airports, hotels and casinos and specialty projects such as
large diameter water pipes. The Company believes that continuing to
diversify its revenue base will reduce the impact of periodic adverse
market or economic conditions.
- Manage Capacity Through Outsourcing. The Company increases its project
capacity by outsourcing a significant amount of its detailing and
fabrication work to reputable subcontractors. Outsourcing has enabled the
Company to effectively double the capacity of its Phoenix fabrication
facilities while maintaining margins comparable to in-house services. The
Company believes outsourcing will play a key role in its strategy to
expand its presence in selected international markets, where it typically
provides design engineering and project management services and utilizes
local subcontractors for fabrication and erection. The ability to expand
or contract capacity through the use of outsourcing provides the Company
flexibility to meet changing market demands in a cost effective manner.
- Make Strategic and Consolidating Acquisitions. The Company intends to
pursue selected acquisitions that offer the Company (i) strategically
located facilities, (ii) expansion into new geographic markets, (iii)
access to new domestic and international customers and (iv) penetration
of new product market segments. Such acquisitions may also provide the
additional benefits of increasing purchasing efficiencies with respect to
steel and other raw materials, bonding and insurance, more efficiently
allocating and utilizing its resources and integrating the "best
practices" of the Company and acquired companies throughout the combined
organization. The Company is in preliminary negotiations with several
potential acquisition candidates and expects to close additional
acquisitions by the end of 1998.
- Maintain Entrepreneurial Environment. The Company believes its
management and operating structure, which emphasizes quality, innovation,
flexibility, performance and safety, has contributed significantly to
increased profitability and the ability to develop new business in
competitive or difficult economic environments. The Company's operating
structure provides incentives to employees at all levels to focus on
pursuing profitable growth opportunities, attaining financial objectives
and delivering superior customer service.
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THE ACQUISITION AND EXPECTED BENEFITS
Schuff consummated the Acquisition with Addison on June 4, 1998. The
purchase price for Addison, net of cash on hand of Addison at closing and
non-business related assets sold to Addison's majority stockholder, was $50.4
million, of which $47.2 million was paid in cash at closing (approximately $3.5
million of which was paid to escrow accounts) and $3.2 million was paid by
delivery of the Holdback Note. See "The Acquisition" and "Use of Proceeds." The
Acquisition was recorded under the purchase method of accounting.
Founded in 1960, Addison was a privately held company which operated
through its two wholly-owned subsidiaries, Addison Steel, Inc. ("Addison Steel")
and Quincy. Addison Steel provides structural steel fabrication, erection and
design detailing services and maintains fabrication facilities in both Lockhart,
Florida and Albany, Georgia. Quincy manufactures short and long span joists,
trusses and girders and operates an advanced joist manufacturing plant in
Quincy, Florida. Addison operates primarily in the southeastern United States in
the industrial and commercial markets, with a concentration in Central Florida
and Georgia. Addison's revenues for the twelve months ended March 31, 1998 were
$66.4 million and its EBITDA, as adjusted for owners compensation, expenses of
its employee stock ownership plan and other net expenses, was $11.3 million for
this period.
The Company believes that the Acquisition provides the following strategic
and operating benefits:
- Access Joist Manufacturing. Quincy, a subsidiary of Addison,
manufactures steel joists, trusses, girders and related products which
are complementary to the steel fabrication and erection services provided
by Schuff and Addison's other operations. Joists are currently delivered
in 16 to 18 weeks from date of order from third party specialty
manufacturers. The Company believes that its ability to obtain joists
from a captive manufacturer will significantly reduce the lead time for
delivery of these products and will enable it to compete more effectively
for fast track projects where the reliable and timely supply of joists
and related products is critical. With Quincy's recent plant expansion,
the Company believes that Quincy has the capacity to meet the Company's
anticipated internal joist demand for selected fast track projects as
well as continue to grow its own joist business through sales to other
steel fabricators and erectors, which currently comprise the majority of
Quincy's revenues.
- Expand Geographic Reach. The Acquisition provides the Company with an
operating platform in the growing southeastern United States market,
where Schuff's ability to compete has previously been limited by
transportation costs. In addition, the Company believes expansion into
new geographic markets will increase the Company's resilience to economic
downturns and other conditions that could negatively affect a
geographically focused operation.
- Acquire Growing Revenue Stream and Experienced Management. Addison's
revenues grew from $32.5 million for the fiscal year ended June 30, 1993
to $63.7 million for the fiscal year ended June 30, 1997, a compound
annual growth rate of 18.3%, and its unadjusted EBITDA increased from
$2.0 million to $10.4 million in that same period, a compound annual
growth rate of 51.4%. Addison has an experienced management team with the
top four managers having over 75 years of combined experience in the
steel fabrication, erection and joist manufacturing business with an
average tenure at Addison of approximately 19 years. Addison management's
quality reputation, knowledge of its markets and strong relationships
with its key customers should continue to enhance its operations and
outsourcing expertise. Addison fabricates all of its steel in-house,
while Schuff outsources approximately half of its fabrication services to
third party fabricators. Schuff believes that these strategies will more
efficiently utilize the Company's infrastructure and plant capacities.
- Leverage Operating Capabilities. Schuff believes that it can leverage
its fast track, design-as-you-go expertise to increase the number of
larger, high margin project opportunities for Addison. In addition,
Schuff believes that Addison can increase its fabrication revenues
through the utilization of Schuff's outsourcing expertise. Addison
fabricates all of its steel in-house, while Schuff outsources
approximately half of its fabrication services to third party
fabricators. Schuff believes that these strategies will more efficiently
utilize the Company's infrastructure and plant capacities.
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- Capitalize on Cross-Selling Opportunities. Management believes that
there are numerous cross-selling opportunities between Schuff and
Addison. In particular, Addison is a preferred subcontractor to a number
of national and regional accounts in the southeastern United States and,
in some cases, across the country. Schuff has strong strategic
relationships with several national and multi-national contractors and
engineering firms. The Company believes that each company will be able to
utilize these relationships to expand the Company's overall business
operations.
PRODUCTS AND SERVICES
The primary services provided by the Company are engineering and
preparation of detail drawings, shop fabrication and field erection. The primary
products provided by the Company are steel joists, trusses and girders.
Following is a description of the Company's principal products and 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 both Stru-CAD and
AutoCad automated detailing systems that interact electronically with the
Company's numerically controlled fabrication equipment and produce updated
detail drawings electronically, which can then be 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 teams to determine and plan the order of fabrication and erection of a
project and associated personnel and equipment requirements. Schuff subcontracts
to others detailing services from time to time when it lacks available in-house
capacity for such services. A majority of Addison's detailing services are
subcontracted to others.
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. Schuff utilizes third
party fabrication subcontractors on many of its projects.
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.
Addison currently subcontracts to others all of its field erection services.
Joist Manufacturing. Joist manufacturing entails the fabrication and shop
or field assembly of various steel pieces used to make short and long span
joists, trusses and girders, which are utilized to support the roof or higher
floor levels of most commercial and industrial buildings and similar facilities.
Steel joists and similar
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assemblies are commonly supplied and are complementary to the products and
services provided by steel fabrication and erection firms for use in projects
such as retail and strip shopping centers, schools, churches and similar
structures. Quincy currently is nearing completion of an expansion of its joist
manufacturing facility which will house a new long-span joist and truss line and
increase existing plant capacity by approximately 70%. With the expansion of
Quincy's joist facility, the Company believes that Quincy has the capacity to
meet the Company's anticipated internal joist demand for selected fast track
projects as well as continue to grow its own joist business through sales to
other steel fabricators and erectors, which currently comprise a majority of
Quincy's revenues.
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. 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.
PRIMARY MARKETS
The Company's current principal geographic markets include the southwestern
United States, primarily Arizona, Nevada, and Southern California, and the
southeastern United States, primarily Florida and Georgia. The Company currently
is expanding into other western United States regions and into selected
international markets.
The Company is the leading steel fabrication and erection firm in Arizona
and has been a prominent participant in many of Arizona's largest and most
visible public and private projects. The Company has completed projects in
Arizona in a variety of industries, including the semiconductor and computer
chip industry and the copper and other mining industries. In Nevada, the Company
is the leading steel fabricator and erector in the hotel, entertainment and
gaming 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 also 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's typical
projects in California include the fabrication and erection of new and expanded
hospital facilities, large shopping malls, sports arenas and commercial and
industrial manufacturing, distribution and warehouse facilities, including those
for several national and multinational customers.
Within the southwestern and western United States geographic markets, the
Company has also developed a leading market share in distinct product segments,
particularly in the construction of large
52
<PAGE> 57
diameter water pipes 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. 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 is a leading steel fabrication, erection and joist
manufacturing firm in Central Florida and Georgia. Many of the Company's
projects in these areas are in the commercial and industrial markets and
typically range in size from $50,000 to $1.0 million for structural steel
fabrication projects and from $5,000 to $500,000 for steel joist manufacturing
products. The Company has completed several steel fabrication and erection and
joist manufacturing projects, both in the southeastern United States and
nationwide, for a variety of national and regional retail, grocery, restaurant
and similar customers.
The Company recently has focused its expansion into selected international
markets such as South America and Mexico. In South America and Mexico, the
Company's projects have been focused on large copper, gold and aluminum mining
and related projects, primarily in Argentina and Chile. In addition, the Company
has completed construction of several airport concourse and terminal facilities
in the Caribbean.
REPRESENTATIVE PROJECTS
Among the Company's noteworthy or recently completed or awarded projects
and key national and regional customers are the following:
- 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 features, 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.
- Atlas Missile Launch Complex. The Company provided the steel fabrication
and erection services for the Atlas Missile Launch Complex at Vandenberg
Air Force Base in California.
- Bajo de la Alumbrera. 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.
- 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. 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.
- 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
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<PAGE> 58
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.
- 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 transports water from
the Salt River near Phoenix, Arizona to the major population centers of
Arizona.
- Walt Disney World Projects. The Company has provided the structural
steel fabrication and erection services for several Walt Disney World
projects in Orlando, Florida, including the United Kingdom and Canada
Pavilions at Epcot Center, the Splash Mountain amusement park ride and
the Planet Hollywood Restaurant and Bar, which involved the fabrication
of a unique multi-leg spherical steel crown covering the main building.
- Orange County, Florida Convention Center. The Company provided the steel
fabrication and erection services and manufactured and erected the steel
joists and trusses for Phases II and III of this one million square foot
modern convention center, a complex multi-level facility recently
constructed in the Orlando, Florida area.
- Tropicana Storage Facility. The Company provided the fabrication and
erection of the structural steel housing facility for several one-million
gallon steel fruit juice storage tanks for Tropicana Products, Inc.'s
juice storage center in Fort Pierce, Florida.
- Universal Studios. The Company was a steel fabricator and joist
manufacturer for the Universal Studios complex in Orlando, Florida, a
large working movie studio and tourist attraction.
- National and Regional Customers. The Company is a preferred
subcontractor for steel fabrication and erection services and joist
products on a variety of repeat projects for several national and
regional customers, including PETsMART, Inc. and Albertson's, Inc.
SAFETY AND QUALITY ASSURANCE
Schuff has adopted and maintains important safety policies that are
administered and enforced by its top management. Schuff 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. Following the Acquisition, Schuff intends to adopt
and implement its safety policies and practices at Addison.
Schuff uses advanced welding and fabrication technologies and all of
Schuff's products are fabricated in accordance with applicable industry and
specific customer standards and specifications. Schuff 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, Schuff's welding
employees are certified in accordance with the American Society of Mechanical
Engineers Section IX, Non-Destructive Examination Inspector Certification to
Society Non-Destructive Testing TC-IA Standards. Schuff 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.
Addison Steel has received a level two certification from AISC and is a
certified steel fabricator for the cities of Houston, Texas and Los Angeles,
California, which maintain some of the highest construction quality standards in
the United States. All Addison welders are certified in-house by Commercial
Welding Institute inspectors. Quincy is one of only fifteen certified members of
the Steel Joist Institute and is also a certified joist manufacturer in Houston
and Los Angeles. Most steel joist projects in the United States require Steel
Joist Institute certified contractors.
SALES AND ESTIMATING
The Company's domestic sales and marketing efforts are led by three sales
managers and 18 sales persons and representatives. Each sales manager is
responsible primarily for the Company's sales and marketing efforts
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<PAGE> 59
in defined geographic areas. The Company also employs one full-time
international marketing representative responsible primarily for the development
of the emerging South American and Mexican markets. In addition, the Company
employs 19 full-time project estimators and five 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 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
55
<PAGE> 60
modifications in work are performed under a contract. As of March 31, 1998, the
Company's backlog (on a pro forma basis giving effect to the Acquisition) was
$97.4 million, of which approximately $24.5 million was attributable to two
contracts. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Company expects approximately 95% of its backlog as
of March 31, 1998 to be recognized as revenues in 1998.
COMPETITION
The Company competes with other steel services companies and joist
manufacturers 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.
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.
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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 March 31, 1998, the Company had approximately 1,072 employees (on a
pro forma basis giving effect to the Acquisition). 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
personnel employed by Schuff are represented by the United Steelworkers of
America, with which Schuff negotiates directly, and certain of its erection and
other employees are represented by a variety of local ironworkers unions, as to
which Schuff and other contractors bargain collectively. As of March 31, 1998,
of the Company's 898 hourly employees, approximately 441, or 49%, were members
of labor unions. 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
prior to maturity of the Notes. 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. None of
Addison's employees are members of a labor union. 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.
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. 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, the steel construction
market in general has experienced a shortage of steel as demand from the
domestic mills has increased, and in recent periods the Company has purchased
portions of its steel supply from Asian suppliers.
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PROPERTIES
The Company's manufacturing facilities and executive and administrative
offices (after giving effect to the Acquisition) are located at the following
sites:
<TABLE>
<CAPTION>
LOCATION SIZE (SQ. FT.) OWNED/LEASED PRODUCTS/SERVICES
- -------- -------------- ------------ --------------------------------------
<S> <C> <C> <C>
Phoenix, Arizona..... 400,000 Leased Fabrication shop; operations,
erection, engineering and detailing
offices
Gilbert, Arizona..... 145,000 Leased Fabrication shop; administrative
engineering and detailing offices
Phoenix, Arizona..... 22,000 Leased Executive, finance, administration,
estimating and sales offices
Lockhart, Florida.... 144,000 Owned Fabrication shop; sales and operations
offices; maintenance yard; steel truss
plant
Albany, Georgia...... 102,000 Owned Fabrication shop; executive offices
Quincy, Florida...... 140,000 Owned Steel joist and long span truss
manufacturing plant
</TABLE>
The Company's leased facilities are leased from a partnership the general
and limited partners of which consist of certain affiliates of Schuff and their
family members. See "Certain Relationships and Related Transactions."
LEGAL PROCEEDINGS
The fabrication and erection of structural steel and heavy steel plate
involves 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.
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.
INSURANCE
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, contractors
commercial general liability insurance and 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 and is consistent with industry practice, 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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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's current directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David A. Schuff................................. 67 Chairman of the Board of Directors
Scott A. Schuff................................. 39 President, Chief Executive Officer and
Director
Kenneth F. Zylstra.............................. 56 Vice President, Chief Financial Officer,
Secretary, Treasurer and Director
Edward M. Carson................................ 68 Director
Dennis DeConcini................................ 60 Director
</TABLE>
The following is a brief description of the background and principal
occupation of each director and executive officer of the Company.
DAVID A. SCHUFF is the Chairman of the Board of Directors, a position he
has served in at Schuff since its inception, and is a co-founder of Schuff. Mr.
Schuff served as President and Chief Executive Officer of Schuff from its
founding in 1976 to 1995. Mr. Schuff has been involved in the steel fabrication
and erection business in a number of capacities since 1958. David A. Schuff is
the father of Scott A. Schuff.
SCOTT A. SCHUFF is the President and Chief Executive Officer of the
Company, a co-founder of Schuff, and a member of the Board of Directors. Mr.
Schuff has served in numerous capacities with Schuff since its founding in 1976,
has been a member of the Board of Directors since 1976 and has been the
President and Chief Executive Officer since 1995. Scott A. Schuff is the son of
David A. Schuff.
KENNETH F. ZYLSTRA is Vice President and Chief Financial Officer of the
Company and has held such positions at Schuff since 1983. Mr. Zylstra has been
an officer of Schuff since 1979. Mr. Zylstra has served as a director since the
closing of Schuff's initial public offering in July 1997. Prior to 1979, Mr.
Zylstra was associated with Ernst & Young (then Ernst & Ernst). Mr. Zylstra
received a B.B.A. Degree in Public Accounting from Loyola University Chicago,
and is a member of the American Institute of Certified Public Accountants, the
Illinois CPA Society, and the Construction Financial Management Association.
EDWARD M. CARSON has served as a director since the closing of Schuff's
initial public offering in July 1997. Mr. Carson was the Chairman of the Board
of Directors of First Interstate Bancorp, a bank holding company, from 1990
through April 1996, and was its Chief Executive Officer from 1990 through 1994.
Mr. Carson currently is a director of Wells Fargo & Co., one of the largest bank
holding companies in the western United States. Mr. Carson also serves as a
director of Aztar Corporation, Castle & Cooke, Inc., and Terra Industries, Inc.
DENNIS DECONCINI has served as a director since the closing of Schuff's
initial public offering in July 1997. Mr. DeConcini is a former United States
Senator for Arizona and currently is a partner of Parry and Romani Associates,
Inc., a consulting firm based in Washington, D.C., and is a partner of DeConcini
McDonald Yetwin & Lacy, P.C., a law firm with offices in Tucson and Phoenix,
Arizona, and in Washington, D.C. Mr. DeConcini is a director of Saf T Lok
Incorporated. Mr. DeConcini also serves by appointment of the President of the
United States on the Board of Directors of the Federal Home Loan Mortgage
Corporation (Freddie Mac), a federally chartered mortgage finance corporation.
COMPENSATION OF DIRECTORS
As compensation for their services to the Company, including their
attendance at meetings of the Board of Directors and committees of the Board of
which they are members, each non-employee director of the Company received
options to purchase 7,500 shares of Common Stock upon his appointment to the
Board of Directors at the closing of Schuff's initial public offering in July
1997. The exercise price of such options is $8.00 per share, the initial public
offering price of the Common Stock. All of the stock options vest one year
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<PAGE> 64
after the date of grant. The options were granted pursuant to Schuff's 1997
Stock Option Plan. Each non-employee director is also reimbursed for reasonable
travel expenses incurred in connection with attendance at each Board and
committee meeting.
In June 1998, Schuff's Board of Directors and stockholders approved the
1998 Director Compensation Plan to be effective in 1998 and thereafter. Pursuant
to this plan, non-employee directors of the Company are eligible to receive an
annual retainer of $20,000, or such other amount as determined from time to time
by the Board, which will be paid quarterly in either cash or in shares of the
Company's Common Stock at the non-employee director's election. In addition to
the annual retainer, each non-employee director is entitled to a $1,000 fee for
each Board meeting attended and a $700 fee for each Board committee meeting
attended that is not held in conjunction with a Board meeting. Non-employee
directors are also entitled to reimbursement by the Company for reasonable
expenses incurred in connection with traveling to and attending Board and Board
committee meetings.
Under the new director plan, non-employee directors also are entitled to a
grant of 500 shares of the Company's Common Stock and nonqualified options to
purchase 500 additional shares of the Company's Common Stock each year as of the
third business day following the public release of the Company's fiscal year-end
earnings information. The annual option grants will be immediately vested and
exercisable and the exercise price will be equal to the fair market value of the
per share price of the Company's Common Stock on the date of grant.
Directors who are employees of the Company are not entitled to additional
compensation for their service as directors of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Messrs.
Carson and DeConcini. No member of the Compensation Committee was an officer or
employee of the Company or its subsidiary during the prior year or was formerly
an officer or employee of the Company or any of its subsidiaries. During the
year ended December 31, 1997, none of the executive officers of the Company
served on the compensation committee of any other entity, any of whose directors
or executive officers served either on the Board of Directors of the Company or
on the Compensation Committee of the Company.
EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and long-term
compensation for services rendered in all capacities to Schuff during the years
ended December 31, 1997 and 1996 of those persons who were, at December 31,
1997: (i) the Chief Executive Officer of Schuff, and (ii) the other executive
officers of Schuff whose annual salary and bonus exceeded $100,000
(collectively, the "Named Executive Officers").
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<PAGE> 65
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- ------------------------- -------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION(1)
- --------------------------- ---- -------- ------- ------------ ---------- ------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Scott A. Schuff........... 1997 $260,010 $30,000 $5,334 -- -- -- --
President and 1996 260,008 22,000 5,089 -- -- -- --
Chief Executive Officer
David A. Schuff........... 1997 $296,412 $30,000 $4,861 -- -- -- --
Chairman of the Board 1996 296,411 22,825 4,890 -- -- -- --
of Directors
Kenneth F. Zylstra(2)..... 1997 $123,193 $40,000 $4,212 -- -- -- $1,593
Vice President, 1996 115,155 51,025 4,615 -- -- -- 1,218
Chief Financial Officer,
Treasurer and Secretary
</TABLE>
- ---------------
(1) The amounts shown in this column represent the dollar value of contributions
made by Schuff to Schuff's 401(k) retirement savings plan for the benefit of
the Named Executive Officers.
(2) The amounts shown exclude $62,445 paid in 1997 to Mr. Zylstra pursuant to
Schuff's Supplemental Retirement and Deferred Compensation Plan, which was
terminated in 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning grants of stock
options to the Named Executive Officers of the Company during the year ended
December 31, 1997. The Company does not maintain an option or other stock based
plan that provides for the grant of stock appreciation rights ("SARs").
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF TOTAL ANNUAL RATE OF STOCK
UNDERLYING OPTIONS/SARS APPRECIATION FOR
OPTIONS/ GRANTED TO OPTION TERM(2)
SARS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR (PER SHARE) DATE 5% 10%
- ---- ---------- ---------------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Scott A. Schuff(1)...... -- -- -- -- -- --
David A. Schuff(1)...... -- -- -- -- -- --
Kenneth F. Zylstra...... 40,000 11.57% $5.00 02/05/07 $125,779 $318,748
</TABLE>
- ---------------
(1) Neither Scott A. Schuff nor David A. Schuff participated in Schuff's 1997
Stock Option Plan in 1997.
(2) In accordance with Commission rules, the figures in the first row of the
"5%" and "10%" columns of this table for Mr. Zylstra assume compounded
annual stock price appreciation of 5% and 10%, respectively, based on a
stock price of $5.00 per share, which was the assumed fair market value per
share of the Common Stock on February 5, 1997.
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<PAGE> 66
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the value of each
Named Executive Officer's unexercised options at December 31, 1997. None of the
Named Executive Officers exercised any stock options in 1997 and the Company
does not maintain an option or other stock based plan that provides for the
grant of SARs.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED FISCAL YEAR-END FISCAL YEAR-END(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott A. Schuff............ -- -- -- -- -- --
David A. Schuff............ -- -- -- -- -- --
Kenneth F. Zylstra......... -- -- -- 40,000 -- $235,000
</TABLE>
- ---------------
(1) Options are considered "in the money" if the fair market value of the
underlying securities exceeds the exercise price of the options on a
specified date. The values reported are based on a closing price per share
of the Common Stock on the Nasdaq National Market of $10.875 at December 31,
1997 and an exercise price of $5.00 per share for all of Mr. Zylstra's stock
options.
EMPLOYMENT AND CONSULTING AGREEMENTS
Schuff currently does not have any employment contracts or severance
agreements with any of its executive officers.
In connection with the Acquisition, the Company entered into employment
agreements with Glen S. Davis, the President and Sales Manager of Addison Steel
since 1989, Sam Mahdavi, the President of Quincy since 1990, and T. Michael
Phagans, the Treasurer and principal financial and accounting officer of Addison
and the Plant Manager of its Albany, Georgia fabrication facility. Each
employment agreement is for a period of five years and is terminable by either
party at any time. If the employment of Messrs. Davis, Mahdavi or Phagans is
terminated without cause, such employee will be entitled to receive a guaranteed
severance amount and any benefits due him for twelve months. Each agreement
provides for a base salary and guaranteed cash bonus and, in addition, equity
and annual cash incentive bonuses based on the financial performance of Addison
Steel, in the case of Messrs. Davis and Phagans, and Quincy, in the case of Mr.
Mahdavi. Each agreement includes noncompetition covenants during the term of the
agreement and for a period of twelve months after termination of the employment
of such employees, as well as confidentiality provisions.
The Company also entered into a consulting agreement with Mr. E. Chris
Addison, the founder, chairman of the board of directors, and majority
stockholder of Addison. Pursuant to the consulting agreement, Mr. Addison is
required to provide upon the Company's request consulting services relating to
Addison's operations and related matters. In consideration for such services,
Mr. Addison will receive either options to purchase 100,000 shares of the
Company's Common Stock at an exercise price equal to the then current market
price, plus cash payments of $100,000 per year for two years, or cash payments
of $150,000 per year for three years. In addition, the Company paid Mr. Addison
through June 30, 1998 an additional amount equal to 1.5% of Addison's net
revenues in accordance with his compensation arrangements with Addison prior to
the Acquisition.
1997 STOCK OPTION PLAN
In February 1997, Schuff's Board of Directors and stockholders approved the
Schuff Steel Company 1997 Stock Option Plan (the "Option Plan"). Under the
Option Plan, the Company may grant incentive stock options or non-qualified
stock options to directors, employees, consultants, and advisors of the Company.
The Company believes that the Option Plan promotes the success and enhances the
value of the Company by linking the personal interests of participants to those
of the Company's stockholders and providing participants
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<PAGE> 67
with an incentive for outstanding performance. The total number of shares of
Common Stock available for awards under the Option Plan is 600,000, subject to a
proportionate increase or decrease in the event of a stock split, reverse stock
split, stock dividend, or other adjustment to the Company's total number of
issued and outstanding shares of Common Stock.
In June 1998, Schuff's Board of Directors and stockholders approved an
amendment to the Option Plan to increase the number of shares available for
awards from 600,000 to 1,600,000. The Option Plan is administered by the
Compensation Committee.
The Compensation Committee has the exclusive authority to administer the
Option Plan, including the power to determine eligibility, the type and number
of awards to be granted, and the terms and conditions of any award granted,
including the price and timing of awards. As of June 15, 1998, the Company had
granted options currently outstanding to purchase 623,700 shares of Common Stock
to various of its employees. Generally, such options are subject to vesting over
a five-year period, with 20% of the options becoming exercisable by the holder
thereof on each successive anniversary date of the grant. The exercise price of
the options granted is equal to the fair market value of the Common Stock on the
date of grant, except 50,000 non-qualified stock options granted to Mr. Zylstra,
which were granted with an exercise price of $10 per share at the time the fair
market value of the Common Stock was approximately $13.50 per share.
401(K) PLAN
Under Schuff's 401(k) retirement savings plan, eligible employees may
direct that a portion of their compensation, up to a maximum of $10,000 per
year, be withheld by the Company and contributed to their account. All 401(k)
plan contributions are placed in a trust fund to be invested by the 401(k)
plan's trustee, except that the 401(k) plan may permit participants to direct
the investment of their account balances among mutual or investment funds
available under the plan. The 401(k) plan permits the Company to provide
discretionary matching contributions not to exceed 25% of the amount deferred up
to 5% of a participant's compensation. Amounts contributed to participant
accounts under the 401(k) plan and any earnings or interest accrued on the
participant accounts are generally not subject to federal income tax until
distributed to the participant and may not be withdrawn until death, retirement
or termination of employment.
DEFERRED COMPENSATION PLAN
In 1996, Schuff maintained a Supplemental Retirement and Deferred
Compensation Plan, pursuant to which it contributed on a discretionary basis to
certain key employees 10% of annual net profits, which amount was allocated
among participants in accordance with individual agreements between Schuff and
such participants. In 1996, Schuff recorded expenses of $528,900 in accordance
with this Plan. This Plan was terminated in 1997.
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<PAGE> 68
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of June 15, 1998 with
respect to the beneficial ownership of the Company's Common Stock by (i) each
director of the Company, (ii) each Named Executive Officer of the Company, (iii)
each other person known to hold 5% or more of the outstanding shares of Common
Stock and (iv) all current executive officers (regardless of salary and bonus
level) and directors of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER(1)(2) SHARES BENEFICIALLY OWNED PERCENT OWNED
- ------------------------------------------ ------------------------- -------------
<S> <C> <C>
David A. Schuff and Nancy A. Schuff(3)........... 2,550,000 36.4%
Scott A. Schuff(4)............................... 2,450,000 35.0%
Kenneth F. Zylstra(5)............................ 8,000 *
Edward M. Carson(6).............................. 7,500 *
Dennis DeConcini(6).............................. 7,500 *
All directors and executive officers as a group
(five persons)(7).............................. 5,023,000 71.7%
</TABLE>
- ---------------
* Represents less than 1% of the Company's outstanding Common Stock.
(1) This information regarding beneficial ownership of the Company's Common
Stock by certain beneficial owners and management of the Company is as of
June 15, 1998. A person is deemed to be the beneficial owner of securities
that can be acquired within 60 days from the date set forth above through
the exercise of any option, warrant or right. Shares of Common Stock subject
to options, warrants or rights that are currently exercisable or exercisable
within 60 days are deemed outstanding for the purpose of computing the
percentage of the person holding such options, warrants or rights, but are
not deemed outstanding for computing the percentage of any other person. The
amounts and percentages are based upon 7,003,700 shares of Common Stock
outstanding as of June 15, 1998. The persons named in the table, to the
Company's knowledge, have sole voting and sole dispositive power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and the information
contained in the footnotes hereunder.
(2) The address of each of the listed stockholders is 1841 West Buchanan Street,
Phoenix, Arizona 85009.
(3) 2,050,000 of these shares are owned by the Schuff Family Trust Under Trust
Agreement dated June 28, 1983, as amended, and 500,000 of these shares are
owned by the Schuff Irrevocable Trust Under Trust Agreement Dated December
31, 1996. David A. Schuff and Nancy A. Schuff, husband and wife, are co-
trustees of each of the trusts and exercise voting and investment power over
such shares.
(4) 2,250,000 of these shares are owned by the Scott A. Schuff Family Trust
Under Trust Agreement dated March 12, 1992, as amended, and 200,000 of these
shares are owned by the Scott A. Schuff Irrevocable Trust Under Trust
Agreement dated December 31, 1996, as amended. Scott A. Schuff is the
trustee of each of these trusts and exercises voting and investment power
over such shares.
(5) The total for Mr. Zylstra includes 8,000 shares subject to outstanding
options.
(6) The total for each of Messrs. Carson and DeConcini includes 7,500 shares
subject to outstanding options.
(7) The total for all directors and officers as a group includes 23,000 shares
subject to outstanding options.
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<PAGE> 69
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since its inception, Schuff has maintained business relationships and
engaged in certain transactions with the affiliated companies and parties
described below. Since the closing of its initial public offering in July 1997,
all transactions between Schuff and its affiliated entities, executive officers,
directors or significant stockholders require the approval of a majority of its
non-employee directors and are on terms that will be no less favorable to Schuff
than Schuff could obtain from non-affiliated parties.
Schuff and B&K Steel lease their respective fabrication and office
facilities from 19th Avenue/ Buchanan Limited Partnership, an Arizona limited
partnership (the "Schuff Partnership"). The general and limited partners of the
Schuff Partnership are David A. Schuff, Scott A. Schuff, and certain of their
family members. David A. Schuff is a co-founder of Schuff and the Chairman of
the Board of Directors of the Company, and Scott A. Schuff is a Director and the
President and Chief Executive Officer of the Company. David A. Schuff and Scott
A. Schuff presently are the beneficial owners of approximately 71.4% of the
issued and outstanding Common Stock of the Company. See "Principal
Stockholders."
In March 1997, Schuff entered into a new lease agreement with the Schuff
Partnership with respect to its primary fabrication facilities. These facilities
include approximately 400,000 square feet of shop space under roof situated on
approximately 26 acres. This new lease agreement was based upon a third party
appraisal of the property and an assumed annual rate of return of 10%, which
took into account the location and use of the property, potential tenants,
comparable returns on similar properties, and other relevant factors. The new
lease increased Schuff's annual rent payments from $264,000 in 1996 to $295,000
for 1997, $414,000 for 1998, $556,000 for 1999, $601,000 for 2000, and $605,000
for each year thereafter, subject to increase in 2002 and every five years
thereafter based on a Consumer Price Index formula, which represents an annual
rent per square foot of improved space for 1997, 1998, 1999, 2000 and 2001 of
$0.73, $1.04, $1.39, $1.50 and $1.51, respectively. The agreement also enabled
Schuff to extend the lease term to 20 years. Schuff also is obligated under the
lease to reimburse the Schuff Partnership an additional amount equal to any
taxes incurred by it in connection with the lease payments, and is obligated to
pay insurance and maintenance expenses. The term of this lease expires on
February 28, 2017.
In March 1997, Schuff also entered into a lease agreement with the Schuff
Partnership with respect to the recently acquired B&K Steel property, consisting
of approximately 145,000 square feet of covered fabrication, office, engineering
and detailing facilities on approximately 23 acres. Based upon the same
methodology described above, Schuff entered into a lease with substantially
similar terms for the property and equipment with annual rent payments of
approximately $340,000 over 20 years, subject to increase every five years based
on a Consumer Price Index formula, representing an annual rent per square foot
of improved space of approximately $2.34. The rent was based upon a recent
appraisal of the underlying property. Schuff also is obligated to reimburse the
Schuff Partnership for taxes incurred by it in connection with the lease
payments. The term of the lease expires on February 28, 2017.
Effective May 1, 1997, the Schuff Partnership leased to Schuff
approximately 22,000 square feet of additional office facilities adjacent to
Schuff's existing principal office and shop facilities. Based upon the same
methodology described above, Schuff entered into a lease with substantially
similar terms for the property with annual rent payments of $135,000 over 20
years, subject to increase every five years based on a Consumer Price Index
formula, representing an annual rent per square foot of improved space of
approximately $6.14. The rent was based upon the purchase price of the property,
which was determined by arm's-length negotiation with an unrelated seller.
Schuff is also obligated to reimburse the Schuff Partnership for taxes incurred
by it in connection with the lease and is obligated to pay insurance and
maintenance costs. This lease expires on April 30, 2017.
In 1989, the Schuff Partnership borrowed $5,000,000 from a commercial bank
in connection with its refinancing of the property on which Schuff's principal
facilities are located (the "Partnership Loan"). The Schuff Partnership in turn
loaned $4,249,062 to Schuff and Schuff delivered to the Schuff Partnership a
subordinated promissory note in that amount (the "Subordinated Loan"). As of
March 31, 1997, the principal balance of the Subordinated Loan was $2,265,016.
In April 1996, in connection with the refinancing of the
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<PAGE> 70
Partnership Loan, Schuff guaranteed repayment of the Schuff Partnership's
indebtedness under that loan, which guarantee was released following the closing
of Schuff's initial public offering.
Schuff historically has made cash advances to its principal stockholders.
Such advances have been evidenced by recourse promissory notes that are payable
on demand after one year. As of December 31, 1997, there were no amounts owed by
David A. Schuff or Scott A. Schuff under such notes. Schuff discontinued the
practice of advancing funds to its stockholders after the closing of its initial
public offering in July 1997.
Schuff currently purchases a portion of its steel inventory from Arizona
Steel, Inc., an Arizona corporation ("Arizona Steel"). During 1997, Scott A.
Schuff owned a 75% interest in Arizona Steel. On January 1, 1998 Mr. Schuff sold
his entire interest in Arizona Steel and is no longer is affiliated with that
entity. Arizona Steel is a steel distribution center formed in January 1997 that
sells steel pieces to a number of fabrication contractors, one of approximately
twenty from which Schuff purchases steel from time to time. Schuff purchases
most of its steel inventory directly from various steel mills but from time to
time purchases small quantities of steel from local steel distribution centers
as a result of special needs that do not permit the lead time or volumes
normally associated with mill purchases. Schuff currently includes Arizona Steel
among its list of suppliers, all of which bid for purchase orders by Schuff on
the basis of cost, availability and delivery. It has been and continues to be
Schuff's policy not to make purchases from Arizona Steel unless it offers the
most competitive terms based on the factors listed above. In 1997, Schuff
purchased approximately $374,000 of steel from Arizona Steel, representing less
than 2% of the steel purchased from all suppliers during that period.
DESCRIPTION OF EXISTING INDEBTEDNESS
The following summary does not purport to be complete and is qualified in
its entirety by the loan agreements relating to the Existing Credit Facility,
copies of which may be obtained upon request from the Company.
Prior to June 30, 1998, Bank One, Arizona, N.A. (the "Bank") had provided
Schuff with certain credit facilities (the "Prior Credit Facility") which were
collateralized by essentially all of the assets of the Company. On June 30,
1998, the Company entered into a credit facility (the "Existing Credit
Facility") with Wells Fargo Bank, N.A. ("Wells Fargo") that replaced the
Company's Prior Credit Facility. The Existing Credit Facility matures on June
30, 2001. Pursuant to the Existing Credit Facility, Wells Fargo will provide up
to $25.0 million, which is secured by a first priority, perfected security
interest in all assets of the Company and its present and future subsidiaries
and is available for working capital and general corporate purposes. Interest
payable on borrowings outstanding under the Existing Credit Facility initially
is equal to either the Wells Fargo base rate plus 0.50% or LIBOR plus 2.50%, at
the Company's option. The Company will be eligible for reductions in the initial
margins on the Existing Credit Facility if the Company achieves certain
performance targets based upon its ratio of certain debt to EBITDA.
The Existing Credit Facility also requires that the Company maintain
specified leverage ratios, interest coverage ratios, fixed charge coverage
ratios and a specified minimum EBITDA. The Existing Credit Facility also
contains other covenants that, among other things, limit the Company's ability
to pay cash dividends or make other distributions, change its business or merge,
consolidate or dispose of material portions of its assets. The security
agreements pursuant to which the Company's assets are pledged prohibit any
further pledge of such assets without the written consent of Well Fargo.
The Existing Credit Facility contains events of default customary for
facilities of this type, including without limitation, Schuff's failure to pay
principal, interest, fees or other amounts when due, the breach of any covenant,
representation or warranty, bankruptcy, insolvency or similar events involving
Schuff or its subsidiaries, the unenforceability of any of the credit facility
agreements or liens securing payment obligations under the Existing Credit
Facility, and the occurrence or existence of any event or circumstance which has
a material adverse effect upon the Company.
At March 31, 1998, Schuff had two other long-term debt commitments related
to its property and equipment. One was a subordinated note in the original
principal amount of $4.2 million payable to a limited
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<PAGE> 71
partnership comprised of Schuff's present stockholders and certain of their
family members and which was scheduled to mature in 2003. The balance on this
loan was approximately $1.7 million at March 31, 1998. Schuff paid the entire
principal balance of this loan with a portion of the proceeds of the Offering.
The other long-term debt of Schuff 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. The balance of these notes was
approximately $637,000 at June 30, 1998. Such notes are payable in five equal
annual installments ending in 2002.
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<PAGE> 72
DESCRIPTION OF EXCHANGE NOTES
The Outstanding Notes were, and the Exchange Notes will be, issued under an
indenture, dated as of June 4, 1998 (the "Indenture") by and among Schuff, the
Guarantors and Harris Trust Company of California, as trustee under the
Indenture (the "Trustee"). The Outstanding Notes and the Exchange Notes will
constitute a single series of debt securities under the Indenture. Unless the
context requires otherwise, the Outstanding Notes and the Exchange Notes are
together referred to as the "Notes." The Notes are subject to the terms stated
in the Indenture and the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). Holders of the Notes are referred to the Indenture and the
Trust Indenture Act for a statement of those terms. The statements and
definitions of terms under this caption relating to the Notes, the Guarantees
and the Indenture described below are summaries and do not purport to be
complete. Such summaries make use of certain terms defined in the Indenture and
are qualified in their entirety by express reference to the Indenture. A copy of
the proposed Indenture is available as set forth under "-- Additional
Information." For purposes of this section of the Prospectus, references to
"Schuff" means Schuff Steel Company, excluding its subsidiaries. Certain terms
used herein are defined below under "-- Certain Definitions."
GENERAL
The Outstanding Notes are, and the Exchange Notes will be, general
unsecured senior obligations of Schuff, limited in aggregate principal amount at
Stated Maturity to $100.0 million. The Indebtedness evidenced by the Notes will
rank pari passu in right of payment with all existing and future indebtedness
and other liabilities of Schuff that are not subordinated by their express terms
to other Indebtedness of Schuff and senior to all Indebtedness of Schuff that by
its terms is so subordinated. The Notes will be effectively subordinated to all
existing and future secured Indebtedness of Schuff to the extent of the value of
the assets securing such Indebtedness, including Schuff's Existing Credit
Facility, which is secured by a pledge of Schuff's and its Subsidiary's
receivables, inventory and equipment. To the extent that the value of such
collateral is not sufficient to satisfy the Indebtedness secured thereby, the
claims for the amounts thereafter remaining outstanding on such Indebtedness
would be entitled to share with the claims of holders of the Notes and the
Trustee with respect to any other assets of Schuff. As of March 31, 1998, after
giving effect to the issuance of the Notes and the application of the proceeds
therefrom and the Acquisition, Schuff and its subsidiaries would have had
outstanding approximately $3.2 million of secured Indebtedness and approximately
$119.1 million of unsecured senior Indebtedness and other liabilities. See
"-- Certain Covenants -- Limitation on Indebtedness" and "-- Limitation on
Subsidiary Indebtedness and Preferred Stock."
The Indenture provides that each of Schuff's existing subsidiaries (and any
other Subsidiary that guarantees any Indebtedness of Schuff or other Obligor in
the future) shall be a Guarantor. The Guarantees will be senior unsecured
obligations of each respective Guarantor and will rank pari passu in right of
payment with all other Indebtedness and liabilities of such Guarantor that are
not subordinated by their terms to other existing and future Indebtedness of
such Guarantor, and senior in right of payment to all Subordinated Indebtedness
of such Guarantor. However, the Guarantees will be effectively subordinated to
secured Indebtedness of the Guarantors to the extent of the value of the assets
securing such Indebtedness. In the event of a bankruptcy, liquidation or
reorganization of a Guarantor, the assets of such Guarantor securing such
secured Indebtedness will be available to satisfy obligations with respect to
such secured Indebtedness before any payment therefrom could be made on the
Notes or the Guarantees.
The Notes will be effectively subordinated to claims of creditors (other
than Schuff or any Guarantor) of Schuff's Subsidiaries other than the
Guarantors. Claims of creditors (other than Schuff or a Guarantor) of such
Subsidiaries, including trade creditors, tort claimants, secured creditors,
taxing authorities and creditors holding guarantees, will generally have
priority as to assets of such Subsidiaries over the claims and equity interests
of Schuff and/or the Guarantors and, thereby indirectly, the holders of the
indebtedness of Schuff or the Guarantors, as applicable, including the Notes and
the Subsidiary Guarantees. Under limited circumstances the Indenture permits the
creation of, or the designation of existing Subsidiaries as, Unrestricted
Subsidiaries. The Notes will be effectively subordinated to claims of creditors
(other than Schuff or a Guarantor) of any Unrestricted Subsidiaries.
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<PAGE> 73
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $100.0 million
and will mature on June 1, 2008. The Notes will bear interest at the rate per
annum stated on the cover page hereof from the most recent interest payment date
to which interest has been paid or provided for, or, if no interest has been
paid, from the date of original issuance. Interest on the Notes will be payable
semi-annually in arrears on June 1 and December 1 of each year, commencing
December 1, 1998, to the Persons in whose names such Notes are registered at the
close of business on the May 15 or November 15 immediately preceding such
interest payment date. Interest will be calculated on the basis of a 360-day
year consisting of twelve 30-day months.
The Notes may be presented or surrendered for payment of principal,
premium, if any, and interest, and for registration of transfer or exchange, at
the office or agency of Schuff within the City and State of New York maintained
for such purpose. In addition, in the event the Notes do not remain in
book-entry form, interest may be paid, at the option of Schuff, by check mailed
to the registered holders of the Notes at the respective addresses as set forth
on the Securities Register. The Notes will be issued only in fully registered
form, without coupons, in denominations of $1,000 and integral multiples
thereof. No service charge will be made for any registration of transfer or
exchange or redemption of Notes, but Schuff or the Trustee may require in
certain circumstances payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
GUARANTEES OF NOTES
Each Guarantor will unconditionally guarantee, jointly and severally, to
each holder and the Trustee, the full and prompt performance of Schuff's
Obligations under the Indenture and the Notes, including the payment of
principal of, premium, if any, on and interest on the Notes pursuant to its
Guarantee. As of the Issue Date after giving effect to the consummation of the
Acquisition, the Initial Guarantors will be the only Guarantors. All such
Guarantors have also guaranteed the obligations of Schuff under Schuff's
Existing Credit Facility. Schuff will cause each Subsidiary that guarantees any
Indebtedness of Schuff or any other Obligor to execute and deliver a supplement
to the Indenture pursuant to which such Subsidiary will guarantee the payment of
the Notes on the same terms and conditions as the Guarantees by the Initial
Guarantors.
The Obligations of each Guarantor will be limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the Obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, result in the Obligations of such Guarantor under the Guarantee
not constituting a fraudulent conveyance or fraudulent transfers under federal
or state law or otherwise not being void, voidable or unenforceable under any
bankruptcy reorganization, receivership, insolvency, liquidation or other
similar legislation or legal principles under any applicable foreign law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in a pro rata amount based
on the Adjusted Net Assets of each Guarantor. See "Risk Factors -- Fraudulent
Transfer Statutes."
Each Guarantor may consolidate with or merge into or sell or otherwise
dispose of all or substantially all of its Property and assets to Schuff or
another Guarantor without limitation, except to the extent any such transaction
is subject to the "Consolidation, Merger, Conveyance, Lease or Transfer"
covenant of the Indenture. Each Guarantor may consolidate with or merge into or
sell all or substantially all of its Property and assets to a Person other than
Schuff or another Guarantor (whether or not Affiliated with the Guarantor),
provided that (a) if the surviving Person is not the Guarantor, the surviving
Person agrees to assume such Guarantor's Guarantee and all its Obligations
pursuant to the Indenture (except to the extent the following paragraph would
result in the release of such Guarantee) and (b) such transaction does not (i)
violate any of the covenants described below under "-- Certain Covenants" or
(ii) result in a Default or Event of Default being in existence or continuing
immediately thereafter.
Upon the sale or other disposition (by merger or otherwise) of a Guarantor
(or all or substantially all of its Property and assets) to a Person other than
Schuff or another Guarantor and pursuant to a transaction that is otherwise in
compliance with the Indenture (including as described in clause (b) of the
foregoing paragraph
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<PAGE> 74
and as described below in the covenant described "-- Certain
Covenants -- Limitation on Asset Sales"), such Guarantor (unless it otherwise
remains a Subsidiary) shall be deemed released from its Guarantee and the
related Obligations set forth in the Indenture, provided that any such
termination shall occur only to the extent that all Obligations of such
Guarantor under all of its guarantees of, and under all of its pledges of assets
or other security interests which secure, other Indebtedness of Schuff or any
other Subsidiary shall also terminate or be released upon such sale or other
disposition. Each Guarantor that is designated as an Unrestricted Subsidiary in
accordance with the Indenture shall be released from its Guarantee and the
related Obligations set forth in the Indenture so long as it remains an
Unrestricted Subsidiary.
The Indenture provides that any Guarantee by a Subsidiary (other than an
Initial Guarantor) shall be automatically and unconditionally released and
discharged, as evidenced by a supplemental indenture executed by Schuff, the
Guarantors, if any, and the Trustee, upon the release or discharge of the
guarantee which resulted in the creation of such Subsidiary's Guarantee and all
other guarantees of the Obligations of any Obligor on the Notes, except a
discharge or release by, or as a result of, payment under such Guarantee.
OPTIONAL REDEMPTION
Except as provided in the next paragraph, the Notes will not be redeemable
at the option of Schuff prior to June 1, 2003. On or after such date, the Notes
will be redeemable at the option of Schuff, in whole at any time or in part from
time to time, upon not less than 30 nor more than 60 days notice, at the
following prices (expressed in percentages of the principal amount thereof), if
redeemed during the twelve-month period beginning June 1 of the years indicated
below, in each case together with interest accrued to the redemption date
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003............................................ 105.250%
2004............................................ 103.938%
2005............................................ 102.625%
2006............................................ 101.313%
2007 and thereafter............................. 100.000%
</TABLE>
Notwithstanding the foregoing, at any time during the first 36 months after
the Issue Date, Schuff may, at its option, redeem up to a maximum of 35% of the
original aggregate principal amount of the Notes with the net cash proceeds of
one or more Public Equity Offerings at a redemption price equal to 110.5% of the
principal amount thereof, plus accrued and unpaid interest thereon to the
redemption date; provided that at least 65% of the original aggregate principal
amount of Notes originally issued shall remain outstanding immediately after the
occurrence of any such redemption; and provided, further, that each such
redemption shall occur within 90 days of the closing of such Public Equity
Offering.
If fewer than all the Notes are redeemed, selection for redemption will be
made by the Trustee in accordance with the principal stock exchange, if any, on
which the Notes are listed, or, if the Notes are not so listed, on a pro rata
basis, by lot or by any other means which the Trustee determines to be fair and
appropriate.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder will have the right
to require Schuff to repurchase such holder's Notes in whole or in part (the
"Change of Control Offer") at a purchase price (the "Change of Control Purchase
Price") in cash equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the Change of Control Payment
Date (as defined below) on the terms described below.
Within 30 days following any Change of Control, Schuff or the Trustee (at
the expense of Schuff) will mail a notice to each holder and to the Trustee
stating, among other things, (i) that a Change of Control has
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occurred and a Change of Control Offer is being made as provided for in the
Indenture, and that, although holders are not required to tender their Notes,
all Notes that are validly tendered will be accepted for payment; (ii) the
Change of Control Purchase Price and the repurchase date, which will be no
earlier than 30 days and no later than 60 days after the date such notice is
mailed (the "Change of Control Payment Date"); (iii) that any Note accepted for
payment pursuant to the Change of Control Offer (and duly paid for on the Change
of Control Payment Date) will cease to accrue interest after the Change of
Control Payment Date; (iv) that any Notes (or portions thereof) not validly
tendered will continue to accrue interest; (v) the procedures that holders of
Notes must follow to withdraw an election to tender Notes (or portions thereof);
and (vi) the instructions and any other information necessary to enable holders
to tender their Notes (or portions thereof) and have such Notes (or portions
thereof) purchased pursuant to the Change of Control Offer. Schuff will comply
with any applicable tender offer rules (including, without limitation, any
applicable requirements of Rule 14e-1 under the Exchange Act) in the event that
the Change of Control Offer is triggered under the circumstances described
herein.
The existence of the holders' rights to require, subject to certain
conditions, Schuff to repurchase Notes upon a Change of Control may deter a
third party from acquiring Schuff in a transaction that constitutes a Change of
Control. The source of funds for the repurchase of Notes upon a Change of
Control will be Schuff's cash or cash generated from operations or other
sources, including borrowings or sales of assets; however, a change of control
event (as described in the Existing Credit Facility) constitutes an event of
default thereunder, and might constitute an event of default under other
Indebtedness, that alleviates the lenders of the relevant Indebtedness from any
obligation to make loans and allowing them to accelerate the Indebtedness
outstanding thereunder. There can be no assurance that sufficient funds will be
available at the time of any Change of Control to repay all amounts owing under
such other Indebtedness or to make the required payments of the Notes. See "Risk
Factors -- Possible Inability to Repurchase Notes Upon a Change of Control." In
the event that a Change of Control Offer occurs at a time when Schuff does not
have sufficient available funds to pay the Change of Control Purchase Price for
all Notes validly tendered pursuant to such offer or at a time when Schuff is
prohibited from purchasing the Notes (and Schuff is unable either to obtain the
consent of the holders of the relevant Indebtedness or to repay such
Indebtedness), an Event of Default would occur under the Indenture. In addition,
one of the events that constitutes a Change of Control under the Indenture is a
sale, conveyance, transfer or lease of all or substantially all of the assets of
Schuff or Schuff and the Subsidiaries, taken as a whole. The Indenture will be
governed by New York law, and there is no established quantitative definition
under New York law of "substantially all' of the assets of a corporation.
Accordingly, if Schuff or its Subsidiaries were to engage in a transaction in
which it or they disposed of less than all of the assets of Schuff or Schuff and
its Subsidiaries taken as a whole, as applicable, a question or interpretation
would arise as to whether such disposition was of "substantially all" of its
assets and whether Schuff was required to make a Change of Control Offer.
Schuff will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by Schuff and repurchases
all Notes validly tendered and not withdrawn under such Change of Control Offer.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders to require Schuff
to repurchase or redeem the Notes in the event of a takeover, recapitalization
or similar restructuring. The provisions of the Indenture may not afford holders
protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction affecting Schuff that may adversely
affect holders because (i) such transactions may not involve a shift in voting
power or beneficial ownership or, even if they do, may not involve a shift of
the magnitude required under the definition of Change of Control to require
Schuff to make a Change of Control Offer or (ii) such transactions may include
an actual shift in voting power or beneficial ownership to a Permitted Holder
which is excluded under the definition of Change of Control from the amount of
shares involved in determining whether or not the transaction involves a shift
of the magnitude required to trigger the provisions. A transaction involving the
management of Schuff or its Affiliates, or a transaction involving a
recapitalization of Schuff, will result in a Change of Control only if it is the
type of transaction specified in such definition.
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CERTAIN COVENANTS
Set forth below are certain covenants contained in the Indenture.
Transactions with Affiliates. Subsequent to the Issue Date, Schuff will
not, and will not permit any Subsidiary to, directly or indirectly, enter into
or permit to exist any transaction or series of related transactions (including,
but not limited to, the purchase, sale, lease or exchange of Property, the
making of any Investment, the giving of any guarantee or the rendering of any
service) with any Affiliate of Schuff, other than transactions among Schuff and
any Subsidiaries, unless (i) such transaction or series of related transactions
is on terms no less favorable to Schuff or such Subsidiary than those that could
be obtained in a comparable arm's length transaction with a Person that is not
such an Affiliate, and (ii) (a) with respect to a transaction or series of
related transactions that has a Fair Market Value in excess of $1.0 million, the
transaction or series of related transactions is approved by a majority of the
Board of Directors of Schuff (including a majority of the disinterested
directors), which approval is set forth in a Board Resolution certifying that
such transaction or series of transactions complies with clause (i) above, and
(b) with respect to a transaction or series of related transactions that has a
Fair Market Value in excess of $3.0 million, Schuff delivers an opinion as to
the fairness from a financial point of view to Schuff or such Subsidiary issued
by an investment banking firm of nationally recognized standing or other
independent appraisal firm or expert of nationally recognized standing that is
qualified, in the reasonable and good faith judgment of the Board of Directors,
to perform the task for which it has been engaged. The foregoing provisions
shall not be applicable to (i) reasonable and customary compensation,
indemnification and other benefits paid or made available to an officer,
director or employee of Schuff or a Subsidiary for services rendered in such
person's capacity as an officer, director or employee (including reimbursement
or advancement of reasonable out-of-pocket expenses and provisions of directors'
and officers' liability insurance), (ii) the making of any Restricted Payment
otherwise permitted by the Indenture, (iii) transactions and agreements existing
on the Issue Date and described in this Prospectus under the caption "Certain
Relationships and Related Transactions" and (iv) loans to officers and employees
of Schuff and its Subsidiaries made in the ordinary course of business and in
furtherance of Schuff's business in an aggregate amount not to exceed $500,000
at any one time outstanding.
