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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-5725
QUANEX CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 38-1872178
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 WEST LOOP SOUTH, SUITE 1500 77027
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code (713) 961-4600
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $.50 par value New York Stock Exchange, Inc.
Rights to Purchase Series A Junior
Participating Preferred Stock New York Stock Exchange, Inc.
6.88% Convertible Subordinated Debentures New York Stock Exchange, Inc.
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Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates as of December 31, 1998, computed by reference to the closing
price for the Common Stock on the New York Stock Exchange, Inc. on that date,
was $315,706,390. Such calculation assumes only the registrant's officers and
directors were affiliates of the registrant.
At December 31, 1998, there were outstanding 14,248,847 shares of the
registrant's Common Stock, $.50 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement, to be filed with the
Commission within 120 days of October 31, 1998, for its Annual Meeting of
Stockholders to be held on February 24, 1999, are incorporated herein by
reference in Items 10, 11, 12, and 13 of Part III of this Annual Report.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 2
General................................................... 2
Manufacturing Processes, Markets and Product Sales by
Business Segment.......................................... 3
Raw Materials and Supplies................................ 5
Backlog................................................... 5
Competition............................................... 6
Sales and Distribution.................................... 6
Seasonal Nature of Business............................... 6
Service Marks, Trademarks, Trade Names and Patents........ 6
Research and Development.................................. 6
Environmental Matters..................................... 7
Employees................................................. 7
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......... 8
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PART II
Item 5. Market for Registrant's Common Equity and Related Security
Holder Matters.............................................. 9
Item 6. Selected Financial Data..................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
Item 7A. Quantitative/Qualitative Disclosure......................... 19
Item 8. Financial Statements and Supplementary Data................. 21
Item 9. Disagreements on Accounting and Financial Disclosure........ 47
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PART III
Item 10. Directors and Executive Officers of the Registrant.......... 47
Item 11. Executive Compensation...................................... 47
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 47
Item 13. Certain Relationships and Related Transactions.............. 47
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 48
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PART I
ITEM 1. BUSINESS
GENERAL
The Company was organized in 1927 as a Michigan corporation under the name of
Michigan Seamless Tube Company. The Company reincorporated in Delaware in 1968
under the same name and then changed its name to Quanex Corporation in 1977. The
Company's executive offices are located at 1900 West Loop South, Suite 1500,
Houston, Texas 77027. References made to the "Company" or "Quanex" include
Quanex Corporation and its subsidiaries unless the context otherwise requires.
Quanex Corporation is a technological leader in the production of value-added
engineered steel bars, aluminum flat-rolled products, engineered and formed
metal products. The Company believes that its use of state-of-the-art
manufacturing technology, low cost production and engineering processes to meet
specific customer applications provides the Company with competitive advantages
over many of its competitors. The Company has also sought to reduce the impact
of cyclical economic downturns on its operations through diversification of the
markets served. The markets served by the Company include the transportation
industry, the industrial machinery and capital equipment industries, the home
building and remodeling industries and the defense and other commercial
industries.
Since the mid-1980s Quanex has refocused its strategy from being a
manufacturer principally of steel products with a heavy dependence on energy
markets to a diversified, value-added specialized metals products company
serving a broader range of markets. The Company's future growth strategy is
focused on the continued penetration of higher margin markets, continued
expansion of its aluminum and steel manufacturing operations, rapid expansion of
formed value-added products, and niche acquisitions.
In December 1997, the Company completed the sale of its tubing operations
("Tubing Operations"), comprised of Michigan Seamless Tube Company, Gulf States
Tube Division, and the Tube Group Administrative Office. For business segment
purposes, the Tubing Operations were previously classified as "Steel Tubes". Two
small divisions, Heat Treat Division and NitroSteel Division, which were
previously included with the Steel Tubes segment, were retained by the Company
and are now included in the "Engineered Steel Bar" segment.
In October 1998, the Company completed the purchase of Decatur Aluminum Corp.,
an aluminum sheet manufacturer in Decatur, Alabama, for approximately $19
million. The facility, renamed Nichols Aluminum-Alabama, Inc. ("Nichols Aluminum
Alabama"), includes cold rolling and finishing operations and a wide-width paint
line which allows the facility to produce painted sheet, its highest value-added
product. The acquisition significantly expands the aluminum mill sheet products
segment's overall cold rolling capacity so as to effectively utilize most of the
400 million pounds of current casting capacity.
The Company has also invested significantly in technologically advanced
continuous manufacturing processes to meet demanding quality specifications and
to achieve cost efficiencies. In its MACSTEEL operations, rotary centrifugal
continuous casters are used with an in-line manufacturing process to produce
bearing grade and aircraft quality, seam-free, specialized engineered carbon and
alloy steel bars that enable Quanex to participate in higher margin markets.
Since 1992, the Company has invested over $150 million to enhance the steel
refining processes, to improve rolling and finishing capacity and to expand
manufacturing capacity at its MACSTEEL operations to 620,000 tons per year.
Phases I through III have already been completed. In Phase IV of these
expansions, the Company is investing an additional $16 million at the MACSTEEL
plants in Jackson, Michigan and Ft. Smith, Arkansas, to install two additional
cold finishing lines. This project is expected to double the capacity of MACPLUS
cold finished bars, MACSTEEL's premium value-added product, to 180,000 tons
annually when completed in 1999. In October 1998, the Company announced its
Phase V program, which will increase engineered steel bar capacity by
approximately 13% to 700,000 tons annually. The estimated completion date is
year-end 2000.
In December 1998 the Aluminum Mill Sheet Products segment completed
construction of two rotary furnaces and upgraded its dross recovery equipment at
its casting plant. The $12 million expansion now allows the Company's Nichols
Aluminum Division to use lower cost scrap resulting in a reduction of raw
material costs as well as improving the molten metal yield from scrap and
increasing efficiency.
In September 1998, the Company reorganized and consolidated its Piper Impact
facilities. The Company recorded a pretax restructuring charge of $58.5 million
in the fourth quarter. This amount included $53 million for the write down of
goodwill and long lived assets associated with Piper Impact's business and $5.5
million for expenses and assets related to the closing of its Park City, Utah
plant.
The Company's businesses are managed on a decentralized basis. Each operating
group has administrative, operating and marketing functions. Financial reporting
systems measure each business unit's return on investment, and the Company seeks
to reward superior performance with incentive compensation, which is a
significant portion of total employee compensation. Intercompany sales are
conducted on an arms-length basis. Operational activities and policies are
managed by both corporate officers and key division executives. Also, a
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small corporate staff provides corporate accounting, financial and treasury
management, tax, and human resource services to the operating divisions.
MANUFACTURING PROCESSES, MARKETS AND PRODUCT SALES BY BUSINESS SEGMENT
The Company's operations are now grouped into three business segments,
consisting of (i) engineered steel bars, (ii) aluminum mill sheet products, and
(iii) engineered products. General corporate expenses are classified as other
operations.
Information with respect to major markets for the Company's products,
expressed as a percentage of consolidated net sales, is shown under the heading
"Sales by Major Markets" as set forth below. For financial information regarding
each of Quanex's business segments, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" herein and Note 13 to the
Consolidated Financial Statements. Although Quanex has attempted to estimate its
sales by product and market categories, many products have multiple end uses for
several industries and sales are not recorded on the basis of product or market
categories. A portion of sales is made to distributors who sell to different
industries. Net sales by principal market are based upon the total dollar volume
of customer invoices. For the year ended October 31, 1998, one customer, Autoliv
Inc., accounted for more than 10% of company sales.
Quanex operates 14 manufacturing facilities in nine states in the United
States and one plant in Zwolle, The Netherlands. These facilities feature
efficient plant design and flexibility in manufacturing processes, enabling the
Company to produce a wide variety of products for various industries and
applications. The Company is generally able to maintain minimal levels of
finished goods inventories at most locations because it typically manufactures
products to customer specifications upon order.
SALES BY MAJOR MARKET
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Sales ($ Millions)
Fiscal Year Ended October 31,
Market ----------------------------------------------
Markets Description QUANEX PRODUCTS 1998 1997 1996 1995 1994
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Transportation Auto/Truck Steel bars, impact-extruded $352.9 $322.3 $207.2 $170.9 $131.4
components 44.2% 43.2% 33.4% 28.3% 30.2%
Other Transportation Steel bars, treated tubes and $ 31.8 $ 32.8 $ 22.0 $ 23.1 $ 16.6
(including ship/railroad, bars 4.0% 4.4% 3.6% 3.8% 3.8%
recreational vehicles and
military transportation)
Total Transportation $384.7 $355.1 $229.2 $194.0 $148.0
48.2% 47.6% 37.0% 32.1% 34.0%
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Aluminum Residential and Commercial Aluminum sheet, fabricated $334.8 $327.5 $313.1 $331.6 $200.9
Building Building Materials, Other aluminum products, aluminum 42.0% 43.9% 50.5% 54.9% 46.1%
Products coil, coated aluminum coil
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Industrial General Industrial Machinery Specialty forgings, impact- $ 29.9 $ 24.9 $ 47.4 $ 59.9 $ 72.0
Machinery and (including mining, extruded products, steel bars 3.8% 3.3% 7.6% 9.9% 16.5%
Capital Equipment agriculture and construction)
Capital Equipment (including Steel bars, treated bars and $ 10.4 $ 17.5 $ 22.0 $ 13.1 $ 10.5
material handling, machine tubes, partition products, 1.3% 2.4% 3.6% 2.2% 2.4%
tools, and office/household) impact-extruded products
Total Industrial Machinery $ 40.3 $ 42.4 $ 69.4 $ 73.0 $ 82.5
and Capital Equipment 5.1% 5.7% 11.2% 12.1% 18.9%
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Other $ 37.7 $ 21.1 $ 8.4 $ 5.4 $ 4.5
4.7% 2.8% 1.3% .9% 1.0%
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Total Sales $797.5 $746.1 $620.1 $604.0 $435.9
100.0% 100.0% 100.0% 100.0% 100.0%
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Engineered Steel Bars
The Company's Engineered Steel Bars segment consists of engineered steel bar
operations, steel bar and tube heat treating services, and steel bar and tube
corrosion and wear resistant finishing services.
The Company's engineered steel bar operations are conducted through its
MACSTEEL division, consisting of two plants located in Ft. Smith, Arkansas and
Jackson, Michigan. These plants manufacture hot finished, precision engineered,
carbon and alloy steel bars. The Company believes that MACSTEEL has the only two
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plants in North America using continuous rotary centrifugal casting technology.
This casting process produces seam-free bars, without surface defects and
inclusions, thereby reducing the need for subsequent surface conditioning. The
continuous casting and automated in-line manufacturing operations at the
MACSTEEL plants substantially reduce labor and energy costs by eliminating the
intermittent steps that characterize manufacturing operations at most larger
integrated steel mills. The Company typically sells only complete heat lots or
batches, which are made to specific customer requirements. Heat lots average 45
tons at Jackson and 50 tons at Ft. Smith.
MACSTEEL produces various grades of specialized engineered steel bars by
melting steel scrap and casting it in a rotary centrifugal continuous caster.
MACSTEEL's molten steel is secondarily refined by argon stirring, ladle
injection and vacuum arc degassing prior to casting. This enables MACSTEEL to
produce higher quality, "cleaner" steels. Precision engineered products are
produced through a continuous in-line process by which scrap steel is converted
into hot rolled steel bars without interruption.
As a result of its state-of-the-art continuous manufacturing technology, which
reduces labor, energy and process yield loss, the Company believes that MACSTEEL
is one of the lowest cost producers of precision engineered carbon and alloy
steel bars. The Company believes that energy costs at MACSTEEL are significantly
lower than those of its competitors because its bars are moved directly from the
caster to the rolling mill before cooling, eliminating the need for costly
reheating. MACSTEEL's low unit labor costs are achieved with its highly
automated manufacturing process enabling it to produce finished steel bars using
under two man-hours of labor per ton compared to an estimated average of four to
five man-hours per ton for U.S. integrated steel producers.
MACSTEEL products are custom manufactured for customers in the passenger car,
light truck, heavy truck, anti-friction bearing, off-road and farm equipment,
defense, capital equipment and seamless tubular industries. These industries use
engineered steel bars in critical applications such as camshafts, crankshafts,
transmission gears, wheel spindles and hubs, bearing cages and rollers, steering
components, hydraulic mechanisms and seamless tube production. Piper Impact uses
MACSTEEL engineered steel bars for the manufacture of components for safety
critical steel air bag inflators at its plant in New Albany, Mississippi.
Also included in the Engineered Steel Bars segment is a heat treating plant in
Huntington, Indiana ("Heat Treat"), and a plant in Kenosha, Wisconsin which
improves the wear and corrosion resistance properties of steel bars and tubes
("NitroSteel").
The Heat Treat facility uses custom designed, in-line, equipment to provide
tube and bar heat treating and related services, such as quench and temper,
stress relieving, normalizing and "cut-to-length". Metallurgical testing
services are also provided. This plant serves customers in the energy,
automotive, ordnance, mining and fluid power markets.
The NitroSteel plant processes steel bars and tubes using the patented
Nitrotec treatment to improve corrosion and wear resistance while providing an
environmentally friendly, non-toxic alternative to chrome plating. NitroSteel's
products are produced to specific customer applications and sold into fluid
power markets.
Aluminum Mill Sheet Products
The Company's Aluminum Mill Sheet Products segment consists of continuous
casting, cold rolling, finishing and painting operations conducted through its
Nichols Aluminum Division ("Nichols").
Nichols Aluminum manufactures mill finished and coated aluminum sheet for the
home improvement, residential and light commercial construction, transportation,
appliances, and service center markets and is comprised of four plants: a
thin-slab casting and hot rolling mill ("NAC") located in Davenport, Iowa, and
three cold rolling and finishing plants located in Davenport, Iowa ("NAD"),
Lincolnshire, Illinois ("NAL") and Decatur, Alabama ("NAA").
NAC's mini-mill in Davenport, Iowa uses the single in-line casting process to
produce up to 400 million pounds of reroll aluminum sheet annually. The
mini-mill converts scrap to aluminum sheet through melting, continuous casting
and in-line hot rolling. NAC also has a dross recovery system, the ability to
convert lower grades of scrap, and shredding capabilities to broaden the
diversity and sources of its scrap raw material. Delacquering equipment improves
the quality of the raw material before it reaches the melting furnaces by
burning off impurities within the scrap. The scrap is blended using computer
programs to achieve the desired alloy composition and the best economics. After
melting, the molten metal flows into a Hazelett thin-slab caster, which casts up
to a 52-inch wide aluminum slab. The slab then is fed directly to a hot mill
with three, in-line, rolling stands to reduce the slab from a thickness of
approximately .75 inches to coiled aluminum reroll sheet with a target thickness
of .045 inches. This hot rolling mill process substantially reduces subsequent
cold rolling requirements.
The Company believes the combination of capacity increases and technological
enhancements directed at producing quality hot rolled aluminum sheet with cost
savings derived from reduced raw material costs, optimized scrap utilization,
reduced unit energy cost, reduced cold rolling requirements and decreased labor
costs results in a significant manufacturing advantage.
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Further processing of the reroll aluminum sheet occurs at the NAD, NAL and NAA
plants, where the specific product requirements of customers can be met through
cold rolling to various gauges, annealing for additional mechanical properties
and formability, tension leveling and slitting to specific widths. Products at
the NAD and NAA plants can also be custom coated, an important feature for the
building products applications of certain customers.
Engineered Products
The Company's Engineered Products segment consists of impact extrusion
operations for both steel and aluminum conducted through the Piper Impact
facilities and metal fabrication operations at the Fabricated Products Division.
The impact extrusion operations consist of Piper Impact with both steel and
aluminum impact extrusion facilities in New Albany, Mississippi and an aluminum
impact extrusion facility in Zwolle, The Netherlands, acquired in October 1997
("Piper Impact Europe"). The Fabricated Products Division consists of the AMSCO
plant in Rice Lake, Wisconsin and two Homeshield Fabricated Products ("HFP")
plants in Chatsworth, Illinois.
Piper Impact and Piper Impact Europe are technological leaders in the
manufacture of custom designed, impact extruded aluminum and steel parts for the
transportation, electronics, defense, and other commercial markets. These
operations make use of the impact extrusion technology to produce highly
engineered near net shaped components from aluminum and steel bar slugs
involving complex design and machining requirements. The pressure resulting from
the impact of the extrusion presses causes metal to flow into the desired shape.
This cost efficient, cold-forming of the metal results in a high quality, work
hardened product with a superior finish. Heat treated and precision machined
parts are then delivered to customers' assembly lines, requiring little or no
additional processing. The majority of Piper Impact's sales are to one customer,
Autoliv Inc., in the form of air bag components for the automotive industry.
During 1997 the Company completed the construction and installation of
equipment at its second manufacturing facility in New Albany, Mississippi for
the production of highly engineered impact extruded steel air bag products.
Piper Impact's steel products plant was part of a two-year $42 million capital
project to provide capacity for new customer programs primarily for the
automotive air bag systems market. This includes passenger and side-impact air
bags, "smart" bags with adjustable inflation speed and those with alternative
inflation technologies. The Company believes that these projects will provide
Piper Impact with the technology and additional capacity for advanced
applications, improved customer service, and cost effective manufacturing
processes thereby improving competitiveness and long term growth opportunities
in other markets.
The Fabricated Products Division manufactures aluminum window and patio door
screens, window frames, and a broad line of custom designed, roll formed
products and stamped shapes for manufacturers of insulated glass, premium wood
windows and vinyl windows for the home improvement, residential and commercial
construction markets. AMSCO combines strong product design and development with
reliable, just-in-time delivery. HFP coats and fabricates aluminum coil in many
colors, sizes and finishes into rain carrying systems, soffit, exterior housing
trim and painted coil sheet and roofing products. Additionally, HFP manufactures
custom roll-formed products for industries such as the agricultural equipment
and industrial hand tools.
RAW MATERIALS AND SUPPLIES
MACSTEEL plants purchase steel scrap, pig iron, beach iron and hot briquetted
iron, their principal raw materials, on the open market. Transportation of these
raw materials to its plants can be adversely affected by extreme weather
conditions. Prices for scrap also vary in relation to the general business
cycle, typically declining in periods of slow economic growth.
Nichols Aluminum's principal raw material is aluminum scrap, which it
purchases on the open market. However, it also purchases and sells in limited
quantities aluminum ingot futures contracts on the London Metal Exchange ("LME")
to hedge against fluctuations in the price of aluminum scrap required to
manufacture products for fixed price sales contracts.
Piper Impact's raw material consists of aluminum bars and slugs which it
purchases on the open market and steel bars which it purchases from MACSTEEL.
Piper Impact Europe purchases its raw material consisting of aluminum slugs and
steel sheet on the open market in Europe and North America. Fabricated Products
Division purchases the majority of its raw material requirements consisting of
aluminum sheet from Nichols Aluminum.
BACKLOG
At October 31, 1998, Quanex's backlog of orders to be shipped in the next twelve
months was $183.8 million. This compares to $225.5 million at October 31, 1997.
Because many of the markets in which Quanex operates have short lead times,
backlog figures are not reliable indicators of annual sales volume or operating
results.
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COMPETITION
All of the Company's products are sold under highly competitive conditions. The
Company competes with a number of companies, some of which have financial and
other resources greater than those of the Company. Competitive factors include
product quality, price, delivery and ability to manufacture products to customer
specifications. The amounts of engineered steel bars, aluminum mill sheet
products and engineered products produced by the Company represent a small
percentage of annual domestic production.
The Company's engineered steel bar plants compete with two large integrated
steel producers, two large non-integrated steel producers and two smaller steel
companies. Although many of these producers are larger and have greater
resources than the Company, the Company believes that the technology used at the
MACSTEEL facilities permits it to compete effectively in the markets it serves.
The Company's aluminum mill sheet businesses compete with many small and large
aluminum sheet manufacturers. Some of these competitors are divisions or
subsidiaries of major corporations with substantially greater resources than the
Company. The Company also competes with major aluminum producers in coil-coated
and mill products, primarily on the basis of the breadth of product lines, the
quality and responsiveness of its services and its prices.
The Company's engineered products businesses compete with many small metal
fabricators and impact extruders primarily on the basis of the custom
engineering, the quality and the responsiveness of its services and its prices.
SALES AND DISTRIBUTION
The Company has a nationwide system of sales offices. MACSTEEL sells hot rolled
engineered steel bars primarily to original equipment manufacturers ("OEMs")
through its sales organization and manufacturers' representatives.
The Company's aluminum mill sheet products are sold directly to OEMs and
through metal service centers. The Company's engineered products are sold
primarily to OEMs, except for the residential building products which are sold
through distributors.
SEASONAL NATURE OF BUSINESS
With the exception of impact extrusions, the business of which is not seasonal,
the Company's aluminum mill sheet and engineered products businesses are
seasonal because its primary markets are in the Northeast and Midwest regions of
the United States where winter weather reduces home building and home
improvement activity. Historically, in these businesses, lowest sales have
occurred during the Company's first fiscal quarter. Because a high percentage of
their manufacturing overhead and operating expenses is due to labor and costs
that are generally fixed throughout the year, profits for the operations in
these businesses tend to be lower in quarters with lower sales.
The other businesses in which the Company competes are not seasonal. However,
due to the holidays in the Company's first fiscal quarter and steel plant
shutdowns for vacations and maintenance in the Company's third fiscal quarter,
sales have historically been lower in those quarters. Due to the combined
effects of seasonality, the Company generally expects that, absent unusual
activity or changes in economic conditions, its lowest sales will occur in the
first fiscal quarter.
SERVICE MARKS, TRADEMARKS, TRADE NAMES AND PATENTS
The Company's Quanex, Quanex design, Seam-Free design, NitroSteel, MACGOLD,
MACSTEEL, MACSTEEL design, MAC+, Ultra-Bar, Homeshield, Homeshield design and
"The Best Alloy & Specialty Bars" marks are registered trademarks or service
marks. The Company's Piper Impact name is used as a service mark, but is not
registered in the United States. The trade name Nichols-Homeshield and the
Homeshield and the Homeshield design trademarks are used in connection with the
sale of the Company's aluminum mill sheet products and residential building
products. The Homeshield, Piper Impact, MACSTEEL and Quanex word and design
marks and associated trade names are considered valuable in the conduct of the
Company's business.
The businesses conducted by the Company generally do not depend upon patent
protection. Although the Company holds numerous patents, in many cases the
proprietary technology that the Company has developed for using the patents is
more important than the patents themselves.
RESEARCH AND DEVELOPMENT
Expenditures for research and development of new products or services during the
last three years were not significant. Although not technically defined as
research and development, a significant amount of time, effort and expense is
devoted to custom engineering and qualifying the Company's products for specific
customer applications.
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ENVIRONMENTAL MATTERS
As a manufacturer of specialized metal products, Quanex is subject to extensive
laws and regulations concerning the discharge of materials into the environment
and the remediation of chemical contamination. Quanex is required to make
capital and other expenditures on an ongoing basis in order to satisfy such
requirements. The cost of environmental matters has not had a material adverse
effect on Quanex's operations or financial condition in the past, and management
is not now aware of any existing conditions that it currently believes are
likely to have a material adverse effect on Quanex's operations or financial
condition.
Under applicable state and federal laws, the Company may be responsible for,
among other things, all or part of the costs required to remove or remediate
wastes or hazardous substances at the locations Quanex has owned or operated at
any time. The Company is currently participating in environmental assessments
and remediation of a number of those locations.
From time to time, Quanex also has been alleged to be liable for all or part
of the costs incurred to clean up third-party sites where it supposedly arranged
for disposal of hazardous substances. The Company's allocable share of liability
at those sites, taking into account the likelihood that other parties will pay
their shares, has not been material to its operations or financial condition.
Total remediation reserves, at October 31, 1998, for Quanex's current plants,
former operating locations, and disposal facilities were approximately $23
million. Of that, approximately 80% relates to cleanup of historical soil and
groundwater contamination and other corrective measures at a plant operated by
the Company's Piper Impact subsidiary in New Albany, Mississippi. Depending upon
such factors as the nature and extent of contamination, the cleanup technologies
employed, and regulatory concurrences, final remediation costs may be more or
less than amounts accrued; however, management believes it has established
adequate reserves for all probable and reasonably estimable remediation
liabilities.
Amendments to the Federal Clean Air Act were adopted in 1990, and
environmental agencies continue to develop implementing regulations. Depending
on the nature of the regulations adopted, Quanex may be required to incur
additional capital and other expenditures sometime in the next several years for
air pollution control equipment, to maintain or obtain operating permits and
approvals, and to address other air emission-related issues. The Company's Board
of Directors approved capital expenditures totaling approximately $20 million to
be spent between 1996 and 1998 to meet those requirements. That amount included
spending toward a significant upgrade to pollution control systems at MACSTEEL
to ensure compliance with the air standards. These upgrades were substantially
complete as of October 31, 1998. Based upon its analysis and experience to date,
Quanex does not believe that its compliance with Clean Air Act requirements will
have a material effect on its operations or financial condition.
Quanex incurred approximately $23 million and $14 million during fiscal 1998
and 1997, respectively, in expenses and capital expenditures in order to comply
with existing or proposed environmental regulations. The 1998 and 1997 amounts
include spending toward a significant upgrade to pollution control systems at
MACSTEEL. The Company estimates spending of approximately $8 million at various
of its facilities during fiscal 1999. Quanex will continue to have expenditures
in connection with environmental matters beyond 1999, but it is not possible at
this time to reasonably estimate the amount of these expenditures. Future
expenditures relating to environmental matters will necessarily depend upon the
application to Quanex and its facilities of future regulations and government
decisions.
EMPLOYEES
At October 31, 1998, the Company employed 3,405 persons. Of the total employed,
27% were covered by collective bargaining agreements. On November 22, 1997, the
International Brotherhood of Teamsters ratified a five-year agreement covering
250 employees at two Davenport, Iowa, plants of Nichols Aluminum. The United
Steel Workers ratified a four-year agreement, expiring in January 2002, covering
90 employees at the Nichols Aluminum Alabama plant. During 1999 two labor
contracts will expire affecting two Quanex facilities. The International
Association of Machinists' contract, covering 100 employees at the Nichols
Aluminum, Lincolnshire plant will expire on January 12, 1999. A new five-year
agreement has been negotiated and approved by a two to one vote of the
membership on December 20, 1998. The United Steel Workers' contract at the
MacSteel Michigan plant covering 190 employees will expire on February 28, 1999.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
For financial information on the Company's foreign and domestic operations, see
Note 13 of the Financial Statements contained in this Annual Report on Form
10-K.
7
<PAGE> 9
ITEM 2. PROPERTIES
The following table lists Quanex's principal plants together with their
locations, general character and the industry segment which uses the facility.
Each of the facilities identified as being owned by the Company is free of any
material encumbrance.
<TABLE>
<CAPTION>
Square
Location Plant Footage
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Owned: ENGINEERED STEEL BARS
Fort Smith, Arkansas MACSTEEL 415,723
Jackson, Michigan MACSTEEL 245,150
Huntington, Indiana Heat Treating 82,000
Leased (expires 2009):
Kenosha, Wisconsin NitroSteel 35,000
Owned: ALUMINUM MILL SHEET PRODUCTS
Lincolnshire, Illinois Nichols Aluminum 142,000
Davenport, Iowa Nichols Aluminum 236,000
Davenport, Iowa Nichols Aluminum Casting 245,000
Leased (4 leases expiring 2003, 2004, 2005 and 2018):
Decatur, Alabama Nichols Aluminum Alabama 410,000
Owned: ENGINEERED PRODUCTS
Rice Lake, Wisconsin AMSCO 290,800
Chatsworth, Illinois Homeshield Fabricated Products (two plants) 212,000
New Albany, Mississippi Piper Impact (two plants) 683,000
Park City, Utah(1) Piper Impact 130,000
Zwolle, The Netherlands Piper Impact Europe 110,000
Leased (expires 1999): EXECUTIVE OFFICES
Houston, Texas Quanex Corporation 21,000
</TABLE>
(1)As previously announced, a plan has been approved to close this facility and
move its production to the New Albany, Mississippi facility in early 1999.
ITEM 3. LEGAL PROCEEDINGS
On or about July 13, 1998, the United States Department of Justice ("DOJ")
notified the Company that the federal government was prepared to bring against
the Company a court action alleging violations of the Clean Water Act at the
Company's former facility in Rosenberg, Texas. Among other things, the
government contended that the plant had discharged water, which contained
pollutants at levels greater than applicable effluent limits, had not
appropriately monitored its discharges, and had not adequately notified the
federal Environmental Protection Agency of exceedances. DOJ's demand letter
extended to the Company and to Vision Metals, the current owner and operator of
the Rosenberg plant, the opportunity to resolve this matter short of litigation
and offered to settle the Company's alleged violations for a civil penalty of
$1.1 million. The Company tendered this matter to Vision Metals for defense and
indemnification pursuant to the Purchase Agreement by which Vision Metals
acquired the Rosenberg facility and assumed certain environmental liabilities.
Having accepted the Company's tender without reservation, Vision Metals at its
expense is contesting certain of the government's allegations and attempting to
negotiate resolution of the government's Clean Water Act claims against the
Company.
Other than the above matter and proceedings described under Item 1,
"Environmental Matters", there are no material legal proceedings to which
Quanex, its subsidiaries, or their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
8
<PAGE> 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Quanex's common stock, $.50 par value, is traded on the New York Stock Exchange,
under the ticker symbol: NX. Quarterly stock price information and annual
dividend information for the common stock is as follows:
<TABLE>
<CAPTION>
Quarterly Common Stock Dividends
QUARTER ENDED: 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January..................................................... .16 .15 .15 .14 .14
April....................................................... .16 .15 .15 .15 .14
July........................................................ 16 .15 .15 .15 .14
October..................................................... .16 .16 .15 .15 .14
--- --- --- --- ---
Total............................................. .64 .61 .60 .59 .56
</TABLE>
<TABLE>
<CAPTION>
Quarterly Common Stock Sales Price
(HIGH & LOW) QUARTER ENDED: 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January..................................................... 30 7/16 29 1/8 21 1/8 24 5/8 21 1/4
27 1/16 24 1/4 18 20 16 1/8
April....................................................... 33 13/16 27 7/8 22 3/8 23 7/8 22 3/8
28 1/2 23 3/8 19 5/8 21 19 1/8
July........................................................ 32 3/16 34 1/8 23 7/8 26 5/8 23
27 1/4 25 1/8 19 3/8 22 1/8 18 1/8
October..................................................... 27 7/8 36 1/2 28 3/4 26 27 1/4
15 5/8 26 1/4 19 5/8 18 5/8 20 3/4
</TABLE>
The terms of Quanex's revolving credit arrangements with certain banks limit the
total amount of common and preferred stock dividends and other distributions on
such stock. Under the most restrictive test under such credit facilities, the
total common stock dividends the Company may declare and pay is limited to $21
million, plus 50% of consolidated net earnings after October 31, 1989, adjusted
for other factors as set forth in the credit agreement. As of October 31, 1998,
the amount of dividends and other distributions the Company was permitted to
declare and pay under its credit facilities was approximately $40 million.
There were 5,632 holders of Quanex common stock on record as of December 31,
1998.
ITEM 6. SELECTED FINANCIAL DATA
GLOSSARY OF TERMS
The exact definitions of commonly used financial terms and ratios vary somewhat
among different companies and investment analysts. The following list gives the
definition of certain financial terms that are used in this report:
Capital expenditures: Additions to property, plant and equipment.
Book value per common share: Stockholders' equity less the stated value of
preferred stock divided by the number of common shares outstanding.
Asset turnover: Net sales divided by average total assets.
Current ratio: Current assets divided by current liabilities.
Return on investment: The sum of net income and the after-tax effect of interest
expense less capitalized interest divided by the sum of the averages for
long-term debt and stockholders' equity.
Return on common stockholders' equity: Net income attributable to common
stockholders divided by average common stockholders' equity.
9
<PAGE> 11
FINANCIAL SUMMARY 1993-1998
($ thousands, except per share data)
<TABLE>
<CAPTION>
(FOR DEFINITION OF ITEMS, SEE PAGE 9) FISCAL YEARS ENDED OCTOBER 31, 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES AND EARNINGS
Net sales(1).................................................... 797,490 746,093 620,069 603,985 435,983
Cost of sales including depreciation............................ 683,954 644,041 526,886 521,521 376,077
- --------------------------------------------------------------------------------------------------------------------------
Gross profit.................................................... 113,536 102,052 93,183 82,464 59,906
Piper Impact Restructuring Charge............................... 58,500(2)
Other depreciation and amortization............................. 5,059 3,669 1,791 1,258 1,266
Selling, general and administrative expenses.................... 47,713 43,375 44,959 33,746 31,893
- --------------------------------------------------------------------------------------------------------------------------
Operating income................................................ 2,264 55,008 46,433 47,460 26,747
Percent of net sales............................................ 0.3 7.4 7.5 7.9 6.1
Other income (expense)-net...................................... 2,278 1,637 4,544 1,721 2,765
Interest expense-net............................................ 10,506 14,002 11,360 8,870 10,178
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes, extraordinary items, cumulative
effect of accounting change, and income from discontinued
operations.................................................... (5,964) 42,643 39,617 40,311 19,334
Income taxes (credit)........................................... (2,087) 14,925 16,639 16,931 8,120
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations........................ (3,877) 27,718 22,978 23,380 11,214
Income from discontinued operations............................. 0 5,176 9,912 10,480 7,638
Gain on sale of discontinued operations......................... 13,046 36,290
Extraordinary items and cumulative effect of accounting changes, net
of taxes(3)................................................... -- -- (2,522)(3) (2,021)(3) --
- --------------------------------------------------------------------------------------------------------------------------
Net income...................................................... 9,169 69,184 30,368 31,839 18,852
Percent of net sales............................................ 1.1(6) 9.3(5) 4.9 5.3 4.3
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Basic Earnings per share:
Income (loss) from continuing operations...................... (0.27) 2.01 1.70 1.44 0.40
Income from discontinued operations........................... -- 0.37 0.73 0.78 0.57
Gain on sale of discontinued operations....................... 0.92 2.63 -- -- --
Extraordinary items and cumulative effect of accounting change... -- -- (0.19) (0.15) --
Net earnings (loss)........................................... 0.65 5.01 2.24 2.07 0.97
Cash dividends declared......................................... 0.64 0.61 0.60 0.59 0.56
Book value...................................................... 19.19 19.13 14.50 12.81 11.04
Average shares outstanding (000)................................ 14,149 13,807 13,524 13,443 13,342
Market closing price range
High.......................................................... 33 1/2 36 1/2 28 5/8 26 27
Low........................................................... 16 23 3/8 18 3/8 18 3/8 16 1/4
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION -- YEAR END
Working capital................................................. 62,979 52,818 88,238 53,629 100,007
Property, plant and equipment -- net............................ 395,054 379,071 319,165 233,982 239,642
Other assets.................................................... 69,422 119,738 117,142 55,989 54,736
Total assets.................................................... 674,288 685,705 638,948 466,458 491,329
Noncurrent deferred income taxes................................ 33,412 48,111 40,454 45,740 39,298
- --------------------------------------------------------------------------------------------------------------------------
Long-term debt.................................................. 188,302 201,858 253,513 111,894 107,442
Stockholders' equity............................................ 272,044 268,823 197,009 172,814 233,883
Total capitalization............................................ 460,346 470,681 450,522 284,708 341,325
Long-term debt percent of capitalization........................ 40.9 42.9 56.3 39.3 31.5
- --------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Asset turnover.................................................. 1.2 1.1 1.0 1.3 0.9
Current ratio................................................... 1.4 TO 1 1.4 to 1 1.8 to 1 1.4 to 1 2.0 to 1
Return on average investment -- percent......................... 3.4(6) 16.7(5) 9.8 11.1 6.9
Return on average common equity -- percent...................... 3.4(6) 29.7(5) 16.4 17.4 9.0
- --------------------------------------------------------------------------------------------------------------------------
Working capital provided by operations(4)....................... 82,830 73,321 60,378 57,767 39,326
Depreciation and amortization................................... 42,400 37,865 36,499 29,062 25,520
Capital expenditures............................................ 60,936 69,146 34,737 21,629 42,297
Backlog for shipment in next 12 months.......................... 183,847 225,498 123,382 94,464 109,626
- --------------------------------------------------------------------------------------------------------------------------
Number of stockholders.......................................... 5,720 5,488 3,425 3,659 3,454
Average number of employees..................................... 3,261 2,994 1,950 1,653 1,530
Sales per employee.............................................. 245 249 318 365 285
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(FOR DEFINITION OF ITEMS, SEE PAGE 9) FISCAL YEARS ENDED OCTOBER 31, 1993
<S> <C>
REVENUES AND EARNINGS
Net sales(1).................................................... 371,266
Cost of sales including depreciation............................ 329,220
- ---------------------------------------------------------------------------------------
Gross profit.................................................... 42,046
Piper Impact Restructuring Charge...............................
Other depreciation and amortization............................. 1,596
Selling, general and administrative expenses.................... 30,605
- ------------------------------------------------------------------------------------------------
Operating income................................................ 9,845
Percent of net sales............................................ 2.7
Other income (expense)-net...................................... 4,508
Interest expense-net............................................ 11,962
- ---------------------------------------------------------------------------------------------------------
Income (loss) before income taxes, extraordinary items, cumulative
effect of accounting change, and income from discontinued
operations.................................................... 2,391
Income taxes (credit)........................................... 1,004
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations........................ 1,387
Income from discontinued operations............................. 7,041
Gain on sale of discontinued operations.........................
Extraordinary items and cumulative effect of accounting changes, net
of taxes(3)................................................... --
- --------------------------------------------------------------------------------------------------------------------------
Net income...................................................... 8,428
Percent of net sales............................................ 2.3
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Basic Earnings per share:
Income (loss) from continuing operations...................... (0.33)
Income from discontinued operations........................... 0.52
Gain on sale of discontinued operations....................... --
Extraordinary items and cumulative effect of accounting change... --
Net earnings (loss)........................................... 0.19
Cash dividends declared......................................... 0.56
Book value...................................................... 10.48
Average shares outstanding (000)................................ 13,477
Market closing price range
High.......................................................... 20 3/4
Low........................................................... 14 1/4
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION -- YEAR END
Working capital................................................. 121,959
Property, plant and equipment -- net............................ 218,851
Other assets.................................................... 61,313
Total assets.................................................... 463,362
Noncurrent deferred income taxes................................ 32,535
- --------------------------------------------------------------------------------------------------------------------------
Long-term debt.................................................. 128,476
Stockholders' equity............................................ 225,776
Total capitalization............................................ 354,252
Long-term debt percent of capitalization........................ 36.3
- --------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Asset turnover.................................................. 0.8
Current ratio................................................... 3.0 to 1
Return on average investment -- percent......................... 4.3
Return on average common equity -- percent...................... 1.7
- --------------------------------------------------------------------------------------------------------------------------
Working capital provided by operations(4)....................... 30,482
Depreciation and amortization................................... 26,184
Capital expenditures............................................ 34,281
Backlog for shipment in next 12 months.......................... 73,207
- --------------------------------------------------------------------------------------------------------------------------
Number of stockholders.......................................... 3,540
Average number of employees..................................... 1,549
Sales per employee.............................................. 240
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Several acquisitions and divestitures have been made in the past three
years. See Notes 2 and 3 to the financial statements for a description of
these transactions.
(1) Excludes sales from discontinued operations for the years 1997-1993,
respectively of $187,123, $275,641, $287,210, $263,331 and $244,879.
(2) During the fourth quarter of 1998, Piper Impact recorded a $58.5 million
non-recurring restructuring charge as the result of impairment as described
by Statement of Financial Accounting Standards No. 121. See Footnote 4 to
the financial statements for further information.
(3) 1996 and 1995-early extinguishment of debt.
(4) Working capital provided by operations is a supplemental financial
measurement used in the company's business and should not be construed as an
alternative to operating income or cash provided by operating activities
since it excludes the effects of changes in working capital. Working capital
from operations is calculated as income from continuing operations, net of
taxes, adjusted for non-cash and nonrecurring items.
(5) Includes gain on sale of discontinued operations.
(6) Includes effect of Piper Impact's restructuring charge ($58.5 million) and
gain on sale of discontinued operations ($13 million).
10
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the Selected Financial Data and
the Consolidated Financial Statements of the Company and the accompanying notes.
PRIVATE SECURITIES LITIGATION REFORM ACT
Certain forward-looking information contained herein is being provided in
accordance with the provisions of the Private Securities Litigation Reform Act.
Such information is subject to certain assumptions and beliefs based on current
information known to the Company and is subject to factors that could result in
actual results differing materially from those anticipated in the
forward-looking statements contained in this report. Such factors include
domestic and international economic activity, prevailing prices of steel and
aluminum scrap and other raw material costs, interest rates, the continuation of
countervailing import duties on certain of the Company's competitors,
construction delays, market conditions for the Company's customers, any material
changes in purchases by the Company's principal customers, environmental
regulations and changes in estimates of costs for known environmental
remediation projects and situations, world-wide political stability and economic
growth, the Company's successful implementation of its internal operating plans
and the Year 2000 readiness efforts, performance issues with key customers,
suppliers and subcontractors, and regulatory changes and legal proceedings.
Accordingly, there can be no assurance that the forward-looking statements
contained herein will occur or that objectives will be achieved.
RESULTS OF OPERATIONS
Overview
Summary Information as % of Sales: (Dollars in millions)
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
------------------------------------------------
-----1998-------------1997-------------1996-----
DOLLAR % of Dollar % of Dollar % of
AMOUNT Sales Amount Sales Amount Sales
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net Sales................................................. $797.5 100% $746.1 100% $620.1 100%
Cost of Sales........................................... 647.2 81 610.4 82 492.6 79
Selling, general and admin.............................. 47.7 6 43.4 6 45.0 7
Depreciation and amortization........................... 41.8 5 37.3 5 36.1 7
Restructuring Charge.................................... 58.5 7 -- -- -- --
------ --- ------ --- ------ ---
Operating Income.......................................... 2.3 1% 55.0 7% 46.4 7%
Interest Expense.......................................... (14.9) (2) (17.5) (2) (11.9) (2)
Capitalized Interest...................................... 4.4 1 3.5 0 .6 0
Other, net................................................ 2.2 0 1.6 0 4.5 1
Income tax benefit (expense).............................. 2.1 0 (14.9) (1) (16.6) (2)
------ --- ------ --- ------ ---
Income (loss) from continuing operations.................. $ (3.9) 0% $ 27.7 4% $ 23.0 4%
====== ====== ======
</TABLE>
For the sixth consecutive year, the Company's continuing operations achieved
higher sales from the previous fiscal year. These continued increases are a
result of the Company's growth strategies through internal investments as well
as acquisitions. The Company's internal growth investments, principally at the
MACSTEEL Division and at Piper Impact, Inc. ("Piper Impact") were focused toward
capacity expansions, new product offerings, quality improvements, and enhanced
customer service capabilities. The Company also completed a number of strategic
acquisitions and divestitures to improve operations and align its businesses for
growth.
Acquisitions / Divestitures Since October 31, 1996
In April 1997, the Company completed the sale of its LaSalle Steel Company
("LaSalle") subsidiary. LaSalle's results of operations have been classified as
discontinued operations and prior periods have been restated. For business
segment reporting purposes, LaSalle's data was previously classified as "Cold
Finished Steel Bars".
In October 1997, the Company, through its Dutch subsidiary, Piper Impact
Europe B.V. ("Piper Impact Europe"), purchased the net assets of Advanced Metal
Forming C.V., a Dutch limited partnership, for approximately $30 million. The
Company's balance sheet as of October 31, 1997 includes Piper Impact Europe. The
Company's income statement for the twelve months ended October 31, 1997 does not
include results for Piper Impact Europe.
11
<PAGE> 13
In December 1997, the Company completed the sale of its tubing operations
("Tubing Operations"), comprised of Michigan Seamless Tube, Gulf States Tube,
and the Tube Group Administrative Office. The Tubing Operations' results of
operations have been classified as discontinued operations and prior periods
have been restated. For business segment reporting purposes, these businesses
were previously classified as "Steel Tubes". Two small divisions, Heat Treat
Division and NitroSteel Division, which were previously included with this
segment, were retained by the Company and are now included in the Engineered
Steel Bars segment.
In October 1998, the Company acquired the stock of Decatur Aluminum Corp., a
Decatur, Alabama based aluminum sheet manufacturer for approximately $19
million. The newly acquired company has been renamed Nichols Aluminum-Alabama,
Inc. ("Nichols Aluminum Alabama") in alignment with Quanex's other aluminum mill
sheet businesses in its Nichols Aluminum division. Nichols Aluminum Alabama's
operations include cold rolling aluminum sheet to specific gauge, annealing,
leveling, custom painting and slitting to width. Nichols Aluminum Alabama
employs approximately 110 people.
Business Segments
The Company adopted Statement of Financial Accounting Standards No. 131, "SFAS
131" for the fiscal year ended 1998. SFAS 131 requires that the Company disclose
certain information about its operating segments where operating segments are
defined as "components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance". Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.