Limitation on Restricted Payments. Schuff will not and will not permit any
Subsidiary to make any Restricted Payment, directly or indirectly, unless at the
time of and after giving effect to the proposed Restricted Payment, (a) no
Default shall have occurred and be continuing (or would result therefrom), (b)
Schuff could incur at least $1.00 of additional Indebtedness under the test
described in the first sentence under the caption "-- Certain
Covenants -- Limitation on Indebtedness" and (c) the aggregate amount of all
Restricted Payments declared or made on or after the Issue Date by Schuff or any
Subsidiary shall not exceed the sum of (i) $1.0 million, plus (ii) 50% (or if
such Consolidated Net Income shall be a deficit, minus 100% of such deficit) of
the aggregate Consolidated Net Income accrued during the period beginning on the
first day of the fiscal quarter in which the Issue Date falls and ending on the
last day of the fiscal quarter ending immediately prior to the date of such
proposed Restricted Payment, minus 100% of the amount of any writedowns,
write-offs and other negative extraordinary charges not otherwise reflected in
Consolidated Net Income during such period, plus (iii) an amount equal to the
aggregate net cash proceeds received by Schuff, subsequent to the Issue Date,
from the issuance or sale (other than to a Subsidiary) of shares of its Capital
Stock (excluding Redeemable Stock, but including Capital Stock issued upon the
exercise of options, warrants or rights to purchase Capital Stock (other than
Redeemable Stock) of Schuff) subsequent to the Issue Date, plus (iv) 100% of the
liability (expressed as a positive number) as expressed on the face of a balance
sheet in accordance with GAAP in respect of any Indebtedness of Schuff or any of
its Subsidiaries, or the carrying value of Redeemable Stock, which has been
converted into, exchanged for or satisfied by the issuance of shares of Capital
Stock (other than Redeemable Stock) of Schuff, subsequent to the Issue Date,
plus (v) 100% of the net reduction in Restricted Investments, subsequent to the
Issue Date, in any Person, resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other transfers of Property (but
only to the extent such interest, dividends, repayments or other transfers of
Property are not included in the calculation of Consolidated Net Income), in
each case to Schuff or any Subsidiary from any Person (including, without
limitation, from Unrestricted Subsidiaries) or from redesignations of
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Unrestricted Subsidiaries as Subsidiaries (valued in each case as provided in
the definition of "Investment"), not to exceed in the case of any Person the
amount of Restricted Investments previously made by Schuff or any Subsidiary in
such Person and in each such case which was treated as a Restricted Payment.
The foregoing provisions will not prevent: (A) the payment of any dividend
on Capital Stock of any class within 60 days after the date of its declaration
if at the date of declaration such payment would have been permitted by the
Indenture; (B) any repurchase or redemption of Capital Stock or Subordinated
Indebtedness of Schuff or a Subsidiary made by exchange for Capital Stock of
Schuff (other than Redeemable Stock), or out of the net cash proceeds from the
substantially concurrent issuance or sale (other than to a Subsidiary) of
Capital Stock of Schuff (other than Redeemable Stock), provided that the net
cash proceeds from such sale are excluded from computations under clause
(c)(iii) above to the extent that such proceeds are applied to purchase or
redeem such Capital Stock or Subordinated Indebtedness; (C) so long as no
Default shall have occurred and be continuing or should occur as a consequence
thereof, any repurchase or redemption of Subordinated Indebtedness of Schuff or
a Subsidiary solely in exchange for, or out of the net cash proceeds from the
substantially concurrent sale of, new Subordinated Indebtedness of Schuff or a
Subsidiary, so long as such Subordinated Indebtedness is permitted under the
covenant described under "-- Limitation on Indebtedness" and (x) is subordinated
to the Notes at least to the same extent as the Subordinated Indebtedness so
exchanged, purchased or redeemed, (y) has a stated maturity later than the
stated maturity of the Subordinated Indebtedness so exchanged, purchased or
redeemed and (z) has an Average Life at the time incurred that is greater than
the remaining Average Life of the Subordinated Indebtedness so exchanged,
purchased or redeemed; (D) Investments in any Joint Ventures in an aggregate
amount not to exceed $2.0 million; (E) existing affiliate leases set forth on a
schedule to the Indenture and renewals and extensions thereof not involving
changes in the terms thereof materially adverse to Schuff; (F) any dividend,
obligation or other payment by any Subsidiary on shares of its Common Stock that
is paid pro rata to all holders of such Common Stock; and (G) so long as no
Default or Event of Default shall have occurred and be continuing, repurchases
by the Company of Capital Stock (other than Preferred Stock) of the Company from
officers and employees of the Company or any of its Subsidiaries or their
authorized representatives upon the death, disability or termination of
employment of such employees, in an aggregate amount not to exceed $1.0 million
in any calendar year. See "Certain Relationships and Related Transactions."
Notwithstanding the foregoing, the amount available for Investments in Joint
Ventures pursuant to clause (D) of the preceding sentence may be increased by
the aggregate amount received by Schuff and its Subsidiaries from a Joint
Venture on or before such date resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advance or other transfers of
Property made to such Joint Venture (but only to the extent such interest,
dividends, repayments or other transfers of Property are not included in the
calculation of Consolidated Net Income). Restricted Payments permitted to be
made as described in the first sentence of this paragraph will be excluded in
calculating the amount of Restricted Payments thereafter, except that any
dividends, distributions or other payments made to a Person other than to Schuff
or a Wholly Owned Subsidiary permitted to be made pursuant to clause (F) and any
repurchase of Capital Stock of the Company permitted to be made pursuant to
clause (G) will be included in calculating the amount of Restricted Payments
thereafter and except that any such Restricted Payments permitted to be made
pursuant to clause (D) will be included in calculating the amount of Restricted
Payments made pursuant to such clause (D) thereafter.
For purposes of this covenant, if a particular Restricted Payment involves
a non-cash payment, including a distribution of assets, then such Restricted
Payment shall be deemed to be an amount equal to the cash portion of such
Restricted Payment, if any, plus an amount equal to the Fair Market Value of the
non-cash portion of such Restricted Payment.
Limitation on Indebtedness. Schuff will not, and will not permit any
Subsidiary to, directly or indirectly, incur any Indebtedness (including
Acquired Indebtedness), unless after giving pro forma effect to the incurrence
of such Indebtedness, the Consolidated Interest Coverage Ratio for the
Determination Period preceding the Transaction Date is at least 2.0 to 1.0.
Notwithstanding the foregoing, Schuff or any Subsidiary may incur Permitted
Indebtedness which such Person is permitted thereby to incur. Any Indebtedness
of a Person existing at the time at which such Person becomes a Subsidiary
(whether by merger, consolidation,
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acquisition or otherwise) shall be deemed to be incurred by such Subsidiary at
the time at which it becomes a Subsidiary.
Limitation on Subsidiary Indebtedness and Preferred Stock. Schuff will not
permit any Subsidiary to, directly or indirectly, incur any Indebtedness or
issue any Preferred Stock except:
(a) Indebtedness or Preferred Stock issued to and held by Schuff or a
Subsidiary, so long as any transfer of such Indebtedness or Preferred Stock
to a Person other than Schuff or a Subsidiary will be deemed to constitute
an incurrence of such Indebtedness or Preferred Stock by the issuer thereof
as of the date of such transfer;
(b) Acquired Indebtedness or Preferred Stock of a Subsidiary issued
and outstanding prior to the date on which such Subsidiary was acquired by
Schuff (other than Indebtedness or Preferred Stock issued in connection
with or in anticipation of such acquisition);
(c) Indebtedness or Preferred Stock outstanding on the Issue Date and
listed in a schedule attached to the Indenture;
(d) Indebtedness permitted to be incurred by the first sentence of the
covenant described in "Limitation on Indebtedness" and Indebtedness
described in clauses (b), (c), (d), (e), (f), (g), (h) and (l) under the
definition of "Permitted Indebtedness";
(e) Permitted Subsidiary Refinancing Indebtedness of such Subsidiary;
and
(f) Indebtedness of a Subsidiary which represents the assumption by
such Subsidiary of Indebtedness of another Subsidiary in connection with a
merger of such Subsidiaries, provided that no Subsidiary or any successor
(by way of merger) thereto existing on the Issue Date shall assume or
otherwise become responsible for any Indebtedness of an entity which is not
a Subsidiary on the Issue Date, except to the extent that a Subsidiary
would be permitted to incur such Indebtedness under this paragraph.
Limitations on Dividends and Other Payment Restrictions Affecting
Subsidiaries. Schuff will not, and will not permit any Subsidiary, directly or
indirectly, to create, enter into any agreement with any Person or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind which by its terms restricts the ability of any
Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on its Capital Stock to Schuff or any Subsidiary, (b) pay any
Indebtedness owed to Schuff or any Subsidiary, (c) make loans or advances to
Schuff or any Subsidiary or (d) transfer any of its Property or assets to Schuff
or any Subsidiary except any encumbrance or restriction contained in any
agreement or instrument:
(i) existing on the Issue Date;
(ii) relating to any Property or assets acquired after the Issue Date,
so long as such encumbrance or restriction relates only to the Property or
assets so acquired and is not and are not created in anticipation of such
acquisition;
(iii) relating to any Acquired Indebtedness of any Subsidiary at the
date on which such Subsidiary was acquired by Schuff or any Subsidiary
(other than Indebtedness incurred in anticipation of such acquisition);
(iv) effecting a refinancing of Indebtedness incurred pursuant to an
agreement referred to in the foregoing clauses (i) through (iii), so long
as the encumbrances and restrictions contained in any such refinancing
agreement are no more restrictive than the encumbrances and restrictions
contained in such agreements;
(v) constituting customary provisions restricting subletting or
assignment of any lease of Schuff or any Subsidiary or provisions in
license agreements or similar agreements that restrict the assignment of
such agreement or any rights thereunder,
(vi) constituting restrictions on the sale or other disposition of any
Property securing Indebtedness as a result of a Permitted Lien on such
Property;
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(vii) constituting any temporary encumbrance or restriction with
respect to a Subsidiary pursuant to an agreement that has been entered into
for the sale or disposition of all or substantially all of the Capital
Stock of, or Property and assets of, such Subsidiary; or
(viii) governing Senior Debt permitted to be incurred under the
Indenture, provided that the terms and conditions of any such restrictions
and encumbrances are not materially more restrictive than those contained
in the Indenture.
Limitation on Asset Sales. Schuff will not engage in, and will not permit
any Subsidiary to engage in, any Asset Sale unless: (a) except in the case of an
Asset Sale resulting from the requisition of title to, seizure or forfeiture of
any Property or assets or any actual or constructive total loss or an agreed or
compromised total loss, Schuff or such Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the Property; (b) at least 75% of such consideration consists of Cash
Proceeds (or the assumption of Indebtedness of Schuff or such Subsidiary
relating to the Capital Stock or Property or asset that was the subject of such
Asset Sale and the unconditional release of Schuff or such Subsidiary from such
Indebtedness); (c) after giving effect to such Asset Sale, the total non-cash
consideration held by Schuff from all such Asset Sales does not exceed $2.0
million; and (d) Schuff delivers to the Trustee an Officers' Certificate
certifying that such Asset Sale complies with clauses (a), (b) and (c). Schuff
or such Subsidiary, as the case may be, may apply the Net Available Proceeds
from each Asset Sale (x) to the acquisition of one or more Replacement Assets or
(y) to repurchase or repay Senior Debt (with a permanent reduction of
availability in the case of revolving credit borrowings); provided that such
acquisition or such repurchase or repayment shall be made within 270 days after
the consummation of the relevant Asset Sale; provided, further, that any such
Net Available Proceeds that are applied to the acquisition of Replacement Assets
useful in the business of Schuff or any of its Subsidiaries pursuant to any
binding agreement relating thereto shall be deemed to have been applied for such
purpose within such 270-day period so long as they are so applied within 30 days
of the effective date of such agreement.
Any Net Available Proceeds from any Asset Sale that are not used so to
acquire Replacement Assets or to repurchase or repay Senior Debt within 270 days
after consummation of the relevant Asset Sale constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $5.0 million, Schuff shall
within 270 days thereafter, or at any time after receipt of Excess Proceeds but
prior to there being $5.0 million of Excess Proceeds, Schuff may, at its option,
make a pro rata offer (an "Asset Sale Offer") to all holders of Notes and
holders of Senior Debt, if and to the extent Schuff is required by the
instruments governing such Senior Debt to make such an offer, to purchase Notes
and such Senior Debt in an aggregate amount equal to the Excess Proceeds, at a
price in cash (the "Asset Sale Offer Purchase Price") equal to 100% of the
outstanding principal amount of the Notes plus accrued interest and Special
Interest, if any, to the date of purchase and, in the case of such other Senior
Debt, 100% of the principal amount thereof, plus accrued and unpaid interest, if
any, thereon to the date of purchase, in accordance with the procedures set
forth in the Indenture. Upon completion of such Asset Sale Offer, the amount of
Excess Proceeds shall be reset to zero and Schuff may use any remaining amount
for general corporate purposes.
Schuff will comply with any applicable tender offer rules (including,
without limitation, any applicable requirements of Rule 14e-1 under the Exchange
Act) in the event that an Asset Sale Offer is required under the circumstances
described herein.
Limitation on Sale and Lease-Back Transactions. Schuff will not, and will
not permit any Subsidiary to, directly or indirectly, enter into, assume,
guarantee or otherwise become liable with respect to any Sale and Lease-Back
Transaction unless (i) the proceeds from such Sale and Lease-Back Transaction
are at least equal to the Fair Market Value of such Property being transferred
and (ii) Schuff or such Subsidiary would have been permitted to enter into such
transaction under the covenants described in "-- Limitation on Indebtedness,"
"-- Limitation or Liens" and "-- Limitation on Subsidiary Indebtedness and
Preferred Stock."
Limitation on Liens. Schuff will not, and will not permit any Subsidiary
to, directly or indirectly, create, affirm, incur, assume or suffer to exist any
Liens of any kind other than Permitted Liens on or with respect to any Property
or assets of Schuff or such Subsidiary or any interest therein or any income or
profits therefrom, whether owned at the Issue Date or thereafter acquired,
without effectively providing that the Notes or the
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Guarantees, as applicable, shall be secured equally and ratably with (or prior
to) the Indebtedness so secured for so long as such obligations are so secured.
Limitation on Guarantees by Subsidiaries. Schuff may not permit any
Subsidiary which is not already a Guarantor, directly or indirectly, to
guarantee any Indebtedness of Schuff or any other Obligor ("Guaranteed
Indebtedness") unless (i) such Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Guarantee of payment of
the Notes by such Subsidiary and (ii) such Subsidiary waives and will not in any
manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against Schuff or
any other Subsidiary as a result of any payment by such Subsidiary under its
Guarantee. If the Guaranteed Indebtedness is pari passu with the Notes, then the
guarantee of such Guaranteed Indebtedness shall be pari passu with or
subordinated to the Guarantee; and if the Guaranteed Indebtedness is
subordinated to the Notes, then the guarantee of such Guaranteed Indebtedness
shall be subordinated to the Guarantee at least to the extent that all
Guaranteed Indebtedness is subordinated to the Notes.
Notwithstanding the foregoing, any Guarantee by a Subsidiary that was
incurred pursuant to the terms of the preceding paragraph (but not otherwise)
shall provide by its terms that it shall be automatically and unconditionally
released and discharged upon the release or discharge of the guarantee which
resulted in the creation of such Subsidiary's Guarantee, except a discharge or
release by, or as a result of, payment under such guarantee.
Unrestricted Subsidiaries. The Indenture provides that Schuff may
designate a subsidiary (including a newly formed or newly acquired subsidiary)
of Schuff or any of its Subsidiaries as an Unrestricted Subsidiary; provided
that (i) immediately after giving effect to the transaction, Schuff could incur
$1.00 of additional Indebtedness pursuant to the first sentence of
"-- Limitation on Indebtedness" and (ii) such designation is at the time
permitted under "-- Limitation on Restricted Payments." Notwithstanding any
provisions of this covenant all subsidiaries of an Unrestricted Subsidiary will
be Unrestricted Subsidiaries.
The Indenture further provides that Schuff will not, and will not permit
any of its Subsidiaries to, take any action or enter into any transaction or
series of transactions that would result in a Person (other than a newly formed
subsidiary having no outstanding Indebtedness (other than Indebtedness to Schuff
or a Subsidiary) at the date of determination) becoming a Subsidiary (whether
through an acquisition, the redesignation of an Unrestricted Subsidiary or
otherwise) unless, after giving effect to such action, transaction or series of
transactions on a pro forma basis, (i) Schuff could incur at least $1.00 of
additional Indebtedness pursuant to the first sentence of "-- Limitation on
Indebtedness" and (ii) no Default or Event of Default would occur.
Subject to the preceding paragraphs, an Unrestricted Subsidiary may be
redesignated as a Subsidiary. The designation of a subsidiary as an Unrestricted
Subsidiary or the designation of an Unrestricted Subsidiary as a Subsidiary in
compliance with the preceding paragraphs shall be made by the Board of Directors
pursuant to a Board Resolution delivered to the Trustee and shall be effective
as of the date specified in such Board Resolution, which shall not be prior to
the date such Board Resolution is delivered to the Trustee. Any Unrestricted
Subsidiary shall become a Subsidiary if it incurs any Indebtedness other than
Non-Recourse Indebtedness. If at any time Indebtedness of an Unrestricted
Subsidiary which was Non-Recourse Indebtedness no longer so qualifies, such
Indebtedness shall be deemed to have been incurred when such Non-Recourse
Indebtedness becomes Indebtedness.
Limitations on Line of Business. The Indenture provides that neither
Schuff nor any of its Subsidiaries will directly or indirectly engage to any
substantial extent in any line or lines of business activity other than a
Related Business.
Reports. The Indenture provides that, whether or not Schuff is subject to
Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto,
Schuff shall file with the Commission the annual reports, quarterly reports and
other documents which Schuff would have been required to file with the
Commission pursuant to such Section 13(a) or 15(d) or any successor provision
thereto if Schuff were subject thereto, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing
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Dates") by which Schuff would have been required to file them. Schuff shall also
(whether or not it is required to file reports with the Commission), within 30
days of each Required Filing Date, (i) transmit by mail to all holders of Notes,
as their names and addresses appear in the applicable Security Register, without
cost to such holders or Persons, and (ii) file with the Trustee, copies of the
annual reports, quarterly reports and other documents (without exhibits) which
Schuff has filed or would have filed with the Commission pursuant to Section
13(a) or 15(d) of the Exchange Act, any successor provisions thereto or this
covenant. Schuff shall not be required to file any report with the Commission if
the Commission does not permit such filing. In addition, Schuff shall furnish to
the Trustee, the holders of the Notes and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144(d)(4) under the Securities Act and the exhibits omitted from the
information furnished pursuant to the preceding sentence, for so long as the
Notes are not freely transferable under the Securities Act.
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
Schuff will not, in any transaction or series of transactions, consolidate
with or merge into any other Person (other than a merger of a Wholly Owned
Subsidiary into Schuff in which Schuff is the continuing corporation), continue
in a new jurisdiction or sell, convey, assign, transfer, lease or otherwise
dispose of all or substantially all of the Property and assets of Schuff and the
Subsidiaries, taken as a whole, to any Person, unless
(i) either (a) Schuff shall be the continuing corporation or (b) the
corporation (if other than Schuff) formed by such consolidation or into which
Schuff is merged, or the Person which acquires, by sale, assignment, conveyance,
transfer, lease or disposition, all or substantially all of the Property and
assets of Schuff and the Subsidiaries, taken as a whole (such corporation or
Person, the "Surviving Entity"), shall be a corporation organized and validly
existing under the laws of the United States of America, any political
subdivision thereof or any state thereof or the District of Columbia, and shall
expressly assume, by a supplemental indenture, the due and punctual payment of
the principal of (and premium, if any) and interest (including Special Interest,
if any) on all the Notes and the performance of Schuff's covenants and
obligations under the Indenture;
(ii) immediately before and after giving effect to such transaction or
series of transaction on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Event of Default or
Default shall have occurred and be continuing or would result therefrom;
(iii) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), Schuff (or the Surviving
Entity if Schuff is not continuing) shall have a Consolidated Net Worth equal to
or greater than the Consolidated Net Worth of Schuff immediately prior to such
transactions; and
(iv) immediately after giving effect to any such transaction or series of
transactions on a pro forma basis as if such transaction or series of
transactions had occurred on the first day of the Determination Period, Schuff
(or the Surviving Entity if Schuff is not continuing) would be permitted to
incur $1.00 of additional Indebtedness pursuant to the test described in the
first sentence under the caption "-- Certain Covenants -- Limitation on
Indebtedness."
The provision of clause (iv) shall not apply to any merger or consolidation
into or with, or any such transfer of all or substantially all of the Property
and assets of Schuff and the Subsidiaries taken as a whole into, Schuff.
In connection with any consolidation, merger, continuance, transfer of
assets or other transactions contemplated by this provision, Schuff shall
deliver, or cause to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an Officers' Certificate and an opinion
of counsel, each stating that such consolidation, merger, continuance, sale,
assignment, conveyance or transfer and the
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supplemental indenture in respect thereto comply with the provisions of the
Indenture and that all conditions precedent in the Indenture relating to such
transactions have been complied with.
Upon any transaction or series of transactions that are of the type
described in, and are effected in accordance with, the foregoing paragraphs, the
Surviving Entity shall succeed to, and be substituted for, and may exercise
every right and power of, Schuff under the Indenture and the Notes with the same
effect as if such Surviving Entity had been named as Schuff in the Indenture;
and when a Surviving Person duly assumes all of the obligations and covenants of
Schuff pursuant to the Indenture and the Notes, except in the case of a lease,
the predecessor Person shall be relieved of all such obligations.
EVENTS OF DEFAULT
Each of the following is an "Event of Default" under the Indenture:
(a) default in the payment of interest on any Note issued pursuant to
the Indenture when the same becomes due and payable, and the continuance of
such default for a period of 30 days;
(b) default in the payment of principal of (or premium, if any, on)
any Note issued pursuant to the Indenture at its Maturity, whether upon
optional redemption, required repurchase (including pursuant to a Change of
Control Offer or an Asset Sale Offer) or otherwise or the failure to make
an offer to purchase any such Note as required;
(c) Schuff fails to comply with any of its covenants or agreements
contained in "-- Change of Control," "-- Certain Covenants -- Limitation on
Restricted Payments," "-- Certain Covenants -- Limitation on Asset Sales,"
"-- Certain Covenants -- Limitation on Indebtedness," "-- Certain
Covenants -- Limitation on Subsidiary Indebtedness and Preferred Stock,"
"-- Certain Covenants -- Limitation on Sale and Lease-Back Transactions" or
"-- Consolidation, Merger, Conveyance, Lease or Transfer";
(d) default in the performance, or breach, of any covenant of Schuff
in the Indenture (other than a covenant addressed in clause (a), (b) or (c)
above) and continuance of such Default or breach, for a period of 30 days
after written notice thereof has been given to Schuff by the Trustee or to
Schuff and the Trustee by holders of at least 25% of the aggregate
principal amount at Stated Maturity of the outstanding Notes;
(e) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Schuff or any of its Subsidiaries (or
the payment of which is guaranteed by Schuff or any of its Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the
date of the Indenture, which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been
a Payment Default or the maturity of which has been so accelerated,
aggregates $10.0 million or more;
(f) the entry by a court of competent jurisdiction of one or more
final judgments against Schuff or any Subsidiary in an uninsured or
unindemnified aggregate amount in excess of $5.0 million which is not
discharged, waived, appealed, stayed, bonded or satisfied for a period of
60 consecutive days;
(g) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of Schuff or any Significant
Subsidiary in an involuntary case or proceeding under U.S. bankruptcy laws,
as now or hereafter constituted, or any other applicable Federal, state, or
foreign bankruptcy, insolvency, or other similar law or (ii) a decree or
order adjudging Schuff or any Significant Subsidiary a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
Schuff or any Significant Subsidiary under U.S. bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state or foreign
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bankruptcy, insolvency, or similar law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of Schuff or any Significant Subsidiary or of any substantial part
of the Property or assets of Schuff or any Significant Subsidiary, or
ordering the winding up or liquidation of the affairs of Schuff or any
Significant Subsidiary, and the continuance of any such decree or order for
relief or any such other decree or order unstayed and in effect for a
period of 60 consecutive days;
(h) (i) the commencement by Schuff or any Significant Subsidiary of a
voluntary case or proceeding under U.S. bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state or foreign
bankruptcy, insolvency or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent; or (ii) the consent
by Schuff or any Significant Subsidiary to the entry of a decree or order
for relief in respect of Schuff or any Significant Subsidiary in an
involuntary case or proceeding under U.S. bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state, or foreign
bankruptcy, insolvency or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against Schuff or any
Significant Subsidiary; or (iii) the filing by Schuff or any Significant
Subsidiary of a petition or answer or consent seeking reorganization or
relief under U.S. bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal, state or foreign bankruptcy, insolvency or other
similar law; or (iv) the consent by Schuff or any Significant Subsidiary to
the filing of such petition or to the appointment of or taking possession
by a custodian, receiver, liquidator, assignee, trustee, sequestrator or
similar officer of Schuff or any Significant Subsidiary or of any
substantial part of the Property or assets of Schuff or any Significant
Subsidiary, or the making by Schuff or any Significant Subsidiary of an
assignment for the benefit of creditors; or (v) the admission by Schuff or
any Significant Subsidiary in writing of its inability to pay its debts
generally as they become due; or (vi) the taking of corporate action by
Schuff or any Significant Subsidiary in furtherance of any such action; or
(i) any Guarantee shall for any reason cease to be, or be asserted by
Schuff or any Guarantor, as applicable, not to be, in full force and effect
(except pursuant to the release of any such Guarantee in accordance with
the Indenture).
If any Event of Default (other than an Event of Default specified in clause
(g) or (h) above) occurs and is continuing, then and in every such case the
Trustee or the holders of not less than 25% of the outstanding aggregate
principal amount at Stated Maturity of the Notes, may declare the principal
amount at Stated Maturity of, premium, if any, and any accrued and unpaid
interest on, all such Notes then outstanding to be immediately due and payable
by a notice in writing to Schuff (and to the Trustee if given by holders of such
Notes), and upon any such declaration all amounts payable in respect of the
Notes will become and be immediately due and payable. If any Event of Default
specified in clause (g) or (h) above occurs, the principal amount at Stated
Maturity of, premium, if any, and any accrued and unpaid interest on, the Notes
then outstanding shall be come immediately due and payable without any
declaration or other act on the part of the Trustee or any holder of such Notes.
In the event of a declaration of acceleration because an Event of Default set
forth in clause (e) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (e) shall be
remedied or cured or waived by the holders of the relevant Indebtedness within
30 days after such event of default; provided that no judgment or decree for the
payment of the money due on the Notes has been obtained by the Trustee as
provided in the Indenture. Under certain circumstances, the holders of a
majority in principal amount at Stated Maturity of the outstanding Notes by
notice to Schuff and the Trustee may rescind an acceleration and its
consequences.
The holders of a majority in aggregate principal amount at Stated Maturity
of the Notes then outstanding by notice to the Trustee may on behalf of the
holders of all such Notes waive any existing Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, premium, if any on or the principal of, such Notes. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the holders, unless such
holders have offered to such Trustee reasonable security or indemnity. Subject
to the provisions of the Indenture and applicable law, the holders of a majority
in aggregate principal amount at Stated Maturity of the Notes at the time
outstanding
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have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee.
Schuff is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and Schuff is required within five Business Days
after becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement describing such Default or Event of Default, its status and
what action Schuff is taking or proposes to take with respect thereto.
AMENDMENT, SUPPLEMENT AND WAIVER
Schuff, the Guarantors and the Trustee may, at any time and from time to
time, without notice to or consent of any holder, enter into one or more
indentures supplemental to the Indenture (a) to evidence the succession of
another Person to Schuff and the Guarantors and the assumption by such successor
of the covenants and Obligations of Schuff under the Indenture and contained in
the Notes and of the Guarantors contained in the Indenture and the Guarantees,
(b) to add to the covenants of Schuff, for the benefit of the holders, or to
surrender any right or power conferred upon Schuff or the Guarantors by the
Indenture, (c) to add any additional Events of Default, (d) to provide for
uncertificated Notes in addition to or in place of certificated Notes, (e) to
evidence and provide for the acceptance of appointment under the Indenture by
the successor Trustee, (f) to secure the Notes and/or the Guarantees, (g) to
cure any ambiguity, to correct or supplement any provision in the Indenture
which may be inconsistent with any other provision therein or to add any other
provisions with respect to matters or questions arising under the Indenture,
provided that such actions will not adversely affect the interests of the
holders in any material respect, (h) to add or release any Guarantor pursuant to
the terms of the Indenture or (i) to comply with the requirements of the
Commission to effect or maintain the qualification of the Indenture under the
Trust Indenture Act.
With the consent of the holders of not less than a majority in aggregate
principal amount at Stated Maturity of the outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes),
Schuff, the Guarantors and the Trustee may enter into one or more indentures
supplemental to the Indenture for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Indenture or
of modifying in any manner the rights of the holders; provided that no such
supplemental indenture will, without the consent of the holder of each
outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, or reduce the
principal amount thereof (or premium, if any), or the interest thereon that
would be due and payable upon Maturity thereof, or change the place of payment
where, or the coin or currency in which, any Note or any premium or interest
thereon is payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof, (b) reduce the
percentage in principal amount at Stated Maturity of the outstanding Notes, the
consent of whose Holders is necessary for any such supplemental indenture or
required for any waiver of compliance with certain provisions of the Indenture,
or certain Defaults thereunder, (c) modify the Obligations of Schuff to make
offers to purchase Notes upon a Change of Control or from the proceeds of Asset
Sales, (d) subordinate in right of payment, or otherwise subordinate, the Notes
or the Guarantees to any other Indebtedness, (e) amend, supplement or otherwise
modify the provisions of the Indenture relating to Guarantees or (f) modify any
of the provisions of this paragraph (except to increase any percentage set forth
herein).
The holders of not less than a majority in aggregate principal amount at
Stated Maturity of the outstanding Notes may on behalf of the holders of all the
Notes waive any past Default or Event of Default under the Indenture and its
consequences, except a Default or Event of Default (a) in the payment of the
principal of or premium, if any) or interest on any Note or (b) in respect of a
covenant or provision hereof which under the provision to the prior paragraph
cannot be modified or amended without the consent of the Holder of each
outstanding Note affected thereby.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
Schuff may terminate its obligations and the obligations of the Guarantors
under the Notes, the Indenture and the Guarantees when (i) either (A) all
outstanding Notes have been delivered to the Trustee
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for cancellation or (B) all such Notes not therefore delivered to the Trustee
for cancellation have become due and payable, will become due and payable within
one year or are to be called for redemption within one year under irrevocable
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name and at the expense of Schuff, and Schuff has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of
(premium, if any, on) and interest to the date of deposit or Maturity or date of
redemption; (ii) Schuff has paid or caused to be paid all sums then due and
payable by Schuff under the Indenture; and (iii) Schuff has delivered an
Officers' Certificate and an opinion of counsel relating to compliance with the
conditions set forth in the Indenture.
Schuff, at its election, shall (a) be deemed to have paid and discharged
its debt on the Notes and the Indenture and Guarantees shall cease to be of
further effect as to all outstanding Notes (except as to (i) rights of
registration of transfer, substitution and exchange of Notes, (ii) Schuff's
right of optional redemption, (iii) rights of holders to receive payments of
principal of, premium, if any, and interest on the Notes (but not the Change of
Control Purchase Price or the Asset Sale Offer Purchase Price) and any rights of
the holders with respect to such amounts, (iv) the rights, obligations and
immunities of the Trustee under the Indenture, and (v) certain other specified
provisions in the Indenture) or (b) cease to be under any obligation to comply
with certain restrictive covenants that are described in the Indenture, after
the irrevocable deposit by Schuff with the Trustee, in trust for the benefit of
the holders, at any time prior to the Stated Maturity of the Notes, of (A) money
in an amount, (B) U.S. Government Obligations which through the payment of
interest and principal will provide, not later than one Business Day before the
due date of payment in respect of such Notes, money in an amount or (c) a
combination thereof sufficient to pay and discharge the principal of, premium,
if any on, and interest on, such Notes then outstanding on the dates on which
any such payments are due in accordance with the terms of the Indenture and of
such Notes. Such defeasance or covenant defeasance shall be deemed to occur only
if certain conditions are satisfied, including, among other things, delivery by
Schuff to the Trustee of an opinion of outside counsel acceptable to the Trustee
to the effect that (i) such deposit, defeasance and discharge will not be
deemed, or result in, a taxable event for federal income tax purposes with
respect to the holders and (ii) Schuff's deposit will not result in the trust or
such Trustee being subject to regulation under the Investment Company Act of
1940, as amended.
ADDITIONAL INFORMATION
A copy of the Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part or anyone who receives this
Prospectus may obtain a copy of the Indenture without charge by writing to
Schuff at 1841 West Buchanan Street, Phoenix, Arizona 85009.
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
The Notes initially will be in the form of one or more registered global
notes without interest coupons (collectively, the "Global Exchange Notes"). Upon
issuance, the Exchange Notes will be deposited with the Trustee, as custodian
for DTC, in New York, New York, and registered in the name of DTC or its
nominee, in each case for credit to the accounts of DTC's Direct and Indirect
Participants (as defined below). Notes will be subject to the applicable rules
and procedures of DTC and its Direct or Indirect Participants (including, if
applicable, those of Euroclear and Cedel), which may change from time to time.
See "-- Transfers of Interests in One Global Note for Interests in Another
Global Note." All registered global notes are referred to herein collectively as
the "Global Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The Notes
may be presented for registration of transfer and exchange at the offices of the
Registrar.
Depositary Procedures
DTC has advised Schuff that DTC is a limited-purpose trust company created
to hold securities for its participating organizations (collectively, the
"Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry
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changes in accounts of Participants. The Direct Participants include securities
brokers and dealers (including the Initial Purchasers), banks, trust companies,
clearing corporations and certain other organizations, including Euroclear and
Cedel. Access to DTC's system is also available to other entities that clear
through or maintain a direct or indirect, custodial relationship with a Direct
Participant (collectively, the "Indirect Participants").
DTC has advised Schuff that, pursuant to DTC's procedures, (i) upon deposit
of the Global Exchange Notes, DTC will credit the accounts of the Direct
Participants designated by the Initial Purchasers with portions of the principal
amount of the Global Exchange Notes allocated by the Initial Purchasers to such
Direct Participants, and (ii) DTC will maintain records of the ownership
interests of such Direct Participants in the Global Exchange Notes and the
transfer of ownership interests by and between Direct Participants. DTC will not
maintain records of the ownership interests of, or the transfer of ownership
interests by and between, Indirect Participants or other owners of beneficial
interests in the Global Exchange Notes. Direct Participants and Indirect
Participants must maintain their own records of the ownership interests of, and
the transfer of ownership interests by and between, Indirect Participants and
other owners of beneficial interests in the Global Exchange Notes.
Investors in the U.S. Global Notes may hold their interests therein
directly through DTC if they are Direct Participants in DTC or indirectly
through organizations that are Direct Participants in DTC. Investors in the Reg
S Global Notes may hold their interests therein directly through Euroclear or
Cedel or indirectly through organizations that are participants in Euroclear or
Cedel. After the expiration of the 40-Day Restricted Period (but not earlier),
investors may hold interests in the Reg S Global notes through organizations
other than Euroclear and Cedel that are Direct Participants in the DTC system.
Morgan Guaranty Trust Company of New York, Brussels office, is the operator and
depositary of Euroclear and Citibank, N.A. is the operator and depositary of
Cedel (each, a "Nominee" of Euroclear and Cedel, respectively). Therefore, they
will each be recorded on DTC's records as the holders of all ownership interests
held by them on behalf of Euroclear and Cedel, respectively. Euroclear and Cedel
will maintain on their records the ownership interests, and transfer of
ownership interests by and between, their own customer's securities accounts.
DTC will not maintain records of the ownership interests of, or the transfer of
ownership interests by and between, customers of Euroclear or Cedel. All
ownership interests in any Global Exchange Notes, including those of customers'
securities accounts held through Euroclear or Cedel, may be subject to the
procedures and requirements of DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that they
own. This may limit or curtail the ability to transfer beneficial interests in a
Global Note to such persons. Because DTC can act only on behalf of Direct
Participants, which in turn act on behalf of Indirect Participants and others,
the ability of a person having a beneficial interest in a Global Exchange Note
to pledge such interest to persons or entities that are not Direct Participants
in DTC, or to otherwise take actions in respect of such interests, may be
affected by the lack of physical certificates evidencing such interests. For
certain other restrictions on the transferability of the Notes see "-- Transfers
of Interests in Global Notes for Certificated Notes."
Except as described in "-- Transfer of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the Global Exchange Notes
will not have Notes registered in their names, will not receive physical
delivery of Notes in certificated form and will not be considered the registered
owners or holders thereof under the Indenture for any purpose.
Under the terms of the Indenture, Schuff, the Guarantors and the Trustee
will treat the persons in whose names the Notes are registered (including Notes
represented by Global Notes) as the owners thereof for the purpose of receiving
payments and for any and all other purposes whatsoever. Payments in respect of
the principal, premium, and interest on Global Exchange Notes registered in the
name of DTC or its nominee will be payable by the Trustee to DTC or its nominee
as the registered holder under the Indenture. Consequently, neither Schuff, the
Trustee nor any agent of Schuff, or the Trustee has or will leave any
responsibility or liability for (i) any aspect of DTC's records or any Direct
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interests in the Global Exchange Notes or for
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maintaining, supervising or reviewing any of DTC's records or any Direct
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in any Global Exchange Note or (ii) any other matter
relating to the actions and practices of DTC or any of its Direct Participants
or Indirect Participants.
DTC has advised Schuff that its current payment practice (for payments of
principal, interest and the like) with respect to securities such as the Notes
is to credit the accounts of the relevant Direct Participants with such payment
on the payment date in amounts proportionate to such Direct Participant's
respective ownership interests in the Global Exchange Notes as shown on DTC's
records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the Notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
Trustee, Schuff or the Guarantors. Neither Schuff, the Guarantors nor the
Trustee will be liable for any delay by DTC or its Direct Participants or
Indirect Participants in identifying the beneficial owners of the Notes and
Schuff and the Trustee may conclusively rely on and will be protected in relying
on instructions from DTC or its nominee as the registered owner of the Notes for
all purposes.
The Global Exchange Notes will trade in DTC's Same-Day Funds Settlement
System and, therefore, transfers between Direct Participants in DTC will be
effected in accordance with DTC's procedures, and will be settled in immediately
available funds. Transfers between Indirect Participants (other than Indirect
Participants who hold an interest in the Notes through Euroclear or Cedel) who
hold an interest through a Direct Participant will be effected in accordance
with the procedures of such Direct Participant but generally will settle in
immediately available funds. Transfers between and among Indirect Participants
who hold interest in the Notes through Euroclear and Cedel will be effected in
the ordinary way in accordance with their respective rules and operating
procedures.
Subject to compliance with the transfer restrictions applicable to the
Notes described herein, crossmarket transfers between Direct Participants in
DTC, on the one hand, and Indirect Participants who hold interests in the Notes
through Euroclear or Cedel, on the other hand, will be effected by Euroclear or
Cedel's respective nominee through DTC in accordance with DTC's rules on behalf
of Euroclear or Cedel; however, delivery of instructions relating to
cross-market transactions must be made directly to Euroclear or Cedel, as the
case may be, by the counterparty in accordance with the rules and procedures of
Euroclear or Cedel and within their established deadlines (Brussels time for
Euroclear and UK time for Cedel). Indirect Participants who hold interest in the
Notes through Euroclear and Cedel may not deliver instructions directly to
Euroclear's or Cedel's Nominee. Euroclear or Cedel will, if the transaction
meets its settlement requirements, deliver instructions to its respective
Nominee to deliver or receive interests on Euroclear's or Cedel's behalf in the
relevant Global Note in DTC, and make or receive payment in accordance with
normal procedures for same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the Notes through Euroclear or Cedel
purchasing an interest in a Global Note from a Direct Participant in DTC will be
credited, and any such crediting will be reported to Euroclear or Cedel during
the European business day immediately following the settlement date of DTC in
New York. Although recorded in DTC's accounting records as of DTC's settlement
date in New York, Euroclear and Cedel customers will not have access to the cash
amount credited to their accounts as a result of a sale of an interest in a Reg
S Global Note to a DTC Participant until the European business day for Euroclear
or Cedel immediately following DTC's settlement date.
DTC has advised Schuff that it will take any action permitted to be taken
by a holder of Notes only at the direction of one or more Direct Participants to
whose accounts interests in the Global Exchange Notes are credited and only in
respect of such portion of the aggregate principal amount of the Notes as to
which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the Notes, DTC
reserves the right to exchange Global Notes (without the direction of one or
more of its Direct Participants) for legended Notes in certificated form, and to
distribute such certificated forms of Notes to its Direct Participants. See
"-- Transfers of Interests in Global Notes for Certificated Notes."
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Reg S Global Notes and in the U.S.
Global Notes among Direct Participants, Euroclear and
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Cedel, they are under no obligation to perform or to continue to perform such
procedures, and such procedures may be discontinued at any time. None of Schuff,
the Guarantors, the Initial Purchasers or the Trustee will have any
responsibility for the performance by DTC, Euroclear and Cedel or their
respective Direct and Indirect Participants of their respective obligations
under the rules and procedures governing any of their operations.
The information in this section concerning DTC, Euroclear and Cedel and
their book-entry systems has been obtained from sources that Schuff believes to
be reliable, but Schuff takes no responsibility for the accuracy thereof.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive Notes in registered,
certificated form without interest coupons ("Certificated Notes") if (i) DTC (x)
notifies Schuff that it is unwilling or unable to continue as depositary for the
Global Notes and Schuff thereupon fails to appoint a successor depositary within
90 days or (y) has ceased to be a clearing agency registered under the Exchange
Act, (ii) Schuff, at its option, notifies the Trustee in writing that it elects
to cause the issuance of Certificated Notes or (iii) there shall have occurred
and be continuing a Default or an Event of Default with respect to the Notes. In
any such case, Schuff will notify the Trustee in writing that, upon surrender by
the Direct and Indirect Participants of their interest in such Global Note,
Certificated Notes will be issued to each person that such Direct and Indirect
Participants and the DTC identify as being the beneficial owner of the related
Notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct and Indirect Participants (in accordance with DTC's
customary procedures).
Neither Schuff, the Guarantors nor the Trustee will be liable for any delay
by the holder of the Notes or the DTC in identifying the beneficial owners of
Notes, and Schuff, the Guarantors and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the holder of the Global Note
or the DTC for all purposes.
Transfers of Certificated Notes for Interests in Global Notes
Certificated Notes may only be transferred if the transferor first delivers
to the Trustee a written certificate (and in certain circumstances, an opinion
of counsel) confirming that, in connection with such transfers, it has complied
with applicable restrictions on transfer.
Same Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, and interest be made by
wire transfer of immediately available same day funds to the accounts specified
by the holder of interests in such Global Note. With respect to Certificated
Notes, Schuff will make all payments of principal, premium, if any, interest by
wire transfer of immediately available same day funds to the accounts specified
by the holders thereof or, if no such account is specified, by mailing a check
to each such holder's registered address. Schuff expects that secondary trading
in the Certificated Notes will also be settled in immediately available funds.
EXCHANGE OFFER; REGISTRATION RIGHTS
Schuff and the Initial Guarantors agreed pursuant to the Registration
Rights Agreement with the Initial Purchaser, for the benefit of the holders of
the Notes, that Schuff would, at its cost, (i) within 60 days after the Issue
Date, file the Exchange Offer Registration Statement with the Commission with
respect to the Exchange Offer for the Exchange Notes having terms substantially
identical in all material respects to the
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Notes (except that the Exchange Notes will not contain terms with respect to
transfer restrictions and registration under the Securities Act) and (ii) use
its best efforts to cause the Exchange Offer Registration Statement to be
declared effective under the Securities Act within 150 days after the Issue
Date. Upon the effectiveness of the Exchange Offer Registration Statement,
Schuff will offer the Exchange Notes in exchange for surrender of the
Outstanding Notes. Schuff will keep the Exchange Offer open for not less than 20
Business Days (or longer if required by applicable law) after the date notice of
the Exchange Offer is mailed to the holders of the Outstanding Notes. For each
Outstanding Note surrendered to Schuff pursuant to the Exchange Offer, the
holder of such Note will receive an Exchange Note having a principal amount
equal to that of the surrendered Outstanding Note. Interest on each Exchange
Note will accrue from the last interest payment date on which interest was paid
on the Outstanding Note surrendered in exchange thereof or, if no interest has
been paid on such Note, from the date of its original issue. Under existing
Commission interpretations, the Exchange Notes would be freely transferable by
holders other than affiliates of Schuff after the Exchange Offer without further
registration under the Securities Act if the holder of the Exchange Notes
represents that it is acquiring the Exchange Notes in the ordinary course of its
business, that it has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes and that it is not an
affiliate of Schuff, as such terms are interpreted by the Commission; provided,
however, that broker-dealers ("Participating Broker-Dealers") receiving Exchange
Notes in the Exchange Offer will have a prospectus delivery requirement with
respect to resales of such Exchange Notes. The Commission has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to Exchange Notes (other than a resale of an unsold
allotment from the original sale of the Outstanding Notes) with the prospectus
contained in the Exchange Offer Registration Statement. Under the Registration
Rights Agreement, Schuff is required to allow Participating Broker-Dealers and
other persons, if any, with similar prospectus delivery requirements to use the
prospectus contained in the Exchange Offer Registration Statement in connection
with the resale of such Exchange Notes.
A Holder of Outstanding Notes (other than certain specified holders) who
wishes to exchange such Notes for Exchange Notes in the Exchange Offer will be
required to represent that any Exchange Notes to be received by it will be
acquired in the ordinary course of its business and that at the time of the
commencement of the Exchange Offer it has no arrangement or understanding with
any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes and that it is not an "affiliate" of
Schuff, as defined in Rule 405 of the Securities Act, or if it is an affiliate,
that it will comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable.
In the event that applicable interpretations of the staff of the Commission
do not permit Schuff to effect such an Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 180 days of the date of the
Registration Rights Agreement, or if the Initial Purchasers so request with
respect to Outstanding Notes not eligible to be exchanged for Exchange Notes in
the Exchange Offer, or if any Holder of Outstanding Notes is not eligible to
participate in the Exchange Offer or does not receive freely tradable Exchange
Notes in the Exchange Offer, Schuff will, at its cost, (a) as promptly as
practicable, file a Shelf Registration Statement covering resales of the
Outstanding Notes or the Exchange Notes, as the case may be, (b) use its best
efforts to cause the Shelf Registration Statement to be declared effective under
the Securities Act and (c) keep the Shelf Registration Statement effective until
the earlier of (i) the time when the Notes covered by the Shelf Registration
Statement can be sold pursuant to Rule 144 without any limitations under clauses
(c), (e), (f) and (h) of Rule 144 and (ii) two years from the Issue Date. Schuff
will, in the event a Shelf Registration Statement is filed, among other things,
provide to each holder for whom such Shelf Registration Statement was filed
copies of the prospectus which is a part of the Shelf Registration Statement,
notify each such holder when the Shelf Registration Statement has become
effective and take certain other actions as are required to permit unrestricted
resales of the Outstanding Notes or the Exchange Notes, as the case may be. A
holder selling such Outstanding Notes or Exchange Notes pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Agreement which are applicable to such holder
(including certain indemnification obligations).
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Holders of Notes will be required to make certain representations to Schuff
(as described in the Registration Rights Agreement) in order to participate in
the Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Notes included in the Shelf
Registration Statement.
If Schuff effects the Exchange Offer, it will be entitled to close the
Exchange Offer 20 Business Days after the commencement thereof (unless a longer
period is required by applicable law); provided that it has accepted all
Outstanding Notes heretofore validly tendered in accordance with the terms of
the Exchange Offer.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Agreement,
a copy of which is available upon request to Schuff.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any capitalized terms used herein for which no definition
is provided.
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a subsidiary of such specified Person,
but excluding Indebtedness which is extinguished, retired or repaid in
connection with such other Person merging with or into or becoming a subsidiary
of such specified Person.
"Adjusted Net Assets" of a Guarantor at any date shall mean the amount by
which the fair value of the Property and other assets of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date), but excluding liabilities under the Guarantee
of such Guarantor.
"Affiliate" of any specified Person means another Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "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 or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Asset Acquisition" means (a) an Investment by Schuff or any Subsidiary of
Schuff in any other Person pursuant to which such Person becomes a Subsidiary or
is merged with or into Schuff or any Subsidiary or (b) the acquisition by Schuff
or any Subsidiary of the assets of any Person (other than a Subsidiary) which
constitute all or substantially all of the assets of such Person or comprise any
division or line of business of such Person.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
or other disposition (including, without limitation, by way of merger or
consolidation or by means of a Sale and Lease-Back Transaction) by Schuff or any
Subsidiary to any Person other than Schuff or a Subsidiary, in one transaction,
or a series of related transactions, of (i) any Capital Stock of any Subsidiary
(except for directors' qualifying shares or certain minority interests sold to
other Persons solely due to local law requirements that there be more than one
stockholder, but which are not in excess of what is required for such purpose),
or (ii) any other Property or assets of Schuff or any Subsidiary, other than (A)
sales of obsolete or worn out equipment in the ordinary course of business or
other assets that, in Schuff's reasonable judgment, are no longer used or useful
in the conduct of the business of Schuff and its Subsidiaries, (B) a Restricted
Payment or Restricted Investment permitted under "-- Certain
Covenants -- Limitation on Restricted Payments," (C) a Change of Control, (D) a
consolidation, merger, continuance or the disposition of all or substantially
all of the assets of Schuff
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and the Subsidiaries, taken as a whole, in compliance with the provision of the
Indenture described in "-- Consolidation, Merger, Conveyance, Lease or Transfer"
and (E) any transfer, conveyance, sale, lease or other disposition of Property
or assets, the gross proceeds of which (exclusive of indemnities) do not exceed
$25,000. An Asset Sale shall include the requisition of title to, seizure of or
forfeiture of any Property or assets, or any actual or constructive total loss
or an agreed or compromised total loss of any Property or assets.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, at any date of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease (or to
the first date on which the lessee is permitted to terminate such lease without
the payment of a penalty) included in such Sale and Lease-Back Transaction
(including any period for which such lease has been extended).
"Average Life" means, as of any date, with respect to any debt security,
the quotient obtained by dividing (i) the sum of the products of (x) the number
of years from such date to the date of each scheduled principal payment
(including any sinking fund or mandatory redemption payment requirements) of
such debt security multiplied in each case by (y) the amount of such principal
payment by (ii) the sum of all such principal payments.
"Board of Directors" of any Person means the Board of Directors of such
Person, or any authorized committee of such Board of Directors.
"Board Resolution" means a duly authorized resolution of the Board of
Directors in full force and effect as of the time of determination and certified
as such.
"Borrowing Base" means, at any date of determination, an amount equal to
75% of the accounts receivable owned by Schuff and its Subsidiaries that are not
more than 90 days past due and 60% of the inventory of Schuff and its
Subsidiaries, each as calculated on a consolidated basis in accordance with GAAP
as shown on the last financial statements delivered to the Trustee pursuant to
the covenant described in "--Certain Covenants -- Reports."
"Capital Lease Obligation" means, at any time as to any Person with respect
to any Property leased by such Person as lessee, the amount of the liability
with respect to such lease that would be required at such time to be capitalized
and accounted for as a capital lease on the balance sheet of such Person on
prepared in accordance with GAAP.
"Capital Stock" in any Person means any and all shares, interests,
partnership interests, participations or other equivalents in the equity
interest (however designated) in such Person and any rights (other than debt
securities convertible into an equity interest), warrants or options to acquire
any equity interest in such Person.
"Cash Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate consideration received for such Asset Sale by such Person in the form
of cash or cash equivalents (including any amounts of insurance or other
proceeds received in connection with an Asset Sale of the type described in the
last sentence of the definition thereof or marketable securities that are
converted into cash or cash equivalents within 30 days of an Asset Sale),
including payments in respect of deferred payment obligations when received in
the form of cash or cash equivalents (except to the extent that such obligations
are financed or sold with recourse to such Person or any subsidiary thereof).
"Change of Control" means (i) any Person or group (as defined in Section
13(d)(3) or 14(d)(2) of the Exchange Act) other than Permitted Holders becomes
the direct or beneficial owner (as defined in Rule 13d-3 under the Exchange Act)
of more than 50% of the voting power of the outstanding Voting Stock of Schuff;
(ii) Schuff is merged with or into or consolidated with another corporation and,
immediately after giving effect to the merger or consolidation, less than 50% of
the outstanding voting securities entitled to vote generally in the election of
directors or persons who serve similar functions of the surviving or resulting
entity are then beneficially owned (within the meaning of Rule 13d-3 of the
Exchange Act) in the aggregate by (x) the stockholders of Schuff immediately
prior to such merger or consolidation, or (y) if the record date has been set to
determine the stockholders of Schuff entitled to vote on such merger or
consolidation, the stockholders of Schuff as of such record date; (iii) Schuff,
either individually or in conjunction with one or
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more Subsidiaries, sells, conveys, transfers or leases, or the Subsidiaries
sell, convey, transfer or lease, all or substantially all of the assets of
Schuff or Schuff and the Subsidiaries, taken as a whole (either in one
transaction or a series of related transactions), including Capital Stock of the
Subsidiaries, to any Person (other than a Wholly Owned Subsidiary); (iv) the
liquidation or dissolution of Schuff; or (v) the first day on which a majority
of the individuals who constitute the Board of Directors of Schuff are not
Continuing Directors.
"Consolidated Interest Coverage Ratio" means as of the date of the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio (the "Transaction Date"), the ratio of (a) the aggregate amount
of EBITDA of Schuff and its consolidated Subsidiaries for the four fiscal
quarters for which financial information in respect thereof is available
immediately prior to the applicable Transaction Date (the "Determination
Period") to (b) the aggregate Consolidated Interest Expense of Schuff and its
consolidated Subsidiaries for such Determination Period. In addition to and
without limitation of the foregoing, for purposes of this definition, "EBITDA"
and "Consolidated Interest Expense" shall be calculated after giving effect on a
pro forma basis to (i)(a) the incurrence of any Indebtedness of Schuff or any of
its Subsidiaries (and the application of the proceeds thereof) giving rise to
the need to make such calculation and (b) any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof) occurring on or after
the first day of the Determination Period and on or prior to the Transaction
Date, in each case set forth in clauses (i)(a) and (b), as if such incurrence or
repayment, as the case may be, (and the application of proceeds thereof)
occurred on the first day of the Determination Period (except that Indebtedness
under any revolving credit facility shall be deemed to be the average daily
balance of such Indebtedness during such Determination Period) and (ii) any
Asset Sales or Asset Acquisitions (including (x) any Person who becomes a
Subsidiary as a result of any such Asset Acquisition and including any Asset
Sale or Asset Acquisition during such Determination Period by any such Person
determined as if such Person had been a Subsidiary at the time of such
transaction; provided that all Indebtedness of Schuff and any such Subsidiaries
shall be deemed to have been incurred on the first day of the Determination
Period and (y) the increase or decrease, as the case may be, in EBITDA directly
attributable to such Asset Sale or Asset Acquisition, as the case may be)
occurring on or after the first day of the Determination Period and on or prior
to the Transaction Date, as if such Asset Sale or Asset Acquisition, as the case
may be, (including the issuance, assumption or liability for any such Acquired
Indebtedness) occurred on the first day of the Determination Period. For
purposes of this definition, whenever pro forma effect is to be given to an
Asset Acquisition, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
incurred in connection therewith shall be determined in good faith by a
responsible financial or accounting officer of Schuff.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication (A) the sum of (i) the aggregate amount of cash and
noncash interest expense (including capitalized interest) of such Person and its
subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP in respect of Indebtedness (including, without limitation, (x) net
costs associated with Interest Swap Obligations (including any amortization of
discounts), (y) the interest portion of any deferred payment obligation
calculated in accordance with the effective interest method, and (z) all accrued
interest paid or accrued, or scheduled to be paid or accrued, during such
period); (ii) dividends on Preferred Stock or Redeemable Stock of such Person
(and Preferred Stock or Redeemable Stock of its subsidiaries if paid to a Person
other than such Person or its subsidiaries) declared and payable in cash; (iii)
the portion of any rental obligation of such Person or its subsidiaries in
respect of any Capital Lease Obligation allocable to interest expense in
accordance with GAAP; (iv) the portion of any rental obligation of such Person
or its subsidiaries in respect of any Sale and Lease-Back Transaction allocable
to interest expense (determined as if such were treated as a Capital Lease
Obligation); and (v) to the extent any debt of any other Person is guaranteed by
such Person or any of its subsidiaries, the aggregate amount of interest paid,
accrued or scheduled to be paid or accrued, by such other Person during such
period attributable to any such debt, less (B) to the extent included in (A)
above, amortization or write-off of deferred financing costs of such Person and
its subsidiaries during such period and any charge related or any premium or
penalty paid in connection with redeeming or retiring any Indebtedness of such
Person and its subsidiaries prior to its stated maturity; in the case of both
(A) and (B) above, after elimination of intercompany accounts among such Person
and its
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subsidiaries and as determined in accordance with GAAP. For purposes of clause
(ii) above, dividend requirements attributable to any Preferred Stock or
Redeemable Stock shall be deemed to be an amount equal to the amount of dividend
requirements on such Preferred Stock or Redeemable Stock times a fraction, the
numerator of which is one, and the denominator of which is one minus the
applicable combined federal, state, local and foreign income tax rate of Schuff
and its Subsidiaries (expressed as a decimal), on a consolidated basis for the
fiscal year immediately preceding the date of the transaction giving rise to the
need to calculate Consolidated Interest Expense.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or net loss, as the case may be) of such Person and its
subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP, provided that there shall be excluded therefrom, without duplication,
(i) any net income of any Unrestricted Subsidiary, except that Schuff's or any
Subsidiary's interest in the net income of such Unrestricted Subsidiary for such
period shall be included in such Consolidated Net Income up to the aggregate
amount of cash or cash equivalents actually distributed by such Unrestricted
Subsidiary during such period to Schuff or a Subsidiary as a dividend or other
distribution, (ii) gains and losses, net of taxes, from Asset Sales or reserves
relating thereto, (iii) the net income of any Person that is not a subsidiary or
that is accounted for by the equity method of accounting which shall be included
only to the extent of the amount of dividends or distributions paid to such
Person or its subsidiaries, (iv) items (but not loss items) classified as
extraordinary, unusual or nonrecurring (other than the tax benefit, if any, of
the utilization of net operating loss carryforwards or alternative minimum tax
credits), (v) the net income (or net loss) of any Person acquired by such
specified Person or any of its subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition, (vi) any gain
or loss, net of taxes, realized on the termination of any employee pension
benefit plan, (vii) the net income (but not net loss) of any subsidiary of such
specified Person to the extent that the transfer to that Person of that income
is not at the time permitted, directly or indirectly, by any means (including by
dividend, distribution, advance or loan or otherwise), or by operation of the
terms of its charter or any agreement with a Person other than with such
specified Person, instrument held by a Person other than by such specified
Person, judgment, decree, order, statute, law, rule or governmental regulations
applicable to such subsidiary or its stockholders, except for any dividends or
distributions actually paid by such subsidiary to such Person, and (viii) with
regard to a non-Wholly Owned Subsidiary, any aggregate net income (or loss) in
excess of such Person's or such subsidiary's pro rata share of such non-Wholly
Owned Subsidiary's net income (or loss).
"Consolidated Net Worth" of any Person means, as of any date, the sum of
the Capital Stock and additional paid-in capital plus retained earnings (or
minus accumulated deficit) of such Person and its subsidiaries on a consolidated
basis at such date, each item determined in accordance with GAAP, less amounts
attributable to Redeemable Stock of such Person or any of its subsidiaries.
"Continuing Director" means an individual who (i) is a member of the Board
of Directors of Schuff and (ii) either (A) was a member of the Board of
Directors of Schuff on the Issue Date or (B) whose nomination for election or
election to the Board of Directors of Schuff was approved by vote of at least a
majority of the directors then still in office who were either directors on the
Issue Date or whose election or nomination for election was previously so
approved.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time which were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or future contract or other similar agreement or arrangement designed to protect
against or manage such Person's or any of its subsidiaries' exposure to
fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Determination Period" has the meaning specified in clause (a) of the
definition of "Consolidated Interest Coverage Ratio."
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period, plus to the extent reflected in the
income statement of such Person for such period
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from which Consolidated Net Income is determined, without duplication, (i)
Consolidated Interest Expense, (ii) income tax expense, (iii) depreciation
expense, (iv) amortization expense, (v) any charge related to any premium or
penalty paid in connection with redeeming or retiring any Indebtedness prior to
its stated maturity, (vi) any one-time write-off of non-recurring closing costs
incurred in connection with any merger consummated after the Issue Date and
(vii) any other noncash charges minus, to the extent reflected in such income
statement, any noncash credits that had the effect of increasing Consolidated
Net Income of such Person for such period.
"Fair Market Value" means, with respect to consideration received or to be
received pursuant to any transaction by any Person, the fair market value of
such consideration as determined in good faith by the Board of Directors of
Schuff and, in the case of a determination including a Fair Market Value in
excess of $1.0 million, shall be evidenced by a resolution of the Board of
Directors of Schuff delivered to the Trustee.
"Fair Value" means, with respect to any asset or Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction.
"GAAP" means, at any date, United States generally accepted accounting
principles, consistently applied, as set forth in the opinions of the Accounting
Principles Board of the American Institute of Certified Public Accountants
("AICPA") and statements of the Financial Accounting Standards Board, or in such
other statements by such other entity as may be designated by the AICPA, that
are applicable to the circumstances as of the date of determination; provided,
however, that all calculations made for purposes of determining compliance with
the provisions set forth in the Indenture shall utilize GAAP in effect at the
Issue Date.
"Guarantee" means any guarantee of the Notes by any Guarantor in accordance
with the provisions described under "-- Guarantees of Notes."
"Guarantor" means the Initial Guarantors and each other future Subsidiary
of Schuff that is required to guarantee Schuff's Obligations under the Notes and
the Indenture as described in "-- Guarantees of Notes" and "-- Certain
Covenants -- Limitation on Guarantees by Subsidiaries" and any other Subsidiary
of Schuff that executes a supplemental indenture in which such Subsidiary agrees
to guarantee Schuff's Obligations under the Notes and the Indenture.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, suffer to exist, incur (by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or obligation on the balance sheet of
such Person (and "incurrence," "incurred," "incurrable" and "incurring" shall
have meanings correlative to the foregoing); provided that a change in GAAP that
results in an obligation of such Person that exists at such time becoming
Indebtedness shall not be deemed an incurrence of such Indebtedness.
Indebtedness otherwise incurred by a Person before it becomes a Subsidiary shall
be deemed to have been incurred at the time at which it becomes a Subsidiary. A
guarantee otherwise permitted by the Indenture to be incurred by Schuff or a
Subsidiary of Schuff of Indebtedness incurred in compliance with the terms of
the Indenture by Schuff or a Subsidiary of Schuff, as applicable, shall not
constitute a separate incurrence of Indebtedness.
"Indebtedness" as applied to any Person means, at any time, without
duplication, whether recourse is to all or a portion of the assets of such
Person, and whether or not contingent, (i) any obligation of such Person for
borrowed money; (ii) any obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, including, without limitation,
any such obligations incurred in connection with acquisition of Property, assets
or businesses, excluding accounts payable made in the ordinary course of
business which are not more than 90 days overdue or which are being contested in
good faith and by appropriate proceedings; (iii) any obligation of such Person
for all or any part of the purchase price of Property or assets, or for the cost
of Property constructed or of improvements thereto (including any obligation
under or in connection with any letter of credit related thereto), other than
accounts payable incurred in respect of Property and services purchased in the
ordinary course of business which are no more than 90 days overdue or which are
being contested in good faith and by appropriate proceedings; (iv) any
obligation of such Person upon which interest
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charges are customarily paid (other than accounts payable incurred in the
ordinary course of business); (v) any obligation of such Person under
conditional sale or other title retention agreements relating to purchased
Property; (vi) any obligation of such Person issued or assumed as the deferred
purchase price of Property or assets (other than accounts payable incurred in
the ordinary course of business which are no more than 90 days overdue or which
are being contested in good faith and by appropriate proceedings); (vii) any
Capital Lease Obligation or Attributable Indebtedness pursuant to any Sale and
Lease-Back Transaction of such Person; (viii) any obligation of any other Person
secured by (or for which the obligee thereof has an existing right, contingent
or otherwise, to be secured by) any Lien on Property owned or acquired, whether
or not any obligation secured thereby has been assumed, by such Person; (ix) any
obligation of such Person in respect of any letter of credit supporting any
obligation of any other Person; (x) the maximum fixed repurchase price of any
Redeemable Stock of such Person (or if such Person is a subsidiary, any
Preferred Stock of such Person); (xi) the notional amount of any Interest Swap
Obligation or Currency Hedge Obligation of such Person at the time of
determination; and (xii) any obligation which is in economic effect a guarantee,
regardless of its characterization (other than an endorsement in the ordinary
course of business), with respect to any Indebtedness of another Person, to the
extent guaranteed. For purposes of the preceding sentence, the maximum fixed
repurchase price of any Redeemable Stock or subsidiary Preferred Stock that does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Stock or subsidiary Preferred Stock as if such
Redeemable Stock or subsidiary Preferred Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to the Indenture;
provided that if such Redeemable Stock or subsidiary Preferred Stock is not then
permitted to be repurchased, the repurchase price shall be the book value of
such Redeemable Stock or subsidiary Preferred Stock. The amount of Indebtedness
of any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
guarantees at such date; provided, further, that for purposes of calculating the
amount of any non-interest bearing or other discount security, such Indebtedness
shall be deemed to be the principal amount thereof that would be shown on the
balance sheet of the issuer dated such date prepared in accordance with GAAP but
that such security shall be deemed to have been incurred only on the date of the
original issuance thereof.
"Initial Guarantors" means all of Schuff's subsidiaries as of the close of
business on the Issue Date.
"Interest Swap Obligations" means, with respect to any Person, the
obligation of such Person pursuant to any interest rate swap agreement, interest
rate cap, collar or floor agreement or other similar agreement or arrangement
designed to protect against or manage such Person's or any of its subsidiaries'
exposure to fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct, indirect or
contingent investment in another Person, whether by means of a share purchase,
capital contribution, loan, advance (other than advances to employees for moving
and travel expenses, drawing accounts and similar expenditures in the ordinary
course of business) or similar credit extension constituting Indebtedness of
such other Person, and any guarantee of Indebtedness of any other Person;
provided that the term "Investment" shall not include any transaction involving
the purchase or other acquisition (including by way of merger) of Property or
assets (including Capital Stock) by Schuff or any Subsidiary in exchange for
Capital Stock (other than Redeemable Stock) of Schuff. The amount of any
Person's Investment shall be the original cost of such Investment to such
Person, plus the cost of all additions thereto paid by such Person, and minus
the amount of any portion of such Investment repaid to such Person in cash as a
repayment of principal or a return of capital, as the case may be, but without
any other adjustments for increases or decreases in value, or write-ups,
writedowns, or write-offs with respect to such Investment. In determining the
amount of any Investment involving a transfer of any Property or assets other
than cash, such Property or assets shall be valued at its Fair Value at the time
of such transfer as determined in good faith by the board of directors (or
comparable body) of the Person making such transfer. Schuff shall be deemed to
make an "Investment" in the amount of the Fair Value of the Property and assets
of a Subsidiary at the time such Subsidiary is designated an Unrestricted
Subsidiary.
"Issue Date" means the date on which the Notes are first authenticated and
delivered under the Indenture.
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"Joint Venture" means any Person (other than a Subsidiary) designated as
such by a resolution of the Board of Directors of Schuff and as to which (i)
Schuff, any Subsidiary or any Joint Venture owns less than 50% of the Capital
Stock of such Person; (ii) no more than ten unaffiliated Persons own of record
any Capital Stock of such Person; (iii) at all times, each such Person owns the
same proportion of each class of Capital Stock of such Person outstanding at
such time; (iv) no Indebtedness of such Person is or becomes outstanding other
than Non-Recourse Indebtedness; (v) there exist no consensual encumbrances or
restrictions on the ability of such Person to (x) pay, directly or indirectly,
dividends or make any other distributions in respect of its Capital Stock to the
holders of its Capital Stock or (y) pay any Indebtedness or other obligation
owed to the holders of its Capital Stock or (z) make any Investment in the
holders of its Capital Stock, in each case other than the types of consensual
encumbrances or restrictions that would be permitted by the "Limitations on
Dividends and Other Payment Restrictions Affecting Subsidiaries" covenant if
such Person were a Subsidiary; and (vi) the business engaged in by such Person
is a Related Business.
"Lien" means any mortgage, pledge, hypothecation, charge, assignment,
deposit arrangement, encumbrance, security interest, lien (statutory or other),
or preference, priority or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
agreement to give or grant a Lien or any lease, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing).
"Maturity" means the date on which the principal of a Note becomes due and
payable as provided therein or in the Indenture, whether at the Stated Maturity
or the Change of Control Payment Date or purchase date established pursuant to
the terms of the Indenture for an Asset Sale Offer or by declaration of
acceleration, call for redemption or otherwise.
"Net Available Proceeds" means, as to any Asset Sale, the Cash Proceeds
therefrom, net of all legal and title expenses, commissions and other fees and
expenses incurred, and all Federal, state, foreign, recording and local taxes
payable, as a consequence of such Asset Sale, net of all payments made to any
Person other than Schuff or a Subsidiary on any Indebtedness which is secured by
such assets, in accordance with the terms of any Lien upon or with respect to
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Sale, or by applicable law, be repaid out of the proceeds
from such Asset Sale and, as for any Asset Sale by a Subsidiary, net of the
equity interest in such Cash Proceeds of any holder of Capital Stock of such
Subsidiary (other than Schuff, any other Subsidiary or any Affiliate of Schuff
or any such other Subsidiary).
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of an Unrestricted Subsidiary as to which (a) neither Schuff nor
any other Subsidiary (other than an Unrestricted Subsidiary) (i) provides credit
support including any undertaking, agreement or instrument which would
constitute Indebtedness or (ii) is directly or indirectly liable for such
Indebtedness and (b) no default with respect to such Indebtedness (including any
rights which the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness of Schuff or its other Subsidiaries to declare
a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"Obligations" means, with respect to any Indebtedness, any obligation
thereunder, including, without limitation, principal, premium and interest
(including post petition interest thereon), penalties, fees, costs, expenses,
indemnifications, reimbursements, damages and other liabilities.
"Obligors" means Schuff and the Guarantors, collectively; "Obligor" means
Schuff or any Guarantor.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President, the Chief Executive Officer
or a Vice President, and by the Chief Financial Officer, the Chief Accounting
Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of Schuff or a Subsidiary and delivered to the Trustee, which shall
comply with the Indenture.
"Permitted Holders" means David A. Schuff and Scott A. Schuff and any
person related to such persons by kinship or marriage, trusts or similar
arrangements established solely on the behalf of one or more of them, and
partnerships and other entities that are controlled by them.
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"Permitted Indebtedness" means (a) Indebtedness of Schuff under the Notes;
(b) Indebtedness (and any guarantee thereof) under one or more credit or
revolving credit facilities with a bank or syndicate of banks or financial
institutions, including the Prior Credit Facility, as such may be amended,
modified, revised, extended, replaced, or refunded from time to time, in an
aggregate principal amount at any one time outstanding not to exceed at the time
of incurrence the greater of (i) $25.0 million or (ii) the Borrowing Base, less
any amounts derived from Asset Sales and applied to the required permanent
reduction of Senior Debt (and a permanent reduction of the related commitment to
lend or amount available to be reborrowed in the case of a revolving credit
facility) under such credit facilities as contemplated by the "Limitation on
Asset Sales" covenant; (c) Indebtedness of Schuff or any Subsidiary under
Interest Swap Obligations, provided that (i) such Interest Swap Obligations are
related to payment obligations on Indebtedness otherwise permitted under the
covenants described in "-- Certain Covenants -- Limitation on Indebtedness" and
"-- Limitation on Subsidiary Indebtedness and Preferred Stock" and (ii) the
notional principal amount of such Interest Swap Obligations does not exceed the
principal amount of the Indebtedness to which such Interest Swap Obligations
relate; (d) Indebtedness of Schuff or any Subsidiary under Currency Hedge
Obligations, provided that (i) such Currency Hedge Obligations are related to
payment obligations on Indebtedness otherwise permitted under the covenants
described in "-- Certain Covenants -- Limitation on Indebtedness" and
"-- Limitation on Subsidiary Indebtedness and Preferred Stock" or to the foreign
currency cash flows reasonably expected to be generated by Schuff and the
Subsidiary and (ii) the notional amount of such Currency Hedge Obligations does
not exceed the principal amount of the Indebtedness and the amount of foreign
currency cash flows to which such Currency Hedge Obligations relate; (e)
Indebtedness of Schuff or any Subsidiary outstanding on the Issue Date and
listed on a schedule to the Indenture (excluding Indebtedness under the Prior
Credit Facility which is permitted under clause (b) of this definition), (f) the
Guarantees of the Notes (and any assumption of the Obligations guaranteed
thereby); (g) Indebtedness of Schuff or any Subsidiary in respect of bid and
performance bonds, surety bonds, appeal bonds and letters of credit or similar
arrangements issued for the account of Schuff or any Subsidiary, in each case in
the ordinary course of business and other than for an obligation for money
borrowed; (h) Indebtedness of Schuff to a Subsidiary and Indebtedness of a
Subsidiary to Schuff or another Subsidiary; provided that upon any subsequent
event which results in any such Subsidiary ceasing to be a Subsidiary or any
other subsequent transfer of any such Indebtedness (except to Schuff or a
Subsidiary), such Indebtedness shall be deemed, in each case, to be incurred and
shall be treated as an incurrence for purposes of the "Limitation on
Indebtedness" and "-- Limitation on Subsidiary Indebtedness and Preferred Stock"
covenants at the time the Subsidiary in question ceased to be a Subsidiary or on
which such subsequent transfer occurred; (i) Indebtedness of Schuff in
connection with a purchase of the Notes pursuant to a Change of Control Offer,
provided that the aggregate principal amount of such Indebtedness does not
exceed 101% of the aggregate principal amount at Stated Maturity of the Notes
purchased pursuant to such Change of Control Offer, provided, further, that such
Indebtedness (A) has an Average Life equal to or greater than the remaining
Average Life of the Notes and (B) does not mature prior to one year following
the Stated Maturity of the Notes; (j) Permitted Refinancing Indebtedness; (k)
Permitted Subsidiary Refinancing Indebtedness; and (l) additional Indebtedness
in an aggregate principal amount not to exceed $5.0 million at any time
outstanding. So as to avoid duplication in determining the amount of Permitted
Indebtedness under any clause of this definition, guarantees permitted to be
incurred pursuant to the Indenture of, or obligations permitted to be incurred
pursuant to the Indenture in respect of letters of credit supporting,
Indebtedness otherwise included in the determination of such amount shall not
also be included.
"Permitted Investments" means (a) certificates of deposit, bankers
acceptances, time deposits, Eurocurrency deposits and similar types of
Investments routinely offered by commercial banks with final maturities of one
year or less issued by commercial banks organized in the United States, or
foreign branches thereof, having capital and surplus in excess of $500 million
or any commercial bank of any other country that is a member of the Organization
for Economic Cooperation and Development ("OECD") and has total assets in excess
of $500 million; (b) commercial paper issued by any corporation, if such
commercial paper has credit ratings of at least "A-1" or its equivalent by S&P
and at least "P-1" or its equivalent by Moody's; (c) U.S. Government Obligations
with a maturity of one year or less; (d) repurchase obligations for instruments
of the type described in clause (c) with any bank meeting the qualifications
specified in clause (a) above; (e) shares
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of money market mutual or similar funds having assets in excess of $500 million;
(f) payroll advances in the ordinary course of business and other advances and
loans to officers and employees of Schuff or any Subsidiary, so long as the
aggregate principal amount of such advances and loans, does not exceed $1.0
million at any one time outstanding; (g) Investments represented by that portion
of the proceeds from Asset Sales that is not required to be Cash Proceeds by the
covenant described in "-- Certain Covenants -- Limitation on Asset Sales"; (h)
Investments made by Schuff in Subsidiaries (or any Person that will be a
Subsidiary as a result of such Investment) or by a Subsidiary in Schuff or in
one or more Subsidiaries (or any Person that will be a Subsidiary as a result of
such Investment); (i) Investments in stock, obligations or securities received
in settlement of debts owing to Schuff or any Subsidiary as a result of
bankruptcy or insolvency proceedings or upon the foreclosure, perfection or
enforcement of any Lien in favor of Schuff or any Subsidiary, in each case as to
debt owing to Schuff or any Subsidiary that arose in the ordinary course of
business of Schuff or any such Subsidiary; (j) Interest Swap Obligations with
respect to any floating rate Indebtedness that is permitted by the terms of the
Indenture to be outstanding; (k) Currency Hedge Obligations, provided that such
Currency Hedge Obligations constitute Permitted Indebtedness permitted by clause
(d) of the definition thereof; (l) foreign bank deposits and cash equivalents in
jurisdictions where Schuff or its Subsidiaries are then actively conducting
business provided that (i) all such deposits are required to be made in the
ordinary course of business, (ii) such deposits do not exceed $1.0 million in
the aggregate and (iii) the funds so deposited do not remain in such bank for
more than 30 days; (m) Investments in prepaid expenses, negotiable instruments
held for collection and lease, utility, worker's compensation and performance
and other similar deposits in the ordinary course of business; and (n)
Investments pursuant to any agreement or obligation of Schuff or any Subsidiary
in effect on the Issue Date and listed on a schedule attached to the Indenture.
"Permitted Liens" means (a) Liens in existence on the Issue Date; (b) Liens
created for the benefit of the Notes and/or the Guarantees; (c) Liens on
Property of a Person existing at the time such Person is merged or consolidated
with or into Schuff or a Subsidiary (and not incurred as a result of, or in
anticipation of, such transaction), provided that any such Lien relates solely
to such Property; (d) Liens on Property existing at the time of the acquisition
thereof (and not incurred as a result of, or in anticipation of such
transaction), provided that any such Lien relates solely to such Property; (e)
Liens incurred or pledges and deposits made in connection with worker's
compensation, unemployment insurance and other social security benefits,
statutory obligations, bid, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (f)
Liens imposed by law or arising by operation of law, including, without
limitation, landlords', mechanics', carriers', warehousemen's, materialmen's,
suppliers' and vendors' Liens and incurred in the ordinary course of business
for sums not delinquent or being contested in good faith, if such reserves or
other appropriate provisions, if any, as shall be required by GAAP shall have
been made with respect thereof; (g) zoning restrictions, easements, licenses,
covenants, reservations, restrictions on the use of real property and defects,
irregularities and deficiencies in title to real property that do not,
individually or in the aggregate, materially affect the ability of Schuff or any
Subsidiary to conduct its business as presently conducted; (h) Liens for taxes
or assessments or other governmental charges or levies not yet due and payable,
or the validity of which is being contested by Schuff or a Subsidiary in good
faith and by appropriate proceedings upon stay of execution or the enforcement
thereof and for which adequate reserves in accordance with GAAP or other
appropriate provision has been made; (i) Liens to secure Indebtedness incurred
for the purpose of financing all or a part of the purchase price or construction
cost of Property or assets acquired or constructed after the Issue Date,
provided that (1) the principal amount of Indebtedness secured by such Liens
shall not exceed 100% of the lesser of cost or Fair Market Value of the Property
or assets so acquired or constructed plus transaction costs related thereto, (2)
such Liens shall not encumber any other assets or Property of Schuff or any
Subsidiary (other than the proceeds thereof and accessions and upgrades thereto)
and (3) such Liens shall attach to such Property or assets within 120 days of
the date of the completion of the construction or acquisition of such Property
or assets; (j) Liens securing Capital Lease Obligations, provided that such
Liens secure Capital Lease Obligations in an aggregate principal amount not
exceeding $1.0 million at any one time outstanding; (k) Liens to secure any
extension, renewal, refinancing or refunding (or successive extensions,
renewals, refinancings or refundings), in whole or in part, of any Indebtedness
secured by Liens referred to in the foregoing clauses (a), (c) and (d), provided
that such Lien does not extend to any other Property or assets of Schuff or any
Subsidiary and the principal amount of the
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Indebtedness secured by such Lien is not increased; (l) leases or subleases of
real property to other Persons; (m) judgment liens not giving rise to an Event
of Default so long as any appropriate legal proceedings which may have been
initiated for the review of such judgment shall not have been finally terminated
or the period within which such proceeding may be initiated shall not have
expired; (n) rights of off-set of banks and other Persons; (o) liens in favor of
Schuff; (p) Liens securing Indebtedness described under clause (b) and clause
(l) of the definition of Permitted Indebtedness and (q) Liens securing other
Indebtedness in an aggregate principal amount not exceeding $1.0 million at any
one time outstanding.
"Permitted Refinancing Indebtedness" means Indebtedness of Schuff, incurred
in exchange for, or the net proceeds of which are used to renew, extend,
refinance, refund or repurchase, outstanding Indebtedness of Schuff which
outstanding Indebtedness was incurred in accordance with, or is otherwise
permitted by, the terms of clauses (a) and (e) of the definition of "Permitted
Indebtedness; provided that (i) if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased is pari passu with or subordinated in right
of payment (without regard to its being secured) to the Notes, then such new
Indebtedness is pari passu with or subordinated in right of payment (without
regard to its being secured) to, as the case may be, the Notes at least to the
same extent as the Indebtedness being renewed, extended, refinanced, refunded or
repurchased, (ii) such new Indebtedness is scheduled to mature later than the
Indebtedness being renewed, extended, refinanced, refunded or repurchased, (iii)
such new Indebtedness has an Average Life at the time such Indebtedness is
incurred that is greater than the Average Life of the Indebtedness being
renewed, extended, refinanced, refunded or repurchased, and (iv) such new
Indebtedness is in aggregate principal amount (or, if such Indebtedness is
issued at a price less than the principal amount thereof, the aggregate amount
of gross proceeds therefrom is) not in excess of the aggregate principal amount
then outstanding of the Indebtedness being renewed, extended, refinanced,
refunded or repurchased (or if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than the
principal amount thereof, then not in excess of the amount of liability in
respect thereof determined in accordance with GAAP) plus the amount of
reasonable fees, expenses and premium, if any, incurred by Schuff or such
Subsidiary in connection therewith.
"Permitted Subsidiary Refinancing Indebtedness" means Indebtedness of any
Subsidiary, incurred in exchange for, or the net proceeds of which are used to
renew, extend, refinance refund or repurchase, outstanding Indebtedness of such
Subsidiary which outstanding Indebtedness was incurred in accordance with, or is
otherwise permitted by, the terms of clauses (e) and (f) of the definition of
Permitted Indebtedness, provided that (i) if the Indebtedness being renewed,
extended, refinanced, refunded or repurchased is pari passu with or subordinated
in right of payment (without regard to its being secured) to the Guarantee of
such Subsidiary, then such new Indebtedness is pari passu with or subordinated
in right of payment (without regard to its being secured) to, as the case may
be, the Guarantee of such Subsidiary at least to the same extent as the
Indebtedness being renewed, extended, refinanced, refunded or repurchased, (ii)
such new Indebtedness is scheduled to mature later than the Indebtedness being
renewed, extended, refinanced, refunded or repurchased, (iii) such new
Indebtedness has an Average Life at the time Indebtedness is incurred that is
greater than the Average Life of the Indebtedness being renewed, extended,
refinanced, refunded or repurchased, and (iv) such new Indebtedness is in an
aggregate principal amount (or, if such Indebtedness is issued at a price less
than the principal amount thereof, the aggregate amount of gross proceeds
therefrom is) not in excess of the aggregate principal amount then outstanding
of the Indebtedness being renewed, extended, refinanced, refunded or repurchased
(or if the Indebtedness being renewed, extended, refinanced, refunded or
repurchased was issued at a price less than the principal amount hereof, then
not in excess of the amount of liability in respect thereof determined in
accordance with GAAP) plus the amount of reasonable fees, expenses and premium,
if any, incurred by Schuff or such Subsidiary in connection therewith.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends and/or as to the distribution of assets upon any
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voluntary or involuntary liquidation, dissolution or winding up of such Person,
to shares of Capital Stock of at least one other class of such Person.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, excluding Capital Stock in any other Person.
"Public Equity Offering" means an offering of Capital Stock (other than
Redeemable Stock) of Schuff for cash pursuant to an effective registration
statement (other than on a Form S-4 or a Form S-8 or any other form relating to
securities issuable under any employee benefit plan of Schuff) under the
Securities Act.
"Redeemable Stock" means, with respect to any Person, any equity security
that by its terms or otherwise is required to be redeemed, or is redeemable at
the option of the holder thereof, at any time prior to one year following the
Stated Maturity of the Notes or is exchangeable into Indebtedness of such Person
or any of its subsidiaries.
"Related Business" means the steel fabrication, erection, engineering and
detailing business and activities incidental thereto and any business reasonably
complementary, related or ancillary thereto.
"Replacement Asset" means a Property or asset that, as determined by the
Board of Directors of Schuff as evidenced by a Board Resolution, is used or is
useful in a Related Business.
"Restricted Investment" means any Investment in any Person, including an
Unrestricted Subsidiary or the designation of a Subsidiary as an Unrestricted
Subsidiary, other than a Permitted Investment.
"Restricted Payment" means to (i) declare or pay any dividend on, or make
any distribution in respect of, or purchase, redeem, retire or otherwise acquire
for value, any Capital Stock of Schuff or any Affiliate of Schuff, or warrants,
rights or options to acquire such Capital Stock, other than (x) dividends
payable solely in the Capital Stock (other than Redeemable Stock) of Schuff or
such Affiliate, as the case may be, or in warrants, rights or options to
purchase or acquire such Capital Stock and (y) dividends or distributions by a
Subsidiary to Schuff or to a Wholly Owned Subsidiary; (ii) make any principal
payment on, or redeem, repurchase, defease (including an in-substance or legal
defeasance) or otherwise acquire or retire for value (including pursuant to
mandatory repurchase covenants), prior to any scheduled principal payment,
scheduled sinking fund payment or other stated maturity, Indebtedness of Schuff
or any Subsidiary which is subordinated (whether pursuant to its terms or by
operation of law) in right of payment to the Notes or the Guarantees, as
applicable; or (iii) make any Restricted Investment in any Person; (iv)
designate (other than pursuant to clause (xi) of the definition of Permitted
Investments) a Subsidiary as an Unrestricted Subsidiary, provided that such a
designation of a Subsidiary of Schuff as an Unrestricted Subsidiary shall be
deemed to include the designation of all of the subsidiaries of such Subsidiary
that were Subsidiaries and (v) forgive any Indebtedness of an Affiliate of
Schuff to Schuff or a Restricted Subsidiary. For purposes of determining the
amount expended for Restricted Payments, cash distributed or invested shall be
valued at the face amount thereof and Property other than cash shall be valued
at its Fair Market Value, except that in determining the amount of any
Restricted Payment made under clause (iv) above, the amount of such Restricted
Payment shall be equal to the greater of (i) the book value or (ii) the Fair
Market Value of Schuff's direct and indirect proportionate interest in such
Subsidiary on such date or the date of the acquisition by Schuff.
"Sale and Lease-Back Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a subsidiary of such Person and is thereafter leased back from
the purchaser or transferee thereof by such Person or one of its subsidiaries.
"Senior Debt" means any Indebtedness incurred by Schuff or a Guarantor,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is subordinated in right of payment to the Notes or such
Guarantor's Guarantee, as applicable, provided that Senior Debt will not include
(a) any liability for federal, state, local or other taxes owed or owing, (b)
any Indebtedness owing to any Subsidiaries of Schuff, (c) any trade payables or
(d) any Indebtedness that is incurred in violation of the Indenture.
"Significant Subsidiary" means any Guarantor or any other Subsidiary that
is a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under
the Securities Act and the Exchange Act.
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"Stated Maturity" when used with respect to a Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"Subordinated Indebtedness" means any Indebtedness of Schuff or any
Guarantor that is subordinated in right of payment to the Notes or the
Guarantees, as the case may be, and does not mature prior to one year following
the Stated Maturity of the Notes.
"subsidiary" means, with respect to any Person, (i) any corporation more
than 50% of the outstanding Voting Stock of which is owned, directly or
indirectly, by such Person, or by one or more other subsidiaries of such Person,
or by such Person and one or more other subsidiaries of such Person, (ii) any
general partnership, joint venture or similar entity, more than 50% of the
outstanding partnership or similar interest of which is owned, directly or
indirectly, by such Person, or by one or more other subsidiaries or such Person,
or by such Person and one or more other subsidiaries of such Person and (iii)
any limited partnership of which such Person or any subsidiary of such Person is
a general partner.
"Subsidiary" means a subsidiary of Schuff other than an Unrestricted
Subsidiary.
"Transaction Date" has the meaning specified within the definition of
Consolidated Interest Coverage Ratio.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) above, are not callable or redeemable at the option of the
issuers thereof; or (iii) depository receipts issued by a bank or trust company
as custodian with respect to any such U.S. Government Obligations or a specific
payment of interest on or principal of any such U.S. Government Obligation held
by such custodian for the account of the holder of a depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation evidenced by such Depository receipt.
"Unrestricted Subsidiary" means any subsidiary of Schuff that Schuff has
classified as an Unrestricted Subsidiary, and that has not been reclassified as
a Subsidiary, pursuant to the terms of the Indenture.
"Voting Stock" means with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holder thereof (whether at
all times or at the times that such class of Capital Stock has voting power by
reason of the happening of any contingency) to vote in the election of members
of the board of directors or comparable body of such Person.
"Wholly Owned Subsidiary" means any Subsidiary to the extent (i) all of the
Capital Stock or other ownership interests in such Subsidiary, other than any
directors' qualifying shares mandated by applicable law, is owned directly or
indirectly by Schuff or (ii) such Subsidiary is organized in a foreign
jurisdiction and is required by the applicable laws and regulations of such
foreign jurisdiction to be partially owned by the government of such foreign
jurisdiction or individual or corporate citizens of such foreign jurisdiction in
order for such Subsidiary to transact business in such foreign jurisdiction,
provided that Schuff, directly or indirectly, owns the remaining Capital Stock
or ownership interest in such Subsidiary and, by contract or otherwise, controls
the management and business of such Subsidiary and derives the economic benefits
of ownership of such Subsidiary to substantially the same extent as if such
Subsidiary were a Wholly Owned Subsidiary.
DESCRIPTION OF OUTSTANDING NOTES
The terms of the Outstanding Notes are identical in all material respects
to the Exchange Notes, except that the Outstanding Notes have not been
registered under the Securities Act, are subject to certain restrictions on
transfer and are entitled to certain registration rights under the Registration
Rights Agreement (which rights terminate upon the consummation of the Exchange
Offer, except under limited circumstances).
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See "Description of Exchange Notes." In addition, the Registration Rights
Agreement provides that if (i) within 60 days of the Issue Date (as defined
herein) or a Shelf Request (as defined herein), neither an exchange offer
registration statement nor a resale shelf registration statement has been filed,
(ii) within 150 days of the Issue Date or a Shelf Request, neither an exchange
offer registration statement nor a resale shelf registration statement has been
declared effective, (iii) within 180 days of the Issue Date, an exchange offer
has not been consummated or (iv) either the exchange offer registration
statement or the resale shelf registration statement has been declared effective
and such registration statement ceases to be effective or usable (subject to
certain exceptions) in connection with resales of Outstanding Notes during
periods specified in the Registration Rights Agreement (each such event referred
to in clauses (i) through (iv), a "Registration Default"), Schuff will pay
additional interest ("Special Interest") to each holder of Notes, with respect
to the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $.05 per week per $1,000 principal
amount of Notes held by such holder. The amount of the Special Interest will
increase by an additional $.05 per week per $1,000 principal amount of Notes
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of Special Interest of $.50 per week per
$1,000 principal amount of Notes. All accrued Special Interest will be paid by
Schuff on each interest payment date to the Global Note holder by wire transfer
of immediately available funds or by federal funds check and to holders of
Certificated Securities by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the accrual of
Special Interest will cease. The Outstanding Notes and the Exchange Notes will
constitute a single series of debt securities under the Indenture. See
"Description of Exchange Notes."
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Outstanding Notes were originally sold by the Company on June 4, 1998,
to the Initial Purchasers pursuant to the Purchase Agreement among the Company
and the Initial Purchasers. The Initial Purchasers subsequently resold the
Outstanding Notes to qualified institutional buyers pursuant to Rule 144A under
the Securities Act or institutional "accredited investors" (as defined in Rule
501(a) (1), (2), (3) or (7) of Regulation D under the Securities Act). In
connection with issuance and sales of the outstanding notes, Schuff and the
Initial Purchasers entered into the Registration Rights Agreement, pursuant to
which the Company has agreed, for the benefit of the holders of the Outstanding
Notes, at the Company's cost, to use its best efforts to (i) file a registration
statement with the Commission within 60 days after the Issue Date of the
Outstanding Notes with respect to the Exchange Offer for the Outstanding Notes,
and (ii) cause the registration statement to be declared effective under the
Securities Act within 150 days after the Issue Date. Upon the registration
statement being declared effective, the Company will offer the Exchange Notes in
exchange for the Outstanding Notes. The Company will keep the Exchange Offer
open for no less than 20 Business Days (or longer if required by applicable law)
after the date on which notice of the Exchange Offer is mailed to the holders of
the Outstanding Notes.
For each Outstanding Note properly tendered and accepted pursuant to the
Exchange Offer, the holder of such Outstanding Note will receive an Exchange
Note having a principal amount equal to that of the Outstanding Note tendered.
Interest on each Exchange Note will accrue from the last respective interest
date on which interest was paid on the Outstanding Note tendered in exchange
therefor or, if no interest has been paid on such Outstanding Note, from the
Issue Date.
Each holder of the Outstanding Notes who wishes to exchange the Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to represent in
the Letter of Transmittal that (i) it is not an affiliate of the Company or the
Guarantors, (ii) the Exchange Notes to be received by it were acquired in the
ordinary course of its business and (iii) at the time of commencement of the
Exchange Offer, it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes.
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In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect the Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 150 days after the Issue
Date, or, under certain circumstances, if the Initial Purchasers or any holder
of Outstanding Notes (other than the Initial Purchasers) who is not eligible to
participate in the Exchange Offer shall so request (each a "Shelf Request"), the
Company will at its cost, (a) within 30 days of such Shelf Request, file a shelf
registration statement covering resales of the Outstanding Notes (a "Shelf
Registration Statement"), (b) use its best efforts to cause such Shelf
Registration Statement to be declared effective under the Securities Act no
later than 60 days following a Shelf Request and (c) use its best efforts to
keep effective such Shelf Registration Statement until the earlier of two years
after the Issue Date and such time as all of the applicable Outstanding Notes
have been sold thereunder. The Company will, in the event of the filing of a
Shelf Registration Statement, provide to each Holder of the Outstanding Notes
copies of the prospectus which is a part of such Shelf Registration Statement,
notify each such Holder when such Shelf Registration Statement has become
effective and take certain other actions as are required to permit unrestricted
resales of the Outstanding Notes. A Holder that sells its Outstanding Notes
pursuant to a Shelf Registration Statement generally will be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such Holder (including certain indemnification obligations).
If (a) Schuff fails to file any of the Registration Statements required by
the Registration Agreement on or before the date specified above for such
filing, (b) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified above for such effectiveness (the
"Effectiveness Target Date"), (c) Schuff fails to consummate the Exchange Offer
within 30 days of the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement, or (d) the Shelf Registration Statement or the
Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of Outstanding Notes
or Exchange Notes during the period specified in the Registration Agreement
(each such event referred to in clauses (a) through (c) above, a "Registration
Default"), then Schuff will pay additional interest ("Special Interest") to each
holder of Notes, with respect to the first 90-day period immediately following
the occurrence of such Registration Default in an amount equal to $.05 per week
per $1,000 principal amount of Notes held by such holder. The amount of the
Special Interest will increase by an additional $.05 per week per $1,000
principal amount of Notes with respect to each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum amount of Special
Interest of $.50 per week per $1,000 principal amount of Notes. All accrued
Special Interest will be paid by Schuff on each interest payment date to the
Global Note holder by wire transfer of immediately available funds or by federal
funds check and to holders of Certificated Securities by wire transfer to the
accounts specified by them or by mailing checks to their registered addresses if
no such accounts have been specified. Following the cure of all Registration
Defaults, the accrual of Special Interest will cease.
The summary herein of all material provisions of the Registration Rights
Agreement does not purport to be exhaustive and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part or a copy of which is also available upon
request to the Company.
Following the consummation of the Exchange Offer, holders of the
Outstanding Notes who were eligible to participate in the Exchange Offer but who
did not tender their Outstanding Notes will not have any further exchange or
registration rights and such Outstanding Notes will continue to be subject to
certain restrictions on transfer. Accordingly, the liquidity of the market for
such Outstanding Notes could be adversely affected. See "-- Consequences of
Failure to Exchange" and "Risk Factors -- Consequences of Failure to Exchange."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all
Outstanding Notes validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The Company will issue $1,000 principal
amount of Exchange Notes in exchange for each $1,000 principal amount of
Outstanding Notes accepted in the Exchange Offer.
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Holders may tender some or all of their Outstanding Notes pursuant to the
Exchange Offer. However, Outstanding Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Outstanding Notes except that the Exchange Notes have been registered
under the Securities Act and hence will not bear legends restricting the
transfer thereof. The Exchange Notes will evidence the same debt as the
Outstanding Notes and will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Outstanding Notes are outstanding. The Company has fixed the close of
business on July 21, 1998 as the record date for the Exchange Offer for purposes
of determining the person to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of the Outstanding Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of Delaware or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Outstanding
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the Outstanding Notes from the Company.
If any tendered Outstanding Notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Outstanding Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Outstanding Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions of
the Letter of Transmittal, transfer taxes with respect to the exchange of
Outstanding Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than the transfer taxes in certain circumstances, in
connection with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
August 28, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Company reserves the right (i) to delay accepting any Outstanding
Notes, to extend the Exchange Offer or to terminate the Exchange Offer if any of
the conditions set forth below under "-- Conditions" shall not have been
satisfied, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders.
Without limiting the manner in which the Company may chose to make public
announcement of any delay in acceptance, extension, amendment or termination of
the Exchange Offer, the Company shall have no obligation to publish, advertise,
or otherwise communicate any public announcement, other than making a timely
release to the Dow Jones News Service.
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PROCEDURES FOR TENDERING
The tender of Outstanding Notes pursuant to any of the procedures set forth
in this Prospectus and in the Letter of Transmittal will constitute a binding
agreement between the Tendering Holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal. The tender of Outstanding Notes will constitute an agreement to
deliver good and marketable title to all tendered Outstanding Notes prior to the
Expiration Date free and clear of all liens, charges, claims, encumbrances,
interests and restrictions of any kind. Holders must follow the procedures set
forth in this Prospectus in order to properly and effectively tender Outstanding
Notes.
EXCEPT AS PROVIDED IN "-- GUARANTEED DELIVERY PROCEDURES," UNLESS THE
OUTSTANDING NOTES BEING TENDERED ARE DEPOSITED BY THE HOLDER WITH THE EXCHANGE
AGENT PRIOR TO THE EXPIRATION DATE (ACCOMPANIED BY A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL), THE COMPANY MAY, AT ITS OPTION, REJECT SUCH
TENDER. ISSUANCE OF EXCHANGE NOTES WILL BE MADE ONLY AGAINST DEPOSIT OF TENDERED
OUTSTANDING NOTES AND DELIVERY OF ALL OTHER REQUIRED DOCUMENTS. NOTWITHSTANDING
THE FOREGOING, DTC PARTICIPANTS TENDERING THROUGH ATOP WILL BE DEEMED TO HAVE
MADE VALID DELIVERY WHERE THE EXCHANGE AGENT RECEIVES AN AGENT'S MESSAGE
(DEFINED BELOW) PRIOR TO THE EXPIRATION DATE.
Outstanding Notes held through DTC. Each Beneficial Owner holding
Outstanding Notes through a DTC Participant must instruct such DTC Participant
to cause its Outstanding Notes to be tendered in accordance with the procedures
set forth in this Prospectus.
Pursuant to an authorization given by DTC to the DTC Participants, each DTC
Participant holding Outstanding Notes through DTC must (i) electronically
transmit its acceptance through ATOP, and DTC will then verify the acceptance,
execute a book-entry delivery to the Exchange Agent's account at DTC and send an
Agent's Message to the Exchange Agent for its acceptance, or (ii) comply with
the guaranteed delivery procedures set forth below and in the Notice of
Guaranteed Delivery. See "-- Guaranteed Delivery Procedures."
The Exchange Agent will (promptly after the date of this Prospectus)
establish accounts at DTC for purposes of the Exchange Offer with respect to
Outstanding Notes held through DTC, and any financial institution that is a DTC
Participant may make book-entry delivery of interests in Outstanding Notes into
the Exchange Agent's account through ATOP. However, although delivery of
interests in the Outstanding Notes may be effected through book-entry transfer
into the Exchange Agent's account through ATOP, an Agent's Message in connection
with such book-entry transfer, and any other required documents, must be
transmitted to and received by the Exchange Agent at its address set forth under
"-- Exchange Agent," or the guaranteed delivery procedures set forth below must
be complied with, in each case, prior to the Expiration Date. Delivery of
documents to DTC does not constitute delivery to the Exchange Agent. The
confirmation of a book-entry transfer into the Exchange Agent's account at DTC
as described above is referred to herein as a "Book-Entry Confirmation."
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of the Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
each DTC Participant tendering through ATOP that such DTC Participants have
received a Letter of Transmittal and agree to be bound by the terms of the
Letter of Transmittal and that the Company may enforce such agreement against
such DTC Participants.
Cede & Co., as the Holder of the global certificates representing the
Outstanding Notes (a "Global Security"), will tender a portion of each Global
Security equal to the aggregate principal amount due at the stated maturity or
number of shares for which instructions to tender are given by DTC Participants.
Outstanding Notes held by Holders. Each Holder must (i) complete and sign
and mail or deliver the accompanying Letter of Transmittal, and any other
documents required by the Letter of Transmittal, together with certificate(s)
representing all tendered Outstanding Notes, to the Exchange Agent at its
address set forth
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under "-- Exchange Agent," or (ii) comply with the guaranteed delivery
procedures set forth below and in the Notice of Guaranteed Delivery. See
"--Guaranteed Delivery Procedures."
All signatures on a Letter of Transmittal must be guaranteed by any member
firm of a registered national securities exchange or of the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor" institution
within the meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible
Institution"); provided, however, that signatures on a Letter of Transmittal
need not be guaranteed if such Outstanding Notes are tendered for the account of
an Eligible Institution including (as such terms are defined in Rule 17Ad-15):
(i) a bank; (ii) a broker, dealer, municipal securities dealer, municipal
securities broker, government securities dealer or government securities broker;
(iii) a credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings institution that is a
participant in a Securities Transfer Association recognized program.
If a Letter of Transmittal or any Outstanding Note is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, agent, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person must so indicate when signing, and proper evidence satisfactory to
the Company of the authority of such person so to act must be submitted.
Holders should indicate in the applicable box in the Letter of Transmittal
the name and address to which substitute certificates evidencing Outstanding
Notes for amounts not tendered are to be issued or sent, if different from the
name and address of the person signing the Letter of Transmittal. In the case of
issuance in a different name, the employer identification or social security
number of the person named must also be indicated. If no instructions are given,
such Outstanding Notes not tendered, as the case may be, will be returned to the
person signing the Letter of Transmittal.
By tendering, each Holder and each DTC Participant will make to the Company
the representations set forth in the third paragraph under the heading
"-- Purpose and Effect of the Exchange Offer."
No alternative, conditional, irregular or contingent tenders will be
accepted (unless waived). By executing a Letter of Transmittal or transmitting
an acceptance through ATOP, as the case may be, each Tendering Holder waives any
right to receive any notice of the acceptance for purchase of its Outstanding
Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Outstanding Notes will be resolved by the
Company, whose determination will be final and binding. The Company reserves the
absolute right to reject any or all tenders that are not in proper form or the
acceptance of which may, in the opinion of counsel for the Company, be unlawful.
The Company also reserves the absolute right to waive any condition to the
Exchange Offer and any irregularities or conditions of tender as to particular
Outstanding Notes. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding. Unless waived, any irregularities in connection with
tenders must be cured within such time as the Company shall determine. The
Company and the Exchange Agent shall not be under any duty to give notification
of defects in such tenders and shall not incur liabilities for failure to give
such notification. Tenders of Outstanding Notes will not be deemed to have been
made until such irregularities have been cured or waived. Any Outstanding Notes
received by the Exchange Agent that are not properly tendered and as to which
the irregularities have not been cured or waived will be returned by the
Exchange Agent to the tendering Holder, unless otherwise provided in the Letter
of Transmittal, as soon as practicable following the Expiration Date.
LETTERS OF TRANSMITTAL AND OUTSTANDING NOTES MUST BE SENT ONLY TO THE
EXCHANGE AGENT. DO NOT SEND LETTERS OF TRANSMITTAL OR OUTSTANDING NOTES TO THE
COMPANY OR DTC.
The method of delivery of Outstanding Notes and Letters of Transmittal, any
required signature guarantees and all other required documents, including
delivery through DTC and any acceptance through ATOP, is at the election and
risk of the persons tendering and delivering acceptances or Letters of
Transmittal and, except as otherwise provided in the applicable Letter of
Transmittal, delivery will be deemed made only
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when actually received by the Exchange Agent. If delivery is by mail, it is
suggested that the Holder use properly insured, registered mail with return
receipt requested, and that the mailing be made sufficiently in advance of the
Expiration Date to permit delivery to the Exchange Agent prior to the Expiration
Date.
GUARANTEED DELIVERY PROCEDURES
Outstanding Notes held through DTC. DTC Participants holding Outstanding
Notes through DTC who wish to cause their Outstanding Notes to be tendered, but
who cannot transmit their acceptances through ATOP prior to the Expiration Date,
may cause a tender to be effected if:
(a) guaranteed delivery is made by or through an Eligible Institution;
and
(b) prior to 5:00 p.m., New York City time on the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by mail, hand delivery,
facsimile transmission or overnight courier) substantially in the form
provided by the Company herewith; and (c) Book-Entry Confirmation and an
Agent's Message in connection therewith (as described above) are received
by the Exchange Agent within three New York Stock Exchange ("NYSE") trading
days after the date of the execution of the Notice of Guaranteed Delivery.
Outstanding Notes held by Holders. Holders who wish to tender their
Outstanding Notes and (i) whose Outstanding Notes are not immediately available,
(ii) who cannot deliver their Outstanding Notes, the Letter of Transmittal or
any other required documents to the Exchange Agent or (iii) who cannot complete
the procedures for book-entry transfer, prior to the Expiration Date, may effect
a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time on the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the holder,
the certificate number(s) of such Outstanding Notes and the principal
amount of Outstanding Notes tendered, stating that the tender is being made
thereby and guaranteeing that, within three NYSE trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) together
with the certificate(s) representing the Outstanding Notes (or a
confirmation of book-entry transfer of such Outstanding Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility), and any
other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Outstanding Notes in proper form for transfer (or a confirmation or
book-entry transfer of such Outstanding Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility), and all other documents
required by the Letter of Transmittal are received by the Exchange Agent
upon three NYSE trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
Outstanding Notes held through DTC. DTC Participants holding Outstanding
Notes who have transmitted their acceptances through ATOP may, prior to 5:00
p.m., New York City time, on the Expiration Date, withdraw the instruction given
thereby by delivering to the Exchange Agent, at its address set forth under
"-- Exchange Agent," a written, telegraphic or facsimile notice of withdrawal of
such instruction. Such notice of withdrawal must contain the name and number of
the DTC Participant, the principal amount due at the Stated Maturity date of the
Outstanding Notes to which such withdrawal related and the signature of the
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DTC Participant. Withdrawal of such an instruction will be effective upon
receipt of such written notice of withdrawal by the Exchange Agent.
Outstanding Notes held by Holders. Holders may withdraw a tender of
Outstanding Notes in the Exchange Offer, by a telegram, telex, letter or
facsimile transmission notice of withdrawal received by the Exchange Agent at
its address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Outstanding Notes to be withdrawn (the "Depositor"),
(ii) identify the Outstanding Notes to be withdrawn (including the certificate
number(s) and principal amount due at the Stated Maturity of such Outstanding
Notes, or, in the case of Outstanding Notes transferred by book-entry transfer,
the name and number of the account at the Book-Entry Transfer Facility to be
credited), (iii) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Outstanding Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the
Outstanding Notes register the transfer of such Outstanding Notes into the name
of the person withdrawing the tender and (iv) specify the name in which any such
Outstanding Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose determination
shall be final and binding on all parties. Any Outstanding Notes so withdrawn
will be deemed not to have been validly tendered for purposes of the Exchange
Offer and no Exchange Notes will be issued with respect thereto unless the
Outstanding Notes so withdrawn are validly retendered. Any Outstanding Notes
which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Outstanding Notes may be retendered by following one
of the procedures described above under "-- Procedures for Tendering" at any
time prior to the Expiration Date.
All signatures on a notice of withdrawal must be guaranteed by an Eligible
Institution; provided, however, that signatures on the notice of withdrawal need
not be guaranteed if the Outstanding Notes being withdrawn are held for the
account of an Eligible Institution.
A withdrawal of an instruction or a withdrawal of a tender must be executed
by a DTC Participant or a Holder, as the case may be, in the same manner as the
person's name appears on its transmission through ATOP or Letter of Transmittal,
as the case may be, to which such withdrawal relates. If a notice of withdrawal
is signed by a trustee, partner, executor, administrator, guardian,
attorney-in-fact, agent, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person must so indicate when signing
and must submit with the revocation appropriate evidence of authority to execute
the notice of withdrawal. A DTC Participant or a Holder may withdraw an
instruction or a tender, as the case may be, only if such withdrawal complies
with the provisions of this Prospectus.
A withdrawal of a tender of Outstanding Notes by a DTC Participant or a
Holder, as the case may be, may be rescinded only by a new transmission of an
acceptance through ATOP or execution and delivery of a new Letter of
Transmittal, as the case may be, in accordance with the procedures described
herein.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange securities for, any Outstanding
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Outstanding Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the judgment of the Company upon written advice of counsel, could
reasonably be expected to materially impair the ability of the Company to
proceed with the Exchange Offer or any material adverse development has
occurred in any existing action or proceeding with respect to the Company
or any of the subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the judgment
of the company and based on written advice of counsel, could
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reasonably be expected to materially impair the ability of the Company to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its discretion and based on written advice of
counsel, deem necessary for the consummation of the Exchange Offer as
contemplated hereby.
If any of the conditions are not satisfied, the Company may (i) refuse to
accept any Outstanding Notes and return all tendered Outstanding Notes to the
tendering holders, (ii) extend the Exchange Offer and retain all Outstanding
Notes tendered prior to the expiration of the Exchange Offer, subject, however,
to the rights of holders to withdraw such Outstanding Notes (see "-- Withdrawal
of Tenders") or (iii) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all properly tendered Outstanding Notes which have not
been withdrawn.
EXCHANGE AGENT
Harris Trust and Savings Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed
as follows:
By Hand or Overnight Delivery:
Harris Trust and Savings Bank
c/o Harris Trust Company of New York
88 Pine Street
19th Floor
New York, NY 10005
By Registered or Certified Mail:
Harris Trust and Savings Bank
c/o Harris Trust Company of New York
P.O. Box 1010
Wall Street Station
New York, NY 10268-1010
Facsimile Transmission Number
(For Eligible Institutions Only)
(212) 701-7636
Confirm Receipt of Facsimile
by Telephone
(212) 701-7624
Delivery to an address other than as set forth above, or transmission of
instructions via a facsimile number other than the one set forth above, will not
constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company will pay the Exchange
Agent reasonable and customary fees for its services and will reimburse it for
its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes, as reflected in the Company's accounting records on the date
of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company.
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CONSEQUENCES OF FAILURE TO EXCHANGE
The Outstanding Notes that are not exchanged for Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such
Outstanding Notes may be resold only (i) to the Company (upon redemption thereof
or otherwise), (ii) so long as the Outstanding Notes are eligible for resale
pursuant to Rule 144A, to a person inside the United States whom the seller
reasonably believes is a qualified institutional buyer within the meaning of
Rule 144A under the Securities Act in a transaction meeting the requirements of
Rule 144A, in accordance with Rule 144 under the Securities Act, or pursuant to
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel reasonably acceptable to the Company), (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes
in the ordinary course of business, whether or not such person is the holder
(other than (i) a broker-dealer who purchases such Exchange Notes from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) who receives Exchange Notes in
exchange for Outstanding Notes, and who is not participating, does not intend to
participate, and has no arrangement or understanding with person to participate,
in the distribution of the Exchange Notes, will be allowed to resell the
Exchange Notes to the public without further registration under the Securities
Act and without delivering to the purchasers of the Exchange Notes a prospectus
that satisfies the requirements of Section 10 of the Securities Act. However, if
any holder acquires Exchange Notes in the Exchange Offer for the purpose of
distributing or participating in a distribution of the Exchange Notes, such
holder cannot rely on the position of the staff of the Commission enunciated in
such no-action letters or any similar interpretive letters, and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each broker-dealer that receives Exchange Notes
for its own account in exchange for Outstanding Notes, where such Securities
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the Exchange Notes are to be
acquired by the holder or the person receiving such Exchange Notes, whether or
not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, and (v) the holder or any such other person acknowledges that if
such holder or other person participates in the Exchange Offer for the purpose
of distributing the Exchange Notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes and cannot rely on those no-action letters. As
indicated above, each broker-dealer that receives Exchange Notes for its own
account in exchange for Outstanding Notes must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. For a
description of the procedures for such resales by broker-dealers, see "Plan of
Distribution."