Pursuant to SFAS 131, the Company has three reportable segments: engineered
steel bars, aluminum mill sheet products, and engineered products. The Company's
previously reported "Aluminum Products Group" has been split into two segments:
"Aluminum Mill Sheet Products" and "Engineered Products". The engineered steel
bar segment consists of engineered steel bars manufacturing, steel bar and tube
heat treating services and steel bar and tube wear and corrosion resistant
finishing services. The aluminum mill sheet segment manufactures mill finished
and coated aluminum sheet. The engineered products segment manufactures
impact-extruded aluminum and steel parts, aluminum window and patio door
screens, window frames and other roll formed products and stamped shapes.
The following table sets forth selected operating data for the Company's three
business segments:
<TABLE>
<CAPTION>
Years Ended October 31,
--------------------------------
1998 1997 1996
--------------------------------
(In thousands)
<S> <C> <C> <C>
Engineered Steel Bars:(1)
Net sales................................................. $327,296 $319,468 $292,167
Operating income.......................................... 58,908 50,762 39,090
Depreciation and amortization............................. 13,097 13,940 18,263
Identifiable assets....................................... $219,727 $192,937 $171,351
Aluminum Mill Sheet Products:(2)
Net sales................................................. $266,355 $261,041 $248,517
Operating income.......................................... 7,788 1,753 7,721
Depreciation and amortization............................. 10,670 10,154 10,077
Identifiable assets....................................... $198,596 $163,637 $182,743
Engineered Products:(3, 4)
Net sales................................................. $230,012 $206,831 $125,096
Operating income (loss)................................... (52,606) 15,444 14,506
Depreciation and amortization............................. 17,928 13,055 7,606
Identifiable assets....................................... $220,161 $281,943 $231,861
</TABLE>
(1) Includes NitroSteel and Heat Treat divisions previously reported under the
Steel Tubes segment. (See Note 3 to financial statements)
(2) 1998 results include three weeks of Nichols Aluminum Alabama's operations
acquired October 9, 1998. (See Note 2 to financial statements)
(3) 1996 results include three months of Piper Impact's operations. Also, 1998
data includes the results of Piper Impact Europe. Identifiable assets as of
October 31, 1998 and 1997 include assets of Piper Impact Europe, acquired
October 29, 1997. (See Note 2 to financial statements)
(4) During 1998, Piper Impact recorded a $58.5 million non-recurring
restructuring charge as the result of impairment as described by Statement
of Financial Accounting No. 121. This restructuring charge is included in
operating income. (See Note 4 to financial statements)
The engineered steel bar business posted another record year, driven by strong
demand in the transportation markets. The business achieved best-ever levels in
sales and operating income. In December 1998, steel scrap prices reached their
lowest levels in years, but this has been offset by some softening in the
marketplace for steel bar products as customers work to manage their
inventories. In fiscal 1999, MACSTEEL plans to finish its Phase IV expansion
project which will double its production capacity for MACPLUS, its most premium
product. Work
12
<PAGE> 14
has begun on Phase V, which will increase capacity at MACSTEEL's engineered bar
mills and the MACSTEEL Heat Treating Division and will improve operational
efficiency at MACSTEEL NitroSteel.
The aluminum mill sheet business ended the year on a high note. Spreads have
increased from their depressed levels in the first half of the year and aluminum
scrap prices are relatively stable. The backlog for the first quarter is
stronger than normal, helped in part by the acquisition of Nichols Aluminum
Alabama. The business also has finished construction of its rotary furnace
project at its mini-mill in Davenport, Iowa, which will allow the casting plant
to use less costly, lower grade scrap in its production process. The furnaces
are expected to become fully operational in early fiscal 1999.
The engineered products business had a tough year. The automotive air bag
market underwent major and rapid changes during fiscal 1998. While Piper Impact
Europe made a solid contribution in its first full year with the Company, slack
demand in Asia and the General Motors strike adversely affected sales for Piper
Impact's products in North American markets. To improve its competitiveness and
its cost structure, Piper Impact is consolidating its operations in New Albany,
Mississippi by closing down a finishing plant in Park City, Utah. Marketing
efforts remain focused on building sales in diversified applications using Piper
Impact's unique product design capabilities and impact-extrusion manufacturing
process. The fabricated products businesses, AMSCO and Homeshield Fabricated
Products had slightly better results for fiscal 1998 as these businesses further
improved their operations. Efforts remain focused on using existing capacity for
new products and for developing end-markets using the Company's unique
value-added roll forming and polylaminate technology.
Outlook
The Company currently expects that overall business levels for fiscal 1999
should be similar to those experienced during 1998. However, domestic and global
market factors will impact the Company and any slowdown in the U.S. economy
could affect demand and pricing for many of the Company's products. Since the
non-recurring restructuring charge at Piper Impact included the write-off of
goodwill and some long lived assets, it will result in lower depreciation and
amortization for fiscal 1999. The acquisition of Nichols Aluminum Alabama is
expected to impact earnings in fiscal 1999. Improved financial results will be
dependent upon, among other things, whether the continued strength of the
economy can be sustained, improvements in the markets which the Company serves,
and whether the improvements in the price spreads of aluminum mill sheet
products can be sustained.
1998 COMPARED TO 1997
Net Sales -- Net sales for fiscal 1998 were $797.5 million, representing an
increase of $51.4 million when compared to fiscal 1997. This increase reflects
higher net sales in all three business segments as well as an increase of $14.4
million resulting from sales to discontinued operations which were previously
reflected as intersegment sales and eliminated in 1997. These sales are now
third-party sales and are not eliminated in 1998. Piper Impact Europe, which was
acquired in October 1997, contributed a full year of sales in fiscal 1998.
Net sales for fiscal 1998 from the Company's engineered steel bar business
were $327.3 million, representing an increase of $7.8 million, or 2%, when
compared to fiscal 1997. This increase was primarily attributable to a better
mix of product sales with a higher percentage of MACPLUS and bearing steels.
Net sales from the Company's aluminum mill sheets products business for fiscal
1998 were $266.4 million, representing an increase of $5.3 million, or 2%, when
compared to fiscal 1997. This increase was primarily attributable to strong
demand, which yielded a 5% increase in volume.
Net sales from the engineered products group increased $23.2 million to $230.0
million. The majority of the increase resulted from the addition of Piper Impact
Europe offset by a decrease in net sales at Piper Impact.
Restructuring Charge -- During the year ended October 31, 1998, the Company
recorded a restructuring charge of $58.5 million related to its subsidiary,
Piper Impact.
Components of this special charge include $51.2 million for goodwill
impairment; $6.7 million for impairment of property, plant and equipment; and
$600 thousand for severance benefits to be paid to employees of the Park City,
Utah plant. Piper Impact experienced significant changes in market conditions
and the relationship with its major customer in fiscal 1998, which led to
substantial declines in sales and operating cash flow. Management began an
evaluation of the operations of Piper Impact in August 1998. As a result of this
evaluation, in September 1998, management approved a plan to close the Park
City, Utah facility and move its production to the New Albany, Mississippi
facility.
Due to the significance of the changes discussed above and the decision to
close one of the acquired production facilities, management performed an
evaluation of the recoverability of all of the assets of Piper Impact, excluding
the new steel plant, as described in Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". Management concluded from the results of this
evaluation that a significant impairment of intangible as well as long-lived
assets had occurred. An impairment charge was required because estimated fair
value was less than the carrying value of the assets.
13
<PAGE> 15
Considerable management judgment is necessary to estimate fair value.
Accordingly, actual results could vary significantly from management's
estimates.
The one-time restructuring charge resulted in an after-tax impact on net
income of $38 million or $2.68 per share.
Operating Income -- Consolidated operating income for fiscal 1998 was $2.3
million. Included in operating income was the one-time $58.5 million
restructuring charge discussed above. Operating income excluding this
restructuring charge was $60.8 million, representing an increase of $5.8
million, or 10%, when compared to fiscal 1997. Primary contributing factors to
this increase were: 1) Increased sales and operating income from the engineered
steel bar and aluminum mill sheet business and 2) the inclusion of a full year
of Piper Impact Europe in the engineered products business. These improvements
were partly offset by lower operating income from Piper Impact of the engineered
products business.
Operating income from the Company's engineered steel bar business for fiscal
1998 was $58.9 million, representing an increase of $8.1 million, or 16%, when
compared to fiscal 1997. This increase was principally due to increased sales
from strong demand in the transportation markets as well as lower material
prices. These results represented a record year for this business.
Operating income from the Company's aluminum mill sheet products business for
fiscal 1998 was $7.8 million, representing an increase of $6.0 million, or 344%,
when compared to fiscal 1997. This increase was principally due to increased
volume and net sales accompanied by lower scrap prices. During the fourth
quarter of 1998, this business experienced a turnaround with strong demand and
favorable material costs.
The Company's engineered products business experienced an operating loss of
$52.6 million for fiscal 1998. Included in this loss was the non-recurring
restructuring charge of $58.5 million described above. Operating income for 1998
excluding this restructuring charge was $5.9 million, a decrease of $9.6 million
or 62% from 1997. This decline is largely a result of operating losses
experienced at Piper Impact. While Piper Impact Europe made a solid contribution
in its first full year with the Company, slack demand in Asia and the General
Motors strike adversely affected sales for Piper Impact products in North
American markets. The fabricated products lines within this business showed
modest improvement over fiscal 1997.
Selling, General and Administrative Expenses -- Selling, general and
administrative expenses increased in fiscal 1998 by $4.3 million, or 10%,
compared to fiscal 1997. This increase is largely a result of the inclusion of a
full year of Piper Impact Europe, which was not included in 1997.
Depreciation and Amortization -- Depreciation and amortization increased by
$4.5 million in fiscal 1998 compared to fiscal 1997. This increased depreciation
resulted from the inclusion of Piper Impact Europe in 1998 and the increased
depreciation at Piper Impact for the steel products plant partially offset by
lower depreciation at the engineered steel bar business.
Interest Expense and Capitalized Interest -- Interest expense decreased by
$2.6 million compared to fiscal 1997 as a result of reducing bank borrowings
with proceeds received from the sale of LaSalle and the Tubing operations.
Capitalized interest increased by $859 thousand in 1998 compared to 1997
primarily due to Phase III and IV of the MACSTEEL expansion projects.
Other -- "Other, net" consists largely of investment income and remained
relatively constant.
Income From Continuing Operations -- The Company had a loss from continuing
operations of $3.9 million in 1998. Included in this loss was the after-tax
non-recurring restructuring charge of $38.0 million. Income from continuing
operations excluding the restructuring charge was $34.1 million, an improvement
of $6.4 million, or 23%, compared to fiscal 1997. The improvement was
attributable to improved results in the Company's engineered steel bars and
aluminum mill sheet businesses, and the inclusion of a full year of Piper Impact
Europe and lower interest expense. These improvements were partially offset by
lower operating results at Piper Impact. The Company's effective income tax rate
was 35% for fiscal 1998 and 1997.
Income from Discontinued Operations -- Income from discontinued operations,
net of income taxes, for fiscal 1997, was $5.2 million which consisted of the
Tubing Operations and LaSalle Steel. There was no income from discontinued
operations in fiscal 1998. (See Note 3 to the financial statements)
Net Income -- Fiscal 1998 net income was $9.2 million, compared to $69.2
million for fiscal 1997. Included in net income for fiscal 1998 is an after-tax
non-recurring restructuring charge of $38.0 million and an after-tax gain of
$13.0 million on the sale of discontinued operations. Included in net income for
1997 was an after-tax gain of $36.3 million on the sale of discontinued
operations.
1997 COMPARED TO 1996
Net Sales -- Net sales for fiscal 1997 were $746.1 million, representing an
increase of $126.0 million when compared to fiscal 1996. This increase resulted
principally from a full year of Piper Impact sales in 1997 compared to three
months in 1996 and higher volumes in the engineered steel bar business.
Net sales for fiscal 1997 from the Company's engineered steel bar business
were $319.5 million, representing an increase of $27.3 million, or 9%, when
compared to fiscal 1996. This increase was attributable to record volume.
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An 11% increase in volume resulted from improved market share following the
Company's capacity expansion program.
Net sales from the Company's aluminum mill sheet products business for fiscal
1997 were $261.0 million, representing an increase of $12.5 million, or 5%, when
compared to fiscal 1996. This increase was mostly attributable to increased
volume.
Net sales from the Company's engineered products business for fiscal 1997 was
$206.8 million, representing an increase of $81.7 million or 65%. This increase
was mostly attributable to a full year of Piper Impact in 1997 compared to three
months in 1996.
Operating Income -- Consolidated operating income for fiscal 1997 was $55.0
million, representing an increase of $8.6 million, or 18%, when compared to
fiscal 1996. This increase resulted from improved sales and operating income
from the engineered steel bar business, partly offset by lower operating income
from the aluminum mill sheet products business.
Operating income from the Company's engineered steel bar business for fiscal
1997 was $50.8 million, representing an increase of $11.7 million, or 30%, when
compared to fiscal 1996. This increase was principally due to increased sales
following the Company's capacity expansion program but 1996 operating income was
also affected by higher accruals to the allowance for doubtful accounts. These
higher accruals were necessary as the engineered steel bar business increased
sales during the past several years.
Operating income from the Company's aluminum mill sheet products business for
fiscal 1997 was $1.8 million, representing a decrease of $6.0 million, or 77%,
when compared to fiscal 1996. This decrease was principally due to volatility in
the aluminum scrap markets, resulting in higher average raw material costs and
lower price spreads.
Operating income from the Company's engineered products business for fiscal
1997 was $15.4 million, representing an increase of $938 thousand, or 6%, when
compared to fiscal 1996. The results for 1997 included a full year of Piper
Impact in 1997 compared to three months in 1996. Fourth quarter results of 1997
were affected by start-up costs, including higher labor and training expenses
and the temporary use of less efficient production processes at Piper Impact's
new plant in New Albany, Mississippi.
Selling, General and Administrative Expenses -- Selling, general and
administrative expenses decreased in fiscal 1997 by $1.6 million, or 4%,
compared to fiscal 1996. This decrease was principally due to higher accruals to
the allowance for doubtful accounts in the prior year affecting the engineered
steel bar and the aluminum mill sheet products businesses. These higher accruals
were needed because the Company experienced $5.7 million in bad debts during the
year ended October 31, 1996, and to recognize risks associated with higher sales
volume achieved during the past several years. Fiscal 1997 selling, general and
administrative expenses were also affected by a full year of Piper Impact
compared to three months in fiscal 1996.
Depreciation and Amortization -- Depreciation and amortization increased by
$1.2 million in fiscal 1997 compared to fiscal 1996. Increased depreciation
resulting from a full year of Piper Impact was partly offset by lower
depreciation at MACSTEEL.
Interest Expense and Capitalized Interest -- Interest expense increased by
$5.6 million compared to fiscal 1996 primarily due to increased long-term debt
related to the Piper Impact acquisition in the fourth quarter of fiscal 1996.
Capitalized interest increased by $3.0 million in 1997 compared to 1996
primarily due to Phase III of the MACSTEEL expansion project and the
construction of the new Piper Impact plant in New Albany, Mississippi.
Other -- Included in "Other, net" for fiscal 1996, was a $2.3 million pretax
gain which represents the final recovery of a business interruption claim
related to a fire at the Company's Lincolnshire, Illinois facility that occurred
in 1993. In addition, "Other, net" included investment income of $2.0 million
for fiscal 1997 compared to $1.6 million for fiscal 1996.
Income From Continuing Operations -- Income from continuing operations
improved by $4.7 million, or 21%, compared to fiscal 1996. The improvements were
principally attributable to improved results at the Company's MACSTEEL division.
The Company's effective income tax rate was 35% for fiscal 1997 compared to 42%
in 1996.
Income From Discontinued Operations -- Income from discontinued operations,
net of income taxes, for fiscal 1997, was $5.2 million, compared to $9.9 million
for 1996. Fiscal 1996 included a full year of LaSalle which was sold during the
second quarter of fiscal 1997.
Net Income -- Fiscal 1997 net income was $69.2 million, compared to $30.4
million for fiscal 1996. Included in net income for fiscal 1997 is an after-tax
gain of $36.3 million on the sale of LaSalle Steel Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash on hand, cash flow from
operations, and borrowings under an unsecured $250 million Revolving Credit and
Term Loan Agreement ("Bank Agreement"). The Bank Agreement currently consists of
a revolving line of credit ("Revolver"). In July 1997, the term loan provisions
of the Bank Agreement expired. The Bank Agreement expires July 23, 2003 and
provides for up to $25 million for standby letters of credit, limited to the
undrawn amount available under the Revolver. All borrowings under the
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Revolver bear interest, at the option of the Company, at either (i) the prime
rate or the federal funds rate plus one percent, whichever is higher, or (ii) a
Eurodollar based rate. In the fourth quarter of fiscal 1996, the Company entered
into interest rate swap agreements, which effectively converted $100 million of
its variable rate debt under the Bank Agreement to fixed rate debt. Under these
agreements, payments are made based on a fixed rate ($50 million at 7.025%, and
$50 million at 6.755%) and payments are received on a LIBOR based variable rate
(5.22203% at October 31, 1998). Differentials to be paid or received under the
agreements are recognized as interest expense. Payments under the swap
agreements are tied to the interest periods for the borrowings under the Bank
Agreement. The swap agreements mature July 29, 2003. The Bank Agreement contains
customary affirmative and negative covenants and requirements to maintain a
minimum consolidated tangible net worth, as defined. The Bank Agreement limits
the payment of dividends and certain restricted investments. At October 31,
1998, retained earnings of approximately $40 million were available for
dividends. Under the Bank Agreement, at October 31, 1998, there was $80 million
outstanding under the Revolver.
In December 1995, the Company acquired all of its outstanding 10.77% Senior
Notes for a purchase price equal to 107.5% of the principal amount plus accrued
interest. The acquisition and related expenses resulted in an after-tax
extraordinary charge of approximately $2.5 million in the first quarter of 1996.
The acquisition was funded with cash and additional borrowings.
On June 30, 1995, the Company exercised its right under the terms of its
Cumulative Convertible Exchangeable Preferred Stock to exchange such stock for
an aggregate of $84,920,000 of its 6.88% Convertible Subordinated Debentures due
June 30, 2007("Debentures"). During September 1998, the Company accepted an
unsolicited block offer to buy back $1.5 million principal amount of its
Convertible Subordinated Debentures; therefore, the outstanding balance as of
October 1998 is $83,420,000. Interest is payable semi-annually on June 30 and
December 31 of each year. The Debentures are subject to mandatory annual sinking
fund payments sufficient to redeem 25% of the Debentures issued on each of June
30, 2005 and June 30, 2006, to retire a total of 50% of the Debentures before
maturity. The Debentures are subordinate to all senior indebtedness of the
Company and are convertible, at the option of the holder, into shares of the
Company's common stock at a conversion price of $31.50 per share.
On August 9, 1996, the Company completed the acquisition of substantially all
of the assets of Piper Impact. Piper Impact's assets, net of various
liabilities, were acquired for approximately $130 million in cash, cash
equivalents, and notes. This acquisition was financed with existing cash and
bank borrowings. Subsequent to the acquisition, the Company's Board of Directors
approved additional capital expenditures at Piper Impact totaling approximately
$42 million. These projects were completed in fiscal year 1998.
On April 18, 1997, the Company completed the sale of LaSalle for approximately
$65 million in cash. The proceeds were used to pay down the Company's Revolver.
On October 29, 1997, the Company acquired, through its Dutch subsidiary, Piper
Impact Europe B.V.("Piper Impact Europe"), substantially all of the assets of
Advance Metal Forming C.V., a Dutch limited partnership, for approximately $30
million. The acquisition was financed with existing cash and bank borrowings of
35 million Dutch Guilders. Piper Impact Europe's primary source of funds is a
stand-alone secured credit facility ("Credit Facility") providing up to 50
million Dutch Guilders ("NLG"). At October 31, 1998 and 1997, 1 NLG was equal to
.535 and .514 dollars. The Credit Facility consists of a Roll-Over Term Loan, a
Medium Term Loan and an Overdraft Facility. The Roll-Over Term Loan provides NLG
15 million for loan periods of 1, 2, 3, 6, or 12 months with repayment of
outstanding borrowings on October 27, 2002. Interest is payable on the repayment
date at the Amsterdam Interbank Offering Rate (AIBOR) plus 90 basis points. In
the case of a loan period of twelve months, interest is payable six months after
the beginning of the loan period and on the repayment date. The Medium Term Loan
provides NLG 15 million at 6.375% payable quarterly in arrears from March 1,
1998, with quarterly repayments of principal in equal amounts of NLG 500
thousand commencing January 1, 1999 through April 1, 2006. The Overdraft
Facility provides an aggregate amount of NLG 20 million to cover overdrafts or
up to NLG 15 million of loans for a period of one year, subject to annual
renewal. Overdrafts bear interest at the Bank's published rate for overdraft
facilities plus 1% per annum. Loans under the Overdraft Facility bear interest
at AIBOR plus 45 to 55 basis points. The terms of Overdraft Facility loans are
selected by Piper Impact Europe to be a period of 1, 2, 3, 6, or 12 months.
Interest on overdrafts are paid quarterly in arrears. The borrowings outstanding
under this Credit Facility as of October 31, 1998 totaled approximately $22
million.
On December 3, 1997, the Company completed the sale of its Tubing Operations
for approximately $30 million in cash. The proceeds were used to improve the
Company's debt structure and for investment in the Company's value-added
businesses.
On October 9, 1998, the Company acquired the stock of Decatur Aluminum Corp.,
a Decatur, Alabama based aluminum sheet manufacturer for approximately $19
million. The newly acquired company has been named Nichols Aluminum-Alabama,
Inc. ("Nichols Aluminum Alabama"). The acquisition was financed using existing
cash available under the Revolver. Certain Industrial Development bonds were
assumed as part of the Nichols Aluminum Alabama acquisition. These bonds mature
August 1, 2004 with interest payable monthly. The bonds bear interest at a
weekly interest rate, which is the rate determined by the remarketing agent
under then prevailing
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market conditions to be the minimum interest rate, which, if borne by the Bonds
on the effective date of such rate, would enable the remarketing agent to sell
the Bonds on such business day at a price (without regard to accrued interest)
equal to the principal amount of the bonds. The interest rate, however, may not
exceed 13% per annum. The weekly interest rate during October 1998 (the only
month the Company owned these bonds) ranged from 3.35% to 3.55%. The outstanding
principal amount of the bonds on October 31, 1998 was $4,755,000.
At October 31, 1998, the Company had commitments of $23 million for the
purchase or construction of capital assets, primarily relating to the Company's
continued expansions at MACSTEEL and Piper Impact. The Company plans to fund
these capital expenditures through cash flow from operations and, if necessary,
additional borrowings.
The Company believes that it has sufficient funds and adequate financial
sources available to meet its anticipated liquidity needs. The Company also
believes that cash flow from operations, cash balances and available borrowings
will be sufficient for the foreseeable future to finance anticipated working
capital requirements, capital expenditures, debt service requirements,
environmental expenditures and dividends.