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PLAN OF DISTRIBUTION
Based on interpretations of the staff of the Division of Corporation
Finance of the Commission set forth in no-action letters issued to third
parties, the Company believes that, except as described below, Exchange Notes
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by the respective holders thereof without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that (i) such Exchange Notes are acquired in the
ordinary course of such holder's business and (ii) such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution of the Exchange Notes. A holder of Outstanding
Notes that is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act or that is a broker-dealer that purchased Outstanding Notes
from the Company to resell pursuant to an exemption from registration under the
Securities Act (a) cannot rely on such interpretations by the staff of the
Division of Corporation Finance of the Commission, (b) will not be permitted or
entitled to tender such Outstanding Notes in the Exchange Offer and (c) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or other transfer of such Outstanding
Notes unless such sale or transfer is made pursuant to an exemption from such
requirements. In addition, any holder who tenders Outstanding Notes in the
Exchange Offer with the intention or for the purpose of participating in a
distribution of the Exchange Notes cannot rely on such interpretations by the
staff of the Division of Corporation Finance of the Commission and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with the secondary resale transaction. Unless an exemption from
registration is otherwise available, any such resale transaction should be
covered by an effective registration statement containing selling security
holders information required by Item 507 of Regulation S-K under the Securities
Act. To date, the staff of the Division of Corporation Finance of the Commission
has taken the position that a broker-dealer that has acquired securities in
exchange for securities that were acquired by such broker-dealer as a result of
market-making activities or other trading activities may fulfill the prospectus
delivery requirements with the prospectus contained in an exchange offer
registration statement.
Each Holder of Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company set forth in "The Exchange Offer -- Purpose and
Effect of the Exchange Offer."
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes. This Prospectus may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Outstanding
Notes where such Outstanding Notes were acquired as a result of market-making
activities or other trading activities. Subject to certain provisions set forth
in the Registration Rights Agreement, the Company has agreed that it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Risk Factors -- Lack of Public Market for the Notes; Possible
Volatility of Note Price" and "The Exchange Offer -- Resale of the Exchange
Notes."
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit from any
such resale of Exchange Notes and any commissions or concessions received by any
such person may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
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Subject to certain provisions set forth in the Registration Rights
Agreement, the Company will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any broker-dealer that
requests such documents in the Letter of Transmittal. The Company has agreed to
pay the expenses incident to the Exchange Offer, other than any discounts or
commissions incurred upon the sale of the Exchange Notes. The Company will
indemnify each broker-dealer selling Exchange Notes against certain liabilities,
including liabilities under the Securities Act.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
considerations applicable to a holder that exchanges Outstanding Notes for
Exchange Notes pursuant to the Exchange Offer, but does not purport to be a
complete analysis of all of the tax considerations relating thereto. The tax
consequences to a holder of the Exchange Notes may vary depending upon the
particular situation of such holder. The legal conclusions expressed in this
summary are based upon current provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), applicable Treasury regulations ("Regulations"),
judicial authority and administrative rulings and practice, all as in effect as
of the date of this Prospectus and all of which are subject to change, either
prospectively or retroactively. These authorities are subject to various
interpretations and it is therefore possible that the tax treatment of the
Exchange Notes may differ from the treatment described below. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conclusions set forth herein. Any such
changes or interpretations may or may not be retroactive and could affect the
tax consequences to holders.
This summary deals only with persons who will hold the Exchange Notes as
capital assets, and does not address tax considerations applicable to investors
who may be subject to special tax rules, such as financial institutions,
tax-exempt organizations, insurance companies, dealers in securities or
currencies, persons who hold Exchange Notes as a hedge or as a position in a
"straddle" for tax purposes and persons who have a "functional currency" other
than the U.S. dollar. As used herein, a U.S. Holder of an Exchange Note means a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized under the laws of the U.S. or of any state (unless,
in the case of a partnership, the Treasury Department provides otherwise in
regulations), an estate the income of which is includable in gross income for
U.S. federal income tax purposes regardless of its source, or a trust if a court
within the U.S. is able to exercise primary supervision over the administration
of the trust and one or more U.S. persons have the authority to control all
substantive decisions of the trust. A Non-U.S. Holder is a holder not classified
as a U.S. Holder (as defined in the Code) for U.S. federal income and estate tax
purposes. In addition, the description does not consider the effect of any
applicable foreign, state, local or other tax laws or estate or gift tax
considerations. The Company has not sought any ruling from the Internal Revenue
Service (the "IRS") with respect to the statements made and conclusions reached
in the following summary, and there can be no assurance that the IRS will agree
with such statements and conclusions.
HOLDERS OF THE OUTSTANDING NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS AS
TO HOW THEIR OWN PARTICULAR TAX SITUATION MIGHT BE AFFECTED BY THE EXCHANGE OF
OUTSTANDING NOTES FOR EXCHANGE NOTES AND THE PURCHASE, HOLDING AND DISPOSITION
OF THEIR EXCHANGE NOTES.
U.S. HOLDERS
The Exchange Offer
The exchange of Outstanding Notes for Exchange Notes pursuant to the
Exchange Offer should not constitute a significant modification of the terms of
the Outstanding Notes and, accordingly, such exchange should not be treated as a
taxable event for U.S. federal income tax purposes. Therefore, a U.S. Holder of
Outstanding Notes (i) should not recognize taxable gain or loss as a result of
exchanging Outstanding Notes for Exchange Notes, (ii) the holding period of the
Exchange Notes should include the holding period of the Outstanding Notes
exchanged therefor, and (iii) the adjusted tax basis of the Exchange Notes
should be the same as the adjusted tax basis of the Outstanding Note exchanged
therefor immediately before such
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exchange. Further, U.S. Holders of Exchange Notes would continue to be required
to include interest on the Exchange Notes in their gross income in accordance
with their method of accounting for United States federal tax purposes.
Payment of Interest
Subject to the discussion of original issue discount ("OID") below,
interest on an Exchange Note generally will be includable in the income of a
U.S. Holder as ordinary income at the time such interest is received or accrued,
in accordance with such U.S. Holder's method of accounting for United States
federal income tax purposes.
The Company is obligated to pay Special Interest amounts in the event of a
Registration Default. Under the Regulations, certain contingent payments on debt
instruments (like the Special Interest amounts payable in the event of a
Registration Default) must be accrued into gross income by a holder (regardless
of such holder's method of accounting). However, any payment subject to a remote
or incidental contingency (i.e, there is a remote likelihood that the
contingency will occur or the potential amount of the contingent payment is
insignificant relative to the total expected amount of remaining payments) is
not treated as a contingent payment and is ignored until payment, if any is
actually made. The determination of whether a contingency is remote or
incidental is made as of the issue date. The Company intends to take the
position that the Special Interest payments resulting from a Registration
Default are subject to a remote or incidental contingency. Accordingly, any
Special Interest payments resulting from a Registration Default should be
includable in the income of a U.S. Holder in accordance with such holder's
method of accounting for United States federal income tax purposes.
Original Issue Discount
If the Outstanding Notes were not issued at a discount or are deemed to be
issued with no discount because such discount is de minimis, a U.S. Holder will
include in income as ordinary interest income the gross amount of interest paid
or payable in respect of the Exchange Notes as provided above in "Description of
the Notes -- Principal, Maturity and Interest." Original issue discount will be
considered de minimis and, thus, will be treated as zero discount if the
original issue discount is less than one-fourth ( 1/4) of one percent of the
stated redemption price at maturity, multiplied by the number of complete years
to maturity.
If the Outstanding Notes were issued at a discount equal to more than a de
minimis, amount, the Outstanding Notes and, hence, the Exchange Notes, would be
treated as having original issue discount. In such circumstance, each U.S.
Holder of Exchange Notes would include in his income as ordinary income each
year (in addition to the amount of cash interest) a portion of the original
issue discount on the Exchange Notes so as to provide a constant yield to
maturity. The total amount of original issue discount with respect to each
Exchange Note would equal the excess of its stated redemption price at maturity
over its issue price, as defined in Section 1273 of the Code. The stated
redemption price at maturity is the sum of all payments to be made on the
Exchange Notes other than qualified stated interest payments. Interest payments
paid on the Notes will likely be qualified stated interest payments, and,
accordingly, the stated redemption price at maturity of the Exchange Notes will
equal their face amount. The Company is obligated to pay Special Interest to the
U.S. Holders of Exchange Notes in the event of a Registration Default. Amounts
of Special Interest that are contingent on a Registration Default will likely
not be considered qualified stated interest. Because there is only a remote
possibility that a Registration Default will occur, the Company believes that
any Special Interest paid to U.S. Holders as a result of a Registration Default
will not be included in the calculation of stated redemption price at maturity,
but will be taken into account by each U.S. Holder as ordinary income only to
the extent and at such time that such amount becomes fixed or is actually paid.
The IRS could disagree with this characterization. Each U.S. Holder should
consult his own tax advisor with respect to accrual of original issue discount
on the Exchange Notes and treatment of the contingent interest resulting from a
Registration Default.
Pursuant to the Regulations, if the Company determines that the U.S. Notes
have original issue discount, the Company will provide certain information to
the Service and/or holders that is relevant to determining the
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amount of original issue discount in each accrual period. A U.S. Holder's
adjusted tax basis in an Exchange Note will be increased by the amount of any
original issue discount included in its gross income and decreased by any
payments on such Exchange Note (other than qualified stated interest).
Effect of Change of Control
Upon a Change of Control, the Company is required to offer to redeem all
outstanding Exchange Notes for a price equal to 101% of the principal amount
thereof plus accrued and unpaid interest. Under the Regulations, such Change of
Control redemption requirements will not affect the yield or maturity date of
the Exchange Notes unless, based on all the facts and circumstances of the Issue
Date, it was more likely than not that a Change of Control giving rise to the
redemption would occur. The Company will not treat the Change of Control
redemption provisions of the Exchange Notes as affecting the calculation of the
yield to maturity of any Exchange Note.
Market Discount
If a U.S. Holder purchases an Outstanding Note or an Exchange Note for less
than the stated redemption price at maturity (the sum of all payments on the
Note other than qualified stated interest), the difference is considered "market
discount," unless such difference is de minimis. A discount will be considered
de minimis if it is less than one-fourth ( 1/4) of one percent of the issue
price of the debt instrument multiplied by the number of complete years to
maturity (after the holder acquires such debt instrument). Under the market
discount rules, any gain realized by the U.S. Holder on the sale, exchange,
retirement or other disposition of a Exchange Note having "market discount," as
well as on any partial principal payment made with respect to such Exchange
Note, will be treated as ordinary income to the extent of the market discount
which has not previously been included in income and is treated as having
accrued on such Exchange Note on or prior to the time of such payment or
disposition. An overview of the rules concerning the calculation of "accrued
market discount" is set forth in the paragraph immediately below. In addition, a
U.S. Holder of such Exchange Note may be required to defer the deduction of all
or a portion of the interest expense on any indebtedness incurred or continued
to purchase or carry a Exchange Note.
Any market discount will accrue ratably from the date of acquisition to the
maturity date of the Exchange Note, unless the U.S. Holder elects, irrevocably,
to accrue market discount on a constant interest rate method. The constant
interest rate method generally accrues interest at times and in amounts
equivalent to the result which would have occurred had the market discount been
original issue discount computed from the U.S. Holder's acquisition of the
Exchange Note through the maturity date. Accrual of market discount will not
cause the accrued amounts to be included currently in a U.S. Holder's taxable
income in the absence of a disposition of, or principal payment on, the Exchange
Note. However, a U.S. Holder of an Exchange Note may elect to include market
discount in income currently as it accrues on either a ratable or constant
interest rate method. In such event, interest expense relating to the
acquisition of an Exchange Note which would otherwise be deferred would be
currently deductible to the extent otherwise permitted by the Code. The election
to include market discount in income currently, once made, applies to all market
discount obligations acquired by such holder on or after the first day of the
first taxable year to which the election applies, and may not be revoked without
the consent of the IRS.
Acquisition Premium
A U.S. Holder of Exchange Notes will be entitled to a reduction in the
amount of OID required to be included in its income if such holder purchases an
Outstanding Note or an Exchange Note with "acquisition premium." A U.S. Holder
of an Exchange Note will have acquisition premium if its adjusted tax basis in
the Exchange Note is less than or equal to the stated redemption price at
maturity and exceeds the adjusted issue price of such Exchange Note. The
acquisition premium is the amount by which the purchase price exceeds the
adjusted issue price. The adjusted issue price of a Exchange Note will be the
issue price increased by the amount of OID previously includable in the gross
income of any U.S. Holder (determined without regard to any reduction for
acquisition premium or amortizable bond premium (as defined below)) reduced by
any payments on the Exchange Notes (other than payments of qualified stated
interest). The amount of the
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reduction to which a U.S. Holder may be entitled in any given year is equal to a
fraction, the numerator of which is the amount of the acquisition premium and
the denominator of which is the excess of the sum of all amounts payable on the
Exchange Note (other than payments of qualified stated interest) over the
adjusted issue price of the Exchange Note on the date of purchase.
Amortizable Bond Premium
If a subsequent U.S. Holder acquires an Outstanding Note or an Exchange
Note for an amount which is greater than the amount payable at maturity, such
holder will be considered to have purchased such Note with "amortizable bond
premium" equal to the amount of such excess. The U.S. Holder of an Exchange Note
may elect to amortize the premium, using a constant yield method employing
six-month compounding, over the period from the acquisition date to the maturity
date of the Exchange Note. The "amount payable at maturity" will be determined
as of an earlier call date, using the call price payable on such earlier date,
if the combination of such earlier date and call price will produce a smaller
amortizable bond premium than would result from using the scheduled maturity
date and its amount payable.
If an earlier call date is used and the Exchange Note is not called, the
Exchange Note will be treated as having matured on such earlier call date and
then as having been reissued on such date for the amount so payable. Amortized
amounts may be offset only against interest payments due under the Exchange Note
and will reduce the U.S. Holder's adjusted tax basis in the Exchange Note to the
extent so used.
Once made, an election to amortize and offset interest on the Exchange
Notes, will apply to all notes in respect of which the election was made that
were owned by the taxpayer on the first day of the taxable year to which the
election relates and to all notes of such class or classes subsequently acquired
by such taxpayer. Such election may only be revoked with the consent of the IRS.
If a U.S. Holder of a Exchange Note does not elect to amortize the premium, the
premium will decrease the gain or increase the loss which would otherwise be
recognized upon disposition of the Exchange Note.
Sale, Exchange or Retirement of Exchange Notes
Upon the sale, exchange or retirement (including redemption) of an Exchange
Note, a U.S. Holder of an Exchange Note generally will recognize gain or loss in
an amount equal to the difference between the amount of cash and the fair market
value of any property received on the sale, exchange or retirement of the
Exchange Note (other than in respect of accrued and unpaid interest on the
Exchange Note, which such amounts are treated as ordinary interest income) and
such U.S. Holder's adjusted tax basis in the Exchange Note. Such gain or loss
will be capital gain or loss, except to the extent of any accrued market
discount and will generally be long-term capital gain taxable at a rate of 20%
if the Exchange Note is held for more than 18 months, mid-term capital gain
taxable at a rate of 28% if the Exchange Note is held for 18 months or less but
more than 12 months, and short-term capital gain taxable at ordinary income tax
rates if the Exchange Note is held for 12 months or less. Subsequent to December
31, 2000, the capital gain rate would be reduced to 18% if an Exchange Note has
been held for more than five years. The deductibility of capital losses is
subject to limitations.
NON-U.S. HOLDERS
Payment of Interest
Payments of interest on the Exchange Notes by the Company or any agent of
the Company to any Non-U.S. Holder will not be subject to U.S. federal
withholding tax, provided that such interest income is not effectively connected
with the conduct of a United States trade or business of the Non-U.S. Holder and
provided that (i) the Non-U.S. Holder does not actually or constructively own
10% or more of the total combined voting power of all classes of stock of the
Company entitled to vote; (ii) the Non-U.S. Holder is not a controlled foreign
corporation that is related to the Company through stock ownership; (iii) either
(A) the beneficial owner of the Exchange Notes certifies (by submitting to the
Company or its agent a Form W-8 (or a suitable substitute form)) in compliance
with applicable laws and regulations to the Company or its agent, under
penalties of perjury, that it is not a "United States person" as defined in the
Code and provides its name
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and address or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "financial institution"), holds the Notes on behalf of the
beneficial owner and provides a statement to the Company or its agent in which
it certifies that a Form W-8 (or a suitable substitute form) has been received
from the beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof; and (iv) the Non-
U.S. Holder is not a bank which acquired the Notes in consideration for an
extension of credit made pursuant to a loan agreement entered into in the
ordinary course of business. Recently promulgated Treasury regulations that will
be effective January 1, 1999 (the "1999 Regulations") provide alternative
methods for establishing exemptions from withholding on payments to foreign
persons. Under the 1999 Regulations, the furnishing of the names of the
beneficial owners of Notes a copy of such beneficial owner's Form W-8 by a
financial institution with respect to beneficial owners, described in clause
(iii)(B) above, will not be required where the financial institution is a
"qualified intermediary" which has entered into a withholding agreement with the
IRS pursuant to such regulations. A Non-U.S. Holder that is not exempt from tax
under these rules will be subject to U.S. federal income tax withholding at a
rate of 30% unless the interest is effectively connected with the conduct of a
United States trade or business, in which case the interest will be subject to
the U.S. federal income tax on net income that applies to United States persons
generally.
Non-U.S. Holders should consult applicable income tax treaties, which may
provide different rules, subject to compliance with certain requirements, to
document entitlement to treaty benefits.
Prior to the effective date of the 1999 Regulations, payments of interest
to a Non-U.S. Holder that is a foreign partnership are subject to the rules
described in the prior paragraph. The 1999 Regulations will require, in the case
of Notes held by a foreign partnership, that the certification described in
clause (iii) of the preceding paragraph be provided by the partners rather than
by the foreign partnership unless the foreign partnership has entered into a
withholding agreement with the United States as a "withholding foreign
partnership." A look-through rule will apply in the case of tiered partnerships.
Except to the extent that an applicable treaty otherwise provides, a
Non-U.S. Holder generally will be taxed in the same manner as a U.S. holder with
respect to interest if the interest income is effectively connected with the
conduct of a United States trade or business of the Non-U.S. Holder. Effectively
connected interest received by a corporate Non-U.S. Holder may also, under
certain circumstances, be subject to an additional "branch profits tax" at a 30%
rate (or, if applicable, a lower treaty rate). Even though such effectively
connected interest is subject to income tax, and may be subject to the branch
profits tax, it is not subject to withholding tax if the Non-U.S. Holder
delivers to the payor a withholding certificate stating that the income is
effectively connected with a U.S. trade or business.
Sale, Exchange or Retirement of Notes
A Non-U.S. Holder generally will not be subject to U.S. Federal income tax
on gain recognized, if any, upon the sale or exchange of Exchange Notes unless
(i) the gain is effectively connected with the conduct of a trade or business
within the United States by the Non-U.S. Holder, (ii) in the case of a Non-U.S.
Holder who is a nonresident alien individual and holds the Exchange Notes as a
capital asset, such Non-U.S. Holder is present in the United States for 183 or
more days in the taxable year and certain other circumstances are present or
(iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of the
Code applicable to certain United States expatriates.
The Exchange Offer
The exchange of Outstanding Notes for Exchange Notes pursuant to the
Exchange Offer should not constitute a significant modification of the terms of
the Outstanding Notes and, accordingly, such exchange should not be treated as a
taxable event for U.S. federal income tax purposes. Therefore, a Non-U.S. Holder
of Outstanding Notes (i) should not recognize taxable gain or loss as a result
of exchanging Outstanding Notes for Exchange Notes, (ii) the holding period of
the Exchange Notes should include the holding period of the Outstanding Notes
exchanged therefor, and (iii) the adjusted tax basis of the Exchange Notes
should be the same as the adjusted tax basis of the Outstanding Note exchanged
therefor immediately before such
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exchange. Further, non-U.S. Holders of Exchange Notes would continue to be
required to include interest on the Exchange Notes in their gross income in
accordance with their method of accounting for United States federal tax
purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Information reporting and backup withholding may apply to certain
noncorporate holders with respect to (i) principal and interest payments on a
Note or (ii) proceeds of a sale of a Note. Such payments generally will be
subject to backup withholding at a rate of 31% unless the payee of such payments
supplies the payor or its agent with a taxpayer identification number, certified
under penalties of perjury, and certain other information, or otherwise
establishes, in the manner prescribed by law, an exemption from backup
withholding.
The 1999 Regulations would modify certain of the rules discussed above
generally with respect to payments on the Notes made after December 31, 1998. In
particular, in the case of payments of foreign partnerships (other than payments
to foreign partnerships that qualify as "withholding foreign partnerships"
within the meaning of such Treasury regulations and payments to foreign
partnerships that are effectively connected with the conduct of a trade or
business in the United States), the partners of such partnership will be
required to provide the certification discussed above in order to provide an
exemption from backup withholding tax and information reporting requirements.
Any amount withheld under such backup withholding rules from a payment to a
holder will be allowed as a credit against the holder's U.S. federal income tax,
provided that the holder furnishes the required information to the IRS. In
addition, certain penalties may be imposed by the IRS on a holder who is
required to supply information but does not do so in the proper manner.
LEGAL MATTERS
Certain legal matters regarding the Notes will be passed upon for the
Company by Snell & Wilmer L.L.P., Phoenix, Arizona.
EXPERTS
The consolidated financial statements of Schuff Steel Company, at December
31, 1997 and 1996 and for each of the three years in the period ended December
31, 1997, appearing in or incorporated by reference in this Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing or incorporated by
reference herein, and is included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Addison Structural Services, Inc.
at June 30, 1997 and 1996, and for each of the three years in the period ended
June 30, 1997 appearing in this Prospectus and Registration Statement, have been
audited by Mauldin & Jenkins, LLC, independent public accountants, as set forth
in their report therein appearing elsewhere herein, and is included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
113
<PAGE> 118
AVAILABLE INFORMATION
Schuff and the Guarantors have filed with the Commission a registration
statement on Form S-4 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act for the registration of the
Exchange Notes offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For further
information with respect to Schuff, the Guarantors and the Exchange Notes
offered hereby, reference is made to the Registration Statement and to the
exhibits and schedules filed therewith. Statements contained in this Prospectus
concerning the contents of any contract or other document are not necessarily
complete. With respect to each such contract or other document filed with the
Commission as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
Schuff is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act") and, in accordance therewith, files reports,
proxy statements and other information with the Commission. The Registration
Statement, the exhibits and schedules forming a part thereof and the reports and
other information filed by Schuff with the Commission in accordance with the
Exchange Act may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and will also be available for inspection and
copying at the regional offices of the Commission located at 7 World Trade
Center, 13th Floor, New York, New York 10048 and at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may also be obtained upon written request from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a World Wide Web site
(http://www.sec.gov) that contains reports, proxy and other information
regarding registrants that file electronically with the Commission. In addition,
Schuff's Common Stock is traded on the Nasdaq National Market. Reports, proxy
statements, and other information filed by Schuff are also available for
inspection at the offices of the Nasdaq National Market, Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006.
The Indenture provides that, at any time after the consummation of the
Exchange Offer and for so long as any of the Exchange Notes are outstanding,
Schuff will file with the Commission the periodic reports required to be filed
with the Commission under the Exchange Act and make such reports available to
securities analysts and prospective investors upon their request, whether or not
required by the rules and regulations of the Commission. Schuff will also,
within 15 days of filing each such report with the Commission, provide the
Trustee and the holders of the Exchange Notes with annual reports containing the
information required to be contained in Form 10-K promulgated under the Exchange
Act, quarterly reports containing the information required to be contained in
Form 10-Q promulgated under the Exchange Act, and from time to time such other
information as is required to be contained in Form 8-K promulgated under the
Exchange Act. If the Commission does not accept such reports, for so long as any
Exchange Notes remain outstanding, Schuff will provide the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act to holders
of the Exchange Notes and to securities analysts and prospective investors upon
their request.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by Schuff with the Commission and
are hereby incorporated by reference in this Prospectus: (i) the Annual Report
of Schuff on Form 10-K, as amended, for the fiscal year ended December 31, 1997,
(ii) the Quarterly Report of Schuff on Form 10-Q for the fiscal quarter ended
March 31, 1998, (iii) Schuff's Current Report on Form 8-K dated May 12, 1998,
and (iv) Schuff's Current Report on Form 8-K, as amended, dated June 4, 1998.
All other documents filed by Schuff with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this and
prior to the Expiration Date of the Exchange Offer shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of
114
<PAGE> 119
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document which also is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
Schuff will furnish without charge, to each person to whom this Prospectus
is delivered, upon written or oral request of such person a copy of any and all
of the information that has been incorporated by reference into this Prospectus
but which has not been delivered with this Prospectus (not including exhibits to
the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates by reference). Such requests should be directed to Schuff Steel
Company, 1841 West Buchanan Street, Phoenix, Arizona 85009, Attention: Chief
Financial Officer.
115
<PAGE> 120
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SCHUFF STEEL COMPANY AND SUBSIDIARY
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1996 and 1997,
and March 31, 1998 (unaudited)......................... F-3
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1996 and 1997, and the Three Months
Ended March 31, 1997 and 1998 (unaudited).............. F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1995, 1996 and 1997,
and the Three Months Ended March 31, 1997 and 1998
(unaudited)............................................ F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997, and the Three Months
Ended March 31, 1997 and 1998 (unaudited).............. F-6
Notes to Consolidated Financial Statements................ F-7
ADDISON STRUCTURAL SERVICES, INC. AND SUBSIDIARIES
Report of Mauldin & Jenkins, Independent Auditors........... F-24
Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1996 and 1997
and March 31, 1998 (unaudited)......................... F-25
Consolidated Statements of Income for the Years Ended June
30, 1995, 1996 and 1997 and the Nine Months Ended March
31, 1997 and 1998 (unaudited).......................... F-26
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1995, 1996 and 1997 and the Nine
Months Ended March 31, 1998 (unaudited)................ F-27
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1995, 1996 and 1997 and the Nine Months Ended
March 31, 1997 and 1998 (unaudited).................... F-28
Notes to Consolidated Financial Statements................ F-29
</TABLE>
F-1
<PAGE> 121
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, 1996 and 1997, 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, 1996 and 1997, 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.
ERNST & YOUNG LLP
Phoenix, Arizona
February 20, 1998, except for Note 16 as
to which the date is March 18, 1998
F-2
<PAGE> 122
SCHUFF STEEL COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 7,253 $ 197 $ 303
Restricted funds on deposit............................... 2,249 2,096 2,662
Receivables............................................... 16,885 24,717 21,904
Costs and recognized earnings in excess of billings on
uncompleted contracts.................................. 3,331 3,982 6,129
Inventories............................................... 1,279 2,364 2,463
Prepaid expenses.......................................... 178 750 438
Deferred income taxes..................................... -- 417 389
------- ------- -------
Total current assets................................... 31,175 34,523 34,288
Property and equipment, net................................. 5,116 7,415 7,583
Other assets................................................ 106 100 100
------- ------- -------
$36,397 $42,038 $41,971
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,043 $ 5,749 $ 2,796
Accrued payroll and employee benefits..................... 1,539 1,023 2,085
Insurance payable......................................... 181 721 906
Other accrued liabilities................................. 186 420 304
Billings in excess of costs and recognized earnings on
uncompleted contracts.................................. 12,051 3,758 4,290
Income taxes payable...................................... -- -- 847
Stockholder distributions payable......................... 4,555 -- --
Current portion of long-term debt......................... 144 304 304
------- ------- -------
Total current liabilities.............................. 22,699 11,975 11,532
Long-term debt, less current portion........................ 2,753 4,927 3,665
Deferred income taxes....................................... -- 226 199
Other liabilities........................................... 263 237 297
Stockholders' equity
Preferred Stock, $.001 par value -- authorized 1,000,000
shares, none issued.................................... -- -- --
Common Stock, $.001 par value -- authorized 20,000,000
shares; 5,000,000, 7,000,000 and 7,002,000 shares
issued and outstanding at December 31, 1996 and 1997
and at March 31, 1998, respectively.................... 5 7 7
Additional paid-in-capital................................ 15 14,013 14,023
Unfunded pension losses................................... (519) -- --
Retained earnings......................................... 11,181 10,653 12,248
------- ------- -------
10,682 24,673 26,278
------- ------- -------
$36,397 $42,038 $41,971
======= ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 123
SCHUFF STEEL COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------------
1995 1996 1997 1997 1998
------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................... $62,090 $103,912 $138,218 $25,507 $27,426
Cost of revenues....................... 54,222 86,998 117,955 21,655 22,434
------- -------- -------- ------- -------
Gross profit...................... 7,868 16,914 20,263 3,852 4,992
General and administrative expenses.... 5,284 6,715 8,880 2,081 2,394
------- -------- -------- ------- -------
Operating income.................. 2,584 10,199 11,383 1,771 2,598
Interest expense....................... (752) (452) (348) (95) (98)
Other income........................... 618 303 520 96 241
------- -------- -------- ------- -------
Net income before taxes........... 2,450 10,050 11,555 1,772 2,741
Provision for income taxes............. -- -- 2,823 -- 1,146
------- -------- -------- ------- -------
Net income........................ $ 2,450 $ 10,050 $ 8,732 $ 1,772 $ 1,595
======= ======== ======== ======= =======
Pro forma net income data (unaudited)
Net income as reported................. $ 10,050 $ 8,732 $ 1,772
Pro forma additional tax provision..... 4,020 1,513 710
-------- -------- -------
Pro forma net income................... $ 6,030 $ 7,219 $ 1,062
======== ======== =======
Pro forma net income per share:
Basic................................ $ 1.02 $ 1.12 $ 0.18 $ 0.23
======== ======== ======= =======
Diluted.............................. $ 1.02 $ 1.10 $ 0.18 $ 0.22
======== ======== ======= =======
Weighted average shares used in
computation:
Basic................................ 5,941 6,457 5,941 7,000
======== ======== ======= =======
Diluted.............................. 5,941 6,556 5,941 7,159
======== ======== ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 124
SCHUFF STEEL COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNFUNDED
--------------- PAID-IN PENSION RETAINED
SHARES AMOUNT CAPITAL LOSSES EARNINGS TOTAL
------ ------ ---------- -------- -------- -------
<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
Exercise of stock options
(unaudited)....................... 2 -- 10 -- -- 10
Net income (unaudited)............... -- -- -- -- 1,595 1,595
----- -- ------- ----- ------- -------
Balance March 31, 1998 (unaudited)..... 7,002 $7 $14,023 $ -- $12,248 $26,278
===== == ======= ===== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 125
SCHUFF STEEL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................... $ 2,450 $ 10,050 $ 8,732 $ 1,772 $ 1,595
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 1,248 1,267 1,520 361 423
Gain on disposal of property and equipment......... (20) (13) (21) (12) (139)
Deferred income taxes.............................. -- -- (191) -- 1
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...................... (220) (2,029) 153 (647) (566)
Receivables...................................... 4,092 (5,598) (6,585) (522) 2,813
Costs and recognized earnings in excess of
billings on uncompleted contracts.............. (1,014) (2,255) (53) 137 (2,147)
Inventories...................................... (2,461) 6,491 (989) (2,757) (99)
Prepaid expenses................................. 47 40 (479) (233) 312
Accounts payable................................. 1,882 58 917 (2,482) (2,953)
Accrued payroll and employee benefits............ (322) 606 (541) 1,266 1,062
Insurance payable................................ (72) 253 540 (404) 185
Other accrued liabilities........................ (290) (448) 205 1,031 (116)
Billings in excess of costs and recognized
earnings on uncompleted contracts.............. (566) 6,111 (8,293) 2,777 532
Income taxes payable............................. -- -- -- -- 847
Other liabilities................................ -- -- 237 -- 60
Accrued pension cost............................. (97) (142) 111 (36) --
-------- -------- -------- ------- --------
Net cash provided by (used in) operating
activities................................ 4,657 14,391 (4,486) 251 1,810
INVESTING ACTIVITIES
Increase in receivables from stockholders............ -- (185) -- -- --
Repayment of receivables from stockholders........... 45 18 -- -- --
Acquisitions of property and equipment............... (814) (2,337) (3,188) (310) (592)
Proceeds from disposals of property and equipment.... 30 189 79 32 140
Increase in other assets............................. -- -- (100) -- --
Purchase of business................................. -- -- (427) (427) --
-------- -------- -------- ------- --------
Net cash used in investing activities....... (739) (2,315) (3,636) (705) (452)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long-term
borrowings......................................... 64,558 33,500 23,874 -- 13,404
Principal payments on revolving line of credit and
long-term debt..................................... (66,436) (36,278) (22,993) (1,273) (14,666)
Proceeds from issuance of common stock, net of
offering expenses.................................. -- -- 14,000 -- --
Proceeds from exercise of stock options.............. -- -- -- -- 10
Cash distributions to stockholders................... (1,814) (2,334) (13,815) (776) --
-------- -------- -------- ------- --------
Net cash provided by (used in) financing
activities................................ (3,692) (5,112) 1,066 (2,049) (1,252)
-------- -------- -------- ------- --------
Increase (decrease) in cash and cash
equivalents............................... 226 6,964 (7,056) (2,503) 106
Cash and cash equivalents at beginning of period..... 63 289 7,253 7,253 197
-------- -------- -------- ------- --------
Cash and cash equivalents at end of
period.................................... $ 289 $ 7,253 $ 197 $ 4,750 $ 303
======== ======== ======== ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 126
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
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.
Interim Financial Information
The consolidated financial statements for the three months ended March 31,
1997 and 1998 are unaudited but include all adjustments (consisting only of
normal recurring adjustments) that the Company considers necessary for a fair
presentation of financial position and results of operations. Operating results
for the three months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for any future 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> 127
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
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.
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
F-8
<PAGE> 128
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
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 its 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.
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 outstanding 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
F-9
<PAGE> 129
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
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 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 No. 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,
------------------ MARCH 31,
1996 1997 1998
------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Contract receivables:
Contracts in progress....................... $11,566 $18,094 $15,874
Unbilled retentions......................... 5,112 6,520 5,954
------- ------- -------
16,678 24,614 21,828
Other receivables............................. 207 103 76
------- ------- -------
$16,885 $24,717 $21,904
======= ======= =======
</TABLE>
Substantially all of the Company's receivables are due from general
contractors located in Arizona, California, Nevada and South America.
F-10
<PAGE> 130
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
Costs and estimated earnings on completed and uncompleted contracts consist
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Costs incurred on completed and contracts
in progress.............................. $165,108 $222,669 $200,348
Estimated earnings......................... 23,058 32,274 28,541
-------- -------- --------
188,166 254,943 228,889
Less progress billings..................... 196,886 254,719 227,050
-------- -------- --------
$ (8,720) $ 224 $ 1,839
======== ======== ========
Included in the accompanying consolidated
balances sheets under the following
captions:
Costs and recognized earnings in excess
of billings on uncompleted
contracts............................. $ 3,331 $ 3,982 $ 6,129
Billings in excess of costs and
recognized earnings on uncompleted
contracts............................. (12,051) (3,758) (4,290)
-------- -------- --------
$ (8,720) $ 224 $ 1,839
======== ======== ========
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1996 1997 1998
------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials................................... $ 665 $1,846 $1,849
Finished goods.................................. 614 518 614
------ ------ ------
$1,279 $2,364 $2,463
====== ====== ======
</TABLE>
F-11
<PAGE> 131
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------ ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Property and equipment:
Leasehold improvements....................... $2,334 $ 2,647 $ 2,647
Furniture and fixtures....................... 91 309 345
Transportation equipment..................... 1,308 1,547 1,581
Machinery and equipment...................... 7,995 10,274 10,617
Cranes....................................... 654 644 527
Office equipment............................. 285 322 325
Detailing equipment.......................... 83 316 316
EDP equipment................................ 1,524 1,835 1,966
------ ------- -------
14,274 17,894 18,324
Less amortization and accumulated
depreciation.............................. 9,158 10,479 10,741
------ ------- -------
$5,116 $ 7,415 $ 7,583
====== ======= =======
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1996 1997 1998
------ ------ ---------
(IN THOUSANDS)
<S> <C> <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 $1,573
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..... 2,897 1,795 1,757
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................ -- 796 639
------ ------ ------
2,897 5,231 3,969
Less current portion........................................ 144 304 304
------ ------ ------
$2,753 $4,927 $3,665
====== ====== ======
</TABLE>
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 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 and March 31, 1998, there was approximately $6,200,000 and
$8,400,000, respectively, of credit available under the credit facility for
borrowings which has been reduced by approximately $945,000 and $20,000,
respectively, 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
F-12
<PAGE> 132
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
as other covenants. The Company made interest payments on its line of credit of
approximately $272,000, $64,000 and $45,000 for the years ended December 31,
1995, 1996 and 1997, respectively, and $5,000 and $49,000 for the three months
ended March 31, 1997 and 1998. The weighted average interest rate on the
revolving line of credit was approximately 8.5 percent at December 31, 1996 and
1997 and March 31, 1998.
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 and March 31,
1998, 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 $449,000, $420,000 and $325,000 for the
years ended December 31, 1995, 1996 and 1997, respectively, and $60,000 and
$135,000 for the three months ended March 31, 1997 and 1998, respectively, on
its long-term debt.
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
F-13
<PAGE> 133
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
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.
Following is an analysis of stockholder distributions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholder distributions payable at beginning of year...... $1,297 $1,071 $4,555
Additions (deductions):
Life insurance premiums................................... 346 346 173
Current year income taxes................................. 1,217 5,105 2,087
Prior year income taxes................................... (93) (73) --
Less: Prior year refunds applied to current year taxes.... (79) (35) --
Current year dividend..................................... 460 700 7,000
------ ------ ------
1,851 6,043 9,260
------ ------ ------
Cash distributions:
Life insurance premiums................................... 226 226 173
Current year income taxes................................. 369 925 2,087
Prior year income taxes................................... 691 798 4,140
Current year dividend..................................... 128 185 7,000
Prior year dividend....................................... 400 200 415
------ ------ ------
1,814 2,334 13,815
------ ------ ------
Noncash distributions applied to receivables from
stockholders.............................................. 263 225 --
------ ------ ------
Stockholder distributions payable at end of year............ $1,071 $4,555 $ --
====== ====== ======
</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-14
<PAGE> 134
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
Deferred tax assets and liabilities are composed of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Vacation accrual................................... $190 $208
Deferred recognition on contracts in progress...... 174 178
Property tax accrual............................... 53 44
Deferred rents payable............................. 95 119
Other.............................................. 35 36
---- ----
547 585
Deferred tax liabilities:
Depreciation....................................... 158 197
Pension accrual.................................... 48 48
Other.............................................. 150 150
---- ----
356 395
---- ----
Net deferred tax assets............................ $191 $190
==== ====
</TABLE>
Significant components of the income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal................................. $2,562 $ 974
State................................... 452 171
------ ------
3,014 1,145
Deferred:
Federal................................. (163) 1
State................................... (28) --
------ ------
(191) 1
------ ------
$2,823 $1,146
====== ======
</TABLE>
F-15
<PAGE> 135
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
The reconciliation of income tax computed at the U.S. federal statutory
rates to provision for income taxes follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1997 MARCH 31,
ACTUAL PRO FORMA PRO FORMA 1998
------- --------- ------------------ ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Tax at U.S. federal statutory
rates........................... $ 3,929 $3,929 $602 $ 932
State income taxes, net of federal
tax benefit..................... 280 693 108 113
S Corporation termination......... (300) (300) -- --
Tax attributable to S Corporation
portion of earnings............. (1,213) -- -- --
Other............................. 127 14 -- 101
------- ------ ---- ------
$ 2,823 $4,336 $710 $1,146
======= ====== ==== ======
</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 and
for the three months ended March 31, 1998 were approximately $177,000.
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
$35,000 and $70,000 for the years ended December 31, 1996 and 1997, respectively
(none for 1995) and $10,000 and $16,000 for the three months ended March 31,
1997 and 1998, respectively.
In 1996, the Company adopted the "Supplemental Retirement and Deferred
Compensation Plan" for certain management employees. The Plan was an unfunded
deferred compensation plan whereby the Company contributed 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 $883,000, $1,122,000 and $1,836,000 during the
years ended December 31, 1995, 1996 and 1997, respectively, and $409,000 and
$373,000 for the three months ended March 31, 1997 and 1998, 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.
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
F-16
<PAGE> 136
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
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
$97,000, $124,000 and $147,000 during the years ended December 31, 1995, 1996
and 1997, respectively, and $36,000 and $52,000 for the three months ended March
31, 1997 and 1998, 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. 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 was not applicable because the benefit was not pay
related.
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-17
<PAGE> 137
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
9. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted pro
forma net income per share:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------- ------------------
1996 1997 1997 1998
------ ------ ------ ------
(IN THOUSANDS EXCEPT PER SHARE DATE)
<S> <C> <C> <C> <C>
Numerator:
Pro forma net income..................................... $6,030 $7,219 $1,062 $1,595
====== ====== ====== ======
Denominator:
Weighted average shares.................................. 5,000 5,975 5,000 7,000
Net effect of shares issued that are attributed to
stockholder distributions made from initial public
offering proceeds..................................... 941 482 941 --
------ ------ ------ ------
Denominator for basic pro forma net income per share....... 5,941 6,457 5,941 7,000
Effect of dilutive securities:
Employee and director stock options...................... -- 99 -- 159
------ ------ ------ ------
Denominator for diluted pro forma net income per share --
adjusted weighted average shares and assumed
conversions........................................... 5,941 6,556 5,941 7,159
====== ====== ====== ======
Pro forma net income per share:
Basic.................................................... $ 1.02 $ 1.12 $ 0.18 $ 0.23
====== ====== ====== ======
Diluted.................................................. $ 1.02 $ 1.10 $ 0.18 $ 0.22
====== ====== ====== ======
</TABLE>
F-18
<PAGE> 138
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
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
--------------------
WEIGHTED-
SHARES AVERAGE
AVAILABLE EXERCISE
UNDER GRANT NUMBER PRICE
----------- ------- ---------
<S> <C> <C> <C>
Balance at February 5, 1997 (inception of Plan)............ -- -- $ --
Authorized............................................... 600,000 -- --
Granted.................................................. (360,500) 360,500 5.12
Exercised................................................ -- -- --
Canceled................................................. 48,500 (48,500) 5.00
-------- ------- -----
Balance at December 31, 1997............................... 288,000 312,000 5.14
Authorized............................................... -- -- --
Granted.................................................. -- -- --
Exercised................................................ -- (2,000) 5.00
Canceled................................................. -- -- --
-------- ------- -----
Balance at March 31, 1997.................................. 288,000 310,000 $5.15
======== ======= =====
Exercisable at December 31, 1997........................... 0
=======
Exercisable at March 31, 1998.............................. 62,000
=======
</TABLE>
The range of exercise prices for options outstanding at December 31, 1997
and March 31, 1998 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.
F-19
<PAGE> 139
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
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 plan 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:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Pro forma net income as reported.............. $7,219 $1,595
Pro forma net income including SFAS No. 123 $7,114 $1,565
expense.....................................
Pro forma earnings per share including SFAS
No. 123 expense
Basic....................................... $ 1.10 $ 0.23
Diluted..................................... $ 1.09 $ 0.22
</TABLE>
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
opinion, 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
F-20
<PAGE> 140
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
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 $264,000
in 1995, $274,000 in 1996, and $900,000 in 1997, and $69,000 and $246,000 for
the three months ended March 31, 1997 and 1998, respectively.
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 $134,000,
$233,000 and $259,000 for the years ended December 31, 1995, 1996 and 1997,
respectively, and $95,000 and $61,000 for the three months ended March 31, 1997
and 1998.
12. SIGNIFICANT CUSTOMERS
The Company had revenues from certain customers that were in excess of 10
percent of the respective years' revenues as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ------------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Customer A................................ 10.4% 13.4% 20.4% 18.0% n/a
Customer B................................ n/a 19.5% 31.7% 35.4% 28.8%
Customer C................................ n/a 13.7% n/a n/a n/a
Customer D................................ n/a 11.5% n/a n/a n/a
Customer E................................ 11.2% n/a n/a n/a n/a
Customer F................................ 14.4% n/a n/a n/a n/a
Customer G................................ n/a n/a n/a n/a 10.5%
</TABLE>
F-21
<PAGE> 141
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
During the years ended December 31, 1995, 1996 and 1997, and the three
months ended March 31, 1997 and 1998, the Company's revenues included
approximately $1,894,000, $14,280,000, $5,057,000, $463,000 and $2,185,000,
respectively, relating to projects carried out internationally for which
approximately $1,776,000, $463,369 and $1,145,000 was in accounts receivable at
December 31, 1996 and 1997 and March 31, 1998, respectively.
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 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
F-22
<PAGE> 142
SCHUFF STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS
UNAUDITED)
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 $63.7 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 QTR. 2ND QTR. 3RD QTR. 4TH 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>
<TABLE>
<CAPTION>
FISCAL YEAR 1996
-------------------------------------------
1ST QTR. 2ND QTR. 3RD QTR. 4TH 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-23
<PAGE> 143
REPORT OF MAULDIN & JENKINS, INDEPENDENT AUDITORS
To the Board of Directors
Addison Structural Services, Inc.
and Subsidiaries
Albany, Georgia
We have the audited the accompanying consolidated balance sheets of Addison
Structural Services, Inc. and Subsidiaries as of June 30, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 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 our audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Addison
Structural Services, Inc. and Subsidiaries as of June 30, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1997, in conformity with generally accepted accounting
principles.
/s/ MAULDIN & JENKINS, LLC
Albany, Georgia
August 5, 1997, except for Note 10
as to which the date is March 18, 1998
F-24
<PAGE> 144
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,204,012 $ 8,541,708 $ 7,345,920
Contract receivables, including retentions
1997 -- $2,291,530; 1996 -- $1,846,983;
1998 -- $2,201,039...................................... 10,721,967 8,285,368 8,766,946
Cost and estimated earnings in excess of billings on
uncompleted contracts................................... 3,107,611 2,889,556 3,928,018
Current maturities of real estate mortgage receivable..... 37,417 40,427 80,661
Loans receivable, employees............................... 16,129 17,641 6,299
Inventories, at the lower of cost (first-in, first-out
method) or market....................................... 2,790,453 2,673,995 3,929,338
Income tax receivable..................................... 20,228 -- 276,018
Prepaids.................................................. -- -- 29,291
----------- ----------- -----------
Total current assets.................................... 20,897,817 22,448,695 24,362,491
Investments, long-term receivables and other assets:
Cash surrender value of life insurance.................... 454,357 530,714 530,714
Other investments, at cost................................ 25,000 25,000 25,000
Real estate mortgage receivable, less current
maturities.............................................. 124,859 113,047 661,776
Deposits.................................................. 13,648 13,848 13,848
----------- ----------- -----------
617,864 682,609 1,231,338
Property and equipment:
Land...................................................... 1,733,945 3,589,509 3,411,217
Buildings and improvements................................ 5,163,855 6,145,197 6,368,178
Machinery, equipment and vehicles......................... 7,174,874 7,593,156 7,347,001
Furniture and fixtures.................................... 642,846 625,691 735,693
Construction in progress.................................. 822,731 1,740,309 2,431,399
----------- ----------- -----------
15,538,251 19,693,862 20,293,488
Less accumulated depreciation............................. 7,707,733 8,286,349 8,179,444
----------- ----------- -----------
7,830,518 11,407,513 12,114,044
----------- ----------- -----------
$29,346,199 $34,538,817 $37,707,873
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 500,000 $ -- $ --
Current maturities on long-term debt...................... 10,809 12,058 --
Current maturities on long-term debt, ESOP stock note..... 110,175 110,175 110,175
Current maturities on long-term debt, ESOP................ 29,506 58,471 58,471
Accounts payable.......................................... 3,168,496 2,905,684 2,872,017
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 2,315,203 893,660 1,347,947
Accrued expenses.......................................... 2,248,029 2,773,576 1,831,416
Income taxes payable...................................... -- 396,911 --
----------- ----------- -----------
Total current liabilities............................... 8,382,218 7,150,535 6,220,026
Long-term liabilities:
Long-term debt, less current maturities................... 143,764 131,704 --
Long-term debt, ESOP stock note, less current
maturities.............................................. 936,488 826,312 743,681
Long-term debt, ESOP, less current maturities............. 59,898 138,155 138,155
----------- ----------- -----------
1,140,150 1,096,171 881,836
Deferred income taxes....................................... 230,762 636,328 636,328
Stockholders' equity:
Common stock, par value $5 per share; authorized 100,000
shares; issued 51,331 shares............................ 256,654 256,654 256,654
Additional paid in capital................................ 377,114 377,114 377,114
Retained earnings......................................... 20,095,368 26,155,128 30,386,397
----------- ----------- -----------
20,729,136 26,788,896 31,020,165
Less:
ESOP stock note......................................... 1,046,663 936,487 853,856
Deferred compensation related to ESOP guarantee......... 89,404 196,626 196,626
----------- ----------- -----------
19,593,069 25,655,783 29,969,683
----------- ----------- -----------
Total liabilities and stockholders' equity.............. $29,346,199 $34,538,817 $37,707,873
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE> 145
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................... $50,462,695 $57,638,044 $63,700,151 $46,194,902 $48,880,096
Cost of revenues........................... 38,974,570 43,414,287 47,774,377 34,880,775 37,701,434
----------- ----------- ----------- ----------- -----------
Gross profit............................... 11,488,125 14,223,757 15,925,774 11,314,127 11,178,662
General and administrative expenses........ 5,582,433 6,000,956 6,531,854 4,642,536 5,171,633
----------- ----------- ----------- ----------- -----------
Operating income........................... 5,905,692 8,222,801 9,393,920 6,671,591 6,007,029
Nonoperating income (expense):
Interest and dividend income............. 35,448 128,275 349,085 264,064 356,331
Interest expense......................... (236,274) (152,781) (38,181) (30,088) (12,336)
Gain on sale of assets................... 2,594 107,394 21,771 16,793 429,966
Miscellaneous other income (expense)..... 157,405 185,630 366,461 160,963 (10,961)
----------- ----------- ----------- ----------- -----------
(40,827) 268,518 699,136 411,732 763,000
----------- ----------- ----------- ----------- -----------
Income before income taxes................. 5,864,865 8,491,319 10,093,056 7,083,323 6,770,029
Provision for income taxes................. 2,177,989 3,186,471 4,033,296 2,714,610 2,538,760
----------- ----------- ----------- ----------- -----------
Net income................................. $ 3,686,876 $ 5,304,848 $ 6,059,760 $ 4,368,713 $ 4,231,269
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE> 146
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL ESOP DEFERRED TOTAL
COMMON PAID IN RETAINED TREASURY STOCK COMPENSATION STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK NOTE ESOP EQUITY
--------- ---------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994........ $ 389,148 $ 571,795 $12,253,451 $(1,456,710) $ -- $ (166,203) $11,591,481
Net decrease in deferred
compensation related to
ESOP...................... -- -- -- -- -- 86,390 86,390
Net income.................. -- -- 3,686,876 -- -- -- 3,686,876
--------- --------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1995........ 389,148 571,795 15,940,327 (1,456,710) -- (79,813) 15,364,747
Purchase of treasury
shares.................... -- -- -- (20,272) -- -- (20,272)
Retirement of treasury
stock..................... (132,494) (194,681) (1,149,807) 1,476,982 -- -- --
Net increase in deferred
compensation related to
ESOP...................... -- -- -- -- -- (9,591) (9,591)
Net increase in ESOP stock
note...................... -- -- -- -- (1,046,663) -- (1,046,663)
Net income.................. -- -- 5,304,848 -- -- -- 5,304,848
--------- --------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1996........ 256,654 377,114 20,095,368 -- (1,046,663) (89,404) 19,593,069
Net increase in deferred
compensation related to
ESOP...................... -- -- -- -- -- (107,222) (107,222)
Net decrease to ESOP stock
note...................... -- -- -- -- 110,176 -- 110,176
Net income.................. -- -- 6,059,760 -- -- -- 6,059,760
--------- --------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1997........ 256,654 377,114 26,155,128 -- (936,487) (196,626) 25,655,783
Net decrease to ESOP stock
note (unaudited).......... -- -- -- -- 82,631 -- 82,631
Net income (unaudited)...... -- -- 4,231,269 -- -- -- 4,231,269
--------- --------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1998
(unaudited)................. $ 256,654 $ 377,114 $30,386,397 $ -- $ (853,856) $ (196,626) $29,969,683
========= ========= =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE> 147
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................ $ 3,686,876 $ 5,304,848 $ 6,059,760 $ 4,368,713 $ 4,231,269
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................ 891,261 921,866 978,373 731,953 737,470
Amortization of prepaid loan costs.................. 2,153 2,905 -- -- --
Gain on sale of property and equipment.............. (15,730) (107,394) (21,771) (16,793) (429,966)
Loss on sale of real estate held for sale........... 13,136 -- -- -- --
Changes in assets and liabilities:
(Increase) decrease in contract receivables....... (1,507,123) (2,692,332) 2,436,599 2,200,103 (481,578)
(Increase) decrease in other receivables.......... (15,988) 19,085 (1,512) (3,650) 11,342
(Increase) decrease in costs in excess of billings
or uncompleted contracts........................ (1,429,136) 787,248 218,055 (1,174,862) (1,038,462)
(Increase) decrease in inventories................ (1,063,985) 337,772 116,458 (685,307) (1,255,343)
Increase in prepaids.............................. -- -- -- (59,163) (29,290)
(Increase) decrease in deposits................... 14,600 -- (200) -- --
(Increase) decrease in income taxes receivable.... -- -- -- 20,228 (276,019)
Increase (decrease) in accounts payable........... 34,609 142,320 (262,812) (4,269) (33,667)
Increase (decrease) in billings in excess of costs
on uncompleted contracts........................ 285,989 916,870 (1,421,543) -- 454,287
Increase (decrease) in accrued expenses........... 722,106 595,445 525,547 (519,389) (942,160)
Increase (decrease) in deferred income taxes...... (184,030) 138,545 405,566 -- --
Increase (decrease) in income taxes payable....... 259,009 (536,549) 417,139 64,295 (396,911)
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities..... 1,693,747 5,830,629 9,449,659 4,921,859 550,972
INVESTING ACTIVITIES
Proceeds from sale of property and equipment.......... 42,054 225,474 86,574 46,655 118,446
Purchase of property and equipment.................... (690,178) (2,665,204) (4,620,171) (1,579,818) (1,132,481)
Proceeds from sale of real estate held for sale....... 109,000 -- -- -- --
Increase in cash surrender value of life insurance.... (66,024) (48,050) (76,357) -- --
(Increase) decrease received on real estate mortgage
receivable.......................................... 7,467 8,115 8,802 6,528 (588,963)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities......... (597,681) (2,479,665) (4,601,152) (1,526,635) (1,602,998)
FINANCING ACTIVITIES
Principal payments on long-term borrowings............ (1,322,018) (972,908) (10,811) (7,994) (143,762)
Purchase of treasury stock............................ -- (20,272) -- -- --
Increase (decrease) in short-term notes payable....... 190,001 (191,002) (500,000) (500,000) --
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities................. (1,132,017) (1,184,182) (510,811) (507,994) (143,762)
----------- ----------- ----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents......................................... (35,951) 2,166,782 4,337,696 2,887,230 (1,195,788)
Cash and cash equivalents at beginning of period...... 2,073,181 2,037,230 4,204,012 4,204,012 8,541,708
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period............ $ 2,037,230 $ 4,204,012 $ 8,541,708 $ 7,091,242 $ 7,345,920
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................ $ 227,333 $ 141,279 $ 47,180 $ 55,088 $ 12,336
=========== =========== =========== =========== ===========
Income taxes........................................ $ 2,103,010 $ 3,584,475 $ 3,210,591 $ 2,630,087 $ 3,211,690
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE> 148
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(THE INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Change in Equity Structure
Effective July 1, 1995, but not completed until October 6, 1995, the
stockholders of Addison Steel, Inc. elected to retire all shares of treasury
stock outstanding, exchange their shares of common stock for shares of common
stock of Addison Structural Services, Inc., a newly formed corporation, and
approve a dividend of its equity interest in Quincy Joist Company, a wholly
owned subsidiary, to Addison Structural Services, Inc. The purpose of creating
Addison Structural Services, Inc. is to facilitate the administrative functions
of the two subsidiaries. The combination has been accounted for as a
reorganization with a pooling of interests.