Operating Activities
Cash provided by operating activities during fiscal 1998 was $64.1 million. This
represents a decrease of $15.4 million, or 19%, compared to fiscal 1997. This
decrease primarily resulted from increased inventory levels.
Investment Activities
Net cash used by investment activities in fiscal 1998 was $39.8 million compared
to $49.6 million in fiscal 1997. Fiscal 1998 cash from investing activities
included the acquisition of Decatur Aluminum Corp. and proceeds from the sale of
the Tubing Operations. Fiscal 1997 cash from investing activities included the
acquisition of Advanced Metal Forming, C.V. and proceeds from the sale of
LaSalle Steel Company. Capital expenditures decreased from $68.9 million in 1997
to $58.5 million in 1998. The Company estimates that fiscal 1999 capital
expenditures will approximate $60 to $70 million.
Financing Activities
Net cash used by financing activities for fiscal 1998 was $24.9 million,
principally consisting of net reductions in long-term debt of $18.6 million and
$9.1 million in common dividends, partly offset by proceeds from exercise of
stock options.
The Company uses futures and option contracts to hedge a portion of its
exposure to price fluctuations of aluminum. The exposure is related to the
Company's backlog of aluminum sales orders with committed prices as well as
future aluminum sales for which a sales price increase would lag a raw material
cost increase. Firm price commitments associated with these futures and options
contracts do not extend beyond December 1999. Hedging gains and losses are
included in "Cost of sales" in the income statement concurrently with the hedged
sales. Unrealized gains and losses related to open contracts are not reflected
in the consolidated statements of income.
EFFECTS OF INFLATION
Inflation has not had a significant effect on earnings and other financial
statement items.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
which is effective for the Company's year ending October 31, 1999. SFAS No. 130
establishes standards for the reporting and displaying of comprehensive income
and its components. The Company continues to analyze SFAS No. 130 to determine
what additional disclosures will be required.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures about
Pensions and Other Postretirement Benefits", which is effective for the
Company's year ending October 31, 1999. This statement defines new disclosure
requirements for pension and other postretirement benefits in an effort to
facilitate financial analysis by adding useful information and deleting
disclosures that the FASB considers no longer useful. The Company continues to
analyze SFAS No. 132 to determine what additional disclosures will be required.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for the Company's year
ending October 31, 2000. This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The Company will be
analyzing SFAS No. 133 to determine what, if any, impact or additional
disclosure requirements this pronouncement will have.
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YEAR 2000
The Company, like other businesses, is facing the Year 2000 issue. Many computer
systems and equipment with embedded chips or processors use only two digits to
represent the calendar year. This could result in computational or operational
errors as dates are compared across the century boundary causing possible
disruptions in business operations. The Year 2000 issue can arise at any point
in the Company's supply, manufacturing, processing, distribution, and financial
chains.
State of Readiness
The Company began addressing the Year 2000 issue in 1997, with an initial
assessment of Year 2000 readiness efforts at each of its operating units. Based
on the responses from the operating units, a standardized Year 2000 Plan format
was developed. By July 1998, each operating unit had completed a Year 2000 Plan
that included the following components:
1) Inventory of all systems (including hardware, software, and equipment with
embedded chips or processors),
2) Assessment of all systems for Year 2000 compliance,
3) Development of a project schedule for replacement or remediation of
non-compliant systems,
4) Development of a project schedule for testing compliant systems, and
5) Development of a list of significant vendors/suppliers for surveying their
Year 2000 readiness efforts.
The Year 2000 issue is being addressed within the Company by its individual
business units, and progress is reported periodically to management. The Company
has committed resources to conduct risk assessment and to take corrective
action, where required, with a target date of becoming Year 2000 ready for the
most critical systems by July 1999.
MACSTEEL, the most profitable and significant business segment of the Company,
has already replaced and/or remediated its most critical business systems to
become Year 2000 ready with testing scheduled for March 1999. The operating
units of the other two business segments are in the process of upgrading or
replacing their Enterprise Resource Planning ("ERP") systems with versions that
are certified to be Year 2000 ready by the manufacturers of such products. The
implementation of these ERP systems is anticipated to be complete by July 1999.
With respect to the plant systems, including automation and embedded chips
used in manufacturing operations, all business units are in the process of
completing their inventory and assessment audits. The Company is relying on
vendor certification and testing. Assessment and testing, with corrective action
as required, is expected to be completed by the third quarter of 1999.
With respect to the external parties, including suppliers and customers, the
Company's business units are in the process of surveying the Year 2000 readiness
efforts of critical external parties. Risk assessment is expected to be
completed by March 1999 and monitoring risk in this area will continue into the
third quarter of 1999, as many external parties will not have completed their
Year 2000 readiness efforts.
In addition, the Company is developing contingency plans intended to mitigate
possible disruption in business operations that may result from the Year 2000
issue. Contingency plans may include stockpiling necessary materials and
inventories, securing alternate sources of supply, adjusting facility shutdown
and start-up schedules, development of manual procedures to execute transactions
and complete processes and other appropriate measures. Once developed,
contingency plans will be continually refined as additional information becomes
available.
Cost
The Year 2000 activities and associated costs are being managed within each
business unit. The Company's total cost relating to the Year 2000 activities is
not expected to exceed $1 million.
Risks
Quanex is a diversified and decentralized company comprised of three business
segments. Each of these segments has multiple operating units, resulting in
thirteen separate Year 2000 Plans. Quanex has not required standardized systems
throughout the Company. This diversification has allowed the Company to spread
the risk of the Year 2000 issue, since no one system is responsible for the
entire financial and operational needs of the Company. While the diversification
reduces the risk of a material Year 2000 issue affecting the entire Company,
this same diversification increases the possibility that the Year 2000 issue
will occur at one or more units since many more
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systems exist than in a centralized environment. Management is addressing this
issue by requiring regular periodic reporting from each business unit and
monitoring the progress with follow-up review by independent consultants.
However, if implementation of the ERP systems at two major business units and
replacement/remediation of other critical non-compliant systems is not completed
in a timely manner, the affected units will implement contingency plans to
minimize disruptions in business operations that may result from the Year 2000
issue.
The Company relies on third party suppliers for raw materials, water,
utilities, transportation and other key services. Interruption of supplier
operations due to Year 2000 issues could affect the Company's operations. While
each business unit will evaluate the status of its major suppliers' Year 2000
readiness efforts and develop contingency plans to manage the risk, it can not
eliminate the potential for disruption due to third party failures.
The Company is also dependent upon its customers for sales and cash flow. Year
2000 interruptions in the operations of its major customers could result in
reduced sales, increased inventory or receivable levels and cash flow
reductions. The Company is in the process of surveying its major customers' Year
2000 readiness efforts to assess risk and develop plans with an intent to
minimize the impact on its operations.
The Company believes that it is taking all reasonable steps to ensure Year
2000 readiness. Its ability to meet the projected goals, including the costs of
addressing the Year 2000 issue and the dates upon which compliance will be
attained, depends on the Year 2000 readiness of its key suppliers and customers,
the completion of its final remediation and testing efforts and the successful
development and implementation of contingency plans. Although these and other
unanticipated Year 2000 issues could have an adverse effect on the results of
operations or financial condition of the Company, it is not possible to estimate
the extent of impact at this time, since the contingency plans are still under
development.
ALL STATEMENTS REGARDING YEAR 2000 MATTERS CONTAINED IN THIS ANNUAL REPORT ON
FORM 10-K ARE "YEAR 2000 READINESS DISCLOSURES" WITHIN THE MEANING OF THE YEAR
2000 INFORMATION AND READINESS DISCLOSURE ACT.
EUROPEAN MONETARY UNION
Within Europe, the European Economic and Monetary Union (the "EMU") introduced a
new currency, the Euro, on January 1, 1999. The new currency is in response to
the EMU's policy of economic convergence to harmonize trade policy, eliminate
business costs associated with currency exchange and to promote the free flow of
capital, goods and services among the participating countries.
On January 1, 1999, the participating countries adopted the Euro as their
local currency, initially available for currency trading on currency exchanges
and non-cash (banking) transactions. The existing local currencies, or legacy
currencies, will remain legal tender through January 1, 2002. Beginning on
January 1, 2002, Euro-denominated bills and coins will be issued for cash
transactions. For a period of six months from this date, both legacy currencies
and the Euro will be legal tender. On or before July 1, 2002, the participating
countries will withdraw all legacy currency and use exclusively the Euro.
At the current time, the Company does not believe that the conversion to the
Euro will have a material impact on its business or its financial statements.
ITEM 7A. QUANTITATIVE/QUALITATIVE DISCLOSURE
The following discussion of the Company and its subsidiaries' exposure to
various market risks contains "forward looking statements" that involve risks
and uncertainties. These projected results have been prepared utilizing certain
assumptions considered reasonable in light of information currently available to
the Company. Nevertheless, because of the inherent unpredictability of interest
rates, foreign currency rates and metal commodity prices as well as other
factors, actual results could differ materially from those projected in such
forward looking information. For a description of the Company's significant
accounting policies associated with these activities, see Notes 1 and 16 to the
Consolidated Financial Statements.
Interest Rate Risk
The Company and its subsidiaries have a Revolving Credit Facility, Convertible
Subordinated Debentures, interest rate swap agreements and other long-term debt
which subject the Company to the risk of loss associated with movements in
market interest rates.
At October 31, 1998, the Company had fixed-rate debt totaling $101 million.
This debt is fixed-rate and, therefore, does not expose the Company to the risk
of earnings loss due to changes in market interest rates (see Notes 10 and 16 to
the Company's Consolidated Financial Statements). The conversion feature of the
Company's Subordinated Debentures makes it impractical to estimate the effect of
a hypothetical 10% change in interest rates. This is due to the high correlation
between the market value of these instruments and the market value of the
Company's common stock. In general, any changes in fair value would impact
earnings and cash flows only if the Company were to reacquire all or a portion
of these instruments in the open market prior to their maturity.
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The Company and certain of its subsidiaries' floating-rate obligations total
$99 million at October 31, 1998 (see Note 10 to the Company's Consolidated
Financial Statements). The exposure of these obligations to increases in
short-term interest rates is limited by interest rate swap agreements entered
into by the Company. These swap agreements effectively fix the interest rate on
all of the Company's variable rate debt, thus limiting the potential impact that
increasing interest rates would have on earnings. Under these swap agreements,
payments are made based on a fixed rate ($50 million at 7.025%, and $50 million
at 6.755%) and received on a LIBOR based variable rate (5.22203% at October 31,
1998). At October 31, 1998, the unrealized losses related to the interest rate
swap agreements are $8.5 million. If the floating rates were to change by 10%
from October 31, 1998 levels, the fair market value of these swaps would change
by approximately $1.7 million. However, it should be noted that any change in
value of these contracts, real or hypothetical, would be significantly offset by
an inverse change in the value of the underlying hedged item.
Foreign Currency Exchange Rate Risk
The Company is subject to significant exposure from fluctuations in US
Dollar/Dutch Guilder exchange rates. As further described in Note 16 of the
Consolidated Financial Statements, the Company utilizes foreign currency forward
contracts to limit transactional exposure to changes in currency exchange rates.
At October 31, 1998, the Company had 11 separate contracts maturing in monthly
increments to purchase an aggregate notional amount of $4.675 million in foreign
currency. These forward contracts do not extend beyond September 30, 1999.
Unrealized pretax gains on these forward contracts totaled approximately $137
thousand at October 31, 1998. A hypothetical 10% change in applicable October
31, 1998 forward rates would increase or decrease the pretax gain by
approximately $463 thousand related to these positions. However, it should be
noted that any change in value of these contracts, real or hypothetical, would
be significantly offset by an inverse change in the value of the underlying
hedged item.
In addition, the Company utilizes a range forward zero-cost agreement to
protect its initial equity investment in its Netherlands subsidiary, Piper
Impact Europe. This agreement, which was entered into with a major financial
institution, has a notional value of 30 million guilders. By establishing
minimum and maximum exchange rates, this agreement limits the potential
devaluation of the Company's initial investment in its subsidiary while also
limiting any potential appreciation. If, at the expiration date of the
agreement, the Dutch guilder/US dollar exchange rate is within the range of 1.80
to 2.05, this agreement will expire at no cost to either party. At October 31,
1998, there was no financial statement impact as the exchange rate fell within
the range. A hypothetical 10% increase in the October 31, 1998 exchange rate
would result in a positive adjustment to stockholders' equity of approximately
$10 thousand. In contrast, a hypothetical 10% decrease would result in a
negative adjustment to stockholder's equity of approximately $1.2 million.
However, it should be noted that any change in the value of this agreement, real
or hypothetical, would be significantly offset by an inverse change in the value
of the underlying hedged position.
Commodity Price Risk
In the normal course of business, the Company enters into long-term firm price
sales contracts with one of its customers. In order to hedge the risk of higher
prices for the anticipated aluminum purchases required to fulfill these
long-term contracts, the Company enters into long futures positions. At October
31, 1998, the Company had open futures contracts at fair values of $3.3 million
and unrealized losses of $369,000 on such contracts. These contracts covered a
notional volume of 5,511,557 pounds of aluminum. A hypothetical 10% change from
the October 31, 1998 average LME ingot price of $.60 per pound would increase or
decrease the unrealized pretax losses related to these contracts by
approximately $330,000. However, it should be noted that any change in the value
of these contracts, real or hypothetical, would be significantly offset by an
inverse change in the cost of purchased aluminum scrap.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Quanex Corporation
Houston, Texas
We have audited the accompanying consolidated balance sheets of Quanex
Corporation and subsidiaries as of October 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended October 31, 1998. Our audits also
included the financial statement schedule listed in the index on page 48. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Quanex Corporation and subsidiaries
as of October 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended October 31, 1998 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Houston, Texas
Date: November 23, 1998
RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of Quanex Corporation and
subsidiaries were prepared by management, which is responsible for their
integrity and objectivity. The statements were prepared in accordance with
generally accepted accounting principles and include amounts that are based on
management's best judgments and estimates.
Quanex's system of internal controls is designed to provide reasonable
assurance, at justifiable cost, as to the reliability of financial records and
reporting and the protection of assets. The system of controls provides for
appropriate division of responsibility and the application of policies and
procedures that are consistent with high standards of accounting and
administration. Internal controls are monitored through recurring internal audit
programs and are updated as our businesses and business conditions change.
The Audit Committee, composed solely of outside directors, determines that
management is fulfilling its financial responsibilities by meeting periodically
with management, Deloitte & Touche LLP, and Quanex's internal auditors, to
review internal accounting control and financial reporting matters. The internal
and independent auditors have free and complete access to the Audit Committee.
We believe that Quanex's system of internal controls, combined with the
activities of the internal and independent auditors and the Audit Committee,
provides reasonable assurance of the integrity of our financial reporting.
<TABLE>
<S> <C>
/s/ VERNON E. OECHSLE /s/ WAYNE M. ROSE
Vernon E. Oechsle Wayne M. Rose
President and Vice President and
Chief Executive Officer Chief Financial Officer
</TABLE>
21
<PAGE> 23
Quanex Corporation
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, 1998 1997
- ---------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents...................................... $ 26,279 $ 26,851
Accounts and notes receivable, less allowance for doubtful
accounts of $11,752,000 in 1998 and $10,338,000 in
1997................................................... 85,166 80,089
Inventories............................................... 85,397 73,035
Deferred income taxes..................................... 11,560 5,601
Prepaid expenses.......................................... 1,410 1,320
-------- --------
Total current assets.............................. 209,812 186,896
Property, plant and equipment, net.......................... 395,054 379,071
Net assets of discontinued operations....................... -- 13,554
Goodwill, net............................................... 52,281 91,496
Other assets................................................ 17,141 14,688
-------- --------
$674,288 $685,705
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 75,160 $ 71,317
Accrued expense........................................... 56,125 43,208
Current maturities of long-term debt...................... 12,248 11,050
Income taxes payable...................................... 3,300 8,503
-------- --------
Total current liabilities......................... 146,833 134,078
Long-term debt.............................................. 188,302 201,858
Deferred pension credits.................................... 7,832 6,627
Deferred postretirement welfare benefits.................... 7,092 6,835
Deferred income taxes....................................... 33,412 48,111
Other liabilities........................................... 18,773 19,373
-------- --------
Total liabilities................................. 402,244 416,882
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares
authorized; issued & outstanding -- none in 1998 and
1997................................................... -- --
Common stock, $.50 par value, 50,000,000 shares
authorized; 14,179,834 shares in 1998 and 14,050,411
shares in 1997 issued and outstanding.................. 7,090 7,025
Additional paid-in capital................................ 108,624 105,146
Retained earnings......................................... 156,278 156,528
Cumulative foreign currency translation adjustment........ 1,132 422
Adjustment for minimum pension liability.................. (1,080) (298)
-------- --------
Total stockholders' equity........................ 272,044 268,823
-------- --------
$674,288 $685,705
======== ========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 24
Quanex Corporation
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net sales................................................... $797,490 $746,093 $620,069
Costs and expenses:
Cost of sales............................................. 647,179 610,412 492,594
Selling, general and administrative....................... 47,713 43,375 44,959
Depreciation and amortization............................. 41,834 37,298 36,083
Restructuring charge...................................... 58,500 -- --
-------- -------- --------
Operating income............................................ 2,264 55,008 46,433
Other income (expense):
Interest expense.......................................... (14,904) (17,541) (11,929)
Capitalized interest...................................... 4,398 3,539 569
Other, net................................................ 2,278 1,637 4,544
-------- -------- --------
Income (loss) from continuing operations before income taxes
and extraordinary charge.................................. (5,964) 42,643 39,617
Income tax benefit (expense)................................ 2,087 (14,925) (16,639)
-------- -------- --------
Income (loss) from continuing operations and before
extraordinary charge...................................... (3,877) 27,718 22,978
Income from discontinued operations, net of income taxes.... -- 5,176 9,912
Gain on sale of discontinued operations, net of income
taxes..................................................... 13,046 36,290 --
-------- -------- --------
Income before extraordinary charge.......................... 9,169 69,184 32,890
Extraordinary charge -- early extinguishment of debt, net of
income taxes.............................................. -- -- (2,522)
-------- -------- --------
Net income attributable to common stockholders.............. $ 9,169 $ 69,184 $ 30,368
======== ======== ========
Earnings per common share:
Basic:
Continuing operations.................................. $ (0.27) $ 2.01 $ 1.70
Discontinued operations................................ -- 0.37 0.73
Gain on sale of discontinued operations................ .92 2.63 --
Extraordinary charge................................... -- -- (0.19)
-------- -------- --------
Total basic net earnings.......................... $ 0.65 $ 5.01 $ 2.24
======== ======== ========
Diluted:
Continuing operations.................................. $ (0.27) $ 1.90 $ 1.62
Discontinued operations................................ -- 0.31 0.61
Gain on sale of discontinued operations................ .92 2.17 --
Extraordinary charge................................... -- -- (0.15)
-------- -------- --------
Total diluted net earnings........................ $ 0.65 $ 4.38 $ 2.08
======== ======== ========
Weighted average number of shares outstanding
Basic.................................................. 14,149 13,807 13,524
Diluted................................................ 14,149 16,725 16,354
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 25
Quanex Corporation
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Total
Common Stock Additional Stock-
Years Ended October 31, 1998, -------------------- Paid-in Retained holders'
1997, and 1996 Shares Amount Capital Earnings Other Equity
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1995...................... 13,485,312 $6,743 $ 92,406 $ 74,426 $(761) $172,814
Net income..................................... -- -- -- 30,368 30,368
Common dividends ($.60 per share).............. -- -- -- (8,115) -- (8,115)
Adjustment for minimum pension liability....... -- -- -- -- (31) (31)
Unearned compensation.......................... -- -- -- -- 132 132
Other.......................................... 105,088 52 1,845 (56) -- 1,841
---------- ------ -------- -------- ----- --------
Balance at October 31, 1996...................... 13,590,400 6,795 94,251 96,623 (660) 197,009
Net income..................................... -- -- -- 69,184 69,184
Common dividends ($.61 per share).............. -- -- -- (8,422) -- (8,422)
Adjustment for minimum pension liability....... -- -- -- -- 177 177
Unearned compensation.......................... -- -- -- -- 185 185
Foreign currency translation adjustment........ 422 422
Other.......................................... 460,011 230 10,895 (857) -- 10,268
---------- ------ -------- -------- ----- --------
Balance at October 31, 1997...................... 14,050,411 $7,025 $105,146 $156,528 $ 124 $268,823
Net income..................................... 9,169 9,169
Common dividends ($.64 per share).............. (9,059) (9,059)
Adjustment for minimum pension liability....... (782) (782)
Foreign currency translation adjustment........ 710 710
Other.......................................... 129,423 65 3,478 (360) -- 3,183
---------- ------ -------- -------- ----- --------
Balance at October 31, 1998...................... 14,179,834 $7,090 $108,624 $156,278 $ 52 $272,044
========== ====== ======== ======== ===== ========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 26
Quanex Corporation
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, 1998 1997 1996
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
<CAPTION>
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income................................................ $ 9,169 $ 69,184 $ 30,368
Adjustments to reconcile net income to cash provided by
operating activities:
Income from discontinued operations (net of taxes)... -- (5,176) (9,912)
Gain on sale of discontinued operations (net of
taxes).............................................. (13,046) (36,290) --
Restructuring charge (net of deferred taxes of
$20,475)............................................ 38,025 -- --
Depreciation and amortization........................ 42,400 37,865 36,654
Deferred income taxes................................ 6,059 7,545 2,533
Deferred pension costs............................... (34) (183) 318
Deferred postretirement welfare benefits............. 257 376 417
-------- --------- --------
82,830 73,321 60,378
Changes in assets and liabilities net of effects from
acquisitions and dispositions:
Decrease in accounts and notes receivable............ 3,664 2,957 7,798
Decrease (increase) in inventory..................... (10,994) 8,898 (17,568)
Increase (decrease) in accounts payable.............. (2,262) 112 (4,848)
Increase (decrease) in accrued expenses.............. (346) 2,919 2,907
Other, net........................................... (8,822) (8,868) 1,011
-------- --------- --------
Cash provided by continuing operations............ 64,070 79,339 49,678
Cash provided by discontinued operations.......... -- 89 16,073
-------- --------- --------
Cash provided by operating activities............. 64,070 79,428 65,751
INVESTMENT ACTIVITIES:
Acquisition of Decatur Aluminum Corp., net of cash and
equivalents acquired................................... (9,573) -- --
Acquisition of Advanced Metal Forming, C.V., net of cash
and equivalents acquired............................... -- (33,584) --
Acquisition of Piper Impact, Inc., net of cash and
equivalents acquired................................... -- (5,575) (123,264)
Net proceeds from sale of LaSalle Steel Company........... 1,366 63,900 --
Net proceeds from sale of the Tubing Operations........... 30,068 -- --
Capital expenditures, net of retirements.................. (58,513) (68,916) (34,699)
Capital expenditures of discontinued operations........... -- (3,868) (11,089)
Other, net................................................ (3,168) (1,550) (5,120)
-------- --------- --------
Cash (used) by investment activities.............. (39,820) (49,593) (174,172)
-------- --------- --------
Cash provided (used) by operating and investment
activities...................................... 24,250 29,835 (108,421)
FINANCING ACTIVITIES:
Bank borrowings (repayments), net......................... (17,124) (41,828) 160,000
Purchase of subordinated debentures....................... (1,500) -- --
Notes payable borrowings (repayments)..................... -- -- (10,000)
Purchase of Senior Notes.................................. -- -- (44,667)
Common dividends paid..................................... (9,059) (8,422) (8,115)
Issuance of common stock, net............................. 3,183 10,453 1,973
Other, net................................................ (429) 429 0
-------- --------- --------
Cash provided (used) by financing activities...... (24,929) (39,368) 99,191
-------- --------- --------
Effect of exchange rate changes on cash and equivalents..... 107 422 --
-------- --------- --------
Decrease in cash and equivalents............................ (572) (9,111) (9,230)
Cash and equivalents at beginning of period................. 26,851 35,962 45,192
-------- --------- --------
Cash and equivalents at end of period....................... $ 26,279 $ 26,851 $ 35,962
======== ========= ========
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 27
Quanex Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Quanex Corporation
and its subsidiaries (the "Company"), all of which are wholly owned. All
significant intercompany balances and transactions have been eliminated in
consolidation.