Nature of Business
Addison Structural Services, Inc. (the Company) is a holding company whose
business is presently conducted by its wholly owned subsidiaries, Addison Steel,
Inc. in Albany, Georgia and Orlando, Florida and Quincy Joist Company in Quincy,
Florida. The subsidiaries are principally engaged in the steel fabrication and
erection business throughout the Southeastern United States, but primarily in
Georgia and Florida. Work is normally performed under fixed-price contracts
typically lasting less than one year. Therefore, assets and liabilities relating
to these contracts are all classified as current in the balance sheets.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Significant intercompany transactions and accounts are
eliminated in consolidation.
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and general practices within their industry. In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period. Actual
results could differ from those estimates.
Interim Financial Information
The consolidated financial statements for the nine months ended March 31,
1997 and 1998 are unaudited but include all adjustments (consisting only of
normal recurring adjustments) that the Company considers necessary for a fair
presentation of financial position and results of operations. Operating results
for the nine months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for any future period.
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 liabilities in the accompanying
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
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and in banks as well as highly liquid investments and repurchase
agreements, which are convertible to a known amount of cash and carry an
insignificant risk of change in value.
F-29
<PAGE> 149
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
The Company maintains deposits in banks which, at times, may exceed FDIC
insured limits. The Company has not experienced any losses in such accounts.
Revenue and Cost Recognition
Revenue from fixed-price contracts, except for the steel portion of the
contract, is reflected in the financial statements on the
percentage-of-completion method. The Company's percentage of completion is
measured by the percentage of labor hours incurred to date to estimated total
labor hours for each contract. This method is used because management considers
expended labor hours to be the best available measure of progress on these
contracts. The revenue and cost recognition related to the steel portion of the
contract is based on actual pounds of steel pulled from inventory.
At the time a loss on a contract becomes known, the entire amount of the
estimated ultimate loss is accrued.
Land, Buildings and Equipment
Land, buildings and equipment are stated at cost. Depreciation and
amortization are provided principally on the straight-line method over the
following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Buildings and improvements.................................. 15 - 31.5
Machinery, equipment and vehicles........................... 3 - 5
Furniture and fixtures...................................... 5 - 10
</TABLE>
Amortization of Deferred Debt Expense
Deferred debt expense is being amortized by the straight-line method over
the loan period.
Income Taxes
The Company and its subsidiaries file a consolidated income tax return. The
subsidiaries provide for income taxes based on their contribution to income
taxes (benefits) of the consolidated group.
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance within, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effect of changes in tax laws on the date of enactment.
Fair Value of Financial Instruments
Financial Accounting Standards Board Statement No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value.
Carrying amounts approximated fair values for the following instruments:
<TABLE>
<S> <C>
Cash and cash equivalents Notes payable
Contracts receivable Cash surrender value of life insurance
Estimated earnings and billings on Accounts payable
uncompleted contracts Accrued interest payable
</TABLE>
F-30
<PAGE> 150
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
For other financial instruments, the determination of a fair value was not
practical for disclosures as they do not represent a significant value to the
Company and any differences from the carrying value of these instruments would
also not be significant.
2. INVENTORIES
Inventories were composed of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------ MARCH 31,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Albany:
Steel................................................ $ 607,409 $ 643,675 $ 900,344
Accessories and supplies............................. 23,455 30,676 26,478
---------- ---------- ----------
630,864 674,351 926,822
Lockhart (Orlando):
Steel................................................ 649,267 738,451 1,171,845
Accessories and supplies............................. 37,142 35,194 34,461
---------- ---------- ----------
686,409 773,645 1,206,306
Quincy:
Steel................................................ 1,351,780 1,078,023 1,532,079
Accessories and supplies............................. 121,400 147,976 240,269
---------- ---------- ----------
1,473,180 1,225,999 1,772,348
Pinewood Plantation:
Accessories and supplies............................. -- -- 23,862
---------- ---------- ----------
$2,790,453 $2,673,995 $3,929,338
========== ========== ==========
</TABLE>
3. COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Cost and estimated earnings on uncompleted contracts consisted of the
following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cost incurred on uncompleted contracts.............. $27,911,919 $31,060,324 $31,820,446
Estimated earnings.................................. 6,866,556 8,839,253 8,873,494
----------- ----------- -----------
34,778,475 39,899,577 40,693,940
Less billings to date............................... 33,986,067 37,903,681 38,113,869
----------- ----------- -----------
$ 792,408 $ 1,995,896 $ 2,580,071
=========== =========== ===========
</TABLE>
Included in the accompanying consolidated balance sheets under the
following captions:
<TABLE>
<CAPTION>
JUNE 30,
------------------------- MARCH 31,
1996 1997 1998
----------- ---------- -----------
<S> <C> <C> <C>
Cost and estimated earnings in excess of billings on
uncompleted contracts.............................. $ 3,107,611 $2,889,556 $ 3,928,018
Billings in excess of costs and estimated earnings on
uncompleted contracts.............................. (2,315,203) (893,660) (1,347,947)
----------- ---------- -----------
$ 792,408 $1,995,896 $ 2,580,071
=========== ========== ===========
</TABLE>
F-31
<PAGE> 151
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
4. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Note payable, E.C. Addison, a related party, due in monthly
installments of $2,273, including interest at 11.0
percent, collateralized by real estate................... $154,573 $143,762 $ --
Less current portion....................................... 10,809 12,058 --
-------- -------- --------
$143,764 $131,704 $ --
======== ======== ========
</TABLE>
Aggregate maturities required on long-term debt at June 30, 1997 are as
follows:
<TABLE>
<S> <C>
1998........................................................ $ 12,058
1999........................................................ 13,456
2000........................................................ 15,013
2001........................................................ 16,750
2002........................................................ 18,689
Later years................................................. 67,796
--------
$143,762
========
</TABLE>
All interest incurred during the years ended June 30, 1995, 1996, and 1997,
and the nine months ended March 31, 1997 and 1998, was expensed.
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
-------------------------------------- ------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Current...................... $2,362,019 $3,047,926 $3,627,730 $2,714,610 $2,538,760
Deferred..................... (184,030) 138,545 405,566 -- --
---------- ---------- ---------- ---------- ----------
Provision for income taxes... $2,177,989 $3,186,471 $4,033,296 $2,714,610 $2,538,760
========== ========== ========== ========== ==========
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Deferred tax liabilities:
Property and equipment................................... $230,762 $636,328 $636,328
-------- -------- --------
Net deferred tax liability................................. $230,762 $636,328 $636,328
======== ======== ========
</TABLE>
F-32
<PAGE> 152
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
The reconciliation of income tax computed at the U.S. federal statutory
rates to provision for income taxes follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------------------- ------------------------
1995 1996 1997 1997 1998
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Tax at U.S. federal
statutory rates........... $1,994,000 $ 2,887,000 $3,432,000 $2,408,000 $2,302,000
State income taxes, net of
federal tax benefit....... 322,000 389,000 512,000 401,000 383,000
Other....................... (138,000) (90,000) 89,000 (94,000) (146,000)
---------- ----------- ---------- ---------- ----------
$2,178,000 $43,186,000 $4,033,000 $2,715,000 $2,539,000
========== =========== ========== ========== ==========
</TABLE>
6. EMPLOYEE STOCK OWNERSHIP PLAN
In 1981, the Company established an Employee Stock Ownership Plan (ESOP).
The primary purpose of the plan is to provide retirement benefits to
substantially all employees. Through June 30, 1997, 23,836.22 shares of the
Company's common stock were held by the Employee Stock Ownership Trust, which
was established to administer the ESOP. Contributions to the ESOP are tax
deductible and are accounted for by the Company in the same manner as all of its
other employee fringe benefit expenses. Contributions under the plan amounted to
$175,861, $214,877, and $306,627 for the years ended 1995, 1996, and 1997,
respectively, and $180,899 and $385,625 for the nine months ended March 31, 1997
and 1998, respectively.
The Plan authorizes its Trustee to distribute vested benefits either at
termination of employment or at the normal retirement age of sixty-five (65). An
account becomes fully vested only after a participant has completed seven years
of service with the Company, has retired at normal retirement age or has become
disabled. The distribution can be made in the form of stock, or a cash
settlement evidenced by a promissory note. The promissory note would be payable
in four (4) equal installments plus accrued interest at prime plus one percent.
If the participant elects a stock distribution, he may offer the stock to the
company for purchase. If so offered, the company is required to purchase the
stock at fair market value. The Company pays twenty percent of the total
purchase price at closing, and the balance of the purchase price is evidenced by
a promissory note bearing interest at one percent above prime. The note is paid
in four equal annual installments plus interest beginning one year after the
closing. The Company may grant the Trust an option to assume the Company rights
and obligations at the time a participant exercises this option. Repayment of
the debt is, however, guaranteed by the Company.
Aggregate future principal payments of the notes payable referred to in the
preceding paragraph are due as follows:
<TABLE>
<S> <C>
Year ending June 30,
1998........................................................ $ 58,471
1999........................................................ 54,604
2000........................................................ 49,369
2001........................................................ 34,182
--------
$196,626
========
</TABLE>
This debt was recorded in the accompanying consolidated balance sheets with
a corresponding deduction from stockholders' equity. The debt and the deduction
from stockholders' equity are reduced as the Trust makes principal payments to
the participants.
F-33
<PAGE> 153
ADDISON STRUCTURAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
7. ESOP STOCK NOTE
In October 1995, the Trustees of the ESOP authorized $1,101,750 of
borrowings from SunTrust Bank of South Georgia, for the purchase of 5,000 shares
of the Company's common stock previously owned by another stockholder. The note,
payable in 40 quarterly installments of $27,543.75 plus interest at prime, is
collateralized by the 5,000 shares of stock.
Future principal payments of the note payable are due as follows:
<TABLE>
<S> <C>
Year ending June 30,
1998........................................................ $110,175
1999........................................................ 110,175
2000........................................................ 110,175
2001........................................................ 110,175
2002........................................................ 110,175
Later....................................................... 385,612
--------
$936,487
========
</TABLE>
This debt was recorded in the accompanying consolidated balance sheets with
a corresponding deduction from stockholders' equity. The debt and the deduction
from stockholders' equity are reduced as the Trust makes principal payments.
8. STOCK OPTION AGREEMENT
On November 15, 1994, the Company's wholly owned subsidiary, Quincy Joist
Company, entered into a stock option agreement with one of its officers. The
agreement provides that the officer will be granted ten stock options over a
ten-year period to purchase eleven shares each year of its common stock for a
total of 110 shares which will be 10 percent of the Company's shares after the
tenth option is exercised. The exercise price of each share of common stock
subject to this option agreement shall be $1,704 per share. The options, as
granted, will be exercisable at any time before December 31, 2003 subject to the
terms and conditions of the agreement. If the options are exercised, the stock
will be subject to a buy-sell agreement between the Company and the officer.
No options have been exercised as of March 31, 1998, and June 30, 1997, and
no compensation has been recognized for the options.
9. RELATED PARTY TRANSACTIONS
The Company purchases a portion of its steel requirements from Chris-Mar,
Inc., a related party through common control. The Company purchased 8.04
percent, 7.54 percent and 9.10 percent of its steel requirements amounting to
$1,373,669, $1,344,771 and $1,614,944 for the years ended June 30, 1995, 1996
and 1997, respectively.
10. SUBSEQUENT EVENTS
On March 18, 1998, the stockholders of the Company announced that they had
executed a letter of intent to sell all of the outstanding shares of stock of
the Company to Schuff Steel Company (Schuff). Schuff 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.
F-34
<PAGE> 154
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES DESCRIBED HEREIN BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. UNDER NO CIRCUMSTANCES SHALL THE
DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE PURSUANT TO THIS EXCHANGE OFFER
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS OR THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Disclosure Regarding Forward-Looking
Statements.......................... 2
Summary............................... 3
Risk Factors.......................... 17
The Acquisition....................... 26
Use of Proceeds....................... 27
Capitalization........................ 28
Unaudited Pro Forma Condensed Combined
Financial Statements................ 29
Schuff Steel Company Selected
Historical Financial Data........... 35
Addison Structural Services, Inc.
Selected Historical Financial
Data............................. 37
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 38
Business.............................. 48
Management............................ 59
Principal Stockholders................ 64
Certain Relationships and Related
Transactions........................ 65
Description of Existing
Indebtedness........................ 66
Description of Exchange Notes......... 68
Description of Outstanding Notes...... 97
The Exchange Offer.................... 98
Plan of Distribution.................. 107
Certain Federal Income Tax
Considerations...................... 108
Legal Matters......................... 113
Experts............................... 113
Available Information................. 114
Incorporation of Certain Documents by
Reference........................... 114
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$100,000,000
SCHUFF STEEL
COMPANY
10 1/2% SENIOR NOTES DUE 2008
------------------------
PROSPECTUS
------------------------
July 21, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 155
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides that a director of the
Company shall not be personally liable to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability for: (i) any breach of the director's duty of loyalty to the Company
or its stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) liability for
payments of dividends or stock purchases or redemptions in violation of Section
174 of the Delaware General Corporation Law; or (iv) any transaction from which
the director derived an improper personal benefit. In addition, the Company's
Certificate of Incorporation provides that the Company shall to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the corporation to provide broader
indemnification rights than such law permitted the corporation to provide prior
to such amendment), indemnify and hold harmless any person who was or is a
party, or is threatened to be made a party to or is otherwise involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that such person
is or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to an employee benefit plan (hereinafter an "Indemnitee")
against expenses, liabilities and losses (including attorneys' fees, judgments,
fines, excise taxes or penalties paid in connection with the Employee Retirement
Income Security Act of 1974, as amended, and amounts paid in settlement)
reasonably incurred or suffered by such Indemnitee in connection therewith;
provided, however, that except as otherwise provided with respect to proceedings
to enforce rights to indemnification, the Company shall indemnify any such
Indemnitee in connection with a proceeding (or part thereof) initiated by such
Indemnitee only if such proceeding or part thereof was authorized by the board
of directors of the Company.
The right to indemnification set forth above includes the right to be paid
by the Company the expenses (including attorneys' fees) incurred in defending
any such proceeding in advance of its final disposition; provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an Indemnitee in his capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
Indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Company of an undertaking, by or on
behalf of such Indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is not
further right to appeal that such Indemnitee is not entitled to be indemnified
for such expenses under this section or otherwise. The rights to indemnification
and to the advancement of expenses conferred herewith are contract rights and
continue as to an Indemnitee who has ceased to be a director, officer, employee
or agent and inures to the benefit of the Indemnitee's heirs, executors and
administrators.
The Delaware General Corporation Law provides that indemnification is
permissible only when the director, officer, employee, or agent acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. The
Delaware General Corporation Law also precludes indemnification in respect of
any claim, issue, or matter as to which an officer, director, employee, or agent
shall have been adjudged to be liable to the Company unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine that, despite such adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
For information regarding the Company's undertaking to submit to
adjudication the issue of indemnification for violation of the securities laws,
see Item 22 hereof.
II-1
<PAGE> 156
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------
<S> <C>
1.1 Purchase Agreement dated June 1, 1998, by and among the
Registrant, Donaldson, Lufkin & Jenrette Securities
Corporation, Jefferies & Company, Inc., and Friedman,
Billings, Ramsey & Co., Inc.(5)
2.1 Stock Purchase Agreement dated as of May 12, 1998, by and
among the Registrant, E.C. Addison and The Addison
Structural Services, Inc. Leveraged Employee Stock Ownership
Plan, and Addison Structural Services, Inc.(5)
2.2 Amendment to Stock Purchase Agreement dated June 1, 1998, by
and among the Registrant, E.C. Addison and The Addison
Structural Services, Inc. Leveraged Stock Ownership Plan,
and Addison Structural Services, Inc.(5)
2.3 Amendment No. 2 to Stock Purchase Agreement dated June 4,
1998, by and among the Registrant, E.C. Addison and The
Addison Structural Services, Inc. Leveraged Stock Ownership
Plan, and Addison Structural Services, Inc.(5)
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)
3.3(a) Articles of Incorporation of B & K Steel Fabrications, Inc.
("B & K")(6)
3.3(b) Articles of Amendment of B & K(6)
3.4 Bylaws of B & K(6)
3.5(a) Articles of Incorporation of Addison Structural Services,
Inc. ("Addison")(6)
3.5(b) Articles of Amendment to the Articles of Incorporation of
Addison(6)
3.6 Bylaws of Addison(6)
3.7(a) Articles of Incorporation of Addison Steel, Inc. ("Addison
Steel")(6)
3.7(b) Certificate of Amendment of Articles of Incorporation of
Addison Steel, dated May 26, 1960(6)
3.7(c) Certificate of Amendment of Articles of Incorporation of
Addison Steel, dated September 22, 1961(6)
3.7(d) Certificate of Amendment of Articles of Incorporation of
Addison Steel, dated November 19, 1962(6)
3.7(e) Certificate of Amendment of Articles of Incorporation of
Addison Steel, dated December 20, 1966(6)
3.7(f) Certificate of Amendment of Articles of Incorporation of
Addison Steel, dated September 11, 1968(6)
3.7(g) Certificate of Amendment of Articles of Incorporation of
Addison Steel, dated February 28, 1981(6)
3.8 Bylaws of Addison Steel(6)
3.9(a) Articles of Incorporation of Quincy Joist Company
("Quincy")(6)
3.9(b) Articles of Amendment to the Articles of Incorporation of
Quincy(6)
3.10 Bylaws of Quincy(6)
4.1 Certificate of Incorporation of the Registrant (filed as
Exhibit 3.1)(1)
4.2 Indenture dated June 4, 1998, by and between the Registrant,
the Guarantors (as defined therein) and Harris Trust Company
of California, as Trustee(5)
4.3 Registration Rights Agreement, dated June 4, 1998, by and
among the Registrant, the Guarantors (as defined therein),
Donaldson, Lufkin & Jenrette Securities Corporation,
Jefferies & Company, Inc., and Friedman, Billings, Ramsey &
Co., Inc.(5)
4.4 Form of 10 1/2% Senior Note due June 1, 2008(7)
5.1 Form of Opinion of Snell & Wilmer L.L.P. regarding the
legality of the securities being registered(6)
10.1(a) Loan Agreement dated June 30, 1996 between the Registrant
and Bank One, Arizona, NA(1)
</TABLE>
II-2
<PAGE> 157
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------
<S> <C>
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)
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)
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)
</TABLE>
II-3
<PAGE> 158
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------
<S> <C>
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 (4)
10.15(b) Promissory Note dated December 10, 1997 between the
Registrant and Bank One, Arizona, NA (4)
10.16 Purchase Agreement, dated June 1, 1998, by and among the
Registrant, Donaldson, Lufkin & Jenrette Securities
Corporation, Jefferies & Company, Inc., and Friedman,
Billings, Ramsey & Co., Inc.(5)
10.17 Credit Agreement dated June 30, 1998 between the Registrant
and Wells Fargo Bank, NA
21.1 Subsidiaries of the Registrant(6)
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of Mauldin & Jenkins, LLC, independent public
accountants
23.3 Consent of Snell & Wilmer L.L.P. (contained in Exhibit 5.1)
24.1 Power of Attorney of David A. Schuff (see signature page
included in Registration Statement)(6)
24.2 Power of Attorney of Scott A. Schuff (see signature page
included in Registration Statement)(6)
99.1 Letter of Transmittal and related documents with respect to
the Exchange Offer
</TABLE>
(b) 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.
- ---------------
(1) Previously filed as an exhibit to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-26711) and incorporated herein by reference.
(2) Previously filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and incorporated herein by
reference.
(5) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K/A, filed June 19, 1998, and incorporated herein by reference.
(6) Previously filed herewith.
(7) Previously filed as an exhibit to the Indenture dated June 4, 1998, by and
between the Registrant, the Guarantors (as defined therein), Donaldson,
Lufkin & Jenrette Securities Corporation, Jefferies & Company, Inc., and
Friedman, Billings, Ramsey & Co., Inc., which was filed as an exhibit to the
Registrant's Current Report on Form 8-K/A, filed June 19, 1998, and
incorporated herein by reference.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant and Co-Registrants hereby undertake as follows:
(1) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information
II-4
<PAGE> 159
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(2) To supply by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein, that was not
the subject of and included in this Registration Statement when it became
effective.
(3) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) to
reflect in the prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration
Statement; (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration Statement.
(4) That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(5) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(6) That, for purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(7) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant and Co-Registrants pursuant to the provisions described in
Item 20 above, or otherwise, the Registrant and Co-Registrants have been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant and
Co-Registrants of expenses incurred or paid by a director, officer, or
controlling person of the Registrant and Co-Registrants in the successful
defense of any action, suit, or proceeding) is asserted by such director,
officer, or controlling person in connection with the securities being
registered, the Registrant and Co-Registrants will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-5
<PAGE> 160
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
registrants have duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Phoenix, State of Arizona, on July 21, 1998.
SCHUFF STEEL COMPANY
By: /s/ SCOTT A. SCHUFF
------------------------------------
Scott A. Schuff
President and Chief Executive
Officer
B & K FABRICATIONS, INC.
By: /s/ SCOTT A. SCHUFF
------------------------------------
Scott A. Schuff
President
ADDISON STEEL, INC.
By: /s/ SCOTT A. SCHUFF
------------------------------------
Scott A. Schuff
Chairman and Chief Executive Officer
ADDISON STRUCTURAL SERVICES, INC.
By: /s/ SCOTT A. SCHUFF
------------------------------------
Scott A. Schuff
Chairman, President and Chief
Executive Officer
QUINCY JOIST COMPANY
By: /s/ SCOTT A. SCHUFF
------------------------------------
Scott A. Schuff
Chairman and Chief Executive Officer
II-6
<PAGE> 161
SCHUFF STEEL COMPANY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
<C> <S> <C>
/s/ DAVID A. SCHUFF Chairman of the Board of Directors July 21, 1998
- ---------------------------------------------------
David A. Schuff
/s/ SCOTT A. SCHUFF President, Chief Executive Officer July 21, 1998
- --------------------------------------------------- and Director (Principal executive
Scott A. Schuff officer)
* Vice President, Chief Financial July 21, 1998
- --------------------------------------------------- Officer and Director (Principal
Kenneth F. Zylstra financial and accounting officer)
* Director July 21, 1998
- ---------------------------------------------------
Edward M. Carson
* Director July 21, 1998
- ---------------------------------------------------
Dennis DeConcini
*By: /s/ SCOTT A. SCHUFF
---------------------------------------------
Scott A. Schuff
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 162
B & K FABRICATIONS, INC.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
<C> <S> <C>
/s/ DAVID A. SCHUFF Director July 21, 1998
- ---------------------------------------------------
David A. Schuff
/s/ SCOTT A. SCHUFF President and Director (Principal July 21, 1998
- --------------------------------------------------- executive officer)
Scott A. Schuff
* Secretary and Director July 21, 1998
- ---------------------------------------------------
Nancy A. Schuff
* Treasurer (Principal financial July 21, 1998
- --------------------------------------------------- accounting officer)
Kenneth F. Zylstra
*By: /s/ SCOTT A. SCHUFF
---------------------------------------------
Scott A. Schuff
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 163
ADDISON STEEL, INC.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
<C> <S> <C>
/s/ SCOTT A. SCHUFF Chairman, Chief Executive Officer July 21, 1998
- --------------------------------------------------- and Director (Principal executive
Scott A. Schuff officer)
* Secretary, Treasurer, Vice July 21, 1998
- --------------------------------------------------- President and Director (Principal
Kenneth F. Zylstra financial and accounting officer)
* President and Director July 21, 1998
- ---------------------------------------------------
Glen S. Davis
/s/ DAVID A. SCHUFF Director July 21, 1998
- ---------------------------------------------------
David A. Schuff
*By: /s/ SCOTT A. SCHUFF
---------------------------------------------
Scott A. Schuff
Attorney-in-Fact
</TABLE>
II-9
<PAGE> 164
ADDISON STRUCTURAL SERVICES, INC.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
<C> <S> <C>
/s/ SCOTT A. SCHUFF Chairman, President, Chief July 21, 1998
- --------------------------------------------------- Executive Officer and Director
Scott A. Schuff (Principal executive officer)
* Secretary, Treasurer, Vice July 21, 1998
- --------------------------------------------------- President and Director (Principal
Kenneth F. Zylstra financial and accounting officer)
* Director July 21, 1998
- ---------------------------------------------------
T. Michael Phagans
*By: /s/ SCOTT A. SCHUFF
---------------------------------------------
Scott A. Schuff
Attorney-in-Fact
</TABLE>
II-10
<PAGE> 165
QUINCY JOIST COMPANY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
<C> <S> <C>
/s/ SCOTT A. SCHUFF Chairman, Chief Executive Officer July 21, 1998
- --------------------------------------------------- and Director (Principal executive
Scott A. Schuff officer)
* Secretary, Treasurer, Vice July 21, 1998
- --------------------------------------------------- President and Director (Principal
Kenneth F. Zylstra financial and accounting officer)
* President and Director July 21, 1998
- ---------------------------------------------------
Sam Mahdavi
* By: /s/ SCOTT A. SCHUFF
---------------------------------------------
Scott A. Schuff
Attorney-in-Fact
</TABLE>
II-11
<PAGE> 166
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1.1 Purchase Agreement dated June 1, 1998, by and among the
Registrant, Donaldson, Lufkin & Jenrette Securities
Corporation, Jefferies & Company, Inc., and Friedman,
Billings, Ramsey & Co., Inc.(5)
2.1 Stock Purchase Agreement dated as of May 12, 1998, by and
among the Registrant, E.C. Addison and The Addison
Structural Services, Inc. Leveraged Employee Stock Ownership
Plan, and Addison Structural Services, Inc.(5)
2.2 Amendment to Stock Purchase Agreement dated June 1, 1998, by
and among the Registrant, E.C. Addison and The Addison
Structural Services, Inc. Leveraged Stock Ownership Plan,
and Addison Structural Services, Inc.(5)
2.3 Amendment No. 2 to Stock Purchase Agreement dated June 4,
1998, by and among the Registrant, E.C. Addison and The
Addison Structural Services, Inc. Leveraged Stock Ownership
Plan, and Addison Structural Services, Inc.(5)
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)
3.3(a) Articles of Incorporation of B & K Steel Fabrications, Inc.
("B & K")(6)
3.3(b) Articles of Amendment of B & K(6)
3.4 Bylaws of B & K(6)
3.5(a) Articles of Incorporation of Addison Structural Services,
Inc. ("Addison")(6)
3.5(b) Articles of Amendment to the Articles of Incorporation of
Addison(6)
3.6 Bylaws of Addison(6)
3.7(a) Articles of Incorporation of Addison Steel, Inc. ("Addison
Steel")(6)
3.7(b) Certificate of Amendment of Articles of Incorporation of
Addison Steel, dated May 26, 1960(6)
3.7(c) Certificate of Amendment of Articles of Incorporation of
Addison Steel, dated September 22, 1961(6)
3.7(d) Certificate of Amendment of Articles of Incorporation of
Addison Steel, dated November 19, 1962(6)
3.7(e) Certificate of Amendment of Articles of Incorporation of
Addison Steel, dated December 20, 1966(6)
3.7(f) Certificate of Amendment of Articles of Incorporation of
Addison Steel, dated September 11, 1968(6)
3.7(g) Certificate of Amendment of Articles of Incorporation of
Addison Steel, dated February 28, 1981(6)
3.8 Bylaws of Addison Steel(6)
3.9(a) Articles of Incorporation of Quincy Joist Company
("Quincy")(6)
3.9(b) Articles of Amendment to the Articles of Incorporation of
Quincy(6)
3.10 Bylaws of Quincy(6)
4.1 Certificate of Incorporation of the Registrant (filed as
Exhibit 3.1)(1)
4.2 Indenture dated June 4, 1998, by and between the Registrant,
the Guarantors (as defined therein) and Harris Trust Company
of California, as Trustee(5)
4.3 Registration Rights Agreement, dated June 4, 1998, by and
among the Registrant, the Guarantors (as defined therein),
Donaldson, Lufkin & Jenrette Securities Corporation,
Jefferies & Company, Inc., and Friedman, Billings, Ramsey &
Co., Inc.(5)
4.4 Form of 10 1/2% Senior Note due June 1, 2008(7)
</TABLE>
II-12
<PAGE> 167
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
5.1 Form of Opinion of Snell & Wilmer L.L.P. regarding the
legality of the securities being registered(6)
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)
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>
II-13
<PAGE> 168
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
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(4)
10.15(b) Promissory Note dated December 10, 1997 between the
Registrant and Bank One, Arizona, NA(4)
10.16 Purchase Agreement, dated June 1, 1998, by and among the
Registrant, Donaldson, Lufkin & Jenrette Securities
Corporation, Jefferies & Company, Inc., and Friedman,
Billings, Ramsey & Co., Inc.(5)
10.17 Credit Agreement dated June 30, 1998 between the Registrant
and Wells Fargo Bank, NA
21.1 Subsidiaries of the Registrant(6)
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of Mauldin & Jenkins, LLC, independent public
accountants
23.3 Consent of Snell & Wilmer L.L.P. (contained in Exhibit 5.1)
24.1 Power of Attorney of David A. Schuff (see signature page
included in the Registration Statement)(6)
24.2 Power of Attorney of Scott A. Schuff (see signature page
included in the Registration Statement)(6)
99.1 Letter of Transmittal and related documents with respect to
the Exchange Offer
</TABLE>
- ---------------
(1) Previously filed as an exhibit to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-26711) and incorporated herein by reference.
(2) Previously filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and incorporated herein by
reference.
(5) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K/A, filed June 19, 1998, and incorporated herein by reference.
(6) Previously filed herewith.
(7) Previously filed as an exhibit to the Indenture dated June 4, 1998, by and
between the Registrant, the Guarantors (as defined therein), Donaldson,
Lufkin & Jenrette Securities Corporation, Jefferies & Company, Inc., and
Friedman, Billings, Ramsey & Co., Inc., which was filed as an exhibit to the
Registrant's Current Report on Form 8-K/A, filed June 19, 1998, and
incorporated herein by reference.
II-14
<PAGE> 1
Exhibit 10.17
CREDIT AGREEMENT
Dated as of June 30, 1998
among
SCHUFF STEEL COMPANY
The Lenders herein named
and
WELLS FARGO BANK, NATIONAL ASSOCIATION
as Arranger, Administrative Agent, Issuing Bank
and Swing Line Lender
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS................................ 1
1.1 Defined Term.................................................... 1
1.2 Use of Defined Terms............................................ 16
1.3 Accounting Terms................................................ 16
1.4 Rounding........................................................ 16
1.5 Exhibits and Schedules.......................................... 17
1.6 References to "Borrower and its Subsidiaries.".................. 17
1.7 Miscellaneous Terms............................................. 17
ARTICLE 2 LOANS........................................................... 18
2.1 Loans - General................................................. 18
2.2 Base Rate Loans................................................. 19
2.3 Eurodollar Rate Loans........................................... 19
2.4 Voluntary Reduction of the Commitment........................... 20
2.5 Administrative Agent's Right to Assume Funds Available for
Advances........................................................ 20
ARTICLE 2A LETTERS OF CREDIT................................................ 21
2A.1 Letters of Credit............................................... 21
2A.2 Notice.......................................................... 22
2A.3 Letter of Credit Participations................................. 22
2A.4 Disbursement and Reimbursement.................................. 22
ARTICLE 2B SWING LINE....................................................... 25
2B.1 Swing Line...................................................... 25
2B.2 Borrowing....................................................... 25
2B.3 Repayments...................................................... 25
ARTICLE 3 PAYMENTS AND FEES; SECURITY DOCUMENTS; GUARANTY................. 26
3.1 Principal and Interest.......................................... 26
3.2 Facility Fee.................................................... 27
3.4 Agency Fee...................................................... 27
3.5 Increased Commitment Costs...................................... 27
3.6 Eurodollar Fees and Costs....................................... 28
3.7 Default Rate.................................................... 30
3.8 Computation of Interest and Fees................................ 30
3.9 Non-Banking Days................................................ 31
3.10 Manner and Treatment of Payments................................ 31
3.11 Funding Sources................................................. 32
3.12 Failure to Charge Not Subsequent Waiver......................... 32
3.13 Administrative Agent's Right to Assume Payments Will be Made
by Borrower..................................................... 32
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.14 Fee Determination Detail........................................ 33
3.15 Survivability................................................... 33
3.16 Security Documents.............................................. 33
3.17 Guaranty........................................................ 33
ARTICLE 4 REPRESENTATIONS AND WARRANTIES.................................. 34
4.1 Existence and Qualification: Power; Compliance With Laws........ 34
4.2 Authority: Compliance With Other Agreements and Instruments and
Government Regulations.......................................... 34
4.3 No Governmental Approvals Required.............................. 35
4.4 Subsidiaries.................................................... 35
4.5 Financial Statements............................................ 35
4.6 No Other Liabilities; No Material Adverse Effect................ 35
4.7 Title to and Location of Property............................... 35
4.8 Intangible Assets............................................... 36
4.9 Governmental Regulation......................................... 36
4.10 Litigation...................................................... 36
4.11 Binding Obligations............................................. 36
4.12 No Default...................................................... 36
4.13 Pension Plans................................................... 36
4.14 Regulations G, U and X.......................................... 37
4.15 Disclosure...................................................... 37
4.16 Tax Liability................................................... 37
4.17 Priority Status................................................. 37
4.18 Hazardous Materials............................................. 37
ARTICLE 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION
AND REPORTING REQUIREMENTS)..................................... 39
5.1 Payment of Taxes and Other Potential Liens...................... 39
5.2 Preservation of Existence....................................... 39
5.3 Maintenance of Properties....................................... 39
5.4 Maintenance of Insurance........................................ 39
5.5 Compliance With Laws............................................ 40
5.6 Inspection Rights............................................... 40
5.7 Keeping of Records and Books of Account......................... 40
5.8 Compliance With Agreements...................................... 40
5.9 Use of Proceeds................................................. 41
5.10 Hazardous Materials Laws........................................ 41
5.11 New Subsidiaries................................................ 41
ARTICLE 6 NEGATIVE COVENANTS.............................................. 42
6.1 Disposition of Property......................................... 42
6.2 Mergers......................................................... 42
6.3 Investments and Acquisitions.................................... 42
6.4 Liens, Rights of Others and Negative Pledges.................... 42
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
6.5 Distributions................................................... 43
6.6 ERISA Compliance................................................ 43
6.7 Change in Nature of Business.................................... 43
6.8 Indebtedness Obligations........................................ 43
6.9 Transactions with Affiliates.................................... 44
6.10 Capital Expenditures............................................ 44
6.11 Financial Covenants............................................. 44
ARTICLE 7 INFORMATION AND REPORTING REQUIREMENTS.......................... 45
7.1 Financial and Business Information.............................. 45
ARTICLE 8 CONDITIONS...................................................... 47
8.1 Initial Advances................................................ 47
8.2 Any Advance, etc................................................ 48
ARTICLE 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT
OF DEFAULT...................................................... 50
9.1 Events of Default............................................... 50
9.2 Remedies Upon Event of Default.................................. 52
ARTICLE 10 THE ADMINISTRATIVE AGENT........................................ 54
10.1 Appointment and Authorization................................... 54
10.2 Administrative Agent and Affiliates............................. 54
10.3 Proportionate Interest of the Lenders in any Collateral......... 54
10.4 Lenders Credit Decisions........................................ 55
10.5 Action by Administrative Agent; Etc............................. 55
10.6 Liability of Administrative Agent and Arranger.................. 56
10.7 Indemnification................................................. 57
10.8 Successor Administrative Agent.................................. 57
10.9 No Obligations of Borrower...................................... 58
ARTICLE 11 MISCELLANEOUS................................................... 59
11.1 Cumulative Remedies; No Waiver.................................. 59
11.2 Amendments; Consents............................................ 59
11.3 Costs, Expenses and Taxes....................................... 60
11.4 Nature of Lenders' Obligations.................................. 60
11.5 Survival of Representations and Warranties...................... 60
11.6 Notices......................................................... 61
11.7 Execution of Loan Documents; Counterparts....................... 61
11.8 Binding Effect; Assignment...................................... 61
11.9 Setoff Rights................................................... 64
11.10 Sharing of Setoffs.............................................. 64
11.11 Indemnity by Borrower........................................... 64
11.12 Nonliability of the Lenders..................................... 65
11.13 No Third Parties Benefited...................................... 66
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
11.14 Further Assurances........................................... 66
11.15 Integration.................................................. 66
11.16 Governing Law................................................ 67
11.17 Severability of Provisions................................... 67
11.18 Independent Covenants........................................ 67
11.19 Headings..................................................... 67
11.20 Time of the Essence.......................................... 67
11.21 Purported Oral Amendments.................................... 67
11.22 Jury Trial Waiver............................................ 67
</TABLE>
List of Schedules and Exhibits:
Schedule 1.1 List of Lenders and Pro Rata Shares
Schedule 3.1 Pricing Grid
Schedule 4.4 Subsidiaries
Schedule 4.6 Contingent Liabilities
Schedule 4.10 Litigation
Schedule 4.13 Pension Plans
Schedule 4.12 Liens
Schedule 4.18 Hazardous Materials
Schedule 6.5 Indebtedness
Exhibit A Form of Commitment Assignment and Acceptance
Exhibit B Form of Compliance Certificate
Exhibit C Form of RLC Note
Exhibit D Form of Guaranty
Exhibit E Form of Request for Loan
Exhibit F Form of Pledge Agreement
Exhibit G Form of Security Agreement
iv
<PAGE> 6
CREDIT AGREEMENT
Dated as of June 30, 1998
This CREDIT AGREEMENT ("Agreement") is entered into by and between SCHUFF
STEEL COMPANY, a Delaware corporation ("Borrower"), and each lender whose name
is set forth on the signature pages hereof or which may hereafter execute and
deliver a Commitment Assignment and Acceptance with respect to this Agreement
pursuant to Section 11.8 (collectively, the "Lenders" and individually, a
"Lender"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Arranger,
Administrative Agent, Issuing Bank and Swing Line Lender. In consideration of
the mutual covenants and agreements herein contained, the parties hereto
covenant and agree as follows:
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Defined Term. As used in this Agreement, the following terms shall
have the meanings set forth below:
"Acquisition" means any transaction, or any series of related
transactions, by which Borrower and/or any of its Subsidiaries directly or
indirectly (a) acquires any going business or all or substantially all of the
assets of any firm, partnership, joint venture, corporation or division thereof
whether through purchase of assets, merger or otherwise, (b) acquires (in one
transaction or as the most recent transaction in a series of transactions)
control of at least a majority in ordinary voting power of the securities of a
corporation which have ordinary voting power for the election of directors or
(c) acquires control of more than 50% of the ownership interests in any
partnership, joint venture, limited liability company or other business entity
which does not have outstanding voting securities.
"Administrative Agent" means Wells Fargo Bank, National Association, when
acting in its capacity as the Administrative Agent under any of the Loan
Documents, and any successor Administrative Agent or assign, such successor or
assign to be reasonably acceptable to Borrower.
"Administrative Agent's Office" means the Administrative Agent's address
as set forth on the signature pages of this Agreement, or such other address as
the Administrative Agent hereafter may designate by written notice to Borrower
and the Lenders.
"Advance" means any Advance made or to be made by any Lender to Borrower
as provided in Article 2, and includes each Base Rate Advance and each
Eurodollar Rate Advance.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly Controls, or is under common Control with, or is Controlled by, such
Person.
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"Agreement" means this Loan Agreement either as originally executed or as
it may from time to time be supplemented, modified, amended, restated or
extended.
"Arranger" means Wells Fargo Bank, National Association and any successor
or assign.
"Banking Day" means any Monday, Tuesday, Wednesday, Thursday or Friday,
other than a day on which banks are authorized or required to be closed in
Arizona, California or New York.
"Base Rate" means, as of any date of determination, the higher of (a) the
Prime Rate or (b) the Federal Funds Rate plus one half of one percent per annum.
"Base Rate Advance" means an Advance made hereunder and designated as a
Base Rate Advance in accordance with Article 2.
"Base Rate Loan" means a Loan made hereunder and designated as a Base Rate
Loan in accordance with Article 2.
"Base Rate Spread" means an additional component of interest, which may
vary over the term of any Base Rate Loan, to be added to the Base Rate in
determining the interest rate payable with respect to Base Rate Loans. As of
each date of determination, the Base Rate Spread equals the interest rate per
annum set forth on the Pricing Grid.
"Borrower" means Schuff Steel Company, a Delaware corporation, and its
successors and permitted assigns.
"Capital Lease" means, as to any Person, a lease of any Property by that
Person as lessee that is, or should be in accordance with Financial Accounting
Standards Board Statement No. 13, recorded as a "capital lease" on the balance
sheet of that Person prepared in accordance with GAAP.
"Cash" means, when used in connection with any Person, all monetary and
non-monetary items owned by that Person that are treated as cash in accordance
with GAAP, consistently applied.
"Cash Equivalents" means, when used in connection with any Person, that
Person's Investments in:
(a) Government Securities due within one year after the date of
the making of the Investment;
(b) readily marketable direct obligations of any State of the
United States of America or any political subdivision of any such State
given on the date of such investment a credit rating of at least Aa by
Moody's Investors
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Service, Inc. or AA by Standard & Poor's Rating Group (a division of
McGraw- Hill, Inc.), in each case due within one year after the date of
the making of the Investment;
(c) certificates of deposit issued by, bank deposits in,
eurodollar deposits through, bankers' acceptances of, and reverse
repurchase agreements covering Government Securities executed by, any
Lender or any bank, savings and loan or savings bank doing business in and
incorporated under the Laws of the United States of America or any State
thereof and having on the date of such Investment combined capital,
surplus and undivided profits of at least $250,000,000, in each case due
within one year after the date of the making of the Investment;
(d) certificates of deposit issued by, bank deposits in,
eurodollar deposits through, bankers' acceptances of, and reverse
repurchase agreements covering Government Securities executed by, any
branch or office located in the United States of America of a bank
incorporated under the Laws of any jurisdiction outside the United States
of America having on the date of such Investment combined capital surplus
and undivided profits of at least $500,000,000, in each case due within
one year after the date of the making of the Investment; and
(e) readily marketable commercial paper of corporations doing
business in and incorporated under the Laws of the United States of
America or any State thereof given on the date of such Investment the
highest credit rating by Moody's Investors Service, Inc. and Standard &
Poor's Rating Group (a division of McGraw-Hill, Inc.), in each case due
within 270 days after the date of the making of the Investment.
"Certificate of a Responsible Official" means a certificate signed by a
Responsible Official of the Person providing the certificate.
"Closing Date" means the time and Banking Day on which the conditions set
forth in Section 8.1 are satisfied.
"Code" means the Internal Revenue Code of 1986, as amended or replaced and
as in effect from time to time.
"Collateral" means all of the property of Borrower and of each Subsidiary,
present and future.
"Commercial Letter of Credit" means a Letter of Credit that is not a
Standby Letter of Credit.
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"Commercial Letter of Credit Fee" means one percent (1.0%) of the stated
amount of the Letter of Credit.
"Commitment" means, subject to Section 2.4, $25,000,000. The respective
Pro Rata Shares of the Lenders with respect to the Commitment as of the Closing
Date are set forth in Schedule 1.1.
"Commitment Assignment and Acceptance" means a Commitment Assignment and
Acceptance executed by a Lender and an Eligible Assignee substantially in the
form of Exhibit A and registered with the Administrative Agent pursuant to
Section 11.8.
"Compliance Certificate" means a certificate in the form of Exhibit B,
properly completed and signed by a Senior Officer of Borrower.
"Contingent Obligation" means, as to any Person, any (a) direct or
indirect guarantee of Indebtedness of, or other obligation performable by, any
other Person, including any endorsement (other than for collection or deposit in
the ordinary course of business), co-making or sale with recourse of the
obligations of any other Person, or (b) assurance given to an obligee with
respect to the performance of an obligation by, or the financial condition of,
any other Person, whether direct, indirect or contingent, including any purchase
or repurchase agreement covering such obligation or any collateral security
therefor, any agreement to provide funds (by means of loans, capital
contributions or otherwise) to such other Person, any agreement to support the
solvency or level of any balance sheet item to such other Person, or any
"keep-well," "take-or-pay," "through put" or other arrangement of whatever
nature having the effect of assuring or holding harmless any obligee against
loss with respect to any obligation of such other Person, or (c) any obligation
of a partnership or joint venture of which such Person is a partner or joint
venturer. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the related primary
obligation (unless the Contingent Obligation is limited by its terms to a lesser
amount, in which case to the extent of such amount) or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof as
determined by the Person in good faith.
"Contractual Obligation" means, as to any Person, any material provision
of any outstanding Securities issued by that Person or of any material
agreement, instrument or undertaking to which that Person is a party or by which
it or any of its Property is bound.
"Control" (and the correlative terms, "Controlled by" and "under common
Control with") means possession, directly or indirectly, of power to direct or
cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise); provided that, in any event, any Person that owns, directly or
indirectly, 5% or more of the securities having ordinary voting power for the
election of directors or other governing body of a corporation having 100 or
more record owners of such securities (other than securities having such power
only by reason of the happening of a contingency), or 5% or more of the
partnership or other ownership interests of any other Person having 100 or more
owners of such partnership or other ownership interests
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<PAGE> 10
(other than as a limited partner of such other Person), will be deemed to
control such corporation or other Person.
"Debtor Relief Laws" means the Bankruptcy Code of the United States of
America, as amended from time to time, and all other applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement receivership, insolvency,
reorganization, or similar debtor relief Laws from time to time in effect
affecting the rights of creditors generally.
"Default" means any Event of Default or any event that, with the giving of
any applicable notice or passage of time specified in Section 9.1, or both,
would be an Event of Default.
"Default Rate" means the interest rate described in Section 3.7.
"Designated Deposit Account" means a demand deposit account to be
maintained by Borrower with the Administrative Agent, as from time to time
designated by Borrower by written notification to the Administrative Agent.
"Designated Employee" means any natural Person designated by Borrower as
an employee of Borrower authorized to make requests for Loans under this
Agreement on behalf of Borrower pursuant to a written notice thereof signed by a
Responsible Official of Borrower delivered to Administrative Agent.
"Designated Eurodollar Market" means, with respect to any Eurodollar Rate
Loan, the London interbank market.
"Disposition" means the sale, transfer or other disposition in any single
transaction or series of related transactions of any asset or group of related
assets, of Borrower or any of its Subsidiaries (including a sale, transfer or
other disposition by Borrower to one or more of its Subsidiaries or by a
Subsidiary of Borrower to another Subsidiary of Borrower) that has or have at
the date of the Disposition either a book value or fair market value (which
shall be deemed to be equal to the sales price for such asset or assets upon a
sale to a Person that is not an Affiliate of Borrower) equal to or greater than
$50,000,000, other than (a) the sale or other disposition of inventory in the
ordinary course of business, (b) the sale or other disposition of equipment that
is replaced by equipment performing substantially the same function not later
than (30) days after such sale or disposition and (c) the sale or other
disposition of Cash Equivalents in the ordinary course of business.
"Distribution" means, with respect to any shares of capital stock or any
warrant or right to acquire shares of capital stock or any other equity security
issued by a Person, (a) the retirement, redemption, purchase, or other
acquisition for value (other than for common stock of such Person) by such
Person of any such security, (b) the declaration or (without duplication)
payment by such Person of any dividend in Cash or in Property (other than in
common stock of such Person) on or with respect to any such security, (c) any
Investment by such Person in the holder of any such security where such
Investment is made in lieu of, or to
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<PAGE> 11
avoid characterization as, a Distribution described in clauses (a) or (b) above
and (d) any other payment by such Person constituting a distribution under
applicable Laws with respect to such security.
"dollars" or "$" means United States dollars.
"EBITDA" means, as of any date of determination, as to Borrower and its
Subsidiaries, the sum of their income from operations, less interest expense,
taxes, depreciation, amortization and all extraordinary items.
"Eligible Assignee" means (a) with respect to any Lender, any Affiliate of
that Lender, and (b) any other Person (including any Lender) approved in writing
by Borrower and the Arranger, which approval shall not be unreasonably withheld
or delayed.
"ERISA" means the Employee Retirement Income Security Act of 1974, and any
regulations issued pursuant thereto, as amended or replaced and as in effect
from time to time.
"ERISA Affiliate" means, with respect to any Person, any other Person (or
any trade or business, whether or not incorporated) that is under common control
with that Person within the meaning of Section 414 of the Code.
"Eurodollar Banking Day" means any Banking Day on which dealings in dollar
deposits are conducted by and among banks in the Designated Eurodollar Market.
"Eurodollar Base Rate" means, with respect to any Eurodollar Rate Loan,
the interest rate per annum (determined solely by the Administrative Agent and
rounded upward to the next 1/16 of 1%) at which deposits in dollars are offered
to prime banks by major banks in the Designated Eurodollar Market at or about
11:00 a.m. local time in the Designated Eurodollar Market, two (2) Eurodollar
Banking Days before the first day of the applicable Eurodollar Period in an
aggregate amount approximately equal to the amount of such Eurodollar Rate Loan
and for a period of time comparable to the number of days in the applicable
Eurodollar Period. The determination of the Eurodollar Rate by the
Administrative Agent shall be conclusive in the absence of manifest error.
"Eurodollar Lending Office" means, as to each Lender, its office or branch
so designated by written notice to Borrower and the Administrative Agent as its
Eurodollar Lending Office. If no Eurodollar Lending Office is designated by a
Lender, its Eurodollar Lending Office shall be its office at its address for
purposes of notices hereunder.
"Eurodollar Obligations" means eurocurrency liabilities, as defined in
Regulation D.
"Eurodollar Period" means, as to each Eurodollar Rate Loan, the period
commencing on the date specified by Borrower pursuant to Section 2.1(c) and
ending 1, 2, 3 or 6 months thereafter, as specified by Borrower in the
applicable Request for Loan; provided that:
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(a) The first day of any Eurodollar Period shall be a Eurodollar
Banking Day;
(b) Any Eurodollar Period that would otherwise end on a day that
is not a Eurodollar Banking Day shall be extended to the next succeeding
Eurodollar Banking Day unless such Eurodollar Banking Day falls in another
calendar month, in which case such Eurodollar Period shall end on the next
preceding Eurodollar Banking Day; and
(c) No Eurodollar Period shall extend beyond the Maturity Date.
"Eurodollar Rate" means, with respect to any Eurodollar Rate Loan, the
interest rate (rounded upward to the next 1/16 of 1%) determined to be equal to
the Eurodollar Base Rate divided by [1 minus the Eurodollar Reserve Percentage].
"Eurodollar Rate Advance" means an Advance made hereunder and designated
as a Eurodollar Rate Advance in accordance with Article 2.
"Eurodollar Rate Loan" means a Loan made hereunder and designated as a
Eurodollar Rate Loan in accordance with Article 2.
"Eurodollar Rate Spread" means an additional component of interest (which
may vary over the term of any Eurodollar Rate Loan) to be added to the
Eurodollar Rate in determining the interest rate payable with respect to
Eurodollar Rate Loans. As of each date of determination the Eurodollar Rate
Spread equals the interest rate per annum set forth on the Pricing Grid.
"Eurodollar Reserve Percentage" means, with respect to any Eurodollar Rate
Loan, the percentage applicable as of the date of determination of the
Eurodollar Base Rate representing the aggregate reserve requirements of the
Administrative Agent (disregarding any offsetting amounts that may be available
to the Administrative Agent to decrease such requirements to the extent that
such offsetting amounts arose out of transactions other than those contemplated
by this Agreement) under Regulation D and any other applicable Laws with respect
to Eurodollar Obligations in an aggregate amount equal to the amount of such
Eurodollar Rate Loan and for a time period comparable to the number of months in
the applicable Eurodollar Period. The determination by the Administrative Agent
of any applicable Eurodollar Reserve Percentage shall be presumed correct in the
absence of manifest error.
"Event of Default" has the meaning provided in Section 9.1.
"Facility Fee Rate" means, as of each date of determination, the rate per
annum set forth on the Pricing Grid.
"Federal Funds Rate" means, as of any date of determination, the interest
rate per annum equal to the weighted average of the rates on overnight Federal
funds transactions with
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<PAGE> 13
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Banking Day, for the next
preceding Banking Day) by the Federal Reserve Bank of New York in its
statistical release H-15 or, if such rate is not so published for any day which
is a Banking Day, the average of the quotations for such day on such
transactions, as received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financial Covenants" means those covenants provided for in Section 6.11.
"Fiscal Quarter" means the fiscal quarter of Borrower consisting of a
three month fiscal period ending on each March 31, June 30, September 30 and
December 31.
"Fiscal Year" means the fiscal year of Borrower consisting of a twelve
month fiscal period ending on each December 31.
"Fixed Charge Coverage Ratio" means, for the prior twelve months ending on
the last day of a Fiscal Quarter, the ratio of (i) EBITDA less all capital
expenditures and taxes paid, to (ii) the sum of interest expenses, lease
payments and scheduled principal payments of Borrower and its Subsidiaries.
"GAAP" means, as of any date of determination, accounting principles set
forth as "generally accepted" in then currently effective Statements of the
Auditing Standards Board of the American Institute of Certified Public
Accountants, or, if no such Statements are then in effect, that are then
approved by such other entity as may be approved by a significant segment of the
accounting profession in the United States of America. The term "consistently
applied," as used in connection therewith, means that the accounting principles
applied are consistent in all material respects to those applied at prior dates
or for prior periods.
"Government Securities" means readily marketable direct full faith and
credit obligations of the United States of America or obligations
unconditionally guaranteed by the full faith and credit of the United States of
America.
"Governmental Agency" means (a) any foreign, federal, state, county or
municipal government or political subdivision thereof, (b) any governmental or
quasi-governmental agency, authority, board, bureau, commission, department
instrumentality or public body, (c) any court or administrative tribunal or (d)
with respect to any Person, any arbitration tribunal or other non-governmental
authority to whose jurisdiction that Person has consented.
"Guaranty" means a Continuing Guaranty from a Subsidiary of Borrower,
substantially in the form attached hereto as Exhibit D.
"Hazardous Materials" means substances defined as hazardous substances
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 42 U.S.C. Section 9601 et seq., or as hazardous, toxic or pollutant
pursuant to the Hazardous Materials Transportation Act 49 U.S.C. Section 1801,
et seq., the Resource Conservation and Recovery Act 42
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U.S.C. Section6901, et seq., or any other applicable Law governing environmental
health and hygiene, in each case as such Laws are amended from time to time.
"Hazardous Materials Laws" means all federal, state or local laws,
ordinances, rules or regulations governing the disposal of Hazardous Materials
applicable to any of the Property.
"Indebtedness" means, as to any Person, (a) all indebtedness of such
Person for borrowed money, (b) that portion of the obligations of such Person
under Capital Leases which is properly recorded as a liability on a balance
sheet of that Person prepared in accordance with GAAP, (c) any obligation of
such Person that is evidenced by a promissory note or other instrument
representing an extension of credit to such Person, whether or not for borrowed
money, (d) any obligation of such Person for the deferred purchase price of
Property or services (other than trade or other accounts payable in the ordinary
course of business in accordance with customary terms), (e) any obligation of
such Person that is secured by a Lien on assets of such Person, whether or not
that Person has assumed such obligation or whether or not such obligation is
non-recourse to the credit of such Person, but only to the extent of the fair
market value of the assets so subject to the Lien, (f) obligations of such
Person arising under acceptance facilities or under facilities for the discount
of accounts receivable of such Person and (g) obligations of such Person for
unreimbursed draws under letters of credit issued for the account of such
Person.
"Intangible Assets" means assets that are considered intangible assets
under GAAP, including (a) any write-up in book value of any asset subsequent to
its acquisition and (b) customer lists, goodwill, computer software, copyrights,
trade names, trademarks, patents, unamortized deferred charges, unamortized debt
discount capitalized research and development costs and other intangible assets.
"Interest Coverage Ratio" means, for the prior twelve months ending on the
last day of a Fiscal Quarter, the ratio of EBITDA to the interest expense of
Borrower and its Subsidiaries.
"Interest Differential" means, with respect to any prepayment of a
Eurodollar Rate Loan on a day other than the last day of the applicable
Eurodollar Period and with respect to the failure to borrow a Eurodollar Rate
Loan on the date or in the amount specified in a Request for Loan, (a) the per
annum interest rate payable with respect to that Eurodollar Rate Loan as of the
date of the prepayment or failure to borrow, minus (b) the Eurodollar Rate, as
applicable, on or as near as practicable to, the date of the prepayment or
failure to borrow for a Eurodollar Rate Loan commencing on such date and ending
on the last day of the applicable Eurodollar Period. The determination of the
Interest Differential by the Administrative Agent shall be conclusive in the
absence of manifest error.