SCOPE OF OPERATIONS
The Company operates primarily in three industry segments: manufacturing of
engineered steel bars, aluminum mill sheet products and engineered products. The
Company's products include engineered steel bars, coiled aluminum sheet (mill
finish and coated), aluminum and steel fabricated products and impact
extrusions. The Company's manufacturing operations are conducted primarily in
the United States.
REVENUES
The Company recognizes revenues when products are shipped and the title and risk
of ownership pass to the customer.
STATEMENTS OF CASH FLOWS
The Company generally considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents. Similar
investments with original maturities beyond three months are considered
short-term investments. For fiscal years 1998, 1997 and 1996 cash paid for
income taxes was $20,860,000, $13,906,000, and $19,551,000, respectively. These
amounts are before refunds of $172,000, $471,000, and $204,000, respectively.
Cash paid for interest for fiscal 1998, 1997 and 1996 was $14,404,000,
$17,964,000, and $12,084,000, respectively.
INVENTORIES
Inventories are valued at the lower of cost or market. The accounting methods
used in valuing the Company's inventories are described in Note 7.
LONG-LIVED ASSETS
Property, plant and equipment is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of the assets. The
estimated useful lives of certain categories are as follows:
<TABLE>
<CAPTION>
Years
--------
<S> <C>
Land improvements........................................... 10 to 25
Buildings................................................... 10 to 40
Machinery and equipment..................................... 3 to 20
</TABLE>
Goodwill represents the excess of the purchase price over the fair value of
acquired companies and is being amortized on a straight line basis over forty
years for the goodwill resulting from the acquisition of Nichols Homeshield in
1989, and over twenty-five years for the goodwill resulting from the
acquisitions of Piper Impact, Inc. in 1996, Piper Impact Europe B.V. in 1997 and
Nichols Aluminum-Alabama, Inc. in 1998 (See Note 2). At October 31, 1998 and
1997, accumulated amortization was $9,255,000, and $10,398,000, respectively.
During the fourth quarter of 1998, the balance of goodwill associated with Piper
Impact was written off in accordance with Statement of Financial Accounting
Standard No. 121. (See Note 4)
During 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of".
The statement established accounting standards related to the impairment of
long-lived assets, such as property, plant, equipment and intangibles. The
Company adopted SFAS No. 121 in fiscal 1997. The
26
<PAGE> 28
- --------------------------------------------------------------------------------
Company evaluates any possible impairment of long-lived assets using estimates
of undiscounted future cash flows. (See Note 4 -- regarding the impact of this
statement.)
HEDGING
The Company enters into various derivative instruments to protect itself from
fluctuating prices and rates. The Company uses futures contracts to hedge a
portion of its exposure to price fluctuations of aluminum. Hedging gains and
losses are recognized concurrently with related sales transactions. The Company
enters into interest rate swap agreements which effectively exchange variable
interest rate debt for fixed interest rate debt. The agreements are used to
reduce the exposure to possible increases in interest rates. The Company enters
into these swap agreements with major financial institutions. The Company uses
foreign currency swap agreements to protect the value of its investment in Piper
Impact Europe as well as to protect itself from currency fluctuations on certain
sales and purchases. The impact of the foreign currency instruments which
protect the investment in Piper Impact Europe are recorded as a foreign currency
translation adjustment in the equity section of the financial statements when
exchange rates go outside of the limits. The gains and losses on the forward
contracts related to the sales and purchases are deferred off-balance sheet and
included as a component of the related transaction when recorded. (See Note 16)
EARNINGS PER SHARE DATA
In February 1997, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 128 -- "Earnings per Share" ("SFAS 128")
which specifies the computation, presentation and disclosure requirements for
Earnings Per Share ("EPS"). SFAS 128 replaces the presentation of primary and
fully diluted EPS pursuant to Accounting Principles Board Opinion No.
15 -- "Earnings per Share" ("APB 15") with the presentation of basic and diluted
EPS. Basic EPS excludes dilution and is computed by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. The Company adopted SFAS
128 in fiscal 1998 and restated all prior-period EPS disclosure.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated into U.S. dollars
at year-end exchange rates, and income and expense items are translated at the
average exchange rates for the year. Resulting translation adjustments are
reported as a separate component of stockholders' equity.
USE OF ESTIMATES
The preparation of the financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATION
Certain amounts for prior periods have been reclassified in the accompanying
consolidated financial statements to conform to 1998 presentations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
which is effective for the Company's year ending October 31, 1999. SFAS No. 130
establishes standards for the reporting and displaying of comprehensive income
and its components. The Company continues to analyze SFAS No. 130 to determine
the additional disclosures required.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which is effective for the Company's year
ending October 31, 1999. This statement establishes standards for the reporting
of information about operating segments. The Company has adopted this
pronouncement as of October 31, 1998 and restated prior periods' segment
information.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures about
Pensions and Other Postretirement Benefits", which is effective for the
Company's year ending October 31, 1999. This statement
27
<PAGE> 29
- --------------------------------------------------------------------------------
defines new disclosure requirements for pension and other postretirement
benefits in an effort to facilitate financial analysis by adding useful
information and deleting disclosures that the FASB considers no longer useful.
The Company continues to analyze SFAS No. 132 to determine what additional
disclosures will be required.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for the Company's year
ending October 31, 2000. This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The Company will be
analyzing SFAS No. 133 to determine what, if any, impact or additional
disclosure requirements this pronouncement will have.
2. ACQUISITIONS
On August 9, 1996, the Company acquired the assets, net of various liabilities,
of Piper Impact, Inc. ("Piper Impact"). Piper Impact is a manufacturer of
custom-designed, impact-extruded aluminum and steel parts for the
transportation, defense and other commercial markets, with production facilities
in New Albany, Mississippi and Park City, Utah.
Piper Impact's net assets were acquired for approximately $130 million in
cash, cash equivalents, and notes. To finance the acquisition, the Company
entered into an unsecured revolving credit/term loan facility which provides for
the borrowing of up to $250 million. (See Note 10) The acquisition was accounted
for using the purchase method of accounting. The purchase price was allocated to
the assets and liabilities of Piper Impact based on estimated fair values.
Goodwill associated with the Piper Impact acquisition approximated $56 million,
which was being amortized on a straight-line basis over twenty-five years.
During 1998, in accordance with SFAS No. 121, the Company determined that the
goodwill of Piper Impact was impaired and recorded a restructuring charge. (See
Note 4).
Liabilities assumed included an estimated $20 million related to costs for
further investigation and specified environmental remediation. These cost
estimates include charges for additional studies, remediation, renovations to
affected facilities and equipment, and other compliance expenditures. The
estimated range of costs is $15 million to $25 million of which the accrual
represents management's best estimate of total costs expected to be incurred.
Actual expenditures could differ from current estimates as additional studies
are completed, requiring revisions to the remediation and restoration plan.
The unaudited pro-forma consolidated results of operations of the Company are
shown below as if the acquisition had occurred at the beginning of the fiscal
period indicated. These results are not necessarily indicative of the results
which would actually have occurred if the purchase had taken place at the
beginning of the period, nor are they necessarily indicative of future results.
<TABLE>
<CAPTION>
Pro Forma
----------------
October 31, 1996
----------------
(In thousands,
except per share
amounts)
(Unaudited)
<S> <C>
Net sales................................................... $708,492
Income before extraordinary charge.......................... 27,751
Net income attributable to common shareholders
Before extraordinary charge............................... 27,751
Earnings per share before extraordinary charge:
Basic..................................................... $ 2.05
Diluted................................................... $ 1.92
</TABLE>
On October 29, 1997, the Company, through its Dutch subsidiary, Piper Impact
Europe B.V. ("Piper Impact Europe"), acquired the net assets of Advanced Metal
Forming C.V., a Dutch limited partnership, for approximately $30 million. The
Company's balance sheet as of October 31, 1997 includes Piper Impact Europe.
Goodwill associated with Piper Impact Europe is approximately NLG 26 million or
$14 million as of October 31, 1998. The income statement for the twelve months
ended October 31, 1997 does not include Piper Impact Europe.
Piper Impact Europe produces aluminum impact extrusions and precision steel
stampings for the automotive and electronics industries in Europe and North
America. Piper Impact Europe employs approximately 300 people, and its
manufacturing facilities are located near Zwolle in The Netherlands.
On October 9, 1998, the Company, acquired the stock of Decatur Aluminum Corp.,
a Decatur, Alabama based coiled aluminum sheet manufacturer for approximately
$19 million. Included in the purchase price was debt totaling $5 million and
other specified liabilities for $5 million assumed by the Company. The newly
acquired company has been renamed Nichols Aluminum-Alabama, Inc. ("Nichols
Aluminum Alabama"), in alignment
28
<PAGE> 30
- --------------------------------------------------------------------------------
with Quanex's other aluminum mill sheet businesses in its Nichols Aluminum
division. Based on preliminary purchase accounting, goodwill associated with
Nichols Aluminum Alabama is approximately $10 million as of October 31, 1998.
Nichols Aluminum Alabama's operations include cold rolling aluminum sheet to
specific gauge, annealing, leveling, custom painting and slitting to width.
Nichols Aluminum Alabama employs approximately 110 people.
3. DISCONTINUED OPERATIONS
In April 1997, the Company completed the sale of its LaSalle Steel Company
("LaSalle") subsidiary. The Company recorded an after tax gain on the sale of
$36,290,000 in the second quarter of fiscal 1997. During 1998, an additional
after tax gain of $668,000 was recorded as a result of post-closing adjustments.
LaSalle's results of operations have been classified as discontinued operations
and prior periods have been restated. For business segment reporting purposes,
LaSalle's data was previously reported as the segment "Cold Finished Steel
Bars".
In December 1997, the Company completed the sale of its tubing operations,
comprised of Michigan Seamless Tube, Gulf States Tube, and the Tube Group
Administrative Office ("Tubing Operations"). The sale was effective November 1,
1997. The Company recorded an after tax gain on the sale of $12,378,000 during
fiscal 1998. Included in the gain is an accrual for the Company's best estimate
of potential environmental clean-up costs at one of the discontinued operating
facilities. Results of these operations have been classified as discontinued and
prior periods have been restated. For business segment reporting purposes,
Tubing Operations were previously classified as "Steel Tubes".
Net sales and income from discontinued operations are as follows:
<TABLE>
<CAPTION>
Years Ended October 31,
-----------------------
1997 1996
-----------------------
(In thousands)
<S> <C> <C>
Net sales................................................... $187,123 $275,641
Operating income............................................ 7,962 17,090
Income tax expense.......................................... (2,786) (7,178)
Income from discontinued operations......................... $ 5,176 $ 9,912
</TABLE>
<TABLE>
<CAPTION>
October 31, 1997
----------------
(In thousands)
<S> <C>
Net Assets of Discontinued Operations Current assets........ $ 24,388
Property, plant and equipment, net.......................... 17,357
Other assets................................................ 2,784
Current liabilities......................................... (11,241)
Deferred pension credits.................................... (4,373)
Deferred postretirement welfare benefits.................... (22,406)
Deferred income taxes....................................... 6,718
Adjustment for minimum pension liability.................... 327
--------
Net assets of discontinued operations..................... $ 13,554
========
</TABLE>
4. PIPER IMPACT IMPAIRMENT DISCLOSURE
During the year ended October 31, 1998, the Company recorded a restructuring
charge of $58.5 million related to its subsidiary, Piper Impact.
Components of this special charge include $51.2 million for goodwill
impairment; $6.7 million for impairment of property, plant and equipment; and
$600 thousand for severance benefits to be paid to employees of the Park City,
Utah plant. Piper Impact experienced significant changes in market conditions
and the relationship with its major customer in fiscal 1998, which led to
substantial declines in sales and operating cash flow. Management began an
evaluation of the operations of Piper Impact in August 1998. As a result of this
evaluation, in September 1998, management approved a plan to close the Park
City, Utah facility and move its production to the New Albany, Mississippi
facility.
Due to the significance of the changes discussed above and the decision to
close one of the acquired production facilities, management performed an
evaluation of the recoverability of all of the assets of Piper Impact, excluding
the new steel plant, as described in Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". Management concluded from the results of this
evaluation that a significant impairment of intangible as well as long-lived
assets had occurred. An impairment charge was required because estimated fair
value was less than the carrying value of the assets.
29
<PAGE> 31
- --------------------------------------------------------------------------------
Considerable management judgment is necessary to estimate fair value.
Accordingly, actual results could vary significantly from management's
estimates.
The one-time restructuring charge resulted in an after-tax impact on net
income of $38 million or $2.68 per share.
5. EARNINGS PER SHARE
The computational components of basic and diluted earnings per share are as
follows (Shares and dollars in thousands except per share amounts):
<TABLE>
<CAPTION>
For the Year Ended October 31, 1998
-----------------------------------
Numerator Denominator Per Share
(Income) (Shares) Amount
-----------------------------------
<S> <C> <C> <C>
BASIC EPS
Income from continuing operations......................... $(3,877) 14,149 $(0.27)
Income from discontinued operations....................... -- --
Gain on sale of discontinued operations................... 13,046 $ .92
------- ------
Total basic net income............................ $ 9,169 $ 0.65
======= ======
EFFECT OF DILUTIVE SECURITIES
Effect of common stock equivalents arising from stock
options(1)............................................. -- --
Effect of conversion of subordinated debentures(1)........ -- --
------- ------ ------
DILUTED EPS
Income from continuing operations......................... $(3,877) 14,149 $(0.27)
======
Income from discontinued operations....................... -- --
Gain on sale of discontinued operations................... 13,046 $ .92
------- ------
Total diluted net income.......................... $ 9,169 $ 0.65
======= ======
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended October 31, 1997
-----------------------------------
Numerator Denominator Per Share
(Income) (Shares) Amount
-----------------------------------
<S> <C> <C> <C>
BASIC EPS
Income from continuing operations......................... $27,718 13,807 $2.01
Income from discontinued operations....................... 5,176 .37
Gain on sale of discontinued operations................... 36,290 2.63
------- -----
Total basic net income............................ $69,184 $5.01
======= =====
EFFECT OF DILUTIVE SECURITIES
Effect of common stock equivalents arising from stock
options................................................ 222
Effect of conversion of subordinated debentures........... $ 3,997 2,696
------- ------
DILUTED EPS
Income from continuing operations......................... $31,715 16,725 $1.90
======
Income from discontinued operations....................... 5,176 .31
Gain on sale of discontinued operations................... 36,290 2.17
------- -----
Total diluted net income.......................... $73,181 $4.38
======= =====
</TABLE>
(1) The effect of both common stock equivalents arising from stock options and
the conversion of subordinated debentures was anti-dilutive.
30
<PAGE> 32
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended October 31, 1996
-----------------------------------
Numerator Denominator Per Share
(Income) (Shares) Amount
-----------------------------------
<S> <C> <C> <C>
BASIC EPS
Income from continuing operations......................... $22,978 13,524 $1.70
Income from discontinued operations....................... 9,912 .73
Extraordinary item (Net).................................. (2,522) (.19)
------- -----
Total basic net income............................ $30,368 $2.24
======= =====
EFFECT OF DILUTIVE SECURITIES
Effect of common stock equivalents arising from stock
options................................................ 134
Effect of conversion of subordinated debentures........... $ 3,567 2,696
------- ------
DILUTED EPS
Income from continuing operations......................... $26,545 16,354 $1.62
======
Income from discontinued operations....................... 9,912 .61
Gain on sale of discontinued operations................... (2,522) (.15)
------- -----
Total diluted net income.......................... $33,935 $2.08
======= =====
</TABLE>
6. INCOME TAXES
Income taxes are provided on taxable income at the statutory rates applicable to
such income. Deferred taxes have not been provided on the Company's foreign
subsidiary's cumulative undistributed earnings of $931,000, since such amounts
are expected to be reinvested indefinitely. If these earnings were remitted to
the Company, there would be little or no additional federal income tax because
of the availability of foreign tax credits.
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Years Ended October 31,
------------------------------
1998 1997 1996
------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal................................................... $ 9,312 $ 846 $12,914
State..................................................... 4,190 2,829 2,865
Foreign................................................... 507 -- --
-------- ------- -------
14,009 3,675 15,779
Deferred:................................................... (16,096) 11,250 860
-------- ------- -------
Income taxes from continuing operations..................... (2,087) 14,925 16,639
Income taxes from discontinued operations................... -- 2,786 7,178
Income taxes from sale of discontinued operations........... 3,441 13,178 --
Reduction of taxes from extinguishment of debt.............. -- -- (1,826)
-------- ------- -------
Totals............................................ $ 1,354 $30,889 $21,991
======== ======= =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
31
<PAGE> 33
- --------------------------------------------------------------------------------
Significant components of the Company's net deferred tax liability are as
follows:
<TABLE>
<CAPTION>
October 31,
-------------------
1998 1997
-------------------
(In thousands)
<S> <C> <C>
Deferred tax liability:
Property, plant and equipment............................. $ 44,723 $43,092
Inventory................................................. (1,161) 412
Other..................................................... 16,926 12,735
-------- -------
60,488 56,239
-------- -------
Deferred tax assets:
Intangibles............................................... 19,678 --
Postretirement benefit obligation......................... 3,149 2,969
Other employee benefit obligations........................ 9,314 8,143
Other accrued liabilities................................. 6,495 2,617
-------- -------
38,636 13,729
-------- -------
Net deferred tax liability.................................. $ 21,852 $42,510
======== =======
Deferred income tax liability - non-current................. $ 33,412 $48,111
Deferred tax assets - current............................... (11,560) (5,601)
-------- -------
Net deferred tax liability................................ $ 21,852 $42,510
======== =======
</TABLE>
Income tax expense (benefit) differs from the amount computed by applying the
statutory federal income tax rate to income from continuing operations before
income taxes for the following reasons:
<TABLE>
<CAPTION>
Years Ended October 31,
---------------------------
1998 1997 1996
---------------------------
(In thousands)
<S> <C> <C> <C>
Income tax expense (benefit) at statutory tax rate.......... $(2,087) $14,925 $13,866
Increase (decrease) in taxes resulting from:
State income taxes, net of federal effect................. (250) 1,655 2,148
Goodwill.................................................. 345 334 334
Other items, net.......................................... (95) (1,989) 291
------- ------- -------
$(2,087) $14,925 $16,639
======= ======= =======
</TABLE>
The Company reached a settlement with the Internal Revenue Service with respect
to its tax audit of fiscal years 1992 through 1994. During 1997, the Company
made a payment of $2,016,000 of tax and related interest. Adequate provisions
had been made in prior years and the settlement did not have a material effect
on earnings for fiscal 1997.
7. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
October 31,
-----------------
1998 1997
-----------------
(In thousands)
<S> <C> <C>
Raw materials............................................... $25,167 $19,432
Finished goods and work in process.......................... 52,485 47,739
------- -------
77,652 67,171
Other..................................................... 7,745 5,864
------- -------
Total............................................. $85,397 $73,035
======= =======
</TABLE>
32
<PAGE> 34
- --------------------------------------------------------------------------------
The values of inventories in the consolidated balance sheets are based on the
following accounting methods:
<TABLE>
<S> <C> <C>
LIFO........................................................ $57,594 $51,517
FIFO........................................................ 27,803 21,518
------- -------
Total............................................. $85,397 $73,035
======= =======
</TABLE>
With respect to inventories valued using the LIFO method, replacement cost
exceeded the LIFO value by approximately $12,300,000 and $16,000,000 at October
31, 1998 and 1997, respectively.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
October 31,
---------------------
1998 1997
---------------------
(In thousands)
<S> <C> <C>
Land and land improvements.................................. $ 18,376 $ 18,901
Buildings................................................... 100,009 80,981
Machinery and equipment..................................... 545,677 461,817
Construction in progress.................................... 38,893 81,155
--------- ---------
702,955 642,854
Less accumulated depreciation and amortization.............. (307,901) (263,783)
--------- ---------
$ 395,054 $ 379,071
========= =========
</TABLE>
The Company had commitments for the purchase or construction of capital assets
amounting to approximately $23 million at October 31, 1998.
9. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
October 31,
-----------------
1998 1997
-----------------
(In thousands)
<S> <C> <C>
Accrued contribution to pension funds....................... $ 1,196 $ 1,033
Interest.................................................... 2,544 2,516
Payroll, payroll taxes and employee benefits................ 24,497 21,995
State and local taxes....................................... 1,942 1,985
Other....................................................... 25,946 15,679
------- -------
$56,125 $43,208
======= =======
</TABLE>
10. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
October 31,
-------------------
1998 1997
-------------------
(In thousands)
<S> <C> <C>
Revolving credit agreements................................. $ 83,212 $100,185
Convertible subordinated debentures......................... 83,420 84,920
Term loan................................................... 8,031 7,709
Bank borrowings due within one year......................... 11,120 10,278
Industrial Revenue and Economic Development Bonds,
unsecured, payable in annual installments through the year
2005, bearing interest ranging from 6.50% to 8.375%....... 3,275 3,275
State of Alabama Industrial Development Bonds............... 4,755 0
Other....................................................... 6,737 6,541
-------- --------
$200,550 $212,908
Less maturities due within one year included in current
liabilities............................................... 12,248 11,050
-------- --------
$188,302 $201,858
======== ========
</TABLE>
33
<PAGE> 35
- --------------------------------------------------------------------------------
On July 23, 1996, the Company replaced its $75 million Revolving Credit and
Letter of Credit Agreement with an unsecured $250 million Revolving Credit and
Term Loan Agreement ("Bank Agreement"). The Bank Agreement consists of a
revolving line of credit ("Revolver"). In July 1997, the term loan provisions of
the Bank Agreement expired. The Bank Agreement expires July 23, 2003, and
provides for up to $25 million for standby letters of credit, limited to the
undrawn amount available under the Revolver. All borrowings under the Revolver
bear interest, at the option of the Company, at either (a) the prime rate or the
federal funds rate plus one percent, whichever is higher, or (b) a Eurodollar
based rate. At October 31, 1998 and 1997, the Company had $80 and $100 million,
respectively, outstanding under the Revolver. The weighted average interest
rates on borrowings under the Revolver were 6.2%, 6.6% and 6.3% in 1998, 1997
and 1996, respectively. As of October 31, 1998, the Company was in compliance
with all Bank Agreement covenants. Under the Company's most restrictive loan
covenants, retained earnings of approximately $40 million at October 31, 1998
were available for dividends.
On June 30, 1995, the Company exercised its right under the terms of its
Cumulative Convertible Exchangeable Preferred Stock to exchange such stock for
an aggregate of $84,920,000 of its 6.88% Convertible Subordinated Debentures due
June 30, 2007 ("Debentures"). Interest is payable semi-annually on June 30 and
December 31 of each year. The Debentures are subject to mandatory annual sinking
fund payments sufficient to redeem 25% of the Debentures issued on each of June
30, 2005 and June 30, 2006, to retire a total of 50% of the Debentures before
maturity. The Debentures are subordinate to all senior indebtedness of the
Company and are convertible, at the option of the holder, into shares of the
Company's common stock at a conversion price of $31.50 per share.
During September, 1998, the Company accepted an unsolicited block offer to buy
back $1.5 million principal amount of its Convertible Subordinated Debentures;
therefore, the outstanding balance as of October 31, 1998 is $83,420,000.
At October 31, 1994, the Company had $125 million outstanding in Senior Notes.
The Senior Notes paid interest at 10.77% per annum. In December 1994, the
Company acquired $59.5 million principal amount of the Senior Notes for a
purchase price equal to 105% of the principal amount plus accrued interest. The
Company recorded an extraordinary charge of $2.0 million ($3.5 million before
tax) in the first quarter of 1995 related to the call premium and write-off of
deferred debt issuance costs for the Senior Notes that were repurchased. In
August 1995, the Company made a required annual repayment of $20.8 million
principal amount. In December 1995, the Company acquired the remaining $44.7
million principal amount of the Senior Notes for a purchase price equal to
107.5% of the principal amount plus accrued interest. The second acquisition and
related expenses resulted in an after-tax extraordinary charge of approximately
$2.5 million ($4.3 million before tax) in the first quarter of 1996.
On October 28, 1997, Piper Impact Europe B.V. ("Piper Impact Europe") executed
a stand-alone secured credit facility ("Credit Facility") providing up to 50
million Dutch Guilders ("NLG"). At October 31, 1998, and 1997, 1 NLG was equal
to .535 and .514 U.S. dollars, respectively. The Credit Facility consists of a
Roll-Over Term Loan, a Medium Term Loan and an Overdraft Facility. The Roll-Over
Term Loan provides NLG 15 million for loan periods of 1, 2, 3, 6, or 12 months
with repayment of outstanding borrowings on October 27, 2002. Interest is
payable on the repayment date at the Amsterdam Interbank Offering Rate (AIBOR)
plus 90 basis points. In the case of a loan period of twelve months, interest is
payable six months after the beginning of the loan period and on the repayment
date. The Medium Term Loan provides NLG 15 million at 6.375% payable quarterly
in arrears from March 1, 1998, with quarterly repayments of principal in equal
amounts of NLG 500 thousand commencing January 1, 1999 through April 1, 2006.
The Overdraft Facility provides an aggregate amount of NLG 20 million to cover
overdrafts or up to NLG 15 million of loans for a period of one year, subject to
annual renewal. Overdrafts bear interest at the Bank's published rate for
overdraft facilities plus 1% per annum. Loans under the Overdraft Facility bear
interest at AIBOR plus 45 to 55 basis points. The terms of Overdraft Facility
loans are selected by Piper Impact Europe to be a period of 1, 2, 3, 6, or 12
months. Interest on overdrafts is paid quarterly in arrears.
Interest on loans under the Overdraft Facility is payable on the repayment
date, however, in the case of a loan period of twelve months, interest is
payable six months after the beginning of the loan period and on the repayment
date. At October 31, 1998, and 1997, Piper Impact Europe had NLG 41.8 and 35.3
million, respectively outstanding under the Credit Facility. As of October 31,
1998, Piper Impact Europe was in compliance with all Credit Facility covenants.
The State of Alabama Industrial Development bonds were assumed as part of the
Nichols Aluminum Alabama acquisition. (See Note 2). These bonds mature August 1,
2004 with interest payable monthly. The bonds bear interest at the weekly
interest rate as determined by the remarketing agent under then prevailing
market conditions to be the minimum interest rate, which, if borne by the Bonds
on the effective date of such rate, would enable the remarketing agent to sell
the Bonds on such business day at a price (without regard to accrued interest)
equal to the principal amount of the bonds. The interest rate, however, may not
exceed 13% per annum. The weekly interest rate during October 1998 (the only
month the Company owned these bonds) ranged from 3.35% to 3.55%. These bonds are
secured by a Letter of Credit.
34
<PAGE> 36
- --------------------------------------------------------------------------------
Aggregate maturities of long-term debt at October 31, 1998, are as follows (in
thousands):
<TABLE>
<S> <C>
1999........................................................ $ 12,248
2000........................................................ 52
2001........................................................ 48
2002........................................................ 3,257
2003........................................................ 80,049
Thereafter.................................................. 104,896
--------
$200,550
========
</TABLE>
11. PENSION PLANS AND RETIREMENT BENEFITS
The Company has a number of retirement plans covering substantially all
employees. The company provides both defined benefit and defined contribution
plans. In general, an employee's coverage for retirement benefit is determined
by the plant or location of his/her employment.
The single employer defined benefit plans pay benefits to employees at
retirement using formulas based upon years of service and compensation rates
near retirement. The Company's funding policy is generally to make the minimum
annual contributions required by applicable regulations.
The single employer defined benefit plans' funded status was as follows:
<TABLE>
<CAPTION>
Assets exceed Accumulated benefit
accumulated obligation
benefit obligation exceeds assets
------------------- --------------------
October 31,
------------------------------------------
1998 1997 1998 1997
------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Assets available for benefits............................... $-- $ 12,807 $ 17,692 $ 3,606
--- -------- -------- -------
Projected benefit obligation
Vested.................................................... -- (10,602) (20,637) (4,446)
Nonvested................................................. -- (170) (768) (752)
--- -------- -------- -------
Accumulated benefit obligation......................... -- (10,772) (21,405) (5,198)
Effect of future salary increases......................... -- (5,990) (6,260) --
--- -------- -------- -------
Total projected benefit obligation................ -- (16,762) (27,665) (5,198)
--- -------- -------- -------
Assets less than projected benefit obligation............... $-- $ (3,955) $ (9,973) $(1,592)
=== ======== ======== =======
Consisting of:
Amounts to be offset against future pension costs:
Assets in excess of obligation at adoption............. $-- $ 772 $ 713 $ 52
Obligation (increase) decrease due to plan
amendments............................................ -- 238 (591) (816)
Actuarial gains (losses)............................... -- 1,103 (3,683) (541)
Minimum liability adjustment........................... -- -- 2,545 1,305
Amounts recognized in consolidated balance sheets:
Deferred pension credit................................ -- (5,371) (7,832) (1,256)
Accrued contribution to pension funds.................. -- (697) (1,125) (336)
--- -------- -------- -------
$-- $ (3,955) $ (9,973) $(1,592)
=== ======== ======== =======
</TABLE>
In accordance with the provisions of Statement of Financial Accounting Standards
No. 87, the Company recorded additional minimum pension liabilities as of
October 31, 1998 and 1997, representing the excess of the accumulated benefit
obligations over the fair value of plan assets and accrued pension liabilities.
The Company recorded additional pension liabilities of $2,545,000, and
$1,305,000; intangible assets of $774,000, and $816,000; and stockholders'
equity reductions, net of income taxes, of $1,080,000, and $298,000, as of
October 31, 1998 and 1997, respectively.
The projected unit credit method was used to determine the actuarial present
value of the accumulated benefit obligation and the projected benefit
obligation. For 1998, the discount rate was 6.75%. For 1997 and 1996 the
discount rate was 7.5%. The expected long term rate of return on assets was 10%
for the three year period ending October 31, 1998. The assumed rate of increase
in future compensation levels was 4.0% in 1998 and 4.5% in 1997 and 1996. The
plans invest primarily in marketable equity and debt securities.
35
<PAGE> 37
- --------------------------------------------------------------------------------
Net pension costs for the single employer defined benefit plans were as
follows:
<TABLE>
<CAPTION>
Years Ended October 31,
---------------------------
1998 1997 1996
---------------------------
(In thousands)
<S> <C> <C> <C>
Benefits earned during the year............................. $ 1,832 $ 1,371 $ 1,270
Interest cost on projected benefit obligation............... 1,685 1,511 1,293
Actual return on plan assets................................ (433) (2,561) (1,400)
Net amortization and deferral............................... (1,316) 1,250 335
------- ------- -------
$ 1,768 $ 1,571 $ 1,498
======= ======= =======
</TABLE>
One of the Company's subsidiaries, Piper Impact Europe, participates in two
multi-employer plans. The plans provide defined benefits to substantially all of
Piper Impact Europe's employees. Amounts charged to pension cost and contributed
to the plans in 1998 totaled NLG 1,551,000 or approximately $800,000. There were
no pension costs in 1997 or 1996 for these plans as Piper Impact Europe was
acquired on October 29, 1997. (See Note 2)
The Company has various defined contribution plans in effect for certain
eligible employees. The Company makes contributions to the plans subject to
certain limitations outlined in the plans. Contributions to these plans were
approximately $2,978,000, $2,919,000, and $2,476,000 during fiscal 1998, 1997,
and 1996, respectively.
The Company has a Supplemental Benefit Plan covering certain key officers of
the Company. Earned vested benefits under the Supplemental Benefit Plan were
approximately $4,147,000, $3,724,000, and $2,959,000 at October 31, 1998, 1997
and 1996, respectively. These benefits are funded with life insurance policies
purchased by the Company.
12. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain healthcare and life insurance benefits for certain
eligible retired employees employed prior to January 1, 1993. Certain employees
may become eligible for those benefits if they reach normal retirement age while
working for the Company. The Company continues to fund benefit costs on a
pay-as-you-go basis; and, for fiscal year 1998, the Company made benefit
payments totaling $410,000, compared to $247,000 and $171,000 in fiscal 1997 and
1996, respectively.
The following table sets forth the funded status of the Company's projected
postretirement benefits other than pensions, reconciled with amounts recognized
in the Company's consolidated balance sheets at:
<TABLE>
<CAPTION>
October 31,
-----------------
1998 1997
-----------------
(In thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $(4,696) $(4,233)
Fully eligible active plan participants................... (357) (161)
Other active plan participants............................ (2,931) (2,217)
------- -------
(7,984) (6,611)
Plan assets at fair value................................... -- --
------- -------
Accumulated postretirement benefit obligation in excess of
plan assets............................................... (7,984) (6,611)
Unrecognized prior service cost............................. -- --
Unrecognized net loss (gain) from past experience different
from that assumed and from changes in assumption.......... 892 (224)
------- -------
Accrued postretirement benefit cost......................... $(7,092) $(6,835)
======= =======
</TABLE>
<TABLE>
<CAPTION>
October 31,
------------------
1998 1997 1996
------------------
(In thousands)
<S> <C> <C> <C>
Net periodic postretirement benefit cost:
Service cost -- benefits attributed to service during the
period................................................. $163 $148 $145
Interest cost on accumulated postretirement benefit
obligation............................................. 523 472 438
Net amortization and deferral............................. (10) 3 5
---- ---- ----
Net periodic postretirement benefit cost.................. $676 $623 $588
==== ==== ====
</TABLE>
36
<PAGE> 38
- --------------------------------------------------------------------------------
The assumed healthcare cost trend rate was 8% in 1998, decreasing uniformly to
4.75% in the year 2003 and remaining level thereafter. The assumed discount rate
used to measure the accumulated postretirement benefit obligation was 6.75% and
7.5% at October 31, 1998 and 1997, respectively.
If the healthcare cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of October 31, 1998 would be
increased by 2.08%. The effect of this change on the sum of the service cost and
interest cost would be an increase of 1.61%.
13. INDUSTRY SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131, "SFAS
131" for fiscal year ended 1998. SFAS 131 requires that the Company disclose
certain information about its operating segments where operating segments are
defined as "components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance". Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.
Pursuant to SFAS 131, the Company has three reportable segments: engineered
steel bars, aluminum mill sheet products, and engineered products. The Company's
previously reported "Aluminum Products Group" has been split into two segments:
"Aluminum Mill Sheet Products" and "Engineered Products". Prior years'
presentation has been restated to conform to the new segment reporting. The
engineered steel bar segment consists of engineered steel bars manufacturing,
steel bar and tube heat treating services and steel bar and tube wear and
corrosion resistant finishing services. The aluminum mill sheet segment
manufactures mill finished and coated aluminum sheet. The engineered products
segment manufactures impact-extruded aluminum and steel parts, aluminum window
and patio door screens, window frames and other roll formed products and stamped
shapes.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Quanex Corporation evaluates
performance based on operating income.
The Company accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current market prices.
The Company's reportable segments are strategic business divisions that offer
different products and services. These groups are managed separately because
each business requires different expertise and marketing strategies.
For the year-ended October 31, 1998, 13% of the Company's consolidated net
sales were made to one customer. These sales are included in the engineered
products segment.
<TABLE>
<CAPTION>
Year ended Engineered Aluminum Mill Engineered Corporate
October 31, 1998 Steel Bars(4) Sheet Products(1) Products(5) & Other(2) Consolidated(5)
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net Sales:
To unaffiliated companies................. $324,312 $243,168 $230,010 -- $797,490
Intersegment(3)........................... 2,984 23,187 $ 2 $(26,173) --
-------- -------- -------- -------- --------
Total............................. $327,296 $266,355 $230,012 (26,173) $797,490
Operating Income (loss)..................... $ 58,908 $ 7,788 $(52,606) $(11,826) $ 2,264
Depreciation and amortization:
Operating................................. $ 13,097 $ 10,670 $ 17,928 $ 139 $ 41,834
Other..................................... -- -- -- 566 566
-------- -------- -------- -------- --------
Total............................. $ 13,097 $ 10,670 $ 17,928 $ 705 $ 42,400
======== ======== ======== ======== ========
Capital expenditures(6)..................... $ 31,116 $ 13,109 $ 16,442 $ 269 $ 60,936
Identifiable assets......................... $219,727 $198,596 $220,161 $ 35,804 $674,288
</TABLE>
(1) Identifiable assets include Nichols Aluminum Alabama, acquired on October 9,
1998.
(2) Included in "Corporate and Other" are intersegment eliminations, and
corporate expenses.
(3) Intersegment sales are conducted on an arm's-length basis.
(4) Includes NitroSteel and Heat Treating divisions previously reported under
the Steel Tubes segment. See Note 3.
(5) Operating income includes mostly non-cash non-recurring restructuring charge
of $58,500. See Note 4.
(6) Includes capitalized interest.
37
<PAGE> 39
- --------------------------------------------------------------------------------
For the year ended October 31, 1997, 13% of the Company's consolidated net sales
were made to one customer. These sales are included in the engineered products
segment.
<TABLE>
<CAPTION>
Year ended Engineered Aluminum Mill Engineered Corporate
October 31, 1997 Steel Bars(4) Sheet Products Products(1) & Other(2) Consolidated
- -----------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net Sales:
To unaffiliated companies............ $301,436 $237,836 $206,821 -- $746,093
Intersegment(3)...................... 18,032 23,205 10 $(41,247) --
-------- -------- -------- -------- --------
Total........................ $319,468 $261,041 $206,831 $(41,247) $746,093
======== ======== ======== ======== ========
Operating Income (loss)................ $ 50,762 $ 1,753 $ 15,444 $(12,951) $ 55,008
Depreciation and amortization:
Operating............................ $ 13,940 $ 10,154 $ 13,055 $ 149 $ 37,298
Other................................ -- -- -- 567 567
-------- -------- -------- -------- --------
Total........................ $ 13,940 $ 10,154 $ 13,055 $ 716 $ 37,865
======== ======== ======== ======== ========
Capital expenditures(5)................ $ 35,220 $ 5,751 $ 27,830 $ 345 $ 69,146
Identifiable assets.................... $192,937 $163,637 $281,943 $ 47,188 $685,705
</TABLE>
(1) Identifiable assets include Advanced Metal Forming C.V., acquired on October
29, 1997.
(2) Included in "Corporate and Other" are intersegment eliminations, corporate
expenses and net assets of discontinued operations.
(3) Intersegment sales are conducted on an arm's-length basis.
(4) Includes NitroSteel and Heat Treating divisions previously reported under
the Steel Tubes segment. See Note 3.
(5) Includes capitalized interest.
<TABLE>
<CAPTION>
Year ended Engineered Aluminum Mill Engineered Corporate
October 31, 1996 Steel Bars(4) Sheet Products Products(1) & Other(2) Consolidated
- -----------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net Sales:
To unaffiliated companies............ $275,202 $219,781 $125,086 -- $620,069
Intersegment(3)...................... 16,965 28,736 10 $(45,711) --
-------- -------- -------- -------- --------
Total........................ $292,167 $248,517 $125,096 $(45,711) $620,069
======== ======== ======== ======== ========
Operating Income (loss)................ $ 39,090 $ 7,721 $ 14,506 $(14,884) $ 46,433
Depreciation and amortization:
Operating............................ $ 18,263 $ 10,077 $ 7,606 $ 137 $ 36,083
Other................................ -- -- -- 571 571
-------- -------- -------- -------- --------
Total........................ $ 18,263 $ 10,077 $ 7,606 $ 708 $ 36,654
======== ======== ======== ======== ========
Capital expenditures(5)................ $ 19,573 $ 5,317 $ 9,714 $ 133 $ 34,737
Identifiable assets.................... $171,351 $182,743 $231,861 $ 52,993 $638,948
</TABLE>
(1) Includes three months of operations and identifiable assets of Piper Impact.
(2) Included in "Corporate and Other" are intersegment eliminations, corporate
expenses and net assets of discontinued operations.
(3) Intersegment sales are conducted on an arm's-length basis.
(4) Includes NitroSteel and Heat Treating divisions previously reported under
the Steel Tubes segment. See Note 3.
(5) Includes capitalized interest.
38
<PAGE> 40
- --------------------------------------------------------------------------------
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------
1998 1997 1996
--------------------------------
<S> <C> <C> <C>
NET SALES(1)
United States............................................... $752,589 $727,246 $603,179
Mexico...................................................... 15,121 16,028 13,035
European countries.......................................... 28,501 2,625 3,271
Other foreign countries..................................... 1,279 194 584
-------- -------- --------
Total............................................. $797,490 $746,093 $620,069
======== ======== ========
</TABLE>
(1) Net Sales are attributed to countries based on location of customer.
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------
1998 1997 1996
--------------------------------
<S> <C> <C> <C>
NET SALES(2)
United States............................................... $763,775 $746,093 $620,069
The Netherlands............................................. 33,715 -- --
-------- -------- --------
Total............................................. $797,490 $746,093 $620,069
======== ======== ========
</TABLE>
(2) Net Sales are attributed to countries based on location of operations.
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------
1998 1997 1996
--------------------------------
<S> <C> <C> <C>
OPERATING INCOME (LOSS)(4)
United States............................................... $ (144)(3) $55,008 $ 46,433
The Netherlands............................................. 2,408 -- --
-------- ------- --------
Total............................................. $ 2,264 $55,008 $ 46,433
======== ======= ========
</TABLE>
(3) Including the restructuring charge of $58.5 million. (See Note 4).
(4) Operating income (loss) is attributed to countries based on location of
operations.
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------
1998 1997
----------------------
<S> <C> <C>
IDENTIFIABLE ASSETS(5)
United States............................................... $627,969 $645,300
The Netherlands............................................. 46,319 40,405
-------- --------
Total............................................. $674,288 $685,705
======== ========
</TABLE>
(5) Identifiable assets are attributed to countries based on location of
operations.
14. PREFERRED STOCK PURCHASE RIGHTS
The Company declared a dividend in 1986 of one Preferred Stock Purchase Right (a
"Right") on each outstanding share of its common stock. This action was intended
to assure that all shareholders would receive fair treatment in the event of a
proposed takeover of the Company. On April 26, 1989, the Company amended the
Rights to provide for additional protection to shareholders and to provide the
Board of Directors of the Company with needed flexibility in responding to
abusive takeover tactics. Each Right, when exercisable, entitles the holder to
purchase 1/100th of a share of the Company's Series A Junior Participating
Preferred Stock at an exercise price of $60. Each 1/100th of a share of Series A
Junior Participating Preferred Stock will be entitled to a dividend equal to the
greater of $.01 or the dividend declared on each share of common stock, and will
be entitled to 1/100th of a vote, voting together with the shares of common
stock. The Rights will be exercisable only if, without the Company's prior
consent, a person or group of persons acquires or announces the intention to
acquire 20% or more of the Company's common stock. If the Company is acquired
through a merger or other business combination transaction, each Right will
entitle the holder to purchase $120 worth of the surviving company's common
stock for $60. Additionally, if someone acquires 20% or more of the Company's
common stock, each Right not owned by the 20% or greater shareholder would
permit the holder to purchase $120 worth of the
39
<PAGE> 41
- --------------------------------------------------------------------------------
Company's common stock for $60. The Rights are redeemable, at the option of the
Company, at $.02 per Right at any time until ten days after someone acquires 20%
or more of the common stock. The Rights expire in 1999.
As a result of the Rights distribution, 150,000 of the 1,000,000 shares of
authorized Preferred Stock were reserved for issuance as Series A Junior
Participating Preferred Stock.