"Investment" means, when used in connection with any Person, any
investment by or of that Person, whether by means of purchase or other
acquisition of capital stock or other Securities of any other Person or by means
of loan, advance, capital contribution, guaranty or other debt or equity
participation or interest or otherwise, in any other Person, including any
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partnership and joint venture interests of such Person in any other Person. The
amount of any Investment shall be the amount actually invested, without
adjustment for subsequent increases or decreases in the value of such
Investment.
"Issuing Bank" means Wells Fargo Bank, National Association and any
successor or assign.
"Laws" means, collectively, all, foreign, federal, state and local
statutes, treaties, rules, regulations, ordinances, codes and administrative or
controlling precedents of any Governmental Agency.
"Lender" means any of the lenders signatory to this Agreement, their
successors and, upon the effective date after registration with the
Administrative Agent pursuant to Section 11.8 of a Commitment Assignment and
Acceptance executed by an Eligible Assignee, such Eligible Assignee.
"Letter of Credit Balance" means, at any time, the sum of (a) the
aggregate undrawn amount of all Letters of Credit outstanding at such time for
which additional Collateral consisting of Cash Equivalents has not been pledged
plus (b) the aggregate amount which has been drawn under Letters of Credit but
for which the Issuing Bank or the Lenders, as the case may be, have not been
reimbursed by the Borrower.
"Letter of Credit Commitment" means $5,000,000.
"Letter of Credit Disbursement" means any payment or disbursement made by
the Issuing Bank under or pursuant to a Letter of Credit.
"Letters of Credit" means letters of credit issued by the Issuing Bank for
the account of the Borrower pursuant to Article 2A.
"Leverage Ratio" means the ratio of Net Funded Debt of Borrower and its
Subsidiaries to their EBITDA for the prior twelve month period.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, lien or charge of any
kind, whether voluntarily incurred or arising by operation of Law or otherwise,
affecting any Property, including any agreement to grant any of the foregoing,
any conditional sale or other title retention agreement, any lease in the nature
of a security interest, and/or the filing of or agreement to give any financing
statement under the Uniform Commercial Code or comparable Law of any
jurisdiction with respect to any Property.
"Loan" means any group of Advances made at any one time by the Lenders
under the Commitment pursuant to Article 2 or a Swing Line Loan.
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"Loan Documents" means, collectively, this Agreement, the Notes, any
Request for Loan, the Security Documents and any other certificates, documents
or agreements of any type or nature heretofore or hereafter executed and
delivered by Borrower to the Administrative Agent or to any Lender in
furtherance of this Agreement, in each case either as originally executed or as
the same may from time to time be supplemented, modified, amended, restated,
extended or supplanted.
"Majority Lenders" means, as of any date of determination, Lenders whose
aggregate Pro Rata Share is at least 51.0% of the Commitment then in effect or,
if the Commitment is then suspended or terminated, Lenders holding Notes
evidencing at least 51.0% of the aggregate Indebtedness evidenced by the Notes.
"Material Adverse Effect" means any set of circumstances or events which
(a) has or could reasonably be expected to have any material adverse effect
whatsoever upon the validity or enforceability of any Loan Document, (b) is or
could reasonably be expected to be material and adverse to the condition
(financial or otherwise) or business operations of Borrower and its
Subsidiaries, taken as a whole, or to the prospects of Borrower and its
Subsidiaries, taken as a whole, (c) materially impairs or could reasonably be
expected to materially impair the ability of Borrower and its Subsidiaries,
taken as a whole, to perform its Obligations or (d) materially impairs or could
reasonably be expected to materially impair the ability of any of the Lenders to
enforce any of its legal remedies pursuant to the Loan Documents.
"Maturity Date" means June 30, 2001.
"Multiemployer Plan" means any employee benefit plan of a type described
in Section 4001(a)(3) of ERISA.
"Negative Pledge" means any covenant binding on Borrower that prohibits
the creation of Liens on any Property of Borrower.
"Net Funded Debt" means the sum of the Indebtedness and Contingent
Obligations of Borrower and its Subsidiaries, less amounts in excess of
$5,000,000 fully collateralized by Cash or Cash Equivalents resulting from the
issuance of the Senior Notes.
"Note" means any of the promissory notes made by Borrower in favor of a
Lender evidencing Advances under that Lender's Pro Rata Share of the Commitment,
substantially in the form of Exhibit C, or the Swing Line Note, either as
originally executed or as the same may from time to time be supplemented,
modified, amended, renewed, extended or supplanted.
"Obligations" means all present and future obligations of every kind or
nature of Borrower at any time and from time to time owed to the Administrative
Agent, the Issuing Bank, the Swing Line Lender or the Lenders or any one or more
of them under any one or more of the Loan Documents, whether due or to become
due, matured or unmatured, liquidated or unliquidated, or contingent or
noncontingent, including obligations of
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performance as well as obligations of payment, and including interest that
accrues after the commencement of any proceeding under any Debtor Relief Law by
or against Borrower or any Subsidiary of Borrower.
"Opinion of Counsel" means the favorable written legal opinion of counsel
to Borrower together with copies of any officer's certificate or legal opinion
of another counsel or law firm relied upon by such counsel in its opinion.
"Outstanding Balance" means the sum at any time of (i) the outstanding
principal amount of the Loans, plus (ii) the Letter of Credit Balance, plus
(iii) the Swing Line Balance.
"Party" means any Person other than the Administrative Agent and the
Lenders, which now or hereafter is a party to any of the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto established under ERISA.
"Pension Plan" means any "employee pension benefit plan" that is subject
to Title IV of ERISA and which is maintained for employees of Borrower or any of
its ERISA Affiliates.
"Permitted Encumbrances" means:
(a) material inchoate Liens incident to construction or
maintenance of real property, or Liens incident to construction or
maintenance of real property, now or hereafter filed of record for which
adequate reserves have been set aside and which are being contested in
good faith by appropriate proceedings and have not proceeded to judgment;
(b) material Liens for taxes and assessments on real property
which are not yet past due, or Liens for taxes and assessments on real
property for which adequate reserves have been set aside and are being
contested in good faith by appropriate proceedings and have not proceeded
to judgment;
(c) easements, exceptions, reservations, or other agreements
granted or entered into after the date hereof affecting real property
which in the aggregate do not materially burden or impair the fair market
value or use of such real property for the purposes for which it is or may
reasonably be expected to be held;
(d) rights reserved to or vested in any Governmental Agency by
Law to control or regulate, or obligations or duties under Law to any
Governmental Agency with respect to, the use of any real property;
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(e) rights reserved to or vested in any Governmental Agency by
Law to control or regulate, or obligations or duties under Law to any
Governmental Agency with respect to, any right power, franchise, grant,
license, or permit;
(f) present or future zoning laws and ordinances or other laws
and ordinances restricting the occupancy, use, or enjoyment of real
property;
(g) statutory Liens, other than those described in clauses (a) or
(b) above, arising in the ordinary course of business with respect to
obligations which are not delinquent or are being contested in good faith
by appropriate proceedings, provided that, if delinquent, adequate
reserves have been set aside with respect thereto and, by reason of
nonpayment no Property is subject to a material risk of loss or
forfeiture;
(h) Liens consisting of pledges or deposits to secure obligations
under workers' compensation laws or similar legislation, including Liens
of judgments thereunder which are not currently dischargeable;
(i) Liens consisting of pledges or deposits of Property to secure
performance in connection with operating leases made in the ordinary
course of business to which Borrower or a Subsidiary is a party as lessee;
(j) Liens consisting of deposits of Property to secure statutory
obligations of Borrower or a Subsidiary of Borrower in the ordinary course
of its business; and
(k) Liens consisting of deposits of Property to secure (or in
lieu of) surety, appeal or customs bonds in proceedings to which Borrower
or a Subsidiary of Borrower is a party in the ordinary course of its
business.
"Permitted Right of Others" means a Right of Others consisting of (a) an
interest (other than a legal or equitable co-ownership interest, an option or
right to acquire a legal or equitable co-ownership interest and any interest of
a ground lessor under a ground lease) that does not materially impair the value
or use of Property for the purposes for which it is or may reasonably be
expected to be held, (b) an option or right to acquire a Lien that would be a
Permitted Encumbrance, and (c) the reversionary interest of a landlord under a
lease of Property.
"Person" means any entity, whether an individual, trustee, corporation,
general partnership, limited partnership, limited liability company, joint stock
company, trust, estate, unincorporated organization, business association,
tribe, firm, joint venture, Governmental Agency, or otherwise.
"Pledge Agreement" means a Pledge and Irrevocable Proxy Security Agreement
from Borrower substantially in the form attached hereto as Exhibit F.
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"Pricing Grid" means the Pricing Grid attached hereto as Schedule 3.1.
"Prime Rate" means the rate of interest most recently announced by Wells
Fargo Bank, National Association at its principal office in San Francisco as its
Prime Rate, with the understanding that the Prime Rate is one of several base
rates used by Wells Fargo Bank and serves as the basis upon which effective
rates of interest are calculated for those loans making reference thereto, and
is evidenced by the recording thereof after its announcement in such internal
publication or publications as Wells Fargo Bank may designate. Each change in
the Prime Rate will be effective on the day the change is announced within Wells
Fargo Bank.
"Property" means any interest in any kind of property or asset whether
real, personal or mixed, or tangible or intangible.
"Pro Rata Share" means, with respect to each Lender, the percentage of the
Commitment set forth opposite the name of that Lender on Schedule 1.1.
"Quarterly Payment Date" means June 30, 1998 and each subsequent September
30, December 31, March 31 and June 30 through the Maturity Date.
"Regulations D, G, U and X" mean, respectively, Regulations D, G, U and X,
as at any time amended, of the Board of Governors of the Federal Reserve System,
or any other regulation in substance substituted therefor.
"Request for Loan" means a written request for a Loan substantially in the
form of Exhibit E, signed by a Responsible Official of Borrower and properly
completed to provide all information required to be included therein.
"Requirement of Law" means, as to any Person, the articles or certificate
of incorporation and by-laws or other organizational or governing documents of
such Person, and any Law, or judgment, award, decree, writ or determination of a
Governmental Agency, in each case applicable to or binding upon such Person or
any of its Property or to which such Person or any of its Property is subject.
"Responsible Official" means (a) when used with reference to a Person
other than an individual, any corporate officer of such Person, general partner
of such Person, corporate officer of a corporate general partner of such Person,
or corporate officer of a corporate general partner of a partnership that is a
general partner of such Person, or any other responsible official thereof duly
acting on behalf thereof, and (b) when used with reference to a Person who is an
individual, such Person or his authorized agent acting through a power of
attorney. Any document or certificate hereunder that is signed or executed by a
Responsible Official of a Person shall be conclusively presumed to have been
authorized by all necessary corporate, partnership and/or other action on the
part of that Person.
"Right of Others" means, as to any Property in which a Person has an
interest, (a) any legal or equitable right, title or other interest (other than
a Lien) held by any other Person in or
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with respect to that Property, and (b) any option or right (including any option
or right to acquire a Lien) held by any other Person to acquire any such right,
title or other interest in or with respect to that Property.
"RLC Note" means a Note evidencing Advances made to Borrower pursuant to
Article 2.
"Securities" means any capital stock, share, voting trust certificate,
bond, debenture, note or other evidence of indebtedness, limited partnership
interest, or any warrant, option or other right to purchase or acquire any of
the foregoing.
"Security Agreement" means a Security Agreement from a Subsidiary of
Borrower, substantially in the form attached hereto as Exhibit G.
"Security Documents" has the meaning provided in Section 3.16.
"Senior Notes" means those 10.5% Senior Notes due 2008 issued on June 4,
1998 in the amount of $100,000,000.00.
"Senior Officer" means the (a) chief executive officer, (b) chief
operating officer, (c) chief financial officer, (d) vice president or (e)
treasurer, in each, case whatever the title nomenclature may be, of the Person
designated.
"Special Eurodollar Circumstance" means (a) the adoption of any Law by any
Governmental Agency, central branch or comparable authority with respect to
activities in the Designated Eurodollar Market, or (b) any change in the
interpretation or administration of any existing Law by any Governmental Agency,
central bank or comparable authority charged with the interpretation or
administration thereof, or (c) compliance by any Lender or its Eurodollar
Lending Office with any request or directive (whether or not having the force of
Law) of any such Governmental Agency, central bank or comparable authority, or
(d) the existence or occurrence of circumstances affecting the Designated
Eurodollar Market generally that are beyond the reasonable control of the
Lenders.
"Standby Letter of Credit" means a Letter of Credit intended to secure an
obligation of Borrower to the beneficiary of such Letter of Credit.
"Subsidiary" means, as of any date of determination and with respect to
any Person, any corporation, partnership, joint venture, limited liability
company or other business entity, whether now existing or hereafter organized or
acquired: (a) in the case of a corporation, of which a majority of the
securities having ordinary voting power for the election of directors or other
governing body (other than securities having such power only by reason of the
happening of a contingency) are at the time beneficially owned by such Person
and/or one or more Subsidiaries of such Person, or (b) in the case of a
partnership, joint venture, limited liability company or other business entity,
of which such Person or a Subsidiary of such Person is a general partner or
joint venturer or of which a majority of the partnership or other ownership
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interests are at the time beneficially owned by such Person and/or one or more
of its Subsidiaries.
"Swing Line" means the revolving line of credit established by the Swing
Line Lender in favor of Borrower pursuant to Article 2B.
"Swing Line Balance" means, as of any date of determination, the aggregate
principal Indebtedness of Borrower on all Swing Line Loans then outstanding.
"Swing Line Commitment" means $5,000,000.00.
"Swing Line Lender" means Wells Fargo Bank, National Association.
"Swing Line Loans" means loans made by the Swing Line Lender to Borrower
pursuant to Article 2B.
"Swing Line Note" means that promissory note executed by Borrower in favor
of the Swing Line Lender in connection with the Swing Line.
"Termination Event" means (a) a "reportable event" as defined in Section
4043 of ERISA (other than a "reportable event" that is not subject to the
provision for 30 day notice to the PBGC), (b) the withdrawal of Borrower or any
of its ERISA Affiliates from a Pension Plan during any plan year in which it was
a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the
filing of a notice of intent to terminate a Pension Plan or the treatment of an
amendment to a Pension Plan as a termination thereof pursuant to Section 4041 of
ERISA, (d) the institution of proceedings to terminate a Pension Plan by the
PBGC or (e) any other event or condition which might reasonably be expected to
constitute grounds under ERISA for the termination of, or the apportionment of a
trustee to administer, any Pension Plan.
"Type", when used with respect to any Loan or Advance, means the
designation of whether such Loan or Advance is a Base Rate Loan or Advance or a
Eurodollar Rate Loan or Advance.
1.2 Use of Defined Terms. Any defined term used in the plural shall refer
to all members of the relevant class, and any defined term used in the singular
shall refer to any one or more of the members of the relevant class.
1.3 Accounting Terms. All accounting terms not specifically defined in
this Agreement shall be construed in conformity with, and all financial data
required to be submitted by this Agreement shall be prepared in conformity with,
GAAP applied on a consistent basis, except as otherwise specifically prescribed
herein. In the event that GAAP changes during the term of this Agreement such
that the Financial Covenants would then be calculated in a different manner or
with different components, (a) Borrower and the Lenders agree to promptly amend
this Agreement in such respects as are necessary to conform those covenants as
criteria for evaluating Borrower's financial condition to substantially the same
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criteria as were effective prior to such change in GAAP and (b) unless and until
such an amendment to the Loan Documents is effected, Borrower shall report its
performance with respect to the affected covenants in accordance with GAAP as in
effect prior to such changes.
1.4 Rounding. Any financial ratios required to be maintained by Borrower
pursuant to this Agreement shall be calculated by dividing the appropriate
component by the other component, carrying the result to one place more than the
number of places by which such ratio is expressed in this Agreement and rounding
the result up or down to the nearest number (with a round-up if there is no
nearest number) to the number of places by which such ratio is expressed in this
Agreement.
1.5 Exhibits and Schedules. All Exhibits and Schedules to this Agreement
either as originally existing or as the same may from time to time be
supplemented, modified or amended, are incorporated herein by this reference. A
matter disclosed on any Schedule shall be deemed disclosed on all Schedules.
1.6 References to "Borrower and its Subsidiaries." Any reference herein to
"Borrower and its Subsidiaries" or the like shall refer solely to Borrower
during such times, if any, as Borrower shall have no Subsidiaries.
1.7 Miscellaneous Terms. The term "or" is disjunctive; the term "and" is
conjunctive. The term "shall" is mandatory; the term "may" is permissive.
Masculine terms also apply to females; feminine terms also apply to males. The
term "including" is by way of example and not limitation. Each reference to an
hour or time of the day set forth in any Loan Document, unless otherwise stated,
shall be deemed to be a reference to the hour or time of the day in Phoenix,
Arizona.
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ARTICLE 2
LOANS
2.1 Loans - General.
(a) Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time from the Closing Date through the
Maturity Date, each Lender shall, pro rata according to its Pro Rata Share of
the then applicable Commitment, make Advances to Borrower under the Commitment
in such amounts as Borrower may request that do not exceed in the aggregate at
any one time outstanding the amount of that Lender's pro Rata Share of the then
applicable Commitment; provided that, after giving effect to the Loan of which
such Advance is a part, the Outstanding Balance shall not exceed the Commitment.
Subject to the limitations set forth herein, Borrower may borrow, repay and
reborrow under the Commitment without premium or penalty.
(b) Subject to the next sentence, each Loan shall be made
pursuant to a Request for Loan which shall specify the requested (i) date of
such Loan, (ii) Type of Loan, (iii) amount of such Loan and (iv) if a Eurodollar
Rate Loan is requested, the Eurodollar Period for such Loan. Unless the
Administrative Agent has notified, in its sole and absolute discretion, Borrower
to the contrary, a Loan may be requested by telephone, telecopier or telex by a
Responsible Official of Borrower or by any Designated Employee, in which case
Borrower shall promptly confirm such request by transmitting a telecopy of, or
at Administrative Agent's request by mailing, a Request for Loan conforming to
the preceding sentence to Administrative Agent.
(c) Promptly following receipt of a Request for Loan, the
Administrative Agent shall notify each Lender by telephone, telecopier or telex
of the date and Type of the Loan, any applicable Eurodollar Period, and that
Lender's Pro Rata Share of the Loan. Not later than 11:00 a.m. (California
time), on the date specified for any Loan, each Lender shall make its Pro Rata
Share of the Loan available to the Administrative Agent at the Administrative
Agent's Office in immediately available funds. Upon fulfillment of the
applicable conditions set forth in Article 8, all Advances shall be credited in
immediately available funds to the Designated Deposit Account.
(d) Unless the Majority Lenders otherwise consent, each Base Rate
Loan shall be an integral multiple of $100,000 but not less than $500,000 and
each Eurodollar Rate Loan shall be an integral multiple of $500,000 but not less
than $1,000,000.
(e) The Advances made by each Lender under its Pro Rata Share of
the Commitment shall be evidenced by that Lender's RLC Note.
(f) A Request for Loan shall be irrevocable upon the
Administrative Agent's first notification thereof.
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(g) The purpose of the Commitment is to provide for the working
capital needs and general corporate purposes of the Borrower.
(h) If no Request for Loan (or telephonic or other request for a
Loan referred to in the second sentence of Section 2.1(b), if applicable) has
been made within the requisite notice periods set forth in Sections 2.2 and 2.3
in connection with a Loan which, if made, would not increase the outstanding
principal Indebtedness outstanding under the Commitment, then Borrower shall be
deemed to have requested a Base Rate Loan in an amount equal to the amount
necessary to cause such outstanding principal Indebtedness to remain the same
and, subject to Section 8.2 the Lenders shall make the Advances necessary to
make such Loan notwithstanding Sections 2.1(b) and 2.2.
(i) If a Loan is to be made on the same date that another Loan is
due and payable, Borrower or the Lenders, as the case may be, shall make
available to the Administrative Agent the net amount of funds giving effect to
both such loans, and the effect for purposes of this Agreement shall be the same
as if separate transfers of funds had been made with respect to each such Loan.
2.2 Base Rate Loans. Each request by Borrower for a Base Rate Loan shall
be made pursuant to a Request for Loan (or telephonic or other request for a
Loan referred to in the second sentence of Section 2.1(b), if applicable)
received by the Administrative Agent, at the Administrative Agent's Office, not
later than 11:00 a.m. (California time) on the day prior to the date of the
requested Base Rate Loan. All Loans shall constitute Base Rate Loans unless
properly designated as Eurodollar Rate Loans.
2.3 Eurodollar Rate Loans.
(a) Each request by Borrower for a Eurodollar Rate Loan shall be
made pursuant to a Request for Loan (or telephonic or other request for a Loan
referred to in the second sentence of Section 2.1(b), if applicable) received by
the Administrative Agent, at the Administrative Agent's Office, not later than
11:00 a.m. (California time) at least three (3) Eurodollar Banking Days before
the first day of the applicable Eurodollar Period.
(b) Prior to the first day of the applicable Eurodollar Period,
the Administrative Agent shall determine the applicable Eurodollar Rate (which
determination shall be conclusive in the absence of manifest error) and promptly
shall give notice of the same to Borrower and the Lenders by telephone,
telecopier or telex.
(c) Unless all of the Lenders otherwise consent, no Eurodollar
Rate Loan may be requested during the continuation of a Default or Event of
Default.
(d) Unless the Majority Lenders otherwise consent no more than
six (6) Eurodollar Rate Loans shall be outstanding at any one time.
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(e) Nothing contained herein shall require any Lender to fund any
Eurodollar Rate Advance in the Designated Eurodollar Market.
2.4 Voluntary Reduction of the Commitment. Borrower shall have the right,
at any time and from time to time, without penalty or charge, upon at least five
(5) Banking Days' prior written notice to the Administrative Agent, voluntarily
to reduce, permanently and irrevocably, in aggregate principal amounts in an
integral multiple of $250,000.00 which are not less than $1,000,000, all or a
portion of the then undisbursed portion of the Commitment; provided that any
such reduction shall be accompanied by payment of all accrued and unpaid
facility fees with respect to the portion of the Commitment being reduced.
2.5 Administrative Agent's Right to Assume Funds Available for Advances.
Unless the Administrative Agent shall have been notified by any Lender no later
than the Banking Day prior to the funding by the Administrative Agent of any
Loan that such Lender does not intend to make available to the Administrative
Agent such Lender's Pro Rata Share of the total amount of such Loan (and
provided that the Administrative Agent has given such Lender notice of such Loan
in accordance with Section 2.1(c)), the Administrative Agent may assume that
such Lender has made such amount available to the Administrative Agent on the
date of the Loan and the Administrative Agent may, in reliance upon such
assumption, make available to Borrower a corresponding amount. If the
Administrative Agent has made funds available to Borrower based on such
assumption and such corresponding amount is not in fact made available to the
Administrative Agent by such Lender, the Administrative Agent shall be entitled
to recover such corresponding amount on demand from such Lender. If such Lender
does not pay such corresponding amount forthwith upon the Administrative Agent's
demand therefor, the Administrative Agent promptly shall notify Borrower and
Borrower shall pay such corresponding amount to the Administrative Agent. The
Administrative Agent also shall be entitled to recover from such Lender,
interest on such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Administrative Agent to Borrower
to the date such corresponding amount is recovered by the Administrative Agent
at a rate per annum equal to the Federal Funds Rate.
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ARTICLE 2A
LETTERS OF CREDIT
2A.1 Letters of Credit.
(a) Provided that the Borrower has satisfied the conditions
precedent contained in Section 2A.1(c) hereof, the Issuing Bank agrees, from
time to time, to issue and/or renew Standby Letters of Credit on behalf of the
Borrower so long as upon such issuance and/or renewal, after giving to such
Standby Letter of Credit, (i) the Outstanding Balance will not exceed the
Commitment and (ii) the Letter of Credit Balance will not exceed the Letter of
Credit Commitment. The expiration date of a Standby Letter of Credit may not
exceed the earlier of the Maturity Date or one year after its issuance. On each
Quarterly Payment Date and on the earlier of the expiration date of a Standby
Letter of Credit and the date upon which the Obligations are paid in full and
the Commitment terminated, Borrower shall pay in arrears to the Administrative
Agent, for the account of each Lender according to its Pro Rata Share of the
Commitment, a Standby Letter of Credit fee equal to the Eurodollar Rate Spread
times the undrawn amount of each outstanding Standby Letter of Credit.
(b) Provided that the Borrower has satisfied the conditions
precedent contained in Section 2A.1(c) hereof, the Issuing Bank agrees, from
time to time, to issue and/or renew Commercial Letters of Credit on behalf of
the Borrower so long as upon such issuance and/or renewal, after giving to such
Commercial Letter of Credit, (i) the Outstanding Balance, will not exceed the
Commitment and (ii) the Letter of Credit Balance will not exceed the Letter of
Credit Commitment. The expiration date of a Commercial Letter of Credit may not
exceed the Maturity Date. Borrower shall pay to the Administrative Agent, for
the account of each Lender according to its Pro Rata Share of the Commitment,
the Commercial Letter of Credit Fee upon the issuance and/or renewal of such
Commercial Letter of Credit.
(c) The obligation of the Issuing Bank to issue and/or renew any
Letters of Credit on behalf of the Borrower shall be subject to the following
conditions precedent on the date of issuance or renewal of each such Letter of
Credit:
(i) The Borrower shall execute and deliver to the Issuing Bank
an application for letter of credit, specifying the amount of the
requested Letter of Credit, the requested term thereof, the Type of Letter
of Credit and the beneficiary thereof; and
(ii) The Borrower shall pay to the Issuing Bank, for its own
account, such reasonable fronting, issuance, drawing, amendment, transfer,
obligation and other fees as shall be agreed upon by Borrower and the
Issuing Bank from time to time.
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(iii) No Event of Default which has not been waived by the
Administrative Agent and the Majority Lenders shall exist and no event or
condition shall exist that after notice or lapse of time, or both would
constitute an Event of Default.
(d) That Letter of Credit No. NZS300285 in the stated amount of
$1,071,000.00 dated June 3, 1998, previously issued by Issuing Bank for the
account of Borrower, shall be deemed to be a Standby Letter of Credit and,
effective as of the Closing Date, shall be deemed to be outstanding under this
Agreement.
2A.2 Notice. The Issuing Bank shall give the Administrative Agent, which
shall in turn give to each Lender, prompt written or telecopy advice of any
notice received from the Borrower pursuant to this Section 2A.
2A.3 Letter of Credit Participations.
(a) By the issuance of a Letter of Credit and without any further
action on the part of the Issuing Bank or the Lenders in respect thereof, the
Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from
the Issuing Bank, a participation in such Letter of Credit equal to such
Lender's Pro Rata Share, based upon the Pro Rata Shares in effect at the time of
any drawing thereunder (or, if the Commitment shall have been terminated, the
Pro Rata Shares in effect immediately prior to such termination), of the face
amount of such Letter of Credit, effective upon the issuance of such Letter of
Credit; provided, however, that no Lender shall be required to acquire
participations in Letters of Credit that would result in its Pro Rata Share of
the Letter of Credit Balance exceeding its Pro Rata Share of the Commitment. In
consideration and in furtherance of the foregoing, each Lender hereby absolutely
and unconditionally agrees to pay to the Administrative Agent, for the account
of the Issuing Bank, in accordance with Section 2A.4 below, such Lender's pro
rata percentage of each unreimbursed Letter of Credit Disbursement made by the
Issuing Bank.
(b) Each Lender acknowledges and agrees that its acquisition of
participations pursuant to paragraph (a) above in respect of Letters of Credit
is absolute and unconditional and shall not be affected by any circumstance
whatsoever, including without limitation the occurrence and continuance of any
Event of Default hereunder, and that each such payment shall be made without any
offset, abatement, withholding or reduction whatsoever; provided that nothing
herein shall constitute a waiver of any rights a Lender may have by reason of
the gross negligence or wilful misconduct of the Issuing Bank.
2A.4 Disbursement and Reimbursement.
(a) Promptly after it shall have ascertained that any draft and
any accompanying documents presented under a Letter of Credit appear to be in
strict conformity with the terms and conditions of such Letter of Credit, the
Issuing Bank shall give telephone and telecopy notice to the Borrower and the
Administrative Agent of the receipt and amount of such draft and the date on
which payment thereon will be made. If the Administrative Agent
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shall not have received from the Borrower the payment required pursuant to
paragraph (b) below by 11:00 a.m. (California time), one Banking Day after the
date on which payment of a draft presented under any Letter of Credit has been
made, the Administrative Agent shall promptly so notify the Issuing Bank and
each Lender, specifying in the notice to each Lender such Lender's pro rata
percentage of such Letter of Credit Disbursement. Each Lender shall pay to the
Administrative Agent, not later than 11:00 a.m. (California time), on such date,
such Lender's percentage of such Letter of Credit Disbursement, which the
Administrative Agent shall promptly pay to the Issuing Bank. The Administrative
Agent will promptly remit to each Lender such Lender's percentage of any amounts
subsequently received by the Administrative Agent from the Borrower in respect
of such Letter of Credit Disbursement; provided that (i) amounts so received for
the account of any Lender prior to payment by such Lender of amounts required to
be paid by it hereunder in respect of any Letter of Credit Disbursement and (ii)
amounts representing interest on any Letter of Credit Disbursement for the
period prior to the payment by such Lender of such amounts shall in each case be
remitted to the Issuing Bank.
(b) If the Issuing Bank shall pay any draft presented under a
Letter of Credit, the Borrower shall pay to the Issuing Bank or to the
Administrative Agent for the account of the Issuing Bank or, if the
Administrative Agent shall have received the payments provided in paragraph (a)
above with respect to such drawing, for the accounts of the Lenders, an amount
equal to the amount of such draft before 11:00 a.m. (California time), on the
Banking Day immediately following the date of payment of such draft, together
with interest on such amount at a rate per annum equal to the interest rate in
effect for Base Rate Loans from (and including) the date of payment of such
draft to (but excluding) the date of such payment by the Borrower. The
obligation of the Borrower to pay the amounts referred to above in this
paragraph (b) shall be absolute, unconditional and irrevocable and shall be
satisfied strictly in accordance with their terms irrespective of:
(i) any lack of validity or enforceability of any Letter of
Credit (except as set forth in subparagraphs (iv) or (v) below);
(ii) the existence of any claim, setoff, defense or other
right which the Borrower or any other Person may at any time have against
the beneficiary under any Letter of Credit, the Administrative Agent, any
Issuing Bank or any Lender (other than the defense of payment in
accordance with the terms of this Agreement or a defense based on the
gross negligence or wilful misconduct of the Issuing Bank) or any other
Person in connection with this Agreement or any other transaction;
(iii) any draft or other document presented under a Letter of
Credit proving to be forged, fraudulent or invalid in any respect or any
statement therein being untrue or inaccurate in any respect; provided that
payment by the Issuing Bank under such Letter of Credit against
presentation of such draft or document shall not have constituted gross
negligence or wilful misconduct;
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(iv) payment by the Issuing Bank under a Letter of Credit
against presentation of a draft or other document which does not comply in
any immaterial respect with the terms of such Letter of Credit; provided
that such payment shall not have constituted gross negligence or wilful
misconduct; or
(v) any other circumstance or event whatsoever, whether or not
similar to any of the foregoing; provided that such other circumstance or
event shall not have been the result of gross negligence or wilful
misconduct of the Issuing Bank.
It is understood that in making any payment under a Letter of
Credit (1) the Issuing Bank's exclusive reliance on the documents presented to
it under such Letter of Credit as to any and all matters set forth therein,
including without limitation, reliance on the amount of any draft presented
under such Letter of Credit, whether or not the amount due to the beneficiary
equals the amount of such draft and whether or not any document presented
pursuant to such Letter of Credit proves to be forged, fraudulent or invalid in
any respect, if such document on its face appears to be in order, and whether or
not any other statement or any other document presented pursuant to such Letter
of Credit proves to be forged or invalid or any statement therein proves to be
inaccurate or untrue in any respect whatsoever, and (2) any noncompliance in any
immaterial respect of the documents presented under a Letter of Credit with the
terms thereof shall, in either case, not be deemed wilful misconduct or gross
negligence of the Issuing Bank.
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ARTICLE 2B
SWING LINE
2B.1 Swing Line. The Swing Line Lender, for its own account, shall from
time to time from the Closing Date through the day prior to the Maturity Date
make Swing Line Loans to Borrower in such amounts as Borrower may request,
provided that (a) after giving effect to such Swing Line Loan, the Swing Line
Balance does not exceed the Swing Line Commitment, (b) after giving effect to
such Swing Line Loan, the Outstanding Balance does not exceed the Commitment,
and (c) no Swing Line Loan may be made during the continuation of a Default or
an Event of Default unless such Default or Event of Default has been waived by
the Administrative Agent and the Majority Lenders. Borrower may borrow, repay
and reborrow under the Swing Line Commitment without premium or penalty.
2B.2 Borrowing. Unless notified to the contrary by the Swing Line Lender,
borrowings under the Swing Line may be made in amounts which are integral
multiples of $1.00 upon telephonic request by a Responsible Official made to the
Administrative Agent not later than 11:00 a.m. (California time), on the Banking
Day of the requested borrowing (which telephonic request shall be promptly
confirmed in writing by telecopier). Promptly after receipt of such a request
for borrowing, the Administrative Agent shall provide telephonic verification to
the Swing Line Lender that availability for Swing Line Loans exists under
Section 2B.1 (and such verification shall be promptly confirmed in writing by
telecopier). Unless notified to the contrary by the Swing Line Lender, each
repayment of a Swing Line Loan shall be in an amount which is an integral
multiple of $1.00.
2B.3 Repayments.
(a) Swing Line Loans shall bear interest at a fluctuating rate
per annum equal to the Base Rate plus Base Rate Spread. Interest shall be
payable on such dates, not more frequent than monthly, as may be specified by
the Swing Line Lender and in any event on the Maturity Date. The Swing Line
Lender shall be responsible for invoicing Borrower for such interest. The
interest payable on Swing Line Loans is solely for the account of the Swing Line
Lender.
(b) The principal of a Swing Line Loan shall be payable no later
than ten (10) Banking Days after the date the Swing Line Loan is made by the
Swing Line Lender and in any event on the Maturity Date.
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ARTICLE 3
PAYMENTS AND FEES; SECURITY
DOCUMENTS; GUARANTY
3.1 Principal and Interest.
(a) Interest shall be payable on the outstanding daily
unpaid principal amount of each Advance from the date thereof until payment in
full is made and shall accrue and be payable at the rates set forth herein
before and after an Event of Default, before and after maturity, before and
after judgment, and before and after the commencement of any proceeding under
any Debtor Relief Law, with interest on overdue interest to bear interest at the
Default Rate to the fullest extent permitted by applicable Laws.
(b) Interest accrued on each Base Rate Loan through the
last day of each calendar month shall be due and payable on the fifth Banking
Day following that day. Except as otherwise provided in Section 3.7, the unpaid
principal amount of each Base Rate Loan shall bear interest at a fluctuating
rate per annum equal to the Base Rate plus the Base Rate Spread. Each change in
the interest rate applicable to Base Rate Loans shall take effect simultaneously
with the corresponding changes in the Base Rate. Each change in the Base Rate
shall be effective as of 12:01 a.m. on the Banking Day on which such change in
the Base Rate is announced, unless otherwise specified in such announcement in
which case the change shall be effective as so specified.
(c) Interest accrued on each Eurodollar Rate Loan which is
for a term of three months or less shall be due and payable on the last day of
the related Eurodollar Period. Interest accrued on each other Eurodollar Rate
Loan shall be due and payable on each Quarterly Payment Date and on the last day
of the related Eurodollar Period. Except as otherwise provided in Section 3.7
the unpaid principal amount of any Eurodollar Rate Loan shall bear interest at a
rate per annum equal to the Eurodollar Rate for that Eurodollar Rate Loan plus
the applicable Eurodollar Rate Spread.
(d) If not sooner paid, the principal Indebtedness
evidenced by the Notes shall be payable as follows:
(i) the principal amount of each Eurodollar Rate Loan
shall be payable immediately on the last day of the Eurodollar Period
for such Loan;
(ii) the principal Indebtedness evidenced by the
Notes shall be payable immediately in immediately available funds, to
the extent that the outstanding principal amount of the Loans at any
time exceeds the Commitment and in an amount sufficient to reduce the
amount outstanding to an amount equal to or less than the Commitment;
and
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(iii) the principal Indebtedness evidenced by the
Notes shall in any event be payable immediately in immediately
available funds on the Maturity Date.
(e) The Notes may, at any time and from time to time,
voluntarily be paid or prepaid in whole or in part without premium or penalty,
except that with respect to any voluntary prepayment under this subsection, (i)
any partial prepayment of Loans shall be in an integral multiple of $500,000,
but not less than $1,000,000, (ii) the Administrative Agent shall have received
written notice of any prepayment at least one (1) Banking Day, in the case of a
Base Rate Loan, and three (3) Banking Days, in the case of a Eurodollar Rate
Loan, before the date of prepayment which notice shall identify the date and
amount of the prepayment and the Loan(s) being prepaid, (iii) each prepayment of
principal shall be accompanied by payment of interest accrued through the date
of payment on the amount of principal paid and (iv) any payment or prepayment or
conversion of all or any part of any Eurodollar Rate Loan on a day other than
the last day of the applicable Eurodollar Period shall be subject to Section
3.6(d).
3.2 Facility Fee. On each Quarterly Payment Date and on the earlier of
the Maturity Date and the date upon which the Obligations are paid in full and
the Commitment terminated, Borrower shall pay in arrears to the Administrative
Agent, for the account of each Lender according to its Pro Rata Share of the
Commitment, a facility fee equal to the then applicable Facility Fee Rate times
the average unused portion of the Commitment for the period since the last
Quarterly Payment Date. For purposes of calculation of the facility fee, the
average unused portion of the Commitment shall not be reduced by the amount of
any Swing Line Loans made.
3.3 [Intentionally left blank.]
3.4 Agency Fee. Borrower shall pay to the Administrative Agent an
agency fee in such amounts and at such times as agreed upon by letter agreement
dated of even date herewith between Borrower and the Administrative Agent. The
agency fee paid to the Administrative Agent is solely for its own account and is
nonrefundable.
3.5 Increased Commitment Costs. If any Lender reasonably determines in
good faith that compliance with any Law or regulation enacted or promulgated
after the Closing Date, or with any guideline or request from any central bank
or other Governmental Agency issued or made after the Closing Date (whether or
not having the force of Law) has or would have the effect of materially reducing
the rate of return on the capital of such Lender or any corporation controlling
such Lender as a consequence of, or with reference to, such Lender's portion of
the Commitment or its making or maintaining of Advances or Swing Line Loans,
below the rate which the Lender or such other corporation could have achieved
but for such compliance (taking into account the policies of such Lender or
corporation with regard to capital), then the Borrower shall from time to time,
upon demand by such Lender (with a copy of such demand to the Administrative
Agent), immediately pay to such Lender additional amounts reasonably sufficient
to compensate such Lender or other corporation for such reduction. A certificate
as to such amounts, submitted to the Borrower and the Administrative
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Agent by such Lender, shall be conclusive and binding for all purposes, absent
manifest error. Each Lender agrees promptly to notify the Borrower and the
Administrative Agent of any circumstances that would cause the Borrower to pay
additional amounts pursuant to this Section, provided that the failure to give
such notice shall not affect the Borrower's obligation to pay such additional
amounts hereunder.
3.6 Eurodollar Fees and Costs.
(a) If, after the date hereof, the existence or occurrence
of any Special Eurodollar Circumstance:
(1) shall materially subject any Lender or its
Eurodollar Lending Office to any tax, duty or other charge or cost with
respect to any Eurodollar Rate Advance, its Notes or its obligation to
make Eurodollar Rate Advances, or shall materially change the basis of
taxation of payments to any Lender of the principal of or interest on
any Eurodollar Rate Advance or any other amounts due under this
Agreement in respect of any Eurodollar Rate Advance, its Notes or its
obligation to make Eurodollar Rate Advances (except for changes in any
tax on the overall net income, gross income or gross receipts of such
Lender or its Eurodollar Lending Office);
(2) shall impose, modify or deem applicable any
reserve (including, without limitation, any reserve imposed by the
Board of Governors of the Federal Reserve System), special deposit or
similar requirements against assets of, deposits with or for the
account of, or credit extended by, any Lender or its Eurodollar Lending
Office; or
(3) shall impose on any Lender or its Eurodollar
Lending Office or the Designated Eurodollar Market any other condition
affecting any Eurodollar Rate Advance, its Notes, its obligation to
make Eurodollar Rate Advances or this Agreement or shall otherwise
affect any of the same;
and the result of any of the foregoing, as determined by such Lender, materially
increases the cost to such Lender or its Eurodollar Lending Office of making or
maintaining any Eurodollar Rate Advance or in respect of any Eurodollar Rate
Advance, its Notes or its obligation to make Eurodollar Rate Advances or
materially reduces the amount of any sum received or receivable by such Lender
or its Eurodollar Lending Office with respect to any Eurodollar Rate Advance,
its Notes or its obligation to make Eurodollar Rate Advances (assuming such
Lender's Eurodollar Lending Office had funded 100% of its Eurodollar Rate
Advance in the Designated Eurodollar Market), then, upon demand by such Lender
(with a copy to the Administrative Agent), Borrower shall pay to such Lender
such additional amount or amounts as will reasonably compensate such Lender for
such increased cost or reduction (determined as though such Lender's Eurodollar
Lending Office had funded 100% of its Eurodollar Rate Advance in the Designated
Eurodollar Market). A statement of any Lender claiming compensation under this
subsection shall be conclusive in the absence of manifest error. Each Lender
agrees to
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<PAGE> 34
endeavor promptly to notify Borrower of any event of which it has actual
knowledge, occurring after the Closing Date, which will entitle such Lender to
compensation pursuant to this Section, and agrees to designate a different
Eurodollar Lending Office if such designation will avoid the need for or reduce
the amount of such compensation and will not, in the judgment of such Lender,
otherwise be disadvantageous to such Lender. If any Lender claims compensation
under this Section, Borrower may at any time, upon at least two (2) Eurodollar
Banking Days' prior notice to the Administrative Agent and Lenders and upon
payment in full of the amounts provided for in this Section through the date of
such payment plus any prepayment fee required by Section 3.6(d), pay in full all
Eurodollar Rate Advances or request that all Eurodollar Rate Advances be
converted to Base Rate Advances.
(b) If after the date hereof, the existence or occurrence
of any Special Eurodollar Circumstance shall, in the opinion of any Lender, make
it unlawful, impossible or impracticable for such Lender or its Eurodollar
Lending Office to make, maintain or fund its portion of any Eurodollar Rate
Loan, or materially restrict the authority of such Lender to purchase or sell,
or to take deposits of, dollars in the Designated Eurodollar Market or to
determine or charge interest rates based upon the Eurodollar Rate, and such
Lender shall so notify the Administrative Agent and the other Lenders, then the
Lender's obligation to make Eurodollar Rate Advances shall be suspended for the
duration of such illegality, impossibility or impracticability and the
Administrative Agent forthwith shall give notice thereof to Borrower. Upon
receipt of such notice, the outstanding principal amount of all Eurodollar Rate
Advances, together with accrued interest thereon, automatically shall be
converted to Base Rate Advances with Eurodollar Periods corresponding to the
Eurodollar Loans of which such Eurodollar Rate Advances were a part on either
(1) the last day of the Eurodollar Period(s) applicable to such Eurodollar Rate
Advances if the affected Lender may lawfully continue to maintain and fund such
Eurodollar Rate Advances to such day(s) or (2) immediately if the affected
Lender may not lawfully continue to fund and maintain such Eurodollar Rate
Advances to such day(s), provided that in such event the conversion shall not be
subject to payment of a prepayment fee under Section 3.6(d).
(c) If, with respect to any proposed Eurodollar Rate Loan:
(1) the Administrative Agent reasonably determines
that, by reason of circumstances affecting the Designated Eurodollar
Market generally that are beyond the reasonable control of the Lenders,
deposits in dollars (in the applicable amounts) are not being offered
to each of the Lenders in the Designated Eurodollar Market for the
applicable Eurodollar Period; or
(2) the Majority Lenders advise the Administrative
Agent that the Eurodollar Rate as determined by the Administrative
Agent (i) does not represent the effective pricing to such Lenders for
deposits in dollars in the Designated Eurodollar Market in the relevant
amount for the applicable Eurodollar Period, or (ii) will not
adequately and fairly reflect the cost to such Lenders of making the
applicable Eurodollar Rate Advances;
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then the Administrative Agent forthwith shall give notice thereof to Borrower
and the Lenders, whereupon until the Administrative Agent notifies Borrower that
the circumstances giving rise to such suspension no longer exist the obligation
of the Lenders to make any future Eurodollar Rate Advances shall be suspended.
If at the time of such notice there is then pending a Request for Loan that
specifies a Eurodollar Rate Loan, such Request for Loan shall be deemed to
specify a Base Rate Loan.
(d) Upon payment or prepayment of any Eurodollar Rate
Advance, on a day other than the last day in the applicable Eurodollar Period
(whether voluntarily, involuntarily, by reason of acceleration, or otherwise),
or upon the failure of Borrower to borrow on the date or in the amount specified
for a Eurodollar Rate Loan in any Request for Loan, Borrower shall pay to the
appropriate Lender a prepayment fee or failure to borrow fee, as the case may
be, calculated as follows (and determined as though 100% of the Eurodollar Rate
Advance had been funded in the Designated Eurodollar Market):
(1) principal amount of the Eurodollar Rate Advance,
times [number of days between the date of prepayment and the last day
in the applicable Eurodollar Period], divided by 360, times the
applicable Interest Differential; plus
(2) all actual out-of-pocket expenses (other than
those taken into account in the calculation of the Interest
Differential) incurred by the Lender (excluding allocations of any
expense internal to that Lender) and reasonably attributable to such
payment or prepayment;
provided that no prepayment fee or failure to borrow fee shall be payable (and
no credit or rebate shall be required) if the product of the foregoing formula
is not a positive number. Each Lender's determination of the amount of any
prepayment fee or failure to borrow fee payable under this Section 3.6(d) shall
be conclusive in the absence of manifest error.
3.7 Default Rate. From and after the occurrence of any Event of Default
the Loans shall bear interest at a fluctuating interest rate per annum at all
times equal to the sum of the Base Rate plus 3% per annum, to the fullest extent
permitted by applicable Laws. Accrued and unpaid interest on past due amounts
(including, without limitation, interest on past due interest) shall be
compounded annually, on the last day of each calendar quarter, to the fullest
extent permitted by applicable Laws.
3.8 Computation of Interest and Fees. Computation of interest and on
all fees shall be calculated on the basis of a year of 360 days and the actual
number of days elapsed. Borrower acknowledges that this calculation method will
result in a higher yield to the Lenders than a method based on a year of 365 or
366 days. Any Loan that is repaid on the same day on which it is made shall bear
interest for one day. Notwithstanding anything in this Agreement to the
contrary, interest in excess of the maximum amount permitted by applicable Laws
shall not accrue or be payable hereunder or under the Notes, and any amount paid
as
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interest hereunder or under the Notes which would otherwise be in excess of such
maximum permitted amount shall instead be treated as a payment of principal.
3.9 Non-Banking Days. If any payment to be made by Borrower or any
other Party under any Loan Document shall come due on a day other than a Banking
Day, payment shall instead be considered due on the next succeeding Banking Day
and the extension of time shall be reflected in computing interest.
3.10 Manner and Treatment of Payments.
(a) Each payment hereunder or on the Notes or under any
other Loan Document shall be made to the Administrative Agent for the account of
each of the Lenders, or the Administrative Agent as the case may be, in
immediately available funds not later than 12:00 noon (California time) on the
day of payment (which must be a Banking Day). The amount of all payments
received by the Administrative Agent for the account of each Lender shall be
promptly paid by the Administrative Agent to the applicable Lender in
immediately available funds. Should the Administrative Agent fail to remit to
any Lender any funds actually received by the Administrative Agent and due to
that Lender on the same Banking Day upon which such funds are deemed received by
the Administrative Agent as set forth above, that Lender shall be entitled to
recover interest on such funds solely from the Administrative Agent at a rate
per annum equal to the Federal Funds Rate. All payments shall be made in lawful
money of the United States of America.
(b) Each payment or prepayment on account of any Loan
shall be applied pro rata according to the outstanding Advances made by each
Lender comprising such Loan.
(c) Each Lender shall use its best efforts to keep a
record of Advances made by it and payments received by it with respect to its
Note and such record shall be presumptive evidence of the amounts owing, absent
manifest error. Notwithstanding the foregoing sentence, no Lender shall be
liable to any Party for any failure to keep such a record.
(d) Each payment of any amount payable by Borrower or any
other Party under this Agreement or any other Loan Document shall be made free
and clear of, and without reduction by reason of any taxes, assessments or other
charges imposed by any Governmental Agency, central bank or comparable authority
(other than taxes on income or gross receipts generally applicable to banks). To
the extent that Borrower is obligated by applicable Laws to make any deduction
or withholding on account of taxes, assessments or other charges imposed by any
Governmental Agency from any amount payable to any Lender under any Loan
Document Borrower shall (i) make such deduction or withholding and pay the same
to the relevant Governmental Agency and (ii) pay such additional amount to that
Lender as is necessary to result in that Lender's receiving a net after-tax (or
after-assessment or after- charge) amount equal to the amount to which that
Lender would have been entitled under the Loan Document absent such deduction or
withholding. If and when receipt of such payment results in an excess payment or
credit to that Lender on account of such taxes, assessments or other charges,
that Lender shall refund such excess to Borrower.
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(e) Each Lender which is organized outside the United
States of America shall promptly deliver to Borrower and the Administrative
Agent a completed Internal Revenue Service Form 4224 and any other certificate
or statement or exemption required by applicable Laws, properly completed and
duly executed by such Lender, to establish that such payment is (1) not subject
to withholding under the Code because such payment is effectively connected with
the conduct by such Lender of a trade or business in the United States of
America or (2) totally exempt from United States tax under a provision of an
applicable tax treaty. Unless Borrower and the Administrative Agent have
received such Form or other documents satisfactory to them indicating that
payments hereunder or under the Notes are not subject to United States
withholding tax or are subject to such tax at a rate reduced by an applicable
tax treaty, the Administrative Agent shall withhold the taxes from such payment
at the applicable statutory rate in the case of payments to or for any Lender
organized under the Laws of a jurisdiction outside the United States of America
and Section 3.10(d) shall not apply thereto.
3.11 Funding Sources. Nothing in this Agreement shall be deemed to
obligate any Lender to obtain the funds for any Loan in any particular place or
manner or to constitute a representation by any Lender that it has obtained or
will obtain the funds for any Loan in any particular place or manner.
3.12 Failure to Charge Not Subsequent Waiver. Any decision by the
Administrative Agent or any Lender not to require payment of any interest
(including interest arising under Section 3.7), fee, cost or other amount
payable under any Loan Document, or to calculate any amount payable by a
particular method, on any occasion shall in no way limit or be deemed a waiver
of the Administrative Agent's or such Lender's right to require full payment of
any interest (including interest arising under Section 3.7), fee, cost or other
amount payable under any Loan Document or to calculate an amount payable by
another method, on any other or subsequent occasion.
3.13 Administrative Agent's Right to Assume Payments Will be Made by
Borrower. Unless the Administrative Agent shall have been notified by Borrower
prior to the date on which any payment to be made by Borrower hereunder is due
that Borrower does not intend to remit such payment, the Administrative Agent
may, in its discretion, assume that Borrower has remitted such payment when so
due and the Administrative Agent may, in its discretion and in reliance upon
such assumption, make available to each Lender on such payment date an amount
equal to such Lender's share of such assumed payment. If Borrower has not in
fact remitted such payment to the Administrative Agent, each Lender shall
forthwith on demand repay to the Administrative Agent the amount of such assumed
payment made available to such Lender, together with interest thereon in respect
of each day from and including the date such amount was made available by the
Administrative Agent to such Lender to the date such amount is repaid to the
Administrative Agent at a rate per annum equal to the actual cost to the
Administrative Agent of funding such amount as notified by the Administrative
Agent to such Lender.
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3.14 Fee Determination Detail. The Administrative Agent, and any
Lender, shall provide reasonable detail to Borrower regarding the manner in
which the amount of any payment to the Lenders, or that Lender, under Article 3
has been determined.
3.15 Survivability. All of Borrower's obligations under Sections 3.5
and 3.6 shall survive the date on which all Loans are fully paid.
3.16 Security Documents. The Obligations shall be secured at all times
by valid and effective grants of security interest in the Collateral pursuant to
security documents (collectively, the "Security Documents") executed by Borrower
and each Subsidiary, present and future, subject to no prior Liens except for
Permitted Encumbrances, which Security Documents shall include among other
things the following:
(i) Security Agreements from Borrower and each Subsidiary,
present and future.
(ii) Pledge Agreements from Borrower as to each
Subsidiary, present and future.
3.17 Guaranty. The Obligations shall be guaranteed by each Subsidiary,
present and future, pursuant to a Guaranty.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to the Lenders that:
4.1 Existence and Qualification: Power; Compliance With Laws. Borrower
is a corporation duly formed, validly existing and in good standing under the
Laws of Delaware. Borrower is duly qualified to transact business, and is in
good standing, in Arizona and each other jurisdiction in which the conduct of
its business or the ownership or leasing of its Properties makes such
qualification or registration necessary, except where the failure so to qualify
or register and to be in good standing would not constitute a Material Adverse
Effect. Borrower has all requisite corporate power and authority to conduct its
business, to own and lease its Properties and to execute and deliver each Loan
Document to which it is a Party and to perform the Obligations. All outstanding
shares of capital stock of Borrower are duly authorized, validly issued, fully
paid, nonassessable and issued in compliance with all applicable state and
federal securities and other Laws. Borrower is in compliance with all Laws and
other legal requirements applicable to its business, has obtained all
authorizations, consents, approvals, orders, licenses and permits from, and has
accomplished all filings, registrations and qualifications with, or obtained
exemptions from any of the foregoing from, any Governmental Agency that are
necessary for the transaction of its business, except where the failure so to
comply, file, register, qualify or obtain exemptions does not constitute a
Material Adverse Effect.
4.2 Authority: Compliance With Other Agreements and Instruments and
Government Regulations. The execution, delivery and performance by each Party of
the Loan Documents to which it is a party have been duly authorized by all
necessary corporate action, and do not:
(a) Require any consent or approval not heretofore
obtained of any partner, director, stockholder, security holder or creditor of
such Party;
(b) Violate or conflict with any provision of such Party's
certificate of incorporation or bylaws;
(c) Result in or require the creation or imposition of any
Lien or Right of Others upon or with respect to any Property now owned or leased
or hereafter acquired by such Party;
(d) Violate any Requirement of Law applicable to such
Party;
(e) Result in a breach of or default under, or would, with
the giving of notice or the lapse of time or both, constitute a breach of or
default under, or cause or permit the acceleration of any obligation owed under,
any indenture or loan or credit agreement or
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any other Contractual Obligation to which such Party is a party or by which such
Party or any of its Property is bound or affected;
and no such Party is in violation to or default under, any Requirement of Law or
Contractual Obligation, or any indenture, loan or credit agreement described in
Section 4.2(e), in any respect that constitutes a Material Adverse Effect.
4.3 No Governmental Approvals Required. Subject to the representations
of the Lenders contained in Section 11.8, no authorization, consent approval,
order, license or permit from, or filing, registration or qualification with,
any Governmental Agency is required to authorize or permit under applicable Laws
the execution, delivery and performance by each Party of the Loan Documents to
which it is a party.
4.4 Subsidiaries.
(a) Schedule 4.4 hereto correctly sets forth the names,
the form of legal entity, number of shares of capital stock issued and
outstanding, jurisdictions of organization and chief executive offices of all
Subsidiaries of Borrower. Except as described in Schedule 4.4, Borrower does not
own any capital stock or equity interest in any Person.
(b) Each Subsidiary of Borrower is in compliance with all
Laws and other requirements applicable to its business and has obtained all
authorizations, consents, approvals, orders, licenses, and permits from, and
each such Subsidiary has accomplished all filings, registrations, and
qualifications with, or obtained exemptions from any of the foregoing from, any
Governmental Agency that are necessary for the transaction of its business,
except where the failure so to comply, file, register, qualify or obtain
exemptions does not constitute a Material Adverse Effect.
4.5 Financial Statements. Borrower has furnished to the Lenders the
audited consolidated financial statements of Borrower and its Subsidiaries as at
December 31, 1997 and for the Fiscal Year then ended. Such financial statements
fairly present the financial condition and the results of operations of Borrower
and its Subsidiaries as at such date and for such period in accordance with
GAAP, consistently applied.
4.6 No Other Liabilities; No Material Adverse Effect. Borrower and its
Subsidiaries do not have any material liability or material contingent liability
not reflected or disclosed in the balance sheet or notes thereto described in
Section 4.5, other than liabilities and contingent liabilities arising in the
ordinary course of business subsequent to March 31, 1998 or as disclosed on
Schedule 4.6 hereto. No event or circumstance has occurred that constitutes a
Material Adverse Effect with respect to Borrower and its Subsidiaries since
March 31, 1998.
4.7 Title to and Location of Property. Borrower and its Subsidiaries
have good and valid title to all the Property reflected in the balance sheet
described in Section 4.5, other than Property subsequently sold or disposed of
in the ordinary course of business, free and
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clear of all Liens and Rights of Others, other than (i) Liens and Rights of
Others permitted by Section 6.8.
4.8 Intangible Assets. Borrower owns, or possesses the right to use to
the extent necessary in its business, all trademarks, trade names, copyrights,
patents, patent rights, computer software, licenses and other Intangible Assets
that are used in the conduct of its business as now operated and which are
material to the condition (financial or otherwise), business or operations of
Borrower, and no such Intangible Asset, to the best knowledge of Borrower,
conflicts with the valid trademark, trade name, copyright, patent, patent right
or Intangible Asset of any other Person to the extent that such conflict
constitutes a Material Adverse Effect.
4.9 Governmental Regulation. Borrower and its Subsidiaries have
obtained all approvals necessary, if any, from Governmental Agencies to permit
the execution, delivery and performance of the Obligations under the Loan
Documents. Neither Borrower nor any of its Subsidiaries is subject to regulation
under the Interstate Commerce Act, the Investment Company Act of 1940 or to any
other Law limiting or regulating its ability to incur Indebtedness for money
borrowed.
4.10 Litigation. Except for (a) any matter fully covered (subject to
applicable deductibles and retentions) by insurance for which the insurance
carrier has assumed full responsibility, (b) any matter, or series of related
matters, involving a claim against Borrower or any of its Subsidiaries of less
than $1,000,000, (c) matters described in public documents filed with
Governmental Agencies and previously delivered to the Lenders, and (d) matters
set forth in Schedule 4.10, there are no actions, suits, proceedings or
investigations pending as to which Borrower or any of its Subsidiaries have been
served or have received notice or, to the best knowledge of Borrower, threatened
against, or affecting Borrower or any of its Subsidiaries or any Property of any
of them before any Governmental Agency. Except for matters set forth in Schedule
4.10, there is no reasonable basis, to the best knowledge of Borrower, for any
action, suit, proceeding or investigation against or affecting Borrower or any
of its Subsidiaries or any Property of any of them before any Governmental
Agency which would constitute a Material Adverse Effect.
4.11 Binding Obligations. Each of the Loan Documents will when executed
and delivered by any Party, constitute the legal, valid and binding obligation
of such Party, enforceable against such Party in accordance with its terms,
except as enforcement may be limited by Debtor Relief Laws or equitable
principles relating to the granting of specific performance and other equitable
remedies as a matter of judicial discretion.
4.12 No Default. No event has occurred and is continuing that is a
Default or Event of Default.
4.13 Pension Plans. Schedule 4.13 correctly lists each Pension Plan
which, as of the Closing Date, Borrower or any of its ERISA Affiliates maintains
or to which, as of the Closing Date, Borrower or any ERISA Affiliate contributes
or is required to contribute. As of
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the Closing Date, all contributions required to be made under any such Pension
Plan have been made to such plan or have been reflected as a liability on the
consolidated balance sheet described in Section 4.5. There is no "accumulated
funding deficiency" within the meaning of Section 302 of ERISA or any liability
to the PBGC with respect to any Pension Plan other than a Multiemployer Plan.
4.14 Regulations G, U and X. No part of the proceeds of any Advance,
Letter of Credit Disbursement or Swing Line Loan hereunder will be used to
purchase or carry, or to extend credit to others for the purpose of purchasing
or carrying, any "margin stock" (as such term is defined in Regulation G) in
violation of Regulations G, U or X. Neither Borrower nor any of its Subsidiaries
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying any such margin
stock."
4.15 Disclosure. No written statement made by a Responsible Official of
Borrower to the Administrative Agent the Arranger or any Lender in connection
with this Agreement or in connection with any Advance contains any untrue
statement of a material fact or omits a material fact necessary to make the
statement made not misleading in light of all, the circumstances existing at the
date the statement was made. Borrower has not intentionally withheld from the
Lenders any information with respect to any circumstance or event which
constitutes a Material Adverse Effect.
4.16 Tax Liability. Borrower and its Subsidiaries have filed all tax
returns which are required to be filed, and have paid, or made provision for the
payment of, all taxes with respect to the periods, Property or transactions
covered by said returns, or pursuant to any assessment received by Borrower or
any of its Subsidiaries, except (a) taxes for which Borrower has been fully
indemnified and (b) such taxes, if any, as are being contested in good faith by
appropriate proceedings and as to which adequate reserves have been established
and maintained. To the best knowledge of Borrower, there is no tax assessment
contemplated or proposed by any Governmental Agency against Borrower or any of
its Subsidiaries that would constitute a Material Adverse Effect.
4.17 Priority Status. No Indebtedness of Borrower or any of its
Subsidiaries is entitled to priority of payment over the Obligations, whether by
contract or by operation of law. The Property of Borrower and its Subsidiaries
is not subject to any Lien or Negative Pledge not described on Schedule 4.17 or
Schedule 6.8.
4.18 Hazardous Materials. Except as described in Schedule 4,18, (a)
neither Borrower nor any Subsidiary of Borrower at any time has disposed of,
discharged, released or threatened the release of any Hazardous Materials on,
from or under the Property in violation of any Hazardous Materials Law that
would individually or in the aggregate constitute a Material Adverse Effect, (b)
to the best knowledge of Borrower, no condition exists that violates any
Hazardous Material Law affecting any Property except for such violations that
would not individually or in the aggregate have a Material Adverse Effect, (c)
no Property or any portion thereof is or has been utilized by Borrower or any
Subsidiary of Borrower as a site for the manufacture of any Hazardous Materials
and (d) to the extent that any Hazardous
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Materials are used, generated or stored by Borrower or any Subsidiary of
Borrower on any Property, or transported to or from such Property by Borrower or
any Subsidiary of Borrower, such use, generation, storage and transportation are
in compliance in all material respects with all Hazardous Materials Laws.
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ARTICLE 5
AFFIRMATIVE COVENANTS
(OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS)
So long as any Advance or Swing Line Loan remains unpaid or any Letter
of Credit outstanding, or any other Obligation remains unpaid or unperformed, or
any portion of the Commitment remains in force, Borrower shall, and shall cause
each of its Subsidiaries to, unless the Administrative Agent (with the approval
of the Majority Lenders) otherwise consents in writing:
5.1 Payment of Taxes and Other Potential Liens. Pay and discharge
promptly all taxes, assessments and governmental charges or levies imposed upon
any of them, upon their respective Property or any part thereof upon their
respective income or profits or any part thereof or upon any right or interest
of the Administrative Agent or any Lender under any Loan Document, except that
Borrower and its Subsidiaries shall not be required to pay or cause to be paid
(a) any income or gross receipts tax or any other tax on or measured by income
generally applicable to banks or (b) any tax, assessment, charge or levy that is
not yet past due, or is being contested in good faith by appropriate
proceedings, so long as the relevant entity has established and maintains
adequate reserves for the payment of the same and by reason of such nonpayment
and contest no material item or portion of Property of Borrower and its
Subsidiaries, taken as a whole, is in jeopardy of being seized, levied upon or
forfeited.
5.2 Preservation of Existence. Preserve and maintain their respective
existences in the jurisdiction of their formation and all authorizations,
rights, franchises, privileges, consents, approvals, orders, licenses, permits,
or registrations from any Governmental Agency that are necessary for the
transaction of their respective business, and quality and remain qualified to
transact business in each jurisdiction in which such qualification is necessary
in view of their respective business or the ownership or leasing of their
respective Properties. The Borrower may, with the consent of the Administrative
Agent and the approval of the Majority Lenders, dissolve or otherwise
discontinue the operations of a Subsidiary if the Borrower's Board of Directors
concludes that it is in the best interests of the Borrower to do so.
5.3 Maintenance of Properties. Maintain, preserve and protect all of
their respective depreciable Properties in good order and condition, subject to
wear and tear in the ordinary course of business, and not permit any waste of
their respective Properties.
5.4 Maintenance of Insurance. Maintain liability, casualty and other
insurance (subject to customary deductibles and retentions), 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 Borrower and its
Subsidiaries are from time to time engaged. All of the aforesaid insurance
coverages shall be issued by insurers reasonably acceptable to
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Administrative Agent. Copies of all policies of insurance evidencing such
coverages in effect from time to time shall be delivered to Administrative Agent
prior to the initial Advance under this Agreement and upon reasonable notice
upon issuance of new policies thereafter. From time to time, promptly upon
Administrative Agent's request, it shall provide evidence satisfactory to
Administrative Agent (i) that required coverage in required amounts is in
effect, and (ii) that Administrative Agent is shown as an additional loss payee
with respect to all such coverages, as Administrative Agent's interest may
appear, by standard (non-attribution) loss payable endorsement, additional
insured endorsement, insurer's certificate or other means acceptable to
Administrative Agent in its reasonable discretion. At Administrative Agent's
option, it shall deliver to Administrative Agent certified copies of all such
policies of insurance in effect from time to time, to be retained by
Administrative Agent so long as Administrative Agent 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
Administrative Agent.
5.5 Compliance With Laws. Comply with all Requirements of Laws
noncompliance with which constitutes a Material Adverse Effect, except that
Borrower and its Subsidiaries need not comply with a Requirement of Law then
being contested by any of them in good faith by appropriate proceedings.
5.6 Inspection Rights. At any time during regular business hours and as
often as reasonably requested (but not so as to materially interfere with the
business of Borrower or any of its Subsidiaries), permit the Administrative
Agent or any authorized employee, agent or representative thereof to examine,
audit and make copies and abstracts from the records and books of account of,
and to visit and inspect the Properties of Borrower and its Subsidiaries and to
discuss the affairs, finances and accounts of Borrower and its Subsidiaries with
any of their officers, key employees, accountants, customers or vendors.
Following the occurrence of any Default (if in any event the Administrative
Agent does not obtain information reasonably satisfactory to a Lender as a
result of any examination, audit, visit, inspection or discussion referred to
above), each Lender shall, upon written notice to Administrative Agent, be
permitted to exercise each of the rights granted to the Administrative Agent by
this Section.
5.7 Keeping of Records and Books of Account. Keep adequate records and
books of account reflecting all financial transactions in conformity with GAAP,
consistently applied, and in material conformity with all applicable
requirements of any Governmental Agency having regulatory jurisdiction over
Borrower or any of its Subsidiaries.
5.8 Compliance With Agreements. Promptly and fully comply with all
Contractual Obligations under all material agreements, indentures, leases and/or
instruments to which any one or more of them is a party, whether such material
agreements, indentures, leases or instruments are with a Lender or another
Person, except that Borrower and its Subsidiaries need not comply with
Contractual Obligations (a) under any such agreements, indentures, leases or
instruments then being contested by any of them in good faith by appropriate
proceedings or (b) if the failure to comply with such agreements, indentures,
leases or instruments does not constitute a Material Adverse Effect.
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5.9 Use of Proceeds. Use the proceeds of Advances only for proper
corporate purposes of Borrower.
5.10 Hazardous Materials Laws. Keep and maintain all Property and each
portion thereof in compliance in all material respects with all applicable
Hazardous Materials Laws and promptly notify the Administrative Agent in writing
(attaching a copy of any pertinent written material) of (a) any and all material
enforcement, cleanup, removal or other governmental or regulatory actions
instituted, completed or. threatened in writing by a Governmental Agency
pursuant to any applicable Hazardous Materials Laws, (b) any and all material
claims made or threatened in writing by any Person against Borrower relating to
damage, contribution, cost recovery, compensation, loss or injury resulting from
any Hazardous Materials and (c) discovery by any Senior Officer of Borrower of
any material occurrence or condition on any real property adjoining or in the
vicinity of any Property that could reasonably be expected to cause such
Property or any part thereof to be subject to any restrictions on ownership,
occupancy, transferability or use of such Property under any applicable
Hazardous Materials Laws.
5.11 New Subsidiaries.
(a) Deliver to the Administrative Agent a Pledge Agreement
executed by Borrower as to any stock of each new Subsidiary owned by Borrower
together with all stock certificates owned by Borrower as to said Subsidiary and
a stock transfer power related thereto.
(b) Cause each new Subsidiary to execute and deliver to
the Administrative Agent a Guaranty, Security Documents and such other documents
as Administrative Agent may reasonably require.
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ARTICLE 6
NEGATIVE COVENANTS
So long as any Advance remains unpaid, or any other Obligation remains
unpaid or unperformed, or any portion of the Commitment remains in force,
Borrower shall not, and shall not permit any of its Subsidiaries to, unless the
Administrative Agent (with the approval of the Majority Lenders or, if required
pursuant to Section 11.2, all of the Lenders) otherwise consents in writing:
6.1 Disposition of Property. Make any Disposition of all or a
substantial or material part of its Property, whether now owned or hereafter
acquired, if, after giving effect thereto, the aggregate book value or fair
market value of the Property which is the subject of all Dispositions by
Borrower and its Subsidiaries during the immediately preceding twelve (12) month
period exceeds $100,000,000.
6.2 Mergers. Merge, consolidate or amalgamate with or into any Person,
except:
(a) mergers, consolidations or amalgamations of a
Subsidiary of Borrower into Borrower; and
(b) mergers, consolidations or amalgamations in
furtherance of Investments and Acquisitions permitted by this Agreement;
provided, in each case, that (y) no Default or Event of Default occurs by reason
of the consummation of such merger, consolidation or amalgamation, and (z)
Borrower is the survivor of such merger, consolidation or amalgamation, or
Borrower's survivor expressly assumes the Obligations of Borrower to the
Administrative Agent and the Lenders pursuant to a written instrument which is
in form and substance acceptable to the Administrative Agent and the Majority
Lenders.
6.3 Investments and Acquisitions. Make any Acquisition or enter into
any agreement to make any Acquisition, or make or suffer to exist any
Investment, except:
(a) Investments existing on the Closing Date and disclosed
in Schedule 4.4;
(b) Investments consisting of Cash Equivalents; or
(c) Acquisitions and Investments approved by the Majority
Lenders.
6.4 Liens, Rights of Others and Negative Pledges. Create, incur, assume
or suffer to exist any Lien, Negative Pledge or Right of Others of any nature
upon or with respect
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to any of their respective Properties, or engage in any sale and leaseback
transaction with respect to any of their respective Properties, whether now
owned or hereafter acquired, except:
(a) Permitted Encumbrances and Permitted Rights of Others;
(b) Liens and Negative Pledges under the Loan Documents;
(c) Liens and Negative Pledges existing on the Closing
Date and disclosed in Schedule 4.17 and any renewals/extensions or amendments
thereof; provided that the obligations secured or benefitted thereby are not
increased; and
(d) Rights of Others existing on the Closing Date and
disclosed in Schedule 4.17.
6.5 Distributions. Make any Distribution which would result in a
Default or, in any event during the existence of an Event of Default whether
from capital, income or otherwise, and whether in Cash or other Property.
6.6 ERISA Compliance. (a) Permit any Pension Plan, other than a
Multiemployer Plan, to incur any material "accumulated funding deficiency," as
such term is defined in Section 302 of ERISA, whether or not waived, or (b) in a
manner which could result in the imposition of a material Lien on any Property
of Borrower or any of its Subsidiaries pursuant to Section 4068 of ERISA, (i)
permit any Pension Plan maintained by any of them to suffer a Termination Event
or (ii) incur withdrawal liability under any Multiemployer Plan.
6.7 Change in Nature of Business. Make any material change in the
nature of the business of Borrower and its Subsidiaries, taken as a whole, as at
present conducted.
6.8 Indebtedness Obligations. Create, incur, assume or suffer to exist
any Indebtedness or Contingent Obligation, except:
(a) Indebtedness and Contingent Obligations in favor of
the Lenders or the Administrative Agent under the Loan Documents;
(b) Existing Indebtedness and Contingent Obligations
disclosed in Schedule 6.8 and Indebtedness or Contingent Obligations which
refinance or replace such Indebtedness or Contingent Obligations, provided in
each case, that the principal amount thereof is not increased;
(c) Indebtedness not described above that consists of
trade payables incurred in the ordinary course of business; and
(d) Any obligation of any future Subsidiary to execute a
guaranty as required under the terms of the indenture relating to the Senior
Notes.
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6.9 Transactions with Affiliates. Enter into any transaction of any
kind with any Affiliate of Borrower other than (a) transactions between or among
Borrower and its wholly-owned Subsidiaries or between or among its wholly-owned
Subsidiaries and (b) transactions on terms at least as favorable to Borrower or
its Subsidiaries as would be the case in an arm's- length transaction between
unrelated parties of equal bargaining power.
6.10 Capital Expenditures. Make, or become legally obligated to make,
any capital expenditure except:
(a) Maintenance capital expenditures in any Fiscal Year
not in excess of $5,000,000; and
(b) Capital Expenditures to the extent financed by
Indebtedness permitted under Section 6.8.
6.11 Financial Covenants. Permit the following (collectively, the
"Financial Covenants"):
(a) Its Leverage Ratio at the end of any Fiscal Quarter to
exceed:
(i) After the Closing Date, to exceed 3.25 to 1.0;
(ii) After the first anniversary of the Closing Date,
to exceed 3.00 to 1.0: and
(iii) After the second anniversary of the Closing
Date, to exceed 2.75 to 1.0.
(b) Its Interest Coverage Ratio at the end of any Fiscal
Quarter for the prior twelve-month period to be less than:
(i) For 1998, 2.25 to 1.0;
(ii) For 1999, 2.75 to 1.0; and
(iii) Thereafter, 3.00 to 1.0.
(c) Its Fixed Charge Coverage Ratio at the end of any
Fiscal Quarter for the prior twelve-month period to be less than 1.5 to 1.0.
(d) Its EBITDA at the end of any Fiscal Quarter to be less
than $20,000,000.00 for the prior twelve-month period.
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ARTICLE 7
INFORMATION AND REPORTING REQUIREMENTS
7.1 Financial and Business Information. So long as any Advance remains
unpaid, or any other Obligation remains unpaid or unperformed, or any portion of
the Commitment remains in force, Borrower shall, unless the Administrative Agent
(with the approval of the Majority Lenders) otherwise consents in writing,
deliver to the Lenders, at Borrower's sole expense:
(a) Within 90 days after the end of each Fiscal Year, (i)
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries and the related consolidated and consolidating statements of income
showing the financial condition of the Borrower and its Subsidiaries as of the
close of such Fiscal Year and the results of operations during such year, and
(ii) consolidated and consolidating statements of cash flows of the Borrower and
its Subsidiaries for such fiscal year, all the foregoing financial statements to
be prepared in accordance with GAAP and reported on by an accounting firm of
nationally recognized standing;
(b) Within 45 days after the end of each of the first
three Fiscal Quarters of each Fiscal Year of the Borrower, unaudited (i)
consolidated and consolidating balance sheets, (ii) consolidated and
consolidating statements of income and (iii) consolidated and consolidating
statements of cash flows, each showing the financial condition of the Borrower
and its Subsidiaries as of the end of such quarter and the results of operations
for the then-elapsed portion of the Fiscal Year, certified by a Senior Officer
of the Borrower as being correct and complete and as presenting fairly the
financial position and results of operations of the Borrower and its
Subsidiaries in accordance with GAAP, in each case subject to normal year-end
adjustments;
(c) As soon as practicable, and in any event within 45
days after the end of each Fiscal Quarter (other than the last Fiscal Quarter in
each Fiscal Year, and then within 90 days after the end of such Fiscal Quarter),
a Compliance Certificate certified by a Senior Officer;
(d) No later than 30 days before the start of each Fiscal
Year, projections of consolidated and consolidating financial statements for
such Fiscal Year prepared by Borrower;
(e) As soon as practicable, and in any event within two
Banking Days after a Responsible official of Borrower obtains actual knowledge
of the existence of any condition or event which constitutes a Default or Event
of Default written notice specifying the nature and period of existence thereof
and specifying what action Borrower or any of its Subsidiaries are taking or
propose to take with respect thereto;
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(f) Promptly upon a Senior Officer of Borrower becoming
aware, and in any event within five Banking Days after becoming aware, of the
occurrence of any (i) "reportable event" (as such term is defined in Section
4043 of ERISA) or (ii) "prohibited transaction" (as such term is defined in
Section 406 of ERISA or Section 4975 of the Code) in connection with any Pension
Plan, other than a Multiemployer Plan, or any trust created thereunder, a
written notice specifying the nature thereof what action Borrower and any of its
Subsidiaries is taking or proposes to take with respect thereto, and, when
known, any action taken by the Internal Revenue Service with respect thereto;
and
(g) Such other data and information as from time to time
may be reasonably requested by the Administrative Agent or by any Lender.
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ARTICLE 8
CONDITIONS
8.1 Initial Advances. The obligation of each Lender to make the initial
Advance to be made by it hereunder, for the Issuing Bank to issue a Letter of
Credit and for the Swing Line Lender to make a Swing Line Loan is subject to the
fulfillment of the following conditions precedent each of which shall be
satisfied prior to the making of the initial Advance (unless all of the Lenders,
in their sole and absolute discretion, shall agree otherwise):
(a) The Administrative Agent shall have received all of
the following, each of which shall be originals unless otherwise specified, each
properly executed by a Responsible Official of each party thereto, each dated as
of the Closing Date and each in form and substance reasonably satisfactory to
the Administrative Agent, its legal counsel, and the Lenders (unless otherwise
specified or, in the case of the date of any of the following, unless the
Administrative Agent and each Lender otherwise agree or direct):
(1) executed counterparts of this Agreement,
sufficient in number for distribution to the Lenders and Borrower;
(2) the RLC Notes executed by Borrower in favor of
each Lender, each in a principal amount equal to that Lender's Pro Rata
Share of the Commitment;
(3) such documentation as the Administrative Agent
may reasonably require to establish the due organization, valid
existence and good standing of each of Borrower and its Subsidiaries,
its qualification to engage in business in each jurisdiction in which
it is engaged in business or required to be so qualified, its authority
to execute, deliver and perform the Loan Documents, and the identity,
authority and capacity of each Responsible Official thereof authorized
to act on its behalf, including, without limitation, certified copies
of its certificate of incorporation and amendments thereto, bylaws and
amendments thereto, certificates of good standing and/or qualification
to engage in business, tax clearance certificates, certificates of
corporate resolutions, incumbency certificates, Certificates of
Responsible Officials, and the like;
(4) the Opinion of Counsel;
(5) evidence that the execution, delivery and
performance of the Loan Documents has been authorized and approved;
(6) an executed Compliance Certificate as of the
prior Fiscal Quarter;
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(7) a Guaranty executed by each Subsidiary;
(8) the Swing Line Note executed by Borrower in favor
of the Swing Line Lender;
(9) Security Documents and UCC Financing Statements
executed by Borrower and, to the extent applicable, each Subsidiary;
(10) projections of consolidated and consolidating
financial statements through the Maturity Date, prepared by Borrower;
(11) copies of Borrower's most recent financial
statements of its audited financial statements for the 1996 and 1997
Fiscal Years;
(12) evidence of insurance in compliance with Section
5.4;
(13) evidence of the termination of Borrower's
existing bank credit agreement and the release of all Liens related
thereto which termination need not include an unsecured $2,000,000 loan
from Southwest Bank to Addison Structural Services, Inc.;
(14) evidence that its Leverage Ratio does not exceed
3.25 to 1.0;
(15) documents executed with respect to the
Designated Deposit Account; and
(16) such other assurances, certificates, documents,
consents or opinions as the Administrative Agent reasonably may
require.
(b) The representations and warranties of Borrower
contained in Article 4 shall be true and correct.
(c) Borrower shall be in compliance with all the terms and
provisions of the Loan Documents, and no Default or Event of Default shall have
occurred and be continuing.
(d) To the extent due and payable, Borrower shall have
paid the fees described in Section 3.4 as well as the balance of the bridge loan
fee for Administrative Agent's own account pursuant to that letter agreement
dated of even date herewith between Borrower and the Administrative Agent.
8.2 Any Advance, etc. In addition to any applicable conditions
precedent set forth elsewhere in this Article 8, the obligation of each Lender
to make any Advance, for the Issuing Bank to issue a Letter of Credit and for
the Swing Line Lender to make a Swing Line Loan is subject to the following
conditions precedent:
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(a) except as disclosed by Borrower and approved in
writing by the Majority Lenders, the representations and warranties contained in
Article 4 (other than Sections 4.5, 4.6, 4.10 and 4.18) shall be true and
correct on and as of the date of the Advance as though made on that date;
(b) the Administrative Agent shall have timely received a
Request for Loan in compliance with Article 2 (or telephonic or other request
for loan referred to in the second sentence of Section 2.1(b), if applicable)
and shall have promptly notified each Lender that is to fund such Advance of
such request;
(c) no Default or Event of Default shall have occurred and
is continuing that has not been waived by the Administrative Agent and the
Majority Lenders; and
(d) the Administrative Agent shall have received, in form
and substance satisfactory to the Administrative Agent, such other assurances,
certificates, documents or consents related to the foregoing as the
Administrative Agent reasonably may require.
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ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT
9.1 Events of Default. The existence or occurrence of any one or more
of the following events, whatever the reason therefor and under any
circumstances whatsoever, shall constitute an Event of Default:
(a) Borrower fails to pay any principal on any of the
Notes, or any portion thereof, on the date when due; or
(b) Borrower fails to pay any interest on any of the
Notes, or any portion thereof, within five (5) Banking Days after the date when
due; or fails to pay any other fee or amount payable to Administrative Agent,
the Lenders, the Issuing Bank or the Swing Line Lender under any Loan Document
or any portion thereof within five (5) Banking Days after demand therefor; or
(c) Any failure to comply with Section 7.1(e); or
(d) Borrower, any of its Subsidiaries or any other Party
fails to perform or observe any covenant or agreement contained in Article 6 of
this Agreement; or
(e) Borrower, any of its Subsidiaries or any other Party
fails to perform or observe any other covenant or agreement contained in this
Agreement or any other Loan Document within thirty (30) days after the giving of
notice by the Administrative Agent or the Majority Lenders of such Default; or
(f) Any representation or warranty made in any Loan
Document proves to have been incorrect when made or reaffirmed in any respect
that is materially adverse to the interests of the Administrative Agent or the
Lenders; or
(g) Borrower or any of its Subsidiaries (i) fails to pay
the principal, or any principal installment of any present or future
indebtedness for borrowed money (other than under the Notes) in an amount in
excess of $1,000,000, or any guaranty of present or future indebtedness for
borrowed money in an amount in excess of $1,000,000, on its part to be paid,
when due (or within any stated grace period), whether at the maturity, upon
acceleration, by reason of required prepayment or otherwise or (ii) fails to
perform or observe any other term, covenant or agreement on its part to be
performed or observed, or suffers any event to occur, in connection with any
present or future indebtedness for borrowed money in an amount in excess of
$1,000,000, or of any guaranty of present or future indebtedness for borrowed
money in excess of $1,000,000, if as a result of such failure or sufferance any
holder or holders thereof (or an agent or trustee on its or their behalf) has
the right to declare such indebtedness due before the date on which it otherwise
would become due; or
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(h) Any Loan Document at any time after its execution and
delivery and for any reason other than the agreement of the Lenders or
satisfaction in full of all the Obligations, ceases to be in full force and
effect or is declared by a court of competent jurisdiction to be null and void,
invalid or unenforceable in any respect which, in any such event in the
reasonable opinion of the Majority Lenders, is materially adverse to the
interests of the Lenders; or Borrower denies that it has any or further
liability or obligation under any Loan Document, or purports to revoke,
terminate or rescind same; or
(i) A judgment against Borrower or any of its Subsidiaries
is entered for the payment of money in excess of $1,000,000 and, absent
procurement of a stay of execution, such judgment remains unbonded or
unsatisfied for thirty (30) calendar days after the date of entry of judgment or
in any event, later than five (5) days prior to the date of any proposed
foreclosure sale thereunder; or
(j) Borrower or any of its Subsidiaries institutes or
consents to any proceeding under a Debtor Relief Law relating to it or to all or
any part of its Property, or is unable or admits in writing its inability to pay
its debts as they mature, or makes an assignment for the benefit of creditors;
or applies for or consents to the appointment of any receiver, trustee,
custodian, conservator, liquidator, rehabilitator or similar officer for it or
for all or any part of its Property; or any receiver, trustee, custodian,
conservator, liquidator, rehabilitator or similar officer is appointed without
the application or consent of that Person and the appointment continues
undischarged or unstayed for sixty (60) calendar days; or any proceeding under a
Debtor Relief Law relating to any such Person or to all or any part of its
Property is instituted without the consent Of that Person and continues
undismissed or unstayed for sixty (60) calendar days; or any judgment, writ,
warrant of attachment or execution or similar process is issued or levied
against all or any material part of the Property of any such Person and is not
released, vacated or fully bonded within sixty (60) calendar days after its
issue or levy; or
(k) The occurrence subsequent to the Closing Date of a
Termination Event with respect to any Pension Plan, maintained by Borrower or
any ERISA Affiliate of Borrower if the aggregate liability of Borrower and its
ERISA Affiliates under ERISA as a result thereof exceeds $5,000,000; or the
complete or partial withdrawal subsequent to the Closing Date by Borrower or any
of its ERISA Affiliates from any Multiemployer Plan if the aggregate liability
of Borrower and its ERISA Affiliates as a result thereof exceeds $5,000,000; or
(l) The occurrence of a change in Control without the
written consent of the Required Lenders; or
(m) The occurrence of any adverse change in the financial
condition of Borrower and its Subsidiaries that the Majority Lenders, in their
reasonable discretion, deems material, or the Majority Lenders in good faith
shall believe that the prospect of payment or performance of the Loans is
impaired.
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9.2 Remedies Upon Event of Default. Without limiting any other rights
or remedies of the Administrative Agent or the Lenders provided for elsewhere in
this Agreement or the Loan Documents, or by applicable Law, or in equity, or
otherwise:
(a) Upon the occurrence of any Event of Default other than
an Event of Default described in Section 9.1(j) which remains uncured or not
waived within ten (10) Banking Days of such Event of Default:
(1) the commitment to make Advances and all other
obligations of the Administrative Agent, the Lenders, the Issuing Bank
or the Swing Line Lender and all rights of Borrower and any other
Parties under the Loan Documents shall be suspended without notice to
or demand upon Borrower, which are expressly waived by Borrower, except
that subject to Section 11.2, the Majority Lenders may waive the Event
of Default or, without waiving, determine, upon terms and conditions
satisfactory to the Majority Lenders (or all of the Lenders, as the
case may be), to reinstate the Commitment and make further Advances
which waiver or determination shall apply equally to, and shall be
binding upon, all the Lenders;
(2) the Majority Lenders may request the
Administrative Agent to, and the Administrative Agent thereupon shall
terminate the Commitment and declare all or any part of the unpaid
principal of all Notes, all interest accrued and unpaid thereon and all
other amounts payable under the Loan Documents to be forthwith due and
payable, whereupon the same shall become and be forthwith due and
payable, without protest, presentment, notice of dishonor, demand or
further notice of any kind, all of which are expressly waived by
Borrower; and
(3) the Majority Lenders may require that the
Borrower deposit cash with the Administrative Agent in an amount equal
to the aggregate Letter of Credit Balance as collateral (under its sole
dominion and control) for the repayment of drawings under outstanding
Letters of Credit.
(b) Upon the occurrence of any Event of Default described
in Section 9.1(j):
(1) the commitment to make Advances and all other
obligations of the Administrative Agent or the Lenders and all rights
of Borrower and any other Parties under the Loan Documents shall
terminate without notice to or demand upon Borrower, which are
expressly waived by Borrower, except that all the Lenders may waive the
Event of Default or, without waiving, determine, upon terms and
conditions satisfactory to all the Lenders, to reinstate the Commitment
and make further Advances, which waiver or determination shall apply
equally to, and shall be binding upon, all the Lenders; and
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(2) the unpaid principal of all Notes, all interest
accrued and unpaid thereon and all other amounts payable under the Loan
Documents shall be forthwith due and payable, without protest,
presentment notice of dishonor, demand or further notice of any kind,
all of which are expressly waived by Borrower.
(c) Upon the occurrence of any Event of Default, the
Lenders and the Administrative Agent, or any of them, without notice to or
demand upon Borrower, which are expressly waived by Borrower, may proceed to
protect, exercise and enforce their rights and remedies under the Loan Documents
against Borrower and any other Party and such other rights and remedies as are
provided by Law or equity.
(d) The order and manner in which the Lenders' rights and
remedies are to be exercised shall be determined by the Majority Lenders in
their sole discretion, and all payments received by the Administrative Agent and
the Lenders, or any of them, shall be applied first to the costs and expenses
(including attorneys' fees and disbursements) of the Administrative Agent,
acting as Administrative Agent and of the Lenders, and thereafter paid pro rata
to the Lenders in the same proportions that the aggregate Obligations owed to
each Lender under the Loan Documents bear to the aggregate Obligations owed
under the Loan Documents to all the Lenders, without priority or preference
among the Lenders. Regardless of how each Lender may treat payments for the
purpose of its own accounting, for the purpose of computing Borrower's
Obligations hereunder and under the Notes, payments shall be applied first, to
the costs and expenses (including attorneys' fees and disbursements) of the
Administrative Agent acting as the Administrative Agent, and then to the
Lenders, as set forth above, second, to the payment of accrued and unpaid
interest due under any Loan Documents to and including the date of such
application (ratably, and without duplication, according to the accrued and
unpaid interest due under each of the Loan Documents), and third, to the payment
of all other amounts (including principal and fees) then owing to the
Administrative Agent or the Lenders under the Loan Documents. No application of
payments will cure any Event of Default, or prevent acceleration, or continued
acceleration, of amounts payable under the Loan Documents, or prevent the
exercise, or continued exercise, of rights or remedies of the Lenders hereunder
or thereunder or at law or in equity.
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ARTICLE 10
THE ADMINISTRATIVE AGENT
10.1 Appointment and Authorization. Each Lender hereby irrevocably
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under the Loan Documents as are delegated
to the Administrative Agent by the terms thereof or are reasonably incidental,
as determined by the Administrative Agent, thereto. This appointment and
authorization is intended solely for the purpose of facilitating the servicing
of the Advances and does not constitute appointment of the Administrative Agent
as trustee for any Lender or as representative of any Lender for any other
purpose and, except as specifically set forth in the Loan Documents to the
contrary, the Administrative Agent shall take such action and exercise such
powers only in an administrative and ministerial capacity. The Administrative
Agent is the agent of the Lenders only and does not assume any agency
relationship with Borrower, express or implied.
10.2 Administrative Agent and Affiliates. Wells Fargo Bank, National
Association (and each successor Administrative Agent) has the same rights and
powers under the Loan Documents as any other Lender and may exercise the same as
though it was not the Administrative Agent and the term "Lender" or "Lenders"
includes Wells Fargo Bank, National Association in its individual capacity.
Wells Fargo Bank, National Association (and each successor Administrative Agent)
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of banking, trust or other business with Borrower, any Subsidiary
thereof or any Affiliate of Borrower or any Subsidiary thereof, as if it was not
the Administrative Agent and without any duty to account therefor to the
Lenders. Wells Fargo Bank, National Association (and each successor
Administrative Agent) need not account to any other Lender for any monies
received by it for reimbursement of its fees, costs and expenses as
Administrative Agent hereunder, or for any monies received by it in its capacity
as a Lender hereunder. Neither the Arranger, the Swing Line Lender, the Issuing
Bank nor the Administrative Agent shall be deemed to hold a fiduciary
relationship with any Lender and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against the Administrative Agent, the Swing Line
Lender or the Arranger.
10.3 Proportionate Interest of the Lenders in any Collateral. The
Administrative Agent, on behalf of all the Lenders, shall hold in a Accordance
with the Loan Documents all collateral or interests therein, if any, received or
held by the Administrative Agent. Subject to the Administrative Agents, the
Swing Line Lender's and the Lender's rights to reimbursement for their costs and
expenses hereunder (including attorneys' fees and disbursements and other
professional services) and subject to the application of payments in accordance
with Section 9.2(d), each Lender (including the Swing Line Lender) shall have an
interest in any collateral or interests therein in the same proportions that the
aggregate Obligations beneficially owed such Lender under the Loan Documents
bear to the aggregate Obligations owed under the Loan Documents to all the
Lenders, without priority or preference among the Lenders.
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10.4 Lenders Credit Decisions. Each Lender agrees that it has,
independently and without reliance upon the Administrative Agent, the Arranger,
the Swing Line Lender, any other Lender or the directors, officers, agents,
employees or attorneys of the Administrative Agent, the Arranger, the Swing Line
Lender or of any other Lender, and instead in reliance upon information supplied
to it by or on behalf of Borrower and upon such other information as it has
deemed appropriate, made its own independent credit analysis and decision to
enter into this Agreement. Each Lender also agrees that it shall, independently
and without reliance upon the Administrative Agent the Arranger, the Swing Line
Lender any other Lender or the directors, officers, agents, employees or
attorneys of the Administrative Agent the Arranger, the Swing Line Lender or of
any other Lender, continue to make its own independent credit analyses and
decisions in acting or not acting under the Loan Documents.
10.5 Action by Administrative Agent; Etc.
(a) The Administrative Agent and the Swing Line Lender may
assume that no Default has occurred and is continuing, unless the Administrative
Agent and the Swing Line Lender have received written notice from Borrower
stating the nature of the Default or has received written notice from a Lender
stating the nature of the Default and that such Lender considers the Default to
have occurred and to be continuing.
(b) The Administrative Agent has only those obligations
under the Loan Documents as are expressly set forth therein. The Arranger has no
obligations under the Loan Documents, although it is an intended third party
beneficiary of those Sections of this Agreement which refer to the Arranger.
(c) Except for any obligation expressly set forth in the
Loan Documents and as long as the Administrative Agent may assume that no Event
of Default has occurred and is continuing, the Administrative Agent may, but
shall not be required to, exercise its discretion to act or not act, except that
the Administrative Agent shall be required to act or not act upon the
instructions of the Majority Lenders (or of all the Lenders, to the extent
required by this Agreement) and those instructions shall be binding upon the
Administrative Agent and all the Lenders, provided that the Administrative Agent
shall not be required to act or not act if to do so would be contrary to any
Loan Document or to applicable Law or would result, in the reasonable judgment
of the Administrative Agent, in substantial risk of liability to the
Administrative Agent.
(d) If the Administrative Agent has received a written
notice specified in clause (a), the Administrative Agent shall give notice
thereof to the Lenders and shall act or not act upon the instructions of the
Majority Lenders (or of all the Lenders, to the extent required by Section
11.2), provided that the Administrative Agent shall not be required to act or
not act if to do so would be contrary to any Loan Document or to applicable Law
or would result, in the reasonable judgment of the Administrative Agent in
substantial risk of liability to the Administrative Agent, and except that if
the Majority Lenders (or all the Lenders, if required under this Agreement) fail
for five (5) Banking Days after the receipt of notice from the Administrative
Agent, to instruct the Administrative Agent, then the Administrative Agent,
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in its sole discretion, may act or not act as it deems advisable for the
protection of the interests of the Lenders.
(e) The Administrative Agent shall have no liability to
any Lender for acting, or not acting, as instructed by the Majority Lenders (or
all the Lenders, if required under this Agreement), notwithstanding any other
provision hereof.
10.6 Liability of Administrative Agent and Arranger. Neither the
Administrative Agent, the Arranger, nor any of their respective directors,
advisors, officers, agents, employees or attorneys shall be liable for any
action taken or not taken by them under or in connection with the Loan
Documents, except for their own gross negligence or willful misconduct. Without
limitation on the foregoing, the Administrative Agent, the Arranger and their
respective directors, advisors, officers, agents, employees and attorneys:
(a) May treat the payee of any Note as the holder thereof
until the Administrative Agent receives written notice of the assignment or
transfer thereof, in form satisfactory to the Administrative Agent, signed by
the payee, and may treat each Lender as the owner of that Lender's interest in
the Obligations for all purposes of this Agreement until the Administrative
Agent receives written notice of the assignment or transfer thereof, in form
satisfactory to the Administrative Agent signed by that Lender.
(b) May consult with legal counsel (including in-house
legal counsel), accountants (including in-house accountants) and other
professionals or experts selected by it or with legal counsel, accountants or
other professionals or experts for Borrower and/or its Subsidiaries or the
Lenders, and shall not be liable to any Lender for any action taken or not taken
by it in good faith in accordance with any advice of such legal counsel,
accountants or other professionals or experts.
(c) Shall not be responsible to any Lender for any
statement, warranty or representation made in any of the Loan Documents or in
any notice, certificate, report, request or other statement (written or oral)
given or made in connection with any of the Loan Documents, unless such
statement warranty or representation is an independent statement, warranty or
representation of the Administrative Agent which is not based upon information
received by the Administrative Agent from Borrower or any other Person not
affiliated with the Administrative Agent.
(d) Except to the extent expressly set forth in the Loan
Documents, shall have no duty to ask or inquire as to the performance or
observance by Borrower or its Subsidiaries of any of the terms, conditions or
covenants of any of the Loan Documents or to inspect any collateral or the
Property, books or records of Borrower or its Subsidiaries.
(e) Will not be responsible to any Lender for the due
execution, legality, validity, enforceability, genuineness, effectiveness,
sufficiency or value of any Loan Document any other instrument or writing
furnished pursuant thereto or in connection therewith, or any collateral.
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(f) Will not incur any liability to any Lender by acting
or not acting in reliance upon any Loan Document, notice, consent, certificate,
statement, request or other instrument or writing believed by it to be genuine
and signed or sent by the proper party or parties.
(g) Will not incur any liability to any Lender for any
arithmetical error in computing any amount paid or payable by the Borrower or
any Subsidiary or Affiliate thereof or paid or payable to or received or
receivable from any Lender under any Loan Document, including, without
limitation, principal, interest, commitment fees, Advances, Swing Line Loans and
other amounts; provided that, promptly upon discovery of such an error in
computation, the Administrative Agent, the Lenders and (to the extent
applicable) Borrower and/or its Subsidiaries or Affiliates shall make such
adjustments as are necessary to correct such error and to restore the parties to
the position that they would have occupied had the error not occurred.
10.7 Indemnification. Each Lender and the Swing Line Lender shall
ratably in accordance with their respective portions of the Commitment,
indemnify and hold the Administrative Agent and the Arranger and their
respective directors, advisors, officers, agents, employees and attorneys
harmless against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever (including, without limitation, attorneys' fees and
disbursements) that may be imposed on, incurred by or asserted against it or
them in any way relating to or arising out of the Loan Documents (other than
losses incurred by reason of the failure of Borrower to pay the indebtedness
represented by the Notes and interest thereon or to pay the fees described in
Sections 3.2 and 3.3) or any action taken or not taken by Wells Fargo Bank,
National Association as Administrative Agent thereunder, except such as result
from their own gross negligence or willful misconduct. Without limitation on the
foregoing, each Lender shall reimburse the Administrative Agent and the Arranger
upon demand for that Lender's ratable share of any cost or expense incurred by
the Administrative Agent or the Arranger in connection with the negotiation,
preparation., execution, delivery, amendment, waiver, restructuring,
reorganization (including a bankruptcy reorganization), enforcement or attempted
enforcement of the Loan Documents, to the extent that Borrower or any other
Party is required by Section 11.3 to pay that cost or expense but fails to do so
upon demand.
10.8 Successor Administrative Agent. If the Administrative Agent
determines that for it to continue as Administrative Agent would result in a
conflict of interest affecting the Administrative Agent, or would create an
unacceptable risk of significant liability of the Administrative Agent to a
third party, or would otherwise be inadvisable under prevailing standards of
banking prudence, it may resign as such at any time upon prior written notice to
Borrower and the Lenders, to be effective upon a successor's acceptance of
appointment as Administrative Agent. The Administrative Agent may also resign as
such absent such a determination by it with the consent of Borrower, which shall
not be unreasonably withheld, to be likewise effective. The Majority Lenders at
any time may remove the Administrative Agent by written notice to that effect to
be effective on such date as the Majority Lenders designate. In either event:
(a) the Majority Lenders shall appoint a successor Administrative Agent who
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must be from among the Lenders, provided that any resigning Administrative Agent
shall be entitled to appoint a successor Administrative Agent from among the
Lenders, subject to acceptance of appointment by that successor Administrative
Agent, if the Majority Lenders have not appointed a successor Administrative
Agent within thirty (30) days after the date the resigning Administrative Agent
gave notice of resignation; (b) upon a successor's acceptance of appointment as
Administrative Agent, the successor win thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the resigning
Administrative Agent or the removed Administrative Agent; and (c) upon the
effectiveness of any resignation or removal, the resigning Administrative Agent
or the removed Administrative Agent thereupon will be discharged from its duties
and obligations thereafter arising under the Loan Documents other than
obligations arising as a result of any action or inaction of the resigning
Administrative Agent or the removed Administrative Agent prior to the
effectiveness of such resignation or removal.
10.9 No Obligations of Borrower. Nothing contained in this Article 10
shall be deemed to impose upon Borrower any obligation in respect of the due and
punctual performance by the Administrative Agent of its obligations to the
Lenders under any provision of this Agreement, and Borrower shall have no
liability to the Administrative Agent or any of the Lenders in respect of any
failure by the Administrative Agent or any Lender to perform any of its
obligations to the Administrative Agent or the Lenders under this Agreement.
Without limiting the generality of the foregoing, where any provision of this
Agreement relating to the payment of any amounts due and owing under the Loan
Documents provides that such payments shall be made by Borrower to the
Administrative Agent for the account of the Lenders, Borrower's obligations to
the Lenders in respect of such payments shall be deemed to be satisfied upon the
making of such payments to the Administrative Agent in the manner provided by
this Agreement.
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ARTICLE 11
MISCELLANEOUS
11.1 Cumulative Remedies; No Waiver. The rights, powers, privileges and
remedies of the Administrative Agent and the Lenders provided herein or in any
Note or other Loan Document are cumulative and not exclusive of any right,
power, privilege or remedy provided by Law or equity. No failure or delay on the
part of the Administrative Agent or any Lender in exercising any right power,
privilege or remedy may be, or may be deemed to be, a waiver thereof, nor may
any single or partial exercise of any right, power, privilege or remedy preclude
any other or further exercise of the same or any other right, power, privilege
or remedy. The terms and conditions of Article 8 hereof are inserted for the
sole benefit of the Administrative Agent and the Lenders; the same may be waived
in whole or in part, with or without terms or conditions, in respect of any Loan
without prejudicing the Administrative Agent's or the Lenders' rights to assert
them in whole or in part in respect of any other Loan.
11.2 Amendments; Consents. No amendment modification, supplement
extension, termination or waiver of any provision of this Agreement or any other
Loan Document, no approval or consent thereunder, and no consent to any
departure by the Borrower or any other Party therefrom, may in any event be
effective unless in writing signed by the Administrative Agent with the approval
in writing of the Majority Lenders and Borrower, and then only in the specific
instance and for the specific purpose given; and, without the approval in
writing of all the Lenders, no amendment, modification, supplement, termination,
waiver or consent may be effective:
(a) To amend or modify the principal of or the amount of
principal, or the rate of interest payable on, any Note, or the amount of the
Commitment or of any facility fee payable to any Lender, or any other fee or
amount payable to any Lender under the Loan Documents;
(b) To postpone any date fixed for any payment of
principal of, prepayment of principal of or any installment of interest on, any
Note or any installment of any facility fee, or any other fee or amount payable
to any Lender under the Loan Documents, or to extend the term of the Commitment,
or to release any collateral for the Obligations;
(c) To amend or modify the provisions of the definitions
of "Commitment" or "Majority Lenders," or Section 6.8 or this Section; or
(d) To amend or modify any provision of this Agreement
that expressly requires the consent or approval of all the Lenders.
Any amendment modification, supplement termination, waiver or consent pursuant
to this Section shall apply equally to, and shall be binding upon, all the
Lenders and the Administrative Agent.
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11.3 Costs, Expenses and Taxes. Borrower shall pay on demand the
reasonable costs and expenses of the Administrative Agent (including the fees
and expenses of counsel to the Administrative Agent) in connection with the
negotiation, preparation, execution and delivery of the Loan Documents, and of
the Administrative Agent and the Lenders in connection with any amendment,
waiver, refinancing, restructuring, reorganization (including a bankruptcy
reorganization), enforcement or attempted enforcement of the Loan Documents, and
any matter related thereto, including, without limitation, reasonably incurred
filing fees, recording fees, title insurance fees, appraisal fees, search fees
and other out-of-pocket expenses and the reasonable fees and out-of-pocket
expenses of any legal counsel, independent public accountants and other outside
experts retained by the Administrative Agent or any Lender, and including,
without limitation, any reasonable costs, expenses or fees incurred or suffered
by the Administrative Agent or any Lender in connection with or during the
course of any bankruptcy or insolvency proceedings of Borrower or any Subsidiary
thereof Borrower shall pay any and all documentary and other taxes (other than
income or gross receipts taxes generally applicable to banks) and all reasonable
costs, expenses, fees and charges payable or determined to be payable in
connection with the filing or recording of this Agreement any other Loan
Document or any other instrument or writing to be delivered hereunder or
thereunder, or in connection with any transaction pursuant hereto or thereto,
and shall reimburse, hold harmless and indemnify the Administrative Agent and
the Lenders from and against any and all reasonable loss, liability or legal or
other expense with respect to or resulting from any delay in paying or failure
to pay any tax, cost, expense, fee or charge or that any of them may suffer or
incur by reason of the failure of any Party to perform any of its Obligations.
Any amount payable to the Administrative Agent or any Lender under this Section
shall bear interest from the second Banking Day following the date of demand for
payment at the Default Rate.
11.4 Nature of Lenders' Obligations. The obligations of the Lenders
hereunder are several and not joint or joint and several. Nothing contained in
this Agreement or any other Loan Document and no action taken by the
Administrative Agent or the Lenders or any of them pursuant hereto or thereto
may, or may be deemed to, make the Lenders a partnership, an association, a
joint venture or other entity, either among themselves or with the Borrower or
any Affiliate of the Borrower. Each Lender's several obligation to make Advances
is conditioned upon the performance by all other Lenders of their obligations to
make similar Advances. A default by any Lender will not increase the amount of
the Commitment attributable to any other Lender, and any Lender not in default
may, if it desires, assume in such proportion as the nondefaulting Lenders agree
the obligations of any Lender in default but is not obligated to do so.
11.5 Survival of Representations and Warranties. All representations
and warranties contained herein or in any other Loan Document or in any
certificate or other writing delivered by or on behalf of any one or more of the
Parties to any Loan Document, will survive the making of the Advances hereunder
and the execution and delivery. of the Notes, and have been or will be relied
upon by the Administrative Agent and each Lender, notwithstanding any
investigation made by the Administrative Agent or any Lender or on their behalf.
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11.6 Notices. Except as otherwise expressly provided in any Loan
Document, all notices, requests, demands, directions and other communications
provided for hereunder or under any other Loan Document must be in writing and
must be mailed, telecopied, or personally delivered to the appropriate party at
the address set forth on the signature pages of this Agreement or other
applicable Loan Document or, as to any party to any Loan Document, at any other
address as may be designated by it in a written notice sent to all other parties
to such Loan Document in accordance with this Section. Except as otherwise
expressly provided in any Loan Document, if any notice, request, demand,
direction or other communication required or permitted by any Loan Document is
given by mail it will be effective on the earlier of receipt or the third
calendar day after deposit in the United States mail with first class or mail
postage prepaid; if given by telex or telecopier, when sent; or if given by
personal delivery, when delivered.
11.7 Execution of Loan Documents; Counterparts. Unless the
Administrative Agent otherwise specifies with respect to any Loan Document, this
Agreement and any other Loan Document may be executed in any number of
counterparts and any party hereto or thereto may execute any counterpart, each
of which when executed and delivered will be deemed to be an original and all of
which counterparts of this Agreement or any other Loan Document, as the case may
be, when taken together will be deemed to be but one and the same instrument.
The execution of this Agreement or any other Loan Document by any party hereto
or thereto will not become effective until counterparts hereof or thereof, as
the case may be, have been executed by all the parties hereto or thereto.
11.8 Binding Effect; Assignment.
(a) This Agreement and the other Loan Documents to which
Borrower is a Party will be binding upon and inure to the benefit of Borrower,
the Administrative Agent each of the Lenders, and their respective successors
and assigns, except that Borrower may not assign its rights hereunder or
thereunder or any interest herein or therein without the prior written consent
of all the Lenders. Each Lender represents that it is not acquiring its Note
with a view to the distribution thereof within the meaning of the Securities Act
of 1933, as amended (subject to any requirement that disposition of such Note
must be within the control of such Lender). Any Lender may at any time pledge
its Note or any other instrument evidencing its rights as a Lender under this
Agreement to a Federal Reserve Bank, but no such pledge shall release that
Lender from its obligations hereunder or grant to such Federal Reserve Bank the
rights of a Lender hereunder absent foreclosure of such pledge.
(b) From time to time following the Closing Date, each
Lender may assign to one or more Eligible Assignees all or any portion of its
Pro Rata Share of the Commitment; provided that (i) such Eligible Assignee, if
not then a Lender, shall be reasonably acceptable to the Administrative Agent
and Borrower, (ii) such assignment shall be evidenced by a Commitment Assignment
and Acceptance, a copy of which shall be furnished to the Administrative Agent
for registration as hereinbelow provided, (iii) the assignment shall not assign
a Pro Rata Share of the Commitment equivalent to less than $3,000,000 unless the
assigning Lender thereby assigns its entire Pro Rata Share and (iv) the
effective date of any
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such assignment shall be as specified in the Commitment Assignment and
Acceptance, but without the consent of the Administrative Agent not earlier than
the date which is ten (10) Banking Days after the date the Administrative Agent
has registered the Commitment Assignment and Acceptance in the register kept for
that purpose by the Administrative Agent described below. Upon the effective
date of such Commitment Assignment and Acceptance, the Eligible Assignee named
therein shall be a Lender for all purposes of this Agreement with the Pro Rata
Share of the Commitment therein set forth and, to the extent of such Pro Rata
Share, the assigning Lender shall be released from its obligations under this
Agreement. Borrower agrees that it shall execute and deliver (against delivery
by the assigning Lender to Borrower of its Note) to such assignee Lender, a Note
evidencing that assignee Lender's Pro Rata Share of the Commitment and to the
assigning Lender, a Note evidencing the remaining balance of the Pro Rata Share
retained by the assigning Lender.
(c) By executing and delivering a Commitment Assignment
and Acceptance, the Eligible Assignee thereunder acknowledges and agrees that:
(i) other than the representation and warranty that it is the legal and
beneficial owner of the Pro Rata Share of the Commitment being assigned thereby
free and clear of any adverse claim, the assigning Lender has made no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness or
sufficiency of this Agreement or any other Loan Document; (ii) the assigning
Lender has made no representation or warranty and assumes no responsibility with
respect to the financial condition of Borrower or the performance by Borrower of
the Obligations; (iii) it has received a copy of this Agreement, together with
copies of the most recent financial statements delivered pursuant to Section 7.1
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into such Commitment Assignment
and Acceptance; (iv) it will, independently and without reliance upon the
Administrative Agent or any Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement; (v) it appoints
and authorizes the Administrative Agent to take such action and to exercise such
powers under this Agreement as are delegated to the Administrative Agent by this
Agreement; and (vi) it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be performed by
it as a Lender.
(d) The Administrative Agent shall maintain at the
Administrative Agent's Office a copy of each Commitment Assignment and
Acceptance delivered to it and a register for recordation of the names and
addresses of the Lenders and their respective Pro Rata Shares of the Commitment.
Upon receipt of a completed Commitment Assignment and Acceptance executed by any
Lender and an Eligible Assignee, and upon receipt of a registration fee of
$3,000 from such Eligible Assignee, Administrative Agent shall record the making
of the assignments contemplated in such Commitment Assignment and Acceptance in
such register. The entries in such register shall be conclusive in the absence
of manifest error, and the Borrower, the Administrative Agent and the Lenders
may treat each Person whose name is recorded in the register as a Lender
hereunder for all purposes of this Agreement.