15. RESTRICTED STOCK AND STOCK OPTION PLANS
KEY EMPLOYEE PLANS:
The Company has restricted stock and stock option plans which provide for the
granting of common shares or stock options to key employees. Under the Company's
restricted stock plan, common stock may be awarded to key employees. The
recipient is entitled to all of the rights of a shareholder, except that during
the forfeiture period the shares are nontransferable. The award vests during an
eight year period based on the price of the Company's stock. Upon issuance of
stock under the plan, unearned compensation equal to the market value at the
date of grant is charged to stockholders' equity and subsequently amortized to
expense over the restricted period. There were no restricted shares granted in
1996, 1997 or 1998. No compensation expense was charged in 1998 related to the
restricted stock. The amount charged to compensation expense in 1997 and 1996
was $185,000 and $132,000, respectively relating to restricted stocks granted in
1994.
Under the Company's option plans, options are granted at prices determined by
the Board of Directors which may not be less than the fair market value of the
shares at the time the options are granted. Unless otherwise provided by the
Board at the time of grant, options become exercisable in 33 1/3% increments
maturing cumulatively on each of the first through third anniversaries of the
date of grant and must be exercised no later than ten years from the date of
grant. There were 493,176, 722,322, and 624,035, shares available for granting
of options at October 31, 1998, 1997, and 1996, respectively. Stock option
transactions for the three years ended October 31, 1998, were as follows:
<TABLE>
<CAPTION>
Shares Average
Shares Under Price
Exercisable Option Per Share
-----------------------------------
<S> <C> <C> <C>
Balance at October 31, 1995................................. 567,243 1,061,033 $20
=======
Granted................................................... 269,650 28
Exercised................................................. (69,503) 12
Cancelled................................................. (3,534) 22
---------
Balance at October 31, 1996................................. 726,609 1,257,646 22
=======
Granted................................................... 165,700 29
Exercised................................................. (323,218) 18
Cancelled................................................. (13,987) 25
---------
Balance at October 31, 1997................................. 650,053 1,086,141 24
=======
Granted................................................... 264,550 21
Exercised................................................. (95,416) 21
Cancelled................................................. (35,404) 26
---------
Balance at October 31, 1998................................. 770,075 1,219,871 $23
======= =========
</TABLE>
On October 1, 1992, Carl E. Pfeiffer retired as the Chief Executive Officer of
the Company. In connection with such retirement, the Company replaced options to
purchase 60,000 shares of Common Stock at a weighted average exercise price of
$15.85 held by Mr. Pfeiffer, under the Company's employee stock option plans
with new options having the same exercise prices and expiration dates. Such
options are substantially similar to the options previously held by him with the
exception that vesting is not contingent upon his continued employment with the
Company and the options expire on various dates between October 25, 1999, and
October 13, 2001, instead of one year after retirement. During the year ended
October 31, 1997, options for the entire 60,000 shares were exercised at an
average price of $15.85 per share.
40
<PAGE> 42
- --------------------------------------------------------------------------------
NON-EMPLOYEE DIRECTOR PLANS:
The Company has various non-employee Director plans, which are described below:
1987 Non-Employee Directors Plan:
The Company's 1987 Non-employee Directors stock option plan provides for the
granting of stock options to non-employee Directors to purchase up to an
aggregate amount of 100,000 shares of common stock. The plan provides that each
non-employee Director and each future non-employee Director, as of the first
anniversary of the date of his/her election as a Director of the Company, will
be granted an option to purchase 10,000 shares of common stock at a price per
share of common stock equal to the fair market value of the common stock as of
the date of the grant. During 1998, the Board of Directors passed a resolution
which reduced the number of options to be granted from 10,000 to 6,000.
Options become exercisable in 33 1/3% increments maturing cumulatively on each
of the first through third anniversaries of the date of the grant and must be
exercised no later than 10 years from the date of grant. No options may be
granted under the plan after June 22, 1997. There were no shares available for
granting of options at October 31, 1998 or 1997. There were 20,000 shares
available for granting of options at October 31, 1996. Stock option transactions
for the three years ended October 31, 1998, were as follows:
<TABLE>
<CAPTION>
Shares Average
Shares Under Price
Exercisable Option Per Share
---------------------------------
<S> <C> <C> <C>
Balance at October 31, 1995................................. 16,666 20,000 $17
======
Granted................................................... 20,000 20
Exercised................................................. -- --
Cancelled................................................. -- --
-------
Balance at October 31, 1996................................. 20,000 40,000 18
======
Granted................................................... -- --
Exercised................................................. (15,000) 18
Cancelled................................................. -- --
-------
Balance at October 31, 1997................................. 11,666 25,000 18
======
Granted................................................... -- --
Exercised................................................. (5,000) 14
Cancelled................................................. -- --
-------
Balance at October 31, 1998................................. 13,332 20,000 $20
====== =======
</TABLE>
1989 Non-Employee Directors Plan:
The Company's 1989 Non-employee Directors stock option plan provides for the
granting of stock options to non-employee Directors to purchase up to an
aggregate of 210,000 shares of common stock. Each non-employee Director as of
December 6, 1989, was granted an option to purchase 3,000 shares of common stock
at a price per share of common stock equal to the fair market value of the
common stock as of the date of grant. Also, each non-employee Director who is a
director of the Company on any subsequent October 31, while the plan is in
effect and shares are available for the granting of options hereunder, shall be
granted on such October 31, an option to purchase 3,000 shares of common stock
at a price equal to the fair market value of the common stock as of such October
31. During 1998, the Board of Directors passed a resolution which decreased the
number of options to be granted annually as prescribed above from 3,000 to
2,000. Options become exercisable at any time commencing six months after the
grant and must be exercised no later than 10 years from the date of grant. No
option may be granted under the plan after December 5, 1999. There were 12,000,
30,000, and 51,000 shares
41
<PAGE> 43
- --------------------------------------------------------------------------------
available for granting of options at October 31, 1998, 1997 and 1996,
respectively. Stock option transactions for the three years ended October 31,
1998, were as follows:
<TABLE>
<CAPTION>
Shares Average
Shares Under Price
Exercisable Option Per Share
---------------------------------
<S> <C> <C> <C>
Balance at October 31, 1995................................. 87,000 108,000 $20
=======
Granted................................................... 21,000 29
Exercised................................................. (6,000) 19
Cancelled................................................. -- --
-------
Balance at October 31, 1996................................. 102,000 123,000 22
=======
Granted................................................... 21,000 28
Exercised................................................. (30,000) 18
Cancelled................................................. -- --
-------
Balance at October 31, 1997................................. 93,000 114,000 24
=======
Granted................................................... 18,000 17
Exercised................................................. (3,000) 19
Cancelled................................................. -- --
-------
Balance at October 31, 1998................................. 111,000 129,000 $23
======= =======
</TABLE>
1997 Non-Employee Directors plan:
The Company's 1997 Non-Employee Directors stock option plan provides for the
granting of stock options to non-employee Directors to purchase up to an
aggregate of 400,000 shares of common stock. While this plan is in effect and
shares are available for the granting of options hereunder, each non-employee
Director who is a director of the Company on October 31 and who has not received
options under the 1989 Non-Employee Director plan shall be granted on such
October 31, an option to purchase such number of shares of common stock as is
determined by the Board of Directors at a price equal to the fair market value
of the common stock as of such October 31. Options become exercisable in 33 1/3%
increments maturing cumulatively on each of the first through third
anniversaries of the date of the grant and must be exercised no later than 10
years from the date of grant. There were 400,000 shares available for granting
of options at October 31, 1998. There were no transactions under this plan as of
October 31, 1998.
STOCK BASED COMPENSATION
Effective November 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." In accordance with SFAS No. 123, the Company will
continue to apply the existing rules contained in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and disclose the
required pro forma effect on net income and earnings per share of the fair value
based method of accounting for stock based compensation as required by SFAS No.
123.
The following pro forma summary of the Company's consolidated results of
operations have been prepared as if the fair value based method of accounting
for stock based compensation as required by SFAS No. 123 had been applied:
<TABLE>
<CAPTION>
Years Ended October 31,
---------------------------
1998 1997 1996
---------------------------
(In thousands)
<S> <C> <C> <C>
Net income attributable to common stockholders.............. $ 9,169 $69,184 $30,368
SFAS No. 123 adjustment..................................... (1,495) (995) (1,431)
------- ------- -------
Pro forma net attributable to common stockholders........... $ 7,674 $68,189 $28,937
======= ======= =======
Earnings per Common share:
Basic as reported......................................... $ 0.65 $ 5.01 $ 2.24
Basic pro forma........................................... $ 0.54 $ 4.94 $ 2.14
Diluted as reported....................................... $ 0.65 $ 4.38 $ 2.08
Diluted pro forma......................................... $ 0.54 $ 4.32 $ 1.99
</TABLE>
42
<PAGE> 44
- --------------------------------------------------------------------------------
Fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------
<S> <C> <C> <C>
Risk-free interest rate..................................... 4.49% 5.39% 5.44%
Dividend yield.............................................. 3.00% 2.23% 2.23%
Volatility factor........................................... 31.57% 29.83% 29.83%
Weighted average expected life.............................. 5 YEARS 5 years 5 years
</TABLE>
16. FINANCIAL INSTRUMENTS
The Company uses futures contracts to hedge a portion of its exposure to price
fluctuations of aluminum. The exposure is related to the Company's backlog of
aluminum sales orders with committed prices as well as future aluminum sales for
which a sales price increase would lag a raw material cost increase. Firm price
commitments associated with these futures contracts do not extend beyond
December, 1999. Hedging gains and losses are included in "Cost of sales" in the
income statement concurrently with the hedged sales. Unrealized gains and losses
related to open contracts are not reflected in the consolidated statements of
income. At October 31, 1998, the Company had open futures contracts at fair
values of $3.3 million and unrealized losses of $369 thousand on such contracts.
At October 31, 1998, these contracts covered a notional volume of 5,511,557
pounds of aluminum.
In the fourth quarter of fiscal 1996, the Company entered into interest rate
swap agreements, which effectively converted $100 million of its variable rate
debt under the Bank Agreement, to fixed rate. Under these agreements, payments
are made based on a fixed rate ($50 million at 7.025%, and $50 million at
6.755%) and received on a LIBOR based variable rate (5.22203% at October 31,
1998). Differentials to be paid or received under the agreements are recognized
as interest expense. The agreements mature in 2003. The unrealized losses
related to the interest rate swaps are $8.5 million on October 31, 1998 and $4.1
million on October 31, 1997 on the total notional amount of $100 million for
fiscal 1998 and fiscal 1997.
The Company utilizes foreign currency forward contracts to hedge identifiable
foreign currency commitments associated with transactions in the regular course
of the Company's foreign operations. These forward contracts establish the
exchange rates at which the Company will purchase a contracted amount of foreign
currency for a specified amount of US dollars. At October 31, 1998, the Company
had 11 separate contracts maturing in monthly increments to purchase an
aggregate notional amount of $4.675 million in foreign currency. These forward
contracts do not extend beyond September 30, 1999. Unrealized pretax gains on
these forward contracts totaled approximately $137 thousand at October 31, 1998.
In December 1997, the Company entered into a zero-cost range forward (foreign
currency swap) agreement on a notional value of 30 million Guilders with a major
financial institution to hedge its initial equity investment in its Netherlands
subsidiary, Piper Impact Europe. This agreement limits the Company's exposure to
large fluctuations in the US Dollar/Dutch Guilder exchange rate. Under the terms
of the agreement, Quanex has the option to let the agreement expire at no cost
if the exchange rate remains within an established range on the expiration date
of October 25, 2000. At October 31, 1998, there was no effect on the financial
statements from this agreement as the exchange rate remained within this range.
The fair values of the Company's financial assets approximate the carrying
values reported on the consolidated balance sheet. The fair value of long-term
debt was $190.6 million and $215.6 million, as of October 31, 1998 and 1997,
respectively, as compared to carrying values at October 31, 1998 and 1997 of
$200.6 million and $212.9 million, respectively.
The fair value of long-term debt was based on the quoted market price, recent
transactions, or based on rates available to the Company for instruments with
similar terms and maturities. The fair value of interest rate swaps was
estimated by discounting expected cash flows using quoted market interest rates.
The fair value of the aluminum and foreign currency instruments was determined
by obtaining the LME price per pound and the foreign currency translation rates
as of October 31, 1998 and valuing the outstanding notional volumes under the
agreements.
43
<PAGE> 45
- --------------------------------------------------------------------------------
17. CONTINGENCIES
Quanex is subject to loss contingencies arising from federal, state, and local
environmental laws. Environmental expenditures are expensed or capitalized
depending on their future economic benefit. The Company accrues its best
estimates of its remediation obligations and adjusts such accruals as further
information and circumstances develop. Those estimates may change substantially
depending on information about the nature and extent of contamination,
appropriate remediation technologies, and regulatory approvals. Costs of future
expenditures for environmental remediation are not discounted to their present
value. When environmental laws might be deemed to impose joint and several
liability for the costs of responding to contamination, the Company accrues its
allocable share of liability taking into account the number of companies
participating, their ability to pay their shares, the volumes and nature of the
wastes involved, the nature of anticipated response actions, and the nature of
the Company's alleged connections. It is management's opinion that the Company
has established appropriate reserves for environmental remediation obligations
at various of its plant sites and disposal facilities. Those amounts are not
expected to have a material adverse effect on the Company's financial condition.
Total remediation reserves, at October 31, 1998, were approximately $23 million.
These reserves include, without limitation, the Company's best estimate of
liabilities related to costs for further investigations, environmental
remediation, and corrective actions related to the acquisition of Piper Impact,
the acquisition of Nichols Aluminum Alabama and a facility previously part of
the former Tubing Operations. Actual cleanup costs at the Company's current
plant sites, former plants, and disposal facilities could be more or less than
the amounts accrued for remediation obligations. It is not possible at this
point to reasonably estimate the amount of any obligation for remediation in
excess of current accruals that would be material to Quanex's financial
statements because of uncertainties as to the extent of environmental impact and
concurrence of governmental authorities.
44
<PAGE> 46
Quanex Corporation
SUPPLEMENTARY FINANCIAL DATA
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following sets forth the selected quarterly information for the years ended
October 31, 1998 and 1997. The information presented has been restated to
reflect LaSalle and the Tubing Operations as discontinued operations. (See Note
3 to the Consolidated Financial Statements)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
1998:
Net sales................................................... $180,982 $203,428 $204,854 $208,226
Gross profit................................................ 17,219 27,395 30,876 38,046
Income from continuing operations........................... 2,293 7,756 10,285 (24,211)
Income from discontinued operations......................... -- -- -- --
Gain on sale of discontinued operations..................... 13,606 -- -- (560)
Net income.................................................. 15,899 7,756 10,285 (24,771)
Earnings per share:
Basic:
Income from continuing operations...................... 0.16 0.55 0.73 (1.71)
Income from discontinued operations.................... -- -- -- --
Gain on sale of discontinued operations................ 0.97 -- -- (0.04)
-------- -------- -------- --------
Net earnings (loss).................................... 1.13 0.55 0.73 (1.75)
Diluted..................................................... $ 1.11 $ 0.51 $ 0.66 $ (1.75)
1997:
Net sales................................................... $167,955 $185,999 $196,589 $195,550
Gross profit................................................ 20,611 26,136 28,678 26,627
Income from continuing operations........................... 3,372 7,339 8,607 8,400
Income from discontinued operations......................... 954 1,751 813 1,658
Gain on sale of discontinued operations..................... -- 36,290 -- --
Net income.................................................. 4,326 45,380 9,420 10,058
Earnings per share:
Basic:
Income from continuing operations...................... 0.25 0.53 0.62 0.60
Income from discontinued operations.................... 0.07 0.13 0.06 0.12
Gain on sale of discontinued operations................ -- 2.65 -- --
-------- -------- -------- --------
Net earnings (loss).................................... 0.32 3.31 0.68 0.72
Diluted..................................................... $ 0.31 $ 2.78 $ 0.62 $ 0.65
</TABLE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs & End
Description of Year Expenses Write-offs Other of Year
- ---------------------------------------------------- ---------- ---------- ---------- ----- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended October 31, 1998....................... $10,338 $ 1,088 $ (202) $528 $11,752
Year ended October 31, 1997....................... $ 7,703 $ 2,674 $ (39) $ -- $10,338
Year ended October 31, 1996....................... $ 2,933 $10,449 $(5,679) $ -- $ 7,703
</TABLE>
45
<PAGE> 47
QUARTERLY FINANCIAL RESULTS
(from continuing operations)
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES (millions)
January..................................................... 180.98 167.96 121.85
April....................................................... 203.43 186.00 143.50
July........................................................ 204.85 196.58 160.29
October..................................................... 208.23 195.55 194.43
- ------------------------------------------------------------------------------------------
Total............................................. 797.49 746.09 620.07
GROSS PROFIT (millions)
January..................................................... 17.22 20.61 14.73
April....................................................... 27.39 26.14 17.95
July........................................................ 30.88 28.68 26.41
October..................................................... 38.05 26.62 34.09
- ------------------------------------------------------------------------------------------
Total............................................. 113.54 102.05 93.18
INCOME FROM CONTINUING OPERATIONS (millions)
January..................................................... 2.29 3.37 1.52
April....................................................... 7.76 7.34 5.26
July........................................................ 10.28 8.61 7.48
October..................................................... (24.21) 8.40 8.72
- ------------------------------------------------------------------------------------------
Total............................................. (3.88) 27.72 22.98
INCOME FROM CONTINUING OPERATIONS PER BASIC COMMON SHARE
January..................................................... .16 .25 .11
April....................................................... .55 .53 .39
July........................................................ .73 .62 .55
October..................................................... (1.71) .60 .64
- ------------------------------------------------------------------------------------------
Year.............................................. (.27) 2.01 1.70
QUARTERLY COMMON STOCK DIVIDENDS
January..................................................... .16 .15 .15
April....................................................... .16 .15 .15
July........................................................ .16 .15 .15
October..................................................... .16 .16 .15
- ------------------------------------------------------------------------------------------
Total............................................. .64 .61 .60
COMMON STOCK SALES PRICE (High & Low)
January..................................................... 30 7/16 29 1/8 21 1/8
27 1/16 24 1/4 18
April....................................................... 33 13/16 27 7/8 22 3/8
28 1/2 23 3/8 19 5/8
July........................................................ 32 3/16 34 1/8 23 7/8
27 1/4 25 1/8 19 3/8
October..................................................... 27 7/8 36 1/2 28 3/4
15 5/8 26 1/4 19 5/8
</TABLE>
46
<PAGE> 48
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) to Form 10-K, information on directors and
executive officers of the Registrant is incorporated herein by reference from
the Registrant's Definitive Proxy Statement to be filed pursuant to Regulation
14A within 120 days after the close of the fiscal year ended October 31, 1998.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) to Form 10-K, information on executive
compensation is incorporated herein by reference from the Registrant's
Definitive Proxy Statement to be filed pursuant to Regulation 14A within 120
days after the close of the fiscal year ended October 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) to Form 10-K, information on security
ownership of certain beneficial owners and management is incorporated herein by
reference from the Registrant's Definitive Proxy Statement to be filed pursuant
to Regulation 14A within 120 days after the close of the fiscal year ended
October 31, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) to Form 10-K, information on certain
relationships and related transactions is incorporated herein by reference from
the Registrant's Definitive Proxy Statement to be filed pursuant to Regulation
14A within 120 days after the close of the fiscal year ended October 31, 1998.
47
<PAGE> 49
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(a) 1. Financial Statements
Independent Auditors' Report................................ 21
Consolidated Balance Sheet.................................. 22
Consolidated Statements of Income........................... 23
Consolidated Statements of Stockholders' Equity............. 24
Consolidated Statements of Cash Flow........................ 25
Notes to Consolidated Financial Statements.................. 26
2. Financial Statement Schedule
Schedule II - Valuation and qualifying accounts............. 45
Schedules not listed or discussed above have been omitted as
they are either inapplicable or the required information has
been given in the consolidated financial statements or the
notes thereto.
3. Exhibits................................................. 48
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
3.1 -- Restated Certificate of Incorporation of the Registrant,
as on February 27, 1997, filed as Exhibit 4.1 of the
Registrant's Registration Statement on Form S-8,
Registration No. 333-22977, and incorporated herein by
reference.
3.2 -- Amended and Restated Bylaws of the Registrant, as amended
through December 12, 1996, filed as Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended October 31, 1996, and incorporated herein by
reference.
4.1 -- Form of Registrant's Common Stock certificate, filed as
Exhibit 4.1 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 1987, and
incorporated herein by reference.
4.2 -- Amended and Restated Rights agreement between the
Registrant and Manufacturers Hanover Trust Company, as
Rights Agent, filed as Exhibit 1 to Amendment No. 1 to
the Registrant's Form 8-A dated April 28, 1989, and
incorporated herein by reference.
4.3 -- Amended and Restated Certificate of Designation,
Preferences and Rights of the Registrant's Series A
Junior Participating Preferred Stock, filed as Exhibit 1
to Amendment No. 1 to the Registrant's Form 8-A dated
April 28, 1989, and incorporated herein by reference.
4.4 -- Form of Indenture relating to the Registrant's 6.88%
Convertible Subordinated Debentures due 2007 between the
Registrant and Chemical Bank, as Trustee, filed as
Exhibit 19.2 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 1992, and
incorporated herein by reference.
4.5 -- $250,000,000 Revolving Credit and Term Loan Agreement
dated as of July 23, 1996, among the Company, Comerica
Bank, as Agent, and Harris Trust and Savings Bank and
Wells Fargo Bank (Texas), NA as Co-Agents, filed as
Exhibit 4.1 of the Company's Report on Form 8-K, dated
August 9, 1996, and incorporated herein by reference.
10.1 -- Agreement of Lease between the Registrant and 3D Tower
Limited, dated March 5, 1985, filed as Exhibit 10.13 of
the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1985, and incorporated
herein by reference, as amended by the First Amendment to
Lease Agreement between the Registrant and VPM 1989-1,
Ltd. effective December 8, 1989 and the amendment filed
as Exhibit 10.23 of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended January 31, 1995.
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
+10.2 -- Quanex Corporation 1988 Stock Option Plan, as amended,
and form of Stock Option Agreement filed as Exhibit 10.4
to the Registrant's Annual Report on Form 10-K for the
year ended October 31, 1988, together with the amendment
filed as Exhibit 10.17 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended January 31,
1995, and incorporated herein by reference.
+10.3 -- Quanex Corporation Deferred Compensation Plan, as amended
and restated filed as Exhibit 10.6 of the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1995, and incorporated herein by reference.
+10.4 -- Quanex Corporation 1978 Stock Option Plan, as amended,
filed as Exhibit 10.6 to the Registrant's Annual Report
on Form 10-K for the year ended October 31, 1988,
together with the amendment filed as Exhibit 10.16 of the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended January 31, 1995, and incorporated herein
by reference.
+10.5 -- Quanex Corporation Executive Incentive Compensation Plan,
as amended, filed as Exhibit 10.8 to the Registrant's
Form 10-K for the year ended October 31, 1993, and
incorporated herein by reference.