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(e) Each Lender may from time to time without the consent
of Borrower or the Administrative Agent grant participations to one or more
banks or other financial institutions in a portion of its Pro Rata Share of the
Commitment; provided, however, that (i) such Lender's obligations under this
Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) the participating banks or other financial institutions shall not be a
Lender hereunder for any purpose if the participation agreement so provides, for
the purposes of Sections 3.5, 3,6 and 11.11 but only to the extent that the cost
of such benefits to Borrower does not exceed the cost which Borrower would have
incurred in respect of such Lender absent the participation, (iv) Borrower, the
Administrative Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, (v) the consent of the holder of such
participation interest shall not be required for amendments or waivers of
provisions of the Loan Documents other than those which (A) increase the
monetary amount of any of the Commitment, (B) extend the Maturity Date or any
other date upon which any payment of money is due to the Lenders or (C) reduce
the rate of interest on the Notes, or any fee or any other monetary amount
payable to the Lenders and (vi) such Lender shall notify the Administrative
Agent in writing of the identity of the participant and the amount of the
participation interest within five Banking Days after the date granted.
(f) Notwithstanding anything to the contrary contained
herein, any Lender (a "Granting Lender") may grant to a special purpose funding
vehicle (an "SPC") of such Granting Lender, identified as such in writing from
time to time by the Granting Lender to the Administrative Agent and Borrower,
the option to provide to Borrower all or any part of any Loan that such Granting
Lender would otherwise be obligated to make to the Borrower pursuant to Sections
2. l(a) provided that (i) nothing herein shall constitute a commitment to make
any Loan by any SPC and (ii) if an SPC elects not to exercise such option or
otherwise fails to provide all or any part of such Loan, the Granting Lender
shall be obligated to make such Loan pursuant to the terms hereof. The making of
a Loan by an SPC shall utilize the Pro Rata Share of the Commitment of the
Granting Lender to the same extent, and as if, such Loan were made by the
Granting Lender. Each party hereby agrees that no SPC shall be liable for any
indemnity or similar payment obligation under this Agreement (all liability for
which shall remain with the related Granting Lender). In furtherance of the
foregoing, each party hereto agrees (which agreement shall survive the
termination of this Agreement) that prior to the date that is one year and one
day after the payment in full of all outstanding senior indebtedness of any SPC,
it will not institute against or join any other Person in instituting against,
such SPC any proceeding under any Debtor Relief Law, provided that the Granting
Lender for each SPC hereby agrees to indemnify, save and hold harmless each
other party hereto for any loss, cost damage and expense arising out of its
inability to institute any such proceeding against the SPC related to such
Granting Lender. In addition, notwithstanding anything to the contrary contained
in this Section 11.8, any SPC may (i) with notice to, but without the consent
of, Borrower or the Administrative Agent and without paying any processing fee
therefor, assign all or a portion of its interests in any Loans to its Granting
Lender or to any financial institutions providing liquidity and/or credit
facilities to or for the account of such SPC to fund the Loans made by such SPC
or to support the securities (if any) issued by such SPC to fund such Loans (but
nothing contained herein shall be construed in derogation of the obligation of
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<PAGE> 69
the Granting Lender to make Loans hereunder), provided that neither the consent
of the SPC or of any such assignee shall be required for amendments or waivers
of provisions of the Loan Documents except for those amendments or waivers for
which the consent of participants is required under Section 11.8(e)(v), and (ii)
disclose on a confidential basis any non-public information relating to its
Loans to any rating agency, commercial paper dealer or provider of a surety,
guarantee or credit or liquidity enhancement to such SPC.
11.9 Setoff Rights. If an Event of Default has occurred and is
continuing, the Administrative Agent or any Lender (but only with the consent of
the Majority Lenders) may, to the extent permitted by applicable Laws, exercise
its rights under applicable Laws to setoff and apply any funds in any deposit
account maintained with it by Borrower and/or any Property of Borrower in its
possession against the Obligations.
11.10 Sharing of Setoffs. Each Lender severally agrees that if it
through the exercise of any right of setoff, banker's lien or counterclaim
against Borrower, or otherwise, receives payment, through any means, of the
Obligations held by it that is in excess of that Lender's Pro Rata Share of such
payment, then: (a) The Lender exercising the right of setoff, banker's lien or
counterclaim or otherwise receiving such payment shall purchase, and shall be
deemed to have simultaneously purchased, from the other Lender a participation
in the Obligations held by the other Lender and shall pay to the other Lender a
purchase price in an amount so that the share of the Obligations held by each
Lender after the exercise of the right of setoff, bankers lien or counterclaim
or receipt of payment shall be in the same proportion that existed prior to the
exercise of the right of setoff, banker's lien or counterclaim or receipt of
payment; and (b) Such other adjustments and purchases of participations shall be
made from time to time as shall be equitable to ensure that all of the Lenders
share any payment obtained in respect of the Obligations ratably in accordance
with each Lender's share of the Obligations immediately prior to, and without
taking into account, the payment; provided that, if all or any portion of a
disproportionate payment obtained as a result of the exercise of the right of
setoff, banker's lien, counterclaim or otherwise is thereafter recovered from
the purchasing Lender by Borrower or any Person claiming through or succeeding
to the rights of Borrower, the purchase of a participation shall be rescinded
and the purchase price thereof shall be restored to the extent of the recovery,
but without interest. Each Lender that purchases a participation in the
Obligations pursuant to this Section shall from and after the purchase have the
right to give all notices, requests, demands, directions and other
communications under this Agreement with respect to the portion of the
Obligations purchased to the same extent as though the purchasing Lender were
the original owner of the Obligations purchased. Borrower expressly consents to
the foregoing arrangements and agrees that any Lender holding a participation in
an Obligation so purchased may exercise any and all rights of setoff, banker's
lien or counterclaim with respect to the participation as fully as if the Lender
were the original owner of the Obligation purchased; provided, however, that
each Lender agrees that it shall not exercise any right of setoff, banker's lien
or counterclaim without first obtaining the consent of the Majority Lenders.
11.11 Indemnity by Borrower. Borrower agrees to indemnify, save and
hold harmless the Administrative Agent, the Arranger and each Lender and their
directors, officers,
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agents, advisors, attorneys and employees (collectively the "Indemnitees") from
and against: (a) Any and all claims, demands, actions or causes of action that
are asserted against any Indemnitee by any Person (other than the Administrative
Agent, the Arranger or a Lender) if the claim, demand, action or cause of action
directly or indirectly relates to a claim, demand, action or cause of action
that such Person has or asserts against Borrower, any Affiliate of Borrower or
any officer, director or shareholder of Borrower and relating to the Loan
Documents; (b) Any and all claims, demands, actions or causes of action that are
asserted against any Indemnitee if the claim, demand, action or cause of action
arises out of or relates to the relationship between Borrower and the Lenders
under any of the Loan Documents or the transactions contemplated thereby; (c)
Any and all administrative or investigative proceedings by any Governmental
Agency arising out of or related to any claim, demand, action or cause of action
described in clauses (a) or (b) above; and (d) Any and all liabilities, losses,
costs or expenses (including attorneys, fees and disbursements and other
professional services) that any Indemnitee suffers or incurs as a result of the
assertion of any of the foregoing; provided that no Indemnitee shall be entitled
to indemnification for any loss caused by its own gross negligence or
misconduct. Each Indemnitee is authorized to employ counsel of its own choosing
in enforcing its rights hereunder and in defending against any claim, demand,
action, cause of action or administrative or investigative proceeding covered by
this Section; provided that each Indemnitee shall endeavor, in connection with
any matter covered by this Section which also involves other Indemnitees, to use
reasonable efforts to avoid unnecessary duplication of effort by counsel for all
Indemnitees. Any obligation or liability of Borrower to any Indemnitee under
this Section shall be and hereby is covered and secured by the Loan Documents
and the Collateral, and shall survive the expiration or termination of this
Agreement and the repayment of all Loans and the payment and performance of all
other Obligations owed to the Lenders.
11.12 Nonliability of the Lenders. Borrower acknowledges and agrees
that:
(a) Any inspections of any Property of Borrower made by or
through the Administrative Agent, the Arranger or the Lenders are for purposes
of administration of the Loan Documents only and Borrower is not entitled to
rely upon the same;
(b) By accepting or approving anything required to be
observed, performed, fulfilled or given to the Administrative Agent or the
Lenders pursuant to the Loan Documents, neither the Administrative Agent nor the
Lenders shall be deemed to have warranted or represented the sufficiency,
legality, effectiveness or legal effect of the same, or of any term, provision
or condition thereof, and such acceptance or approval thereof shall not
constitute a warranty or representation to anyone with respect thereto by the
Administrative Agent or the Lenders;
(c) The relationship between Borrower and the
Administrative Agent the Arranger and the Lenders is, and shall at all times
remain, solely that of a borrower and lenders; neither the Administrative Agent
the Arranger nor the Lenders shall under any circumstance be construed to be
partners or joint venturers of Borrower or its Affiliates; neither the
Administrative Agent, the Arranger nor the Lenders shall under any circumstance
65
<PAGE> 71
be deemed to be in a relationship of confidence or trust or a fiduciary
relationship with Borrower or its Affiliates, or to owe any fiduciary duty to
Borrower or its Affiliates; neither the Administrative Agent, the Arranger nor
the Lenders undertake or assume any responsibility or duty to Borrower or its
Affiliates to select, review, inspect, supervise, pass judgment upon or inform
Borrower or its Affiliates of any matter in connection with their Property or
the operations of Borrower or its Affiliates; Borrower and its Affiliates shall
rely entirely upon their own judgment with respect to such matters; and any
review, inspection, supervision, exercise of judgment or supply of information
undertaken or assumed by the Administrative Agent the Arranger or the Lenders in
connection with such matters is solely for the protection of the Administrative
Agent, the Arranger, the Swing Line Lender and the Lenders and neither Borrower
nor any other Person is entitled to rely thereon; and
(d) The Administrative Agent the Arranger and the Lenders
shall not be responsible or liable to any Person for any loss, damage, liability
or claim of any kind relating to injury or death to Persons or damage to
Property caused by the actions, inaction or negligence of Borrower and/or its
Affiliates and Borrower hereby indemnities and holds the Administrative Agent,
the Arranger and the Lenders harmless from any such loss, damage, liability or
claim.
11.13 No Third Parties Benefited. This Agreement is made for the
purpose of defining and setting forth certain obligations, rights and duties of
Borrower, the Administrative Agent, the Arranger and the Lenders in connection
with the Loans and is made for the sole benefit of Borrower, the Administrative
Agent, the Arranger and the Lenders, and the Administrative Agents, the
Arranger's and the Lenders' successors and assigns. Except as provided in
Sections 11.8 and 11.11, no other Person shall have any rights of any nature
hereunder or by reason hereof.
11.14 Further Assurances. Borrower and its Subsidiaries shall, at their
expense and without expense to the Lenders or the Administrative Agent, do,
execute and deliver such further acts and documents as any Lender or the
Administrative Agent from time to time reasonably requires for the assuring and
confirming unto the Lenders or the Administrative Agent of the rights hereby
created or intended now or hereafter so to be, or for carrying out the intention
or facilitating the performance of the terms of any Loan Document.
11.15 Integration. This Agreement together with the other Loan
Documents, comprises the complete and integrated agreement of the parties on the
subject matter hereof and supersedes all prior agreements, written or oral on
the subject matter hereof. In the event of any conflict between the provisions
of this Agreement and those of any other Loan Document, the provisions of this
Agreement shall control and govern; provided that the inclusion of supplemental
rights or remedies in favor of the Administrative Agent or the Lenders in any
other Loan Document shall not be deemed a conflict with this Agreement. Each
Loan Document was drafted with the joint participation of the respective parties
thereto and shall be construed neither against nor in favor of any party, but
rather in accordance with the fair meaning thereof.
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<PAGE> 72
11.16 Governing Law. Except to the extent otherwise expressly provided
therein, each loan document shall be governed by, and construed and enforced in
accordance with, the local Laws of Arizona.
11.17 Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable or invalid as to any party or in
any jurisdiction shall, as to that party or jurisdiction, be inoperative,
unenforceable or invalid without affecting the remaining provisions or the
operation, enforceability or validity of that provision as to any other party or
in any other jurisdiction, and to this end the provisions of all Loan Documents
are declared to be severable.
11.18 Independent Covenants. Each covenant in Articles 5, 6 and 7 is
independent of the other covenants in those Articles; the breach of any such
covenant shall not be excused by the fact that the circumstances underlying such
breach would be permitted by another such covenant.
11.19 Headings. Article and Section headings in this Agreement and the
other Loan Documents are included for convenience of reference only and are not
part of this Agreement or the other Loan Documents for any other purpose.
11.20 Time of the Essence. Time is of the essence of the Loan
Documents.
11.21 Purported Oral Amendments. BORROWER EXPRESSLY ACKNOWLEDGES THAT
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY ONLY BE AMENDED OR MODIFIED, OR
THE PROVISIONS HEREOF OR THEREOF WAIVED OR SUPPLEMENTED, BY AN INSTRUMENT IN
WRITING THAT COMPLIES WITH SECTION 11.2. BORROWER AGREES THAT IT WILL NOT RELY
ON ANY COURSE OF DEALING, COURSE OF PERFORMANCE, OR ORAL OR WRITTEN STATEMENTS
BY ANY REPRESENTATIVE OF THE ADMINISTRATIVE AGENT OR ANY BANK THAT DOES NOT
COMPLY WITH SECTION 11.2 TO EFFECT AN AMENDMENT, MODIFICATION, WAIVER OR
SUPPLEMENT TO THE AGREEMENT OF THE OTHER LOAN DOCUMENTS.
11.22 Jury Trial Waiver. EACH PARTY TO THIS AGREE HEREBY EXPRESSLY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED
OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT
TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY TRIAL COURT WITHOUT A
JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A
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<PAGE> 73
COPY OF THIS SECTION WITH ANY COURT AS EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
BORROWER:
SCHUFF STEEL COMPANY, a Delaware
corporation
By:_________________________________________________
Name: Kenneth F. Zylstra
Its: Vice President and Chief
Financial
Officer
Address:
420 South 19th Avenue
Phoenix, Arizona 85009
Attention: ________________________________________
Telephone: (602) 251-0313
Telecopier: (602) 452-4465
BANKS:
WELLS FARGO BANK, NATIONAL
ASSOCIATION, individually, as the Swing Line
Lender, the Issuing Bank and Administrative Agent
By:_________________________________________________
Name: Timothy J. Dillingham
Its: Vice President
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<PAGE> 74
Address for Matters Other than Loan
Administration:
Wells Fargo Bank, National Association
Corporate Banking Division
100 West Washington
Phoenix, Arizona 85003
Attn: Timothy J. Dillingham, Vice President,
#4101-251
Telephone: (602) 378-4593
Telecopier: (602) 378-4758
Address for Loan Administration:
Wells Fargo Bank, National Association
Commercial Bank Loan Center
Agency Dept. 2840
201 3rd Street 8th Floor
San Francisco, California 94103
Attn: Manager
Telephone: (415) 477-5418
Telecopier: (415) 512-9408
69
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 20, 1998, except for Note 16 as to which the
date is March 18, 1998 in Amendment No. 1 to the Registration Statement (Form
S-4 No. 333-58123) and related Prospectus of Schuff Steel Company for the
registration of $100,000,000 of 10-1/2% Senior Notes due 2008.
/s/ ERNST & YOUNG LLP
Phoenix Arizona
July 21, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF MAULDIN & JENKINS, LLC, INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-4
Amendment Number 1 of our report dated August 5, 1997, except for Note 10 as to
which the date is March 18, 1998, relating to the consolidated financial
statements of Addison Structural Services, Inc. and Subsidiaries as of June 30,
1997 and for each of the years in the three year period ended June 30, 1997. We
also consent to the reference of our Firm under the caption "Experts" in the
Prospectus.
/s/ MAULDIN & JENKINS, LLC
Albany, Georgia
July 21, 1998
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
10 1/2% SENIOR NOTES DUE 2008
OF
SCHUFF STEEL COMPANY
PURSUANT TO
PROSPECTUS DATED JULY 21, 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON AUGUST 28,
1998, UNLESS EXTENDED. TENDERS OF 10 1/2% SENIOR NOTES DUE 2008 MAY ONLY BE
WITHDRAWN UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS AND HEREIN.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
HARRIS TRUST AND SAVINGS BANK
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: Facsimile, Transmission Number: By Hand or Overnight Delivery:
Harris Trust and Savings Bank (For Eligible Institutions Only) Harris Trust and Savings Bank
c/o Harris Trust Company (212) 701-7636 c/o Harris Trust Company
of New York Confirm Receipt of of New York
P.O. Box 1010 Facsimile by Telephone: 88 Pine Street
Wall Street Station (212) 701-7624 19th Floor
New York, NY 10268-1010 New York, NY 10005
</TABLE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OUTSTANDING NOTES TENDERED
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL PRINCIPAL
AMOUNT OF
TOTAL PRINCIPAL OUTSTANDING
AMOUNT REPRESENTED NOTES TENDERED
NAME(S) AND ADDRESS(ES) OF HOLDER(S) BY CERTIFICATE(S) (MUST BE IN INTEGRAL
(PLEASE FILL IN, IF BLANK, EXACTLY AS (IF ENCLOSING MULTIPLES OF
NAME(S) APPEAR(S) ON OUTSTANDING NOTES) CERTIFICATE NUMBER(S) CERTIFICATES) $1,000)(A)
- ---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Total
- ---------------------------------------------------------------------------------------------------------------------------------
(a) Unless indicated in the column labeled "Total Principal Amount of Outstanding Notes Tendered," any tendering Holder of
Outstanding Notes will be deemed to have tendered the entire aggregate principal amount represented by the column labeled
"Total Principal Amount Represented by Certificate(s)."
If the space provided above is inadequate, list the certificate numbers and principal amounts on a separate signed schedule
and affix the list to this Letter of Transmittal.
The minimum permitted is $1,000 in principal amount of Outstanding Notes. All other tenders must be integral multiples of
$1,000.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE PROSPECTUS, DATED JULY 21, 1998
(THE "PROSPECTUS"), OF SCHUFF STEEL COMPANY, A DELAWARE CORPORATION (THE
"COMPANY"), RELATING TO THE OFFER (THE "EXCHANGE OFFER") OF THE COMPANY, UPON
THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THE PROSPECTUS AND HEREIN
AND THE INSTRUCTIONS HERETO, TO EXCHANGE $1,000 PRINCIPAL AMOUNT OF ITS 10 1/2%
SENIOR NOTES DUE 2008 (THE "EXCHANGE NOTES") FOR EACH $1,000 PRINCIPAL AMOUNT OF
ITS OUTSTANDING 10 1/2% SENIOR NOTES DUE 2008 (THE "OUTSTANDING NOTES"), OF
WHICH $100 MILLION AGGREGATE PRINCIPAL AMOUNT IS OUTSTANDING. THE MINIMUM
PERMITTED TENDER IS $1,000 PRINCIPAL AMOUNT OF OUTSTANDING NOTES, AND ALL OTHER
TENDERS MUST BE IN INTEGRAL MULTIPLES OF $1,000.
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION BY
FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The Exchange Offer will expire at 5:00 p.m., New York City time, on August
28, 1998 (the "Expiration Date"), unless extended.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES PURSUANT TO THE
EXCHANGE OFFER MUST VALIDLY TENDER THEIR OUTSTANDING NOTES TO THE EXCHANGE AGENT
PRIOR TO 5:00 P.M. ON THE EXPIRATION DATE.
This Letter of Transmittal should be used only to exchange the Outstanding
Notes, pursuant to the Exchange Offer as set forth in the Prospectus.
This Letter of Transmittal is to be used (a) if Outstanding Notes are to be
physically delivered to the Exchange Agent or (b) if delivery of Outstanding
Notes is to be made by book-entry transfer to the account maintained by the
Exchange Agent at The Depository Trust Company ("DTC" or the "Book-Entry
Transfer Facility") pursuant to the procedures set forth in the Prospectus under
the caption "The Exchange Offer -- Procedures for Tendering." Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
Holders whose Outstanding Notes are not available or who cannot deliver
their Outstanding Notes and all other documents required hereby to the Exchange
Agent by 5:00 p.m. on the Expiration Date nevertheless may tender their
Outstanding Notes in accordance with the guaranteed delivery procedures set
forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed
Delivery Procedures." See Instruction 1.
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL THE SURRENDER OF
OUTSTANDING NOTES FOR EXCHANGE BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY
JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE EXCHANGE OFFER WOULD NOT
BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION.
All capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Prospectus.
HOLDERS WHO WISH TO EXCHANGE THEIR OUTSTANDING NOTES MUST COMPLETE ALL THE
COLUMNS IN THE BOX ENTITLED "DESCRIPTION OF OUTSTANDING NOTES TENDERED" ON THE
PRIOR PAGE, COMPLETE THE BOX BELOW ENTITLED "METHOD OF DELIVERY" AND SIGN WHERE
INDICATED BELOW.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OUTSTANDING
NOTES TENDERED" AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE
TENDERED THE OUTSTANDING NOTES AND MADE CERTAIN REPRESENTATIONS DESCRIBED IN THE
PROSPECTUS AND HEREIN.
2
<PAGE> 3
METHOD OF DELIVERY
[ ] CHECK HERE IF CERTIFICATES FOR TENDERED OUTSTANDING NOTES ARE ENCLOSED
HEREWITH.
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: __________________________________________
Account Number: ________________ Transaction Code Number: _____________
______________________________________________________________________________
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING (SEE INSTRUCTIONS 1 AND 4):
Name(s) of Registered Holder(s):
_____________________________________________________________
Window Ticket Number (if any):
_____________________________________________________________
Date of Execution of Notice of Guaranteed Delivery:
___________________________________________________
Name of Eligible Institution which Guaranteed Delivery:
_______________________________________________________
IF DELIVERED BY THE BOOK-ENTRY TRANSFER FACILITY, PROVIDE THE FOLLOWING
INFORMATION:
[ ] The Depository Trust Company
Account Number: _______________ Transaction Code Number: ______________
______________________________________________________________________________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE TEN ADDITIONAL
COPIES OF THE PROSPECTUS AND COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: _________________________________________________________________________
Address: ______________________________________________________________________
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
3
<PAGE> 4
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of Outstanding
Notes indicated in the box entitled "Description of Outstanding Notes Tendered."
Subject to, and effective upon, the acceptance for exchange of the Outstanding
Notes tendered hereby, the undersigned hereby irrevocably sells, assigns and
transfers to or upon the order of the Company all right, title and interest in
and to such Outstanding Notes, and hereby irrevocably constitutes and appoints
the Exchange Agent the true and lawful agent and attorney-in-fact of the
undersigned with respect to such Outstanding Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) to (a) deliver certificates representing such
Outstanding Notes, and to deliver all accompanying evidences of transfer and
authenticity to or upon the order of the Company upon receipt by the Exchange
Agent, as the undersigned's agent, of the Exchange Notes to which the
undersigned is entitled upon the acceptance by the Company of such Outstanding
Notes for exchange pursuant to the Exchange Offer, (b) receive all benefits and
otherwise to exercise all rights of beneficial ownership of such Outstanding
Notes, all in accordance with the terms of the Exchange Offer, and (c) present
such Outstanding Notes for transfer on the register for such Outstanding Notes.
The undersigned acknowledges that prior to this Exchange Offer, there has
been no public market for the Outstanding Notes or the Exchange Notes. If a
market for the Exchange Notes should develop, the Exchange Notes could trade at
a discount from their principal amount. The undersigned is aware that the
Company does not intend to list the Exchange Notes on a national securities
exchange and that there can be no assurance that an active market for the
Exchange Notes will develop.
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes, it represents that the Outstanding Notes to be exchanged for Exchange
Notes were acquired as a result of market-making activities or other trading
activities and it acknowledges that it will deliver a prospectus in connection
with any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL TENDERS BE ACCEPTED FROM
OR ON BEHALF OF, HOLDERS OF THE OUTSTANDING NOTES IN ANY JURISDICTION IN WHICH
THE MAKING OF THE OFFER OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE LAWS OF SUCH JURISDICTION OR WOULD OTHERWISE NOT BE IN COMPLIANCE WITH ANY
PROVISION OF ANY APPLICABLE SECURITY LAW.
The undersigned represents that (a) it is not an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company or any of the Guarantors
(as defined in the Prospectus), (b) it is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Exchange Notes, and (c) it is acquiring
the Exchange Notes in the ordinary course of business.
The undersigned understands and acknowledges that the Company reserves the
right, in its sole discretion, to purchase or make offers for any Outstanding
Notes that remain outstanding subsequent to the Expiration Date or to terminate
the Exchange Offer and, to the extent permitted by applicable law, purchase
Outstanding Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers will differ from the terms
of the Exchange Offer.
The undersigned hereby represents and warrants that (a) the undersigned
accepts the terms and conditions of the Exchange Offer, (b) the undersigned has
a net long position within the meaning of Rule 14e-4 under the Exchange Act
("Rule 14e-4") equal to or greater than the principal amount of Outstanding
Notes tendered hereby, (c) the tender of such Outstanding Notes complies with
Rule 14e-4 (to the extent that Rule 14e-4 is applicable to such exchange), (d)
the undersigned has full power and authority to tender, exchange, assign and
transfer the Outstanding Notes tendered hereby, and (e) when the same are
accepted for exchange by the Company, the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim or right. The undersigned
will, upon request, execute and deliver any additional documents deemed by the
Exchange Agent
4
<PAGE> 5
or the Company to be necessary or desirable to complete the sale, assignment and
transfer of the Outstanding Notes tendered hereby.
The undersigned agrees that all authority conferred or agreed to be
conferred by this Letter of Transmittal and every obligation of the undersigned
hereunder shall be binding upon the successors, assigns, heirs, executors,
administrators, trustees in bankruptcy and legal representatives of the
undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. The undersigned also agrees that, except as
stated in the Prospectus, the Outstanding Notes tendered hereby cannot be
withdrawn.
The undersigned understands that tenders of the Outstanding Notes pursuant
to any one of the procedures described in the Prospectus under the caption "The
Exchange Offer -- Procedures for Tendering" and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company in
accordance with the terms and subject to the conditions of the Exchange Offer.
The undersigned understands that by tendering Outstanding Notes pursuant to
one of the procedures described in the Prospectus and the instructions thereto,
the tendering holder will be deemed to have waived the right to receive any
payment in respect of interest on the Outstanding Notes accrued up to the date
of issuance of the Exchange Notes.
The undersigned recognizes that, under certain circumstances set forth in
the Prospectus, the Company may not be required to accept for exchange any of
the Outstanding Notes tendered. Outstanding Notes not accepted for exchange or
withdrawn will be returned to the undersigned at the address set forth below
unless otherwise indicated under "Special Delivery Instructions" below.
Unless otherwise indicated herein under the box entitled "Special Issuance
Instructions" below, Exchange Notes, and Outstanding Notes not validly tendered
or accepted for exchange, will be issued in the name of the undersigned.
Similarly, unless otherwise indicated under the box entitled "Special Delivery
Instructions" below, Exchange Notes, and Outstanding Notes not validly tendered
or accepted for exchange, will be delivered to the undersigned at the address
shown below the signature of the undersigned. The undersigned recognizes that
the Company has no obligation pursuant to the "Special Issuance Instructions' to
transfer any Outstanding Notes from the name of the registered holder thereof if
the Company does not accept for exchange any of the principal amount of such
Outstanding Notes so tendered.
All questions as to the validity, form, eligibility (including time of
receipt), and withdrawal of the tendered Outstanding Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all
Outstanding Notes not properly tendered or any Outstanding Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to particular Outstanding Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in this Letter of Transmittal) will be final and binding. Unless
waived, any defects or irregularities in connection with tenders of Outstanding
Notes must be cured within such time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Outstanding
Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Outstanding Notes will not be deemed to have been made
until such irregularities have been cured or waived. Any Outstanding Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
without cost to such holder by the Exchange Agent to the tendering holders of
Outstanding Notes, unless otherwise provided in this Letter of Transmittal, as
soon as practicable following the Expiration Date.
5
<PAGE> 6
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
<TABLE>
<S> <C>
X _____________________________________________________ _________________________________________________, 1998
X _____________________________________________________ _________________________________________________, 1998
SIGNATURE(S) OF OWNER DATE
</TABLE>
Area code and Telephone Number ________________________________________________
If a Holder is tendering any Outstanding Notes, this Letter must be signed
by the registered Holder(s) as the name(s) appear(s) on the certificate(s) for
the Outstanding Notes or by any person(s) authorized to become registered
Holder(s) by endorsements and documents transmitted herewith. If signature is by
a trustee, executor, administrator, guardian, officer or other person acting in
a fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s):_______________________________________________________________________
_______________________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity: _____________________________________________________________________
_______________________________________________________________________________
Address: ______________________________________________________________________
_______________________________________________________________________________
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by an Eligible Institution: ___________________________
(AUTHORIZED SIGNATURE)
_______________________________________________________________________________
(TITLE)
_______________________________________________________________________________
(NAME AND FIRM)
Dated: ___________________________ , 1998
6
<PAGE> 7
____________________________________________________________
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 6)
To be completed ONLY if certificates for Outstanding Notes in a
principal amount not exchanged and/or certificates for Exchange Notes are
to be issued in the name of someone other than the undersigned, or if
Outstanding Notes are to be returned by credit to an account maintained by
the Book_Entry Transfer Facility.
Issue (check appropriate box)
[ ] Exchange Notes to:
[ ] Outstanding Notes to:
Name: ___________________________________________________
(PLEASE PRINT)
Address: ________________________________________________
________________________________________________
ZIP CODE
________________________________________________
TAXPAYER IDENTIFICATION NUMBER
(YOU MUST ALSO COMPLETE
SUBSTITUTE FORM W_9 BELOW.)
Credit unaccepted Outstanding Notes tendered by book_entry transfer to:
[ ] The Depository Trust Company account set forth below
____________________________________________________________
(DTC ACCOUNT NUMBER)
============================================================
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 6)
To be completed ONLY if certificates for Outstanding Notes in a
principal amount not exchanged and/or certificates for Exchange Notes are
to be sent to someone other than undersigned at an address other than that
shown above.
Deliver (check appropriate box)
[ ] Exchange Notes to:
[ ] Outstanding Notes to:
Name: ____________________________________________________
(PLEASE PRINT)
Address: _________________________________________________
_________________________________________________
ZIP CODE
_________________________________________________
TAXPAYER IDENTIFICATION NUMBER
(YOU MUST ALSO COMPLETE
SUBSTITUTE FORM W_9 BELOW.)
_________________________________________________
INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS
OF THE OFFER AND THE SOLICITATION
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED
DELIVERY PROCEDURES. To be effectively tendered pursuant to the Exchange Offer,
the Outstanding Notes, together with a properly completed Letter of Transmittal
(or facsimile thereof), duly executed by the registered holder thereof, and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent at one of its addresses set forth on the first page of this
Letter of Transmittal. If the beneficial owner of any Outstanding Notes is not
the registered holder, then such person may validly tender his or her
Outstanding Notes only by obtaining and submitting to the Exchange Agent a
properly completed Letter of Transmittal from the registered holder. OUTSTANDING
NOTES SHOULD BE DELIVERED ONLY TO THE EXCHANGE AGENT AND NOT TO THE COMPANY OR
TO ANY OTHER PERSON.
7
<PAGE> 8
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND ALL OTHER REQUIRED
DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER.
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE
AGENT BY 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
If a holder desires to tender Outstanding Notes and such holder's
Outstanding Notes are not immediately available or time will not permit such
holder's Letter of Transmittal, Outstanding Notes or other required documents to
reach the Exchange Agent on or before the Expiration Date, such holder's tender
may be effected if:
(a) the tender is made through an Eligible Institution (as defined
herein);
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Outstanding Notes,
the certificate number or numbers of such Outstanding Notes and the
principal amount of Outstanding Notes tendered, stating that the tender is
being made thereby, and guaranteeing that, within three business days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Outstanding Notes to be
tendered in proper form for transfer or a Book-Entry Confirmation, as the
case may be, and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing all
tendered Outstanding Notes in proper form for transfer and all other
documents required by the Letter of Transmittal are received by the
Exchange Agent within three business days after the Expiration Date.
2. WITHDRAWAL OF TENDERS. Tendered Outstanding Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date, unless
previously accepted for exchange.
To be effective, a written or facsimile transmission notice of withdrawal
must (a) be received by the Exchange Agent at one of its addresses set forth on
the first page of this Letter of Transmittal prior to 5:00 p.m., New York City
time, on the Expiration Date, unless previously accepted for exchange, (b)
specify the name of the person who tendered the Outstanding Notes, (c) contain
the description of the Outstanding Notes to be withdrawn, the certificate
numbers shown on the particular certificates evidencing such Outstanding Notes
and the aggregate principal amount represented by such Outstanding Notes and (d)
be signed by the holder of such Outstanding Notes in the same manner as the
original signature appears on this Letter of Transmittal (including any required
signature guarantees) or be accompanied by evidence sufficient to have the
Trustee with respect to the Outstanding Notes register the transfer of such
Outstanding Notes into the name of the holder withdrawing the tender. The
signature(s) on the notice of withdrawal must be guaranteed by an Eligible
Institution unless such Outstanding Notes have been tendered (a) by a registered
holder of Outstanding Notes who has not completed either the box entitled
"Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" on this Letter of Transmittal or (b) for the account of an
Eligible Institution. All questions as to the validity, form and eligibility
(including time of receipt) of such withdrawal notices shall be determined by
the Company, whose determination shall be final and binding on all parties. If
the Outstanding Notes to be withdrawn have been delivered or otherwise
identified to the Exchange Agent, a signed notice of withdrawal is effective
immediately upon receipt by the Exchange Agent of a written or facsimile
transmission notice of withdrawal even if physical release is not yet effected.
In addition, such notice must specify, in the case of Outstanding Notes tendered
by delivery of certificates for such Outstanding Notes, the name of the
registered holder (if different from that of the tendering holder) to be
credited with the withdrawn Outstanding Notes. Withdrawals may not be rescinded,
and any Outstanding Notes withdrawn will thereafter be deemed not validly
tendered for purposes of the Exchange Offer. However, properly withdrawn
Outstanding Notes may be retendered by following one of the procedures described
under "The Exchange Offer -- Procedures for Tendering" in the Prospectus at any
time on or prior to the applicable Expiration Date.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
registered holder(s) of the Outstanding Notes tendered hereby, the signature
must correspond exactly with the name(s) as written on the face of the
certificates without any change whatsoever.
8
<PAGE> 9
If any Outstanding Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any Outstanding Notes tendered hereby are registered in different names
on several certificates, it will be necessary to complete, sign and submit as
many separate copies of this Letter of Transmittal as there are different
registrations of certificates.
When this Letter of Transmittal is signed by the registered holder or
holders specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required unless Exchange Notes are to be issued, or
certificates for any untendered principal amount of Outstanding Notes are to be
reissued, to a person other than the registered holder.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any certificate(s) specified herein, such
certificates(s) must be endorsed or accompanied by appropriate bond powers, in
either case signed exactly as the name(s) of the registered holder(s) appear(s)
on the certificate(s).
If this Letter of Transmittal or a Notice of Guaranteed Delivery or any
certificates or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and unless waived by the Company, evidence satisfactory to the Company
of their authority so to act must be submitted with this Letter of Transmittal.
Except as described below, signatures on this Letter of Transmittal or a
notice of withdrawal, as the case may be, must be guaranteed by an Eligible
Institution. Signatures on this Letter of Transmittal or a notice of withdrawal,
as the case may be, need not be guaranteed if the Outstanding Notes tendered
pursuant hereto are tendered (a) by a registered holder of Outstanding Notes who
has not completed either the box entitled "Special Issuance Instructions" or the
box entitled "Special Delivery Instructions" on this Letter of Transmittal or
(b) for the account of an Eligible Institution. In the event that signatures on
this Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a firm which is a member of
a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (each as "Eligible
Institutions").
Endorsements on certificates for Outstanding Notes or signatures on bond
powers required by this Instruction 3 must be guaranteed by an Eligible
Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate in the applicable box the name and address to which certificates for
Exchange Notes and/or substitute certificates evidencing Outstanding Notes for
the principal amounts not exchanged are to be issued or sent, if different from
the name and address of the person signing this Letter of Transmittal. In the
case of issuance in a different name, the employer identification or social
security number of the person named must also be indicated. If no such
instructions are given, any Outstanding Notes not exchanged will be returned to
the name and address of the person signing this Letter of Transmittal.
5. TAX IDENTIFICATION NUMBER WITHHOLDING. Federal income tax law of the
United States requires that a holder of Outstanding Notes whose Outstanding
Notes are accepted for exchange provide the Company with the holder's correct
taxpayer identification number, which, in the case of a holder who is an
individual, is his or her social security number, or otherwise establish an
exemption from backup withholding. If the Company is not provided with the
correct taxpayer identification number, the exchanging holder of Outstanding
Notes may be subject to a $50 penalty imposed by the Internal Revenue Service
(the "IRS"). In addition, interest on the Exchange Notes acquired pursuant to
the Exchange Offer may be subject to backup withholding in an amount equal to
31% of any interest payment. If withholding occurs and results in an overpayment
of taxes, a refund may be obtained.
To prevent backup withholding, an exchanging holder of Outstanding Notes
must provide his correct taxpayer identification number by completing the
Substitute Form W-9 provided in this Letter of Transmittal, certifying that the
taxpayer identification number provided is correct (or that the exchanging
holder of Outstanding Notes is awaiting a taxpayer identification number) and
that either (a) the exchanging holder has not yet been notified by the IRS that
such holder is subject to backup withholding as a result of failure to report
all interest or dividends or (b) the IRS has notified the exchanging holder that
such holder is no longer subject to backup withholding.
9
<PAGE> 10
Certain exchanging holders of Outstanding Notes (including, among others,
all corporations and certain foreign individuals) are not subject to these
backup withholding requirements. A foreign individual and other exempt holders
other than foreign individuals (e.g., corporations) should certify, in
accordance with the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9," to such exempt status on the
Substitute Form W-9 provided in this Letter of Transmittal. Foreign individuals
should complete and provide Form W-8 to indicate their foreign status.
6. TRANSFER TAXES. Holders tendering pursuant to the Exchange Offer will
not be obligated to pay brokerage commissions or fees or to pay transfer taxes
with respect to their exchange under the Exchange Offer unless the box entitled
"Special Issuance Instructions" in this Letter of Transmittal has been
completed, or unless the Exchange Notes are to be issued to any person other
than the holder of the Outstanding Notes tendered for exchange. The Company will
pay all other charges or expenses in connection with the Exchange Offer. If
holders tender Outstanding Notes for exchange and the Exchange Offer is not
consummated, certificates representing the Outstanding Notes will be returned to
the holders at the Company's expense.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificate(s) specified in this Letter
of Transmittal.
7. INADEQUATE SPACE. If the space provided herein is inadequate, the
aggregate principal amount of the Outstanding Notes being tendered and the
certificate numbers (if available) should be listed on a separate schedule
attached hereto and separately signed by all parties required to sign this
Letter of Transmittal.
8. PARTIAL TENDERS. Tenders of Outstanding Notes will be accepted only in
integral multiples of $1,000. If tenders are to be made with respect to less
than the entire principal amount of any Outstanding Notes, fill in the total
principal amount of Outstanding Notes which are tendered in the appropriate box
on the cover entitled "Description of Outstanding Notes Tendered." In the case
of partial tenders, new certificates representing the Outstanding Notes in fully
registered form for the remainder of the principal amount of the Outstanding
Notes will be sent to the person(s) signing this Letter of Transmittal, unless
otherwise indicated in the appropriate place on this Letter of Transmittal, as
promptly as practicable after the expiration or termination of the Exchange
Offer.
9. MUTILATED, LOST, STOLEN OR DESTROYED OUTSTANDING NOTES. Any holder
whose Outstanding Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated above for further
instructions.
10. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance
or additional copies of the Prospectus or this Letter of Transmittal may be
obtained from the Exchange Agent at its telephone number set forth on the first
page of this Letter of Transmittal.
10
<PAGE> 11
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
PAYER'S NAME:
=================================================================================================================================
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND
FORM W-9 CERTIFY BY SIGNING AND DATING BELOW. ------------------------------
DEPARTMENT OF THE TREASURY Social Security Number
INTERNAL REVENUE SERVICE
or
------------------------------
Employer Identification
Number
---------------------------------------------------------------------------------------------
Part 2 -- Certification -- Under penalties of perjury, I
certify that:
(1) The number shown on this form is my correct Taxpayer
Identification Number (or I am waiting for a number to
be issued to me) and
(2) I am not subject to backup withholding because (a) I
am exempt from backup withholding or (b) I have not
been notified by the Internal Revenue Service (the
"IRS") that I am subject to backup as a result of
failure to report all interest or dividends or (c) the
IRS has notified me that I am no longer subject to
backup withholding.
---------------------------------------------------------------------------------------------
PAYER'S REQUEST FOR Certification Instructions -- You must cross out item (2) in Part 2 above if you have been
TAXPAYER IDENTIFICATION notified by the IRS that you are subject to backup withholding because of under reporting
NUMBER (TIN) interest or dividends on your tax returns. However, if after being notified by the IRS that
you were subject to backup withholding you received another notification from the IRS stating
that you are no longer subject to backup withholding, do not cross out such item (2). If you
are exempt from backup withholding, check the box in Part 4 above.
---------------------------------------------------------------------------------------------
Signature ----------------------------------------- Date------------------------- , 1998
-------------------------------------------------------------------------------------------
Name (Please Print)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Part 3 -- Awaiting TIN [ ]
--------------------------
Part 4 -- Exempt [ ]
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER AND THE
SOLICITATION PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE
BOX IN PART II OF THE SUBSTITUTE FORM W-9.
11
<PAGE> 12
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalty of perjury that a taxpayer identification number has not
been issued to me, and either (a) I have mailed or delivered an application to
receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within 60 days, 31% of all reportable
payments made to me thereafter will be withheld until I provide a number.
- ------------------------------------------
Signature Date
Date -------------------------, 1998
- ------------------------------------------
Name (Please Print)
12
<PAGE> 13
NOTICE OF GUARANTEED DELIVERY
TO TENDER FOR EXCHANGE
10 1/2% SENIOR NOTES DUE 2008
OF
SCHUFF STEEL COMPANY
PURSUANT TO
PROSPECTUS DATED JULY 21, 1998
This Notice of Guaranteed Delivery or a form substantially equivalent
hereto must be used to accept the offer (the "Exchange Offer") of Schuff Steel
Company, a Delaware corporation (the "Company"), to exchange $1,000 principal
amount of its 10 1/2% Senior Notes due 2008 for each $1,000 principal amount of
its outstanding 10 1/2% Senior Notes due 2008 (the "Outstanding Notes") if (a)
certificates representing the Outstanding Notes are not immediately available or
(b) time will not permit the Outstanding Notes and all other required documents
to reach the Exchange Agent on or prior to the Expiration Date. This form may be
delivered by an Eligible Institution (as defined) by mail or hand delivery, or
transmitted via facsimile, telegram or telex, to the Exchange Agent as set forth
below. All capitalized terms used herein but not defined herein shall have the
meanings ascribed to them in the Prospectus dated July 21, 1998 (the
"Prospectus").
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL THE SURRENDER OF
OUTSTANDING NOTES BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS OF OUTSTANDING NOTES
IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE EXCHANGE OFFER
WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON AUGUST 28,
1998, UNLESS EXTENDED. TENDERS OF 10 1/2% SENIOR NOTES DUE 2008 MAY ONLY BE
WITHDRAWN UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS AND THE LETTER OF
TRANSMITTAL.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER:
HARRIS TRUST AND SAVINGS BANK
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery:
Harris Trust and Savings Bank Harris Trust and Savings Bank
c/o Harris Trust Company c/o Harris Trust Company
of New York of New York
P.O. Box 1010 88 Pine Street
Wall Street Station 19th Floor
New York, NY 10268-1010 New York, NY 10005
Facsimile, Transmission Number:
(For Eligible Institutions Only)
(212) 701-7636
Confirm Receipt of
Facsimile by Telephone:
(212) 701-7624
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR
TRANSMISSION VIA FACSIMILE, TELEGRAM OR TELEX, OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE> 14
Ladies and Gentlemen:
The undersigned hereby tender(s) to the Company, upon the terms and subject
to the conditions set forth in the Prospectus, receipt of which is hereby
acknowledged, the principal amount of Outstanding Notes set forth below,
pursuant to the guaranteed delivery procedures set forth in the Prospectus under
the caption "The Exchange Offer -- Guaranteed Delivery Procedures."
Subject to and effective upon acceptance for exchange of the Outstanding
Notes tendered herewith, the undersigned hereby sells, assigns and transfers to
or upon the order of the Company all right, title and interest in and to, and
any and all claims in respect of or arising or having arisen as a result of the
undersigned's status as a holder of, all Outstanding Notes tendered hereby. In
the event of a termination of the Exchange Offer, the Outstanding Notes tendered
pursuant thereto will be returned promptly to the tendering Outstanding Note
holder.
The undersigned hereby represents and warrants that the undersigned accepts
the terms and conditions of the Prospectus and the Letter of Transmittal, has
full power and authority to tender, sell, assign and transfer the Outstanding
Notes tendered hereby and that the Company will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The undersigned will, upon
request, execute and deliver any additional documents deemed by the Exchange
Agent or the Company to be necessary or desirable to complete the sale,
assignment and transfer of the Outstanding Notes tendered.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
<PAGE> 15
PLEASE SIGN AND COMPLETE
<TABLE>
<S> <C>
Signature(s) of Registered Holder(s) or
Authorized Signatory: Address(es): -----------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
Name(s) of Registered Holder(s): Area Code and Telephone No.:
- ------------------------------------------ ------------------------------------------
- ------------------------------------------
Principal Amount of Outstanding Notes If Outstanding Notes will be delivered by
Tendered: a book-entry transfer, provide the
following information
- ------------------------------------------
Certificate No(s) of Outstanding Notes Transaction Code No.: --------------------
(if available)
- ------------------------------------------ Depository Account No.: ------------------
</TABLE>
This Notice of Guaranteed Delivery must be signed by the registered holder(s) of
Outstanding Notes exactly as their name(s) appear(s) on the Outstanding Notes or
by person(s) authorized to become registered holder(s) by endorsements and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, guardian, attorney-in-fact, officer of a corporation, executor,
administrator, agent or other representative, such person must provide the
following information:
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): ----------------------------------------------------------------------
Capacity: ---------------------------------------------------------------------
- -------------------------------------------------------------------------------
Address(es): ------------------------------------------------------------------
- -------------------------------------------------------------------------------
15
<PAGE> 16
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office or correspondent in the United States
(each, an "Eligible Institution"), hereby guarantees that, within three business
days from the date of this Notice of Guaranteed Delivery, a properly completed
and validly executed Letter of Transmittal (or a facsimile thereof), together
with Outstanding Notes tendered hereby in proper form for transfer (or
confirmation of the book-entry transfer of such Outstanding Notes into the
Exchange Agent's account at a Book-Entry Transfer Facility) and all other
required documents will be deposited by the undersigned with the Exchange Agent
at one of its addresses set forth above.
<TABLE>
<S> <C>
Name of Firm: ------------------------------------
-----------------------------------------------------
Authorized Signature
Address: ----------------------------------------- Name: ----------------------------------------------
Title: ---------------------------------------------
Area Code and Telephone No.: ------------------ Date: ----------------------------------------------
</TABLE>
DO NOT SEND OUTSTANDING NOTES WITH THIS FORM. ACTUAL SURRENDER OF OUTSTANDING
NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND
VALIDLY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
16
<PAGE> 17
SCHUFF STEEL COMPANY
OFFER TO EXCHANGE
10 1/2% SENIOR NOTES DUE 2008
FOR ANY AND ALL OUTSTANDING
10 1/2% SENIOR NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON AUGUST 28,
1998, UNLESS EXTENDED. TENDERS OF 10 1/2% SENIOR NOTES DUE 2008 MAY ONLY BE
WITHDRAWN UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS AND THE LETTER OF
TRANSMITTAL.
, 1998
To Our Clients:
Enclosed for your consideration is the Prospectus dated July 21, 1998 (the
"Prospectus") and the related Letter of Transmittal and instructions thereto
(the "Letter of Transmittal") in connection with the offer (the "Exchange
Offer") of Schuff Steel Company, a Delaware corporation ("the Company"), to
exchange $1,000 principal amount of its 10 1/2% Senior Notes due 2008 (the
"Exchange Notes") for each $1,000 principal amount of its outstanding 10 1/2%
Senior Notes due 2008 (the "Outstanding Notes").
Consummation of the Exchange Offer is subject to certain conditions
described in the Prospectus. Capitalized terms used herein but not defined shall
have the meanings ascribed to them in the Prospectus.
WE ARE THE REGISTERED HOLDER OF OUTSTANDING NOTES HELD BY US FOR YOUR
ACCOUNT. A TENDER OF ANY SUCH OUTSTANDING NOTES CAN BE MADE ONLY BY US AS THE
REGISTERED HOLDER AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL
IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO
TENDER OUTSTANDING NOTES HELD BY US FOR YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish us to tender
any or all such Outstanding Notes held by us for your account pursuant to the
terms and conditions set forth in the Prospectus and the Letter of Transmittal.
We urge you to read carefully the Prospectus and the Letter of Transmittal
before instructing us to tender your Outstanding Notes.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to tender Outstanding Notes on your behalf in accordance with
the provisions of the Exchange Offer. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME ON AUGUST 28, 1998 (THE "EXPIRATION DATE"), UNLESS
EXTENDED. Outstanding Notes tendered pursuant to the Exchange Offer may only be
withdrawn under the circumstances described in the Prospectus and the Letter of
Transmittal.
Your attention is directed to the following:
1. The Exchange Offer is for the entire aggregate principal amount of
Outstanding Notes.
2. Consummation of the Exchange Offer is conditioned upon the
conditions set forth in the Prospectus under the caption "The Exchange
Offer --Conditions."
3. Tendering holders may withdraw their tender at any time until the
Expiration Date.
4. Any transfer taxes incident to the transfer of Outstanding Notes
from the tendering holder to the Company will be paid by the Company,
except as provided in the Prospectus and the instructions to the Letter of
Transmittal.
5. The Exchange Offer is not being made to (nor will the surrender of
Outstanding Notes for exchange be accepted from or on behalf of) holders of
Outstanding Notes in any jurisdiction in which the making or acceptance of
the Exchange Offer would not be in compliance with the laws of such
jurisdiction.
<PAGE> 18
6. The acceptance for exchange of Outstanding Notes validly tendered
and not validly withdrawn and the issuance of Exchange Notes will be made
as promptly as practicable after the Expiration Date. However, subject to
rules promulgated pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Company expressly reserves the right to
delay acceptance of any of the Outstanding Notes or to terminate the
Exchange Offer and not accept for purchase any Outstanding Notes not
theretofore accepted if any of the conditions set forth in the Prospectus
under the caption "The Exchange Offer -- Conditions" shall not have been
satisfied or waived by the Company.
7. The Company expressly reserves the right, in its sole discretion,
(i) to delay accepting any Outstanding Notes, (ii) to extend the Exchange
Offer, (iii) to amend the terms of the Exchange Offer or (iv) to terminate
the Exchange Offer. Any delay, extension, amendment or termination will be
followed as promptly as practicable by oral or written notice to the
Exchange Agent and the Company will mail to the registered holders an
announcement thereof, each prior to 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. Except as
otherwise provided in the Prospectus, withdrawal rights with respect to
Outstanding Notes tendered pursuant to the Exchange Offer will not be
extended or reinstated as a result of an extension or amendment of the
Exchange Offer.
8. Consummation of the Exchange Offer may have adverse consequences
to non-tendering Outstanding Note holders, including that the reduced
amount of Outstanding Notes as a result of the Exchange Offer may adversely
affect the trading market, liquidity and market price of the Outstanding
Notes.
If you wish to have us tender any or all of the Outstanding Notes held by
us for your account, please so instruct us by completing, executing and
returning to us the instruction form that follows.
18
<PAGE> 19
SCHUFF STEEL COMPANY
INSTRUCTIONS REGARDING THE EXCHANGE OFFER
WITH RESPECT TO THE
10 1/2% SENIOR NOTES DUE 2008
THE UNDERSIGNED ACKNOWLEDGE(S) RECEIPT OF YOUR LETTER AND THE ENCLOSED
DOCUMENTS REFERRED TO THEREIN RELATING TO THE EXCHANGE OFFER OF THE COMPANY.
THIS WILL INSTRUCT YOU WHETHER TO TENDER THE PRINCIPAL AMOUNT OF
OUTSTANDING NOTES INDICATED BELOW HELD BY YOU FOR THE ACCOUNT OF THE UNDERSIGNED
PURSUANT TO THE TERMS OF AND CONDITIONS SET FORTH IN THE PROSPECTUS AND THE
LETTER OF TRANSMITTAL.
Box 1 [ ] Please tender the Outstanding Notes held by you for my account, as
indicated below.
Box 2 [ ] Please do not tender any Outstanding Notes held by you for my
account.
Date: , 1998
Principal Amount of Outstanding Notes to be Tendered:
$ *
- ------------------------------------------------------
(must be in the principal amount of $1,000 or an integral multiple thereof)
- ------------------------------------------------------
- ------------------------------------------------------
Signature(s)
- ------------------------------------------------------
- ------------------------------------------------------
Please print name(s) here
- ------------------------------------------------------
Please type or print address
- ------------------------------------------------------
Area Code and Telephone Number
- ------------------------------------------------------
Taxpayer Identification or Social Security Number
- ------------------------------------------------------
My Account Number with You
- ---------------
* UNLESS OTHERWISE INDICATED, SIGNATURE(S) HEREON BY BENEFICIAL OWNER(S) SHALL
CONSTITUTE AN INSTRUCTION TO THE NOMINEE TO TENDER ALL OUTSTANDING NOTES OF
SUCH BENEFICIAL OWNER(S).
19
<PAGE> 20
HARRIS TRUST AND SAVINGS BANK
C/O HARRIS TRUST COMPANY OF NEW YORK
P.O. BOX 1010
WALL STREET STATION
NEW YORK, NY 10268-1010
SCHUFF STEEL COMPANY
OFFER TO EXCHANGE
10 1/2% SENIOR NOTES DUE 2008
FOR ANY AND ALL OUTSTANDING
10 1/2% SENIOR NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON AUGUST
28, 1998, UNLESS EXTENDED. TENDERS OF 10 1/2% SENIOR NOTES DUE 2008 MAY
ONLY BE WITHDRAWN UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS AND
THE LETTER OF TRANSMITTAL.
To Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees:
We have been appointed by Schuff Steel Company, a Delaware corporation (the
"Company"), to act as the Exchange Agent in connection with the offer (the
"Exchange Offer") of the Company to exchange $1,000 principal amount of its
10 1/2% Senior Notes due 2008 (the "Exchange Notes") for each $1,000 principal
amount of its 10 1/2% Senior Notes due 2008 (the "Outstanding Notes"), upon the
terms and subject to the conditions set forth in the Prospectus dated July 21,
1998 (the "Prospectus") and in the related Letter of Transmittal and the
instructions thereto (the "Letter of Transmittal").
Enclosed herewith are copies of the following documents:
1. The Prospectus;
2. The Letter of Transmittal for your use and for the information of
your clients, together with guidelines of the Internal Revenue Service for
Certification of Taxpayer Identification Number on Substitute Form W-9
providing information relating to backup federal income tax withholding;
3. Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if the Notes and all other required documents cannot be delivered to
the Exchange Agent on or prior to the Expiration Date (as defined);
4. A form of letter which may be sent to your clients for whose
account you hold the Notes in your name or in the name of a nominee, with
space provided for obtaining such clients' instructions with regard to the
Exchange Offer; and
5. A return envelope addressed to the Exchange Agent.
PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME ON AUGUST 28, 1998 (THE "EXPIRATION DATE"), UNLESS EXTENDED. WE URGE YOU TO
CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE.
The Company will not pay any fees or commission to any broker or dealer or
other person (other than to the Exchange Agent) for soliciting tenders of the
Notes pursuant to the Exchange Offer. You will be reimbursed for customary
mailing and handling expenses incurred by you in forwarding the enclosed
materials to your clients.
<PAGE> 21
Additional copies of the enclosed materials may be obtained by contacting
the Exchange Agent as provided in the enclosed Letter of Transmittal.
Very truly yours,
Harris Trust and Savings Bank
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY OTHER PERSON THE AGENT OF THE COMPANY OR THE EXCHANGE AGENT OR AUTHORIZE YOU
OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF
OF ANY OF THEM WITH RESPECT TO THE EXCHANGE OFFER NOT CONTAINED IN THE
PROSPECTUS OR THE LETTER OF TRANSMITTAL.