+10.6 -- Quanex Corporation Supplemental Benefit Plan, effective
February 28, 1980 as restated November 1, 1988 and
amended on June 28, 1991, filed as Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1991, and incorporated herein by
reference.
+10.7 -- Form of Severance Compensation Agreement and Escrow
Agreement, adopted on February 28, 1985, between the
Registrant and each executive officer of the Registrant,
filed as Exhibit 10.14 of the Registrant's Annual Report
on Form 10-K for the year ended October 31, 1985, and
incorporated herein by reference.
+10.8 -- Quanex Corporation Stock Option Loan Plan for Key
Officers, filed as Exhibit 10.13 of the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1988, and incorporated herein by reference.
+10.9 -- Quanex Corporation 1987 Non-Employee Director Stock
Option Plan, as amended, and the related form of Stock
Option Agreement, filed as Exhibit 10.14 of the
Registrant's Annual Report on Form 10-K for the fiscal
year ended October 31, 1988, together with the amendment
filed as Exhibit 10.14 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended January 31,
1995, and incorporated herein by reference.
+10.10 -- Quanex Corporation 1989 Non-Employee Director Stock
Option Plan, as amended, filed as Exhibit 4.4 of the
Registrant's Form S-8, Registration No. 33-35128,
together with the amendment filed as Exhibit 10.15 of the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended January 31, 1995, and incorporated herein
by reference.
+10.11 -- Quanex Corporation Employee Stock Option and Restricted
Stock Plan, as amended, filed as Exhibit 10.14 of the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1994, and incorporated herein by
reference.
+10.12 -- Retirement Agreement dated as of September 1, 1992,
between the Registrant and Carl E. Pfeiffer, filed as
Exhibit 10.20 to the Registrant's Annual Report on Form
10-K for the year ended October 31, 1992, and
incorporated herein by reference.
+10.13 -- Stock Option Agreement dated as of October 1, 1992,
between the Registrant and Carl E. Pfeiffer, filed as
Exhibit 10.21 to the Registrant's Annual Report on Form
10-K for the year ended October 31, 1992, and
incorporated herein by reference.
+10.14 -- Deferred Compensation Agreement dated as of July 31,
1992, between the Registrant and Carl E. Pfeiffer, filed
as Exhibit 10.22 to the Registrant's Annual Report on
Form 10-K for the year ended October 31, 1992, and
incorporated herein by reference.
+10.15 -- Quanex Corporation Non-Employee Director Retirement Plan,
filed as Exhibit 10.18 of the Registrant's Annual Report
on Form 10-K for the year ended October 31, 1994, and
incorporated herein by reference.
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
+10.16 -- Quanex Corporation 1996 Employee Stock Option Plan and
Restricted Stock Plan, filed as Exhibit 10.19 of the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1996, and incorporated herein by
reference.
+10.17 -- Quanex Corporation Deferred Compensation Trust filed as
Exhibit 4.8 of the Registrant's Registration Statement on
Form S-3, Registration No. 333-36635, and incorporated
herein by reference.
+10.18 -- Quanex Corporation 1997 Non-Employee Director Stock
Option Plan, and incorporated herein by reference.
10.19 -- Asset Purchase Agreement dated July 31, 1996, among the
Company, Piper Impact, Inc., a Delaware corporation,
Piper Impact, Inc., A Tennessee corporation, B. F.
Sammons and M. W. Robbins, filed as Exhibit 2.1 of the
Company's Report on Form 8-K, dated August 9, 1996, and
incorporated herein by reference.
10.20 -- Stock Purchase Agreement dated April 18, 1997, by and
among Niagara Corporation, Niagara Cold Drawn Corp., and
Quanex Corporation filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K, dated May 5, 1997, and
incorporated herein by reference.
10.21 -- Purchase Agreement dated December 3, 1997, among Quanex
Corporation, Vision Metals Holdings, Inc., and Vision
Metals, Inc., filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K, dated December 3, 1997, and
incorporated herein by reference.
*10.22 -- Lease Agreement between The Industrial Development Board
of the City of Decatur and Fruehauf Trailer Company dated
May 1, 1963.
*10.23 -- Lease Agreement between The Industrial Development Board
of the City of Decatur and Fruehauf Corporation dated May
1, 1964.
*10.24 -- Lease Agreement between The Industrial Development Board
of the City of Decatur and Fruehauf Corporation dated
October 1, 1965.
*10.25 -- Lease Agreement between The Industrial Development Board
of the City of Decatur (Alabama) and Fruehauf Corporation
dated December 1, 1978.
*10.26 -- Assignment and Assumption Agreement between Fruehauf
Trailer Corporation and Decatur Aluminum Corp.
(subsequently renamed Nichols Aluminum-Alabama, Inc.)
dated October 9, 1998.
*10.27 -- Agreement between The Industrial Development Board of the
City of Decatur and Decatur Aluminum Corp. (subsequently
renamed Nichols Aluminum-Alabama, Inc.) dated September
23, 1998.
*21 -- Subsidiaries of the Registrant.
*23 -- Consent of Deloitte & Touche LLP.
*27 -- Financial Data Schedule
</TABLE>
- ---------------
+ Management Compensation or Incentive Plan
* Filed herewith
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has not
filed with this Annual Report on Form 10-K certain instruments defining the
rights of holders of long-term debt of the Registrant and its subsidiaries
because the total amount of securities authorized under any of such instruments
does not exceed 10% of the total assets of the Registrant and its subsidiaries
on a consolidated basis. The Registrant agrees to furnish a copy of any such
agreements to the Securities and Exchange Commission upon request.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by the Company during the quarter ended
October 31, 1998.
50
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
QUANEX CORPORATION
By: /s/ VERNON E. OECHSLE
------------------------------------
Vernon E. Oechsle
Director, President and
Chief Executive Officer
(Principal Executive Officer)
January 12, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
By: /s/ ROBERT C. SNYDER Director and Chairman January 12, 1999
-------------------------------------------------------
Robert C. Snyder
By: /s/ VERNON E. OECHSLE Director, President and Chief January 12, 1999
------------------------------------------------------- Executive Officer
Vernon E. Oechsle
By: /s/ CARL E. PFEIFFER Director January 12, 1999
-------------------------------------------------------
Carl E. Pfeiffer
By: /s/ GERALD B. HAECKEL Director January 12, 1999
-------------------------------------------------------
Gerald B. Haeckel
By: /s/ SUSAN F. DAVIS Director January 12, 1999
-------------------------------------------------------
Susan F. Davis
By: /s/ JOHN D. O'CONNELL Director January 12, 1999
-------------------------------------------------------
John D. O'Connell
By: /s/ DONALD G. BARGER, JR. Director January 12, 1999
-------------------------------------------------------
Donald G. Barger, Jr.
By: /s/ VINCENT R. SCORSONE Director January 12, 1999
-------------------------------------------------------
Vincent R. Scorsone
By: /s/ MICHAEL J. SEBASTIAN Director January 12, 1999
-------------------------------------------------------
Michael J. Sebastian
By: /s/ RUSSELL M. FLAUM Director January 12, 1999
-------------------------------------------------------
Russell M. Flaum
By: /s/ JAMES H. DAVIS Executive Vice President and Chief January 12, 1999
------------------------------------------------------- Operating Officer (Principal
James H. Davis Operating Officer)
By: /s/ WAYNE M. ROSE Vice President-Finance and January 12, 1999
------------------------------------------------------- Corporate Development Chief
Wayne M. Rose Financial Officer (Principal
Financial Officer)
By: /s/ VIREN M. PARIKH Controller (Principal Accounting January 12, 1999
------------------------------------------------------- Officer)
Viren M. Parikh
</TABLE>
51
<PAGE> 53
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
3.1 -- Restated Certificate of Incorporation of the Registrant,
as on February 27, 1997, filed as Exhibit 4.1 of the
Registrant's Registration Statement on Form S-8,
Registration No. 333-22977, and incorporated herein by
reference.
3.2 -- Amended and Restated Bylaws of the Registrant, as amended
through December 12, 1996, filed as Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended October 31, 1996, and incorporated herein by
reference.
4.1 -- Form of Registrant's Common Stock certificate, filed as
Exhibit 4.1 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 1987, and
incorporated herein by reference.
4.2 -- Amended and Restated Rights agreement between the
Registrant and Manufacturers Hanover Trust Company, as
Rights Agent, filed as Exhibit 1 to Amendment No. 1 to
the Registrant's Form 8-A dated April 28, 1989, and
incorporated herein by reference.
4.3 -- Amended and Restated Certificate of Designation,
Preferences and Rights of the Registrant's Series A
Junior Participating Preferred Stock, filed as Exhibit 1
to Amendment No. 1 to the Registrant's Form 8-A dated
April 28, 1989, and incorporated herein by reference.
4.4 -- Form of Indenture relating to the Registrant's 6.88%
Convertible Subordinated Debentures due 2007 between the
Registrant and Chemical Bank, as Trustee, filed as
Exhibit 19.2 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 1992, and
incorporated herein by reference.
4.5 -- $250,000,000 Revolving Credit and Term Loan Agreement
dated as of July 23, 1996, among the Company, Comerica
Bank, as Agent, and Harris Trust and Savings Bank and
Wells Fargo Bank (Texas), NA as Co-Agents, filed as
Exhibit 4.1 of the Company's Report on Form 8-K, dated
August 9, 1996, and incorporated herein by reference.
10.1 -- Agreement of Lease between the Registrant and 3D Tower
Limited, dated March 5, 1985, filed as Exhibit 10.13 of
the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1985, and incorporated
herein by reference, as amended by the First Amendment to
Lease Agreement between the Registrant and VPM 1989-1,
Ltd. effective December 8, 1989 and the amendment filed
as Exhibit 10.23 of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended January 31, 1995.
+10.2 -- Quanex Corporation 1988 Stock Option Plan, as amended,
and form of Stock Option Agreement filed as Exhibit 10.4
to the Registrant's Annual Report on Form 10-K for the
year ended October 31, 1988, together with the amendment
filed as Exhibit 10.17 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended January 31,
1995, and incorporated herein by reference.
+10.3 -- Quanex Corporation Deferred Compensation Plan, as amended
and restated filed as Exhibit 10.6 of the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1995, and incorporated herein by reference.
+10.4 -- Quanex Corporation 1978 Stock Option Plan, as amended,
filed as Exhibit 10.6 to the Registrant's Annual Report
on Form 10-K for the year ended October 31, 1988,
together with the amendment filed as Exhibit 10.16 of the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended January 31, 1995, and incorporated herein
by reference.
+10.5 -- Quanex Corporation Executive Incentive Compensation Plan,
as amended, filed as Exhibit 10.8 to the Registrant's
Form 10-K for the year ended October 31, 1993, and
incorporated herein by reference.
+10.6 -- Quanex Corporation Supplemental Benefit Plan, effective
February 28, 1980 as restated November 1, 1988 and
amended on June 28, 1991, filed as Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1991, and incorporated herein by
reference.
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
+10.7 -- Form of Severance Compensation Agreement and Escrow
Agreement, adopted on February 28, 1985, between the
Registrant and each executive officer of the Registrant,
filed as Exhibit 10.14 of the Registrant's Annual Report
on Form 10-K for the year ended October 31, 1985, and
incorporated herein by reference.
+10.8 -- Quanex Corporation Stock Option Loan Plan for Key
Officers, filed as Exhibit 10.13 of the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1988, and incorporated herein by reference.
+10.9 -- Quanex Corporation 1987 Non-Employee Director Stock
Option Plan, as amended, and the related form of Stock
Option Agreement, filed as Exhibit 10.14 of the
Registrant's Annual Report on Form 10-K for the fiscal
year ended October 31, 1988, together with the amendment
filed as Exhibit 10.14 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended January 31,
1995, and incorporated herein by reference.
+10.10 -- Quanex Corporation 1989 Non-Employee Director Stock
Option Plan, as amended, filed as Exhibit 4.4 of the
Registrant's Form S-8, Registration No. 33-35128,
together with the amendment filed as Exhibit 10.15 of the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended January 31, 1995, and incorporated herein
by reference.
+10.11 -- Quanex Corporation Employee Stock Option and Restricted
Stock Plan, as amended, filed as Exhibit 10.14 of the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1994, and incorporated herein by
reference.
+10.12 -- Retirement Agreement dated as of September 1, 1992,
between the Registrant and Carl E. Pfeiffer, filed as
Exhibit 10.20 to the Registrant's Annual Report on Form
10-K for the year ended October 31, 1992, and
incorporated herein by reference.
+10.13 -- Stock Option Agreement dated as of October 1, 1992,
between the Registrant and Carl E. Pfeiffer, filed as
Exhibit 10.21 to the Registrant's Annual Report on Form
10-K for the year ended October 31, 1992, and
incorporated herein by reference.
+10.14 -- Deferred Compensation Agreement dated as of July 31,
1992, between the Registrant and Carl E. Pfeiffer, filed
as Exhibit 10.22 to the Registrant's Annual Report on
Form 10-K for the year ended October 31, 1992, and
incorporated herein by reference.
+10.15 -- Quanex Corporation Non-Employee Director Retirement Plan,
filed as Exhibit 10.18 of the Registrant's Annual Report
on Form 10-K for the year ended October 31, 1994, and
incorporated herein by reference.
+10.16 -- Quanex Corporation 1996 Employee Stock Option Plan and
Restricted Stock Plan, filed as Exhibit 10.19 of the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1996, and incorporated herein by
reference.
+10.17 -- Quanex Corporation Deferred Compensation Trust filed as
Exhibit 4.8 of the Registrant's Registration Statement on
Form S-3, Registration No. 333-36635, and incorporated
herein by reference.
+10.18 -- Quanex Corporation 1997 Non-Employee Director Stock
Option Plan, and incorporated herein by reference.
10.19 -- Asset Purchase Agreement dated July 31, 1996, among the
Company, Piper Impact, Inc., a Delaware corporation,
Piper Impact, Inc., A Tennessee corporation, B. F.
Sammons and M. W. Robbins, filed as Exhibit 2.1 of the
Company's Report on Form 8-K, dated August 9, 1996, and
incorporated herein by reference.
10.20 -- Stock Purchase Agreement dated April 18, 1997, by and
among Niagara Corporation, Niagara Cold Drawn Corp., and
Quanex Corporation filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K, dated May 5, 1997, and
incorporated herein by reference.
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.21 -- Purchase Agreement dated December 3, 1997, among Quanex
Corporation, Vision Metals Holdings, Inc., and Vision
Metals, Inc., filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K, dated December 3, 1997, and
incorporated herein by reference.
*10.22 -- Lease Agreement between The Industrial Development Board
of the City of Decatur and Fruehauf Trailer Company dated
May 1, 1963.
*10.23 -- Lease Agreement between The Industrial Development Board
of the City of Decatur and Fruehauf Corporation dated May
1, 1964.
*10.24 -- Lease Agreement between The Industrial Development Board
of the City of Decatur and Fruehauf Corporation dated
October 1, 1965.
*10.25 -- Lease Agreement between The Industrial Development Board
of the City of Decatur (Alabama) and Fruehauf Corporation
dated December 1, 1978.
*10.26 -- Assignment and Assumption Agreement between Fruehauf
Trailer Corporation and Decatur Aluminum Corp.
(subsequently renamed Nichols Aluminum-Alabama, Inc.)
dated October 9, 1998.
*10.27 -- Agreement between The Industrial Development Board of the
City of Decatur and Decatur Aluminum Corp. (subsequently
renamed Nichols Aluminum-Alabama, Inc.) dated September
23, 1998.
*21 -- Subsidiaries of the Registrant.
*23 -- Consent of Deloitte & Touche LLP.
*27 -- Financial Data Schedule
</TABLE>
- ---------------
+ Management Compensation or Incentive Plan
* Filed herewith
<PAGE> 1
EXHIBIT 10.22
[STAMP]
STATE OF ALABAMA )
COUNTY OF MORGAN )
LEASE AGREEMENT
Lease Agreement between THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF
DECATUR, A public corporation and instrumentality under the laws of the State of
Alabama (herein called "The Board"), and FRUEHAUF TRAILER COMPANY, a corporation
organized and existing under the laws of the State of Michigan and authorized to
do business in the State of Alabama (herein called "the Company"),
R E C I T A L S:
The Board proposes to acquire the real property hereinafter described,
and to construct thereon and to equip and furnish an aluminum rolling mill and
fabricating plant with appurtenant facilities and machinery and equipment for
use in the operation thereof and proposes to lease said real property, plant,
facilities, machinery and equipment to the Company. To finance the acquisition
of said real property, the construction of said plant and facilities and the
purchase and installation therein of said machinery and equipment, all for the
promotion of local manufacturing and industrial development, the Board proposes
to authorize the issuance of $5,700,000 principal amount of its First Mortgage
Industrial Revenue Bonds, to be dated May 1, 1963 (herein called "the Bonds"),
which are more particularly described in the Mortgage hereinafter referred to.
The Bonds are to be secured by a pledge and assignment of the Board's interest
in this Lease Agreement and by a pledge and assignment of the revenues and
receipts derived by the Board from the leasing or sale of the Project
hereinafter referred to and will be issued under and additionally secured by a
Mortgage and Indenture of Trust dated as of May 1, 1963 (herein called "the
Mortgage"), from the Board to the State National Bank of Decatur, Decatur,
Alabama (herein called "the Trustee"), under which the revenues and receipts
derived by the Board from the leasing or sale of the said Project will be
pledged for the payment of the principal of and
<PAGE> 2
the interest on the Bonds and under which the said Project will be mortgaged and
conveyed to the Trustee as additional security for payment of said principal and
interest. The Mortgage is to be in substantially the form attached hereto as
Exhibit A.
The acquisition of said real property, the construction thereon of said
plant and facilities, the purchase and installation of said machinery and
equipment therein, the issuance and sale of the Bonds and the lease of said real
property, plant, facilities, machinery and equipment to the Company will promote
industry and develop trade by inducing manufacturing, industrial and commercial
enterprises to locate in the State of Alabama and further the use of its
agricultural products and natural resources. Under the provisions of Act No. 648
enacted at the 1949 Regular Session of the Legislature of Alabama, as amended,
the Board has the power to acquire said real property, to construct said plant
and facilities thereon, to purchase and install said machinery and equipment
therein, to issue and sell the Bonds and to lease said property, plant,
facilities, machinery and equipment to the Company. To achieve the objectives
mentioned above, the Board and the Company have entered into this Lease
Agreement.
Now, Therefore, this Agreement
W I T N E S S E T H:
That in consideration of the respective agreements on the part of the Board
and the Company hereinafter contained, the Board does hereby lease to the
Company, and the Company does hereby rent from the Board, for and during the
Primary Term hereinafter referred to and upon and subject to the terms and
conditions hereinafter specified, the following described real property situated
in Morgan County, Alabama (the said real property being herein called "the
Leased Realty"):
A part of the Lot or Tract No. 13 being in Sections 13 and 14 in Township
5 South, Range 5 West, said tract being according to the subdivision of
the L. W. Norton Farm, as surveyed and platted by J. M. Holt, Surveyor,
as shown by map or plat of said Subdivision filed in the Probate Office
of Morgan County, Alabama, March 3, 1928,
-2-
<PAGE> 3
in Plat Book at page 62 and being more particularly described as follows:
Beginning at a point on the Southerly right of way line of Alabama
Highway No. 20, which is 41.5 feet East of a point 30 feet South of the
Northeast corner of Section 14, Township 5 South, Range 5 West, and
running thence South 0 degrees 54 minutes West 230 feet; thence North 89
degrees 06 minutes West 68 feet; thence South 0 degrees 54 minutes West
70 feet; thence South 89 degrees 06 minutes East 68 feet; thence South 0
degrees 54 minutes West 122 feet; thence North 89 degrees 06 minutes West
60 feet; thence South 0 degrees 54 minutes West 60 feet; thence South 89
degrees 06 minutes East 60 feet; thence South 0 degrees 54 minutes West
1122.04 feet; thence South 76 degrees 49 minutes West 341.76 feet;
thence North 0 degrees 57 minutes East 1139.77 feet; thence South 89
degrees 03 minutes East 69 feet; thence North 0 degrees 57 minutes East
125 feet; thence South 89 degrees 03 minutes East 151 feet; thence North
0 degrees 57 minutes east 422.70 feet to a point on the South margin of
Alabama Highway No. 20; thence South 89 degrees 03 minutes East along the
South margin of Alabama Highway No. 20, 110 feet to the point of
beginning, containing 9.967 acres, more or less, subject, however, to the
right of way over the South 30 feet thereof as provided in the deed from
L. W. Norton to W. H. Anderson dated March 1, 1928, and recorded in Deed
Book 256, page 328, in the Probate Office of Morgan County, Alabama
together with the Plant and the Leased Equipment, both hereinafter referred to,
and all other improvements thereto now or hereafter made (the said real
property, plant, machinery equipment and improvements, as they may at any time
exist, being herein together called the "Project"). This Lease Agreement is
made, however, upon and subject to the following terms and conditions, to each
of which the Board and the Company hereby agree:
-3-
<PAGE> 4
ARTICLE I
Constructing and Financing the Plant
and the Leased Equipment
Section 1.1 Agreement to Construct Plant and to Purchase and Install
Leased Equipment. Promptly following the issuance and sale of $5,200,000
principal amount of the Bonds (referred to in the mortgage as the Initial Bonds)
and out of the principal proceeds derived therefrom, the Board (a) will acquire
the Leased Realty and construct an aluminum rolling mill and fabricating plant,
described in "The Industrial Development Board of the City of Decatur, Alabama
Aluminum Sheet Rolling Mill Project," dated April 9, 1963, heretofore approved
by the parties hereto and a copy thereof filed with the Trustee (said plant to
consist of a main building, together with appurtenant buildings, facilities and
other improvements, all of which are herein together called "the Plant"),
substantially in accordance with plans and specifications therefor to be
prepared by the Company for the account of the Board and to be furnished to the
Board by the Company, and (b) will purchase and install in the Plant such items
of machinery and equipment described generally in the aforesaid Aluminum Sheet
Rolling Mill Project dated April 9, 1963, as shall from time to time be
specified in written orders from the Company to the Board (said machinery and
equipment being herein together called "the Leased Equipment"), such purchases
and installations to be made substantially in accordance with orders and
directions from the Company prepared for the account of the Board. All contracts
and orders for such construction, purchase and installation, which contracts and
orders may provide for progress payments, and all request for payments out of
the Construction Fund (to be created in the Mortgage and herein called "the
Construction Fund") shall be signed on behalf of the Board, subject to written
approval by the Company in all respects. If after the exercise of due diligence
by the Board, it is impossible for the Board to construct any part of the Plant
which the Company duly orders and directs the Board so to construct or to
purchase and install in the Plan any item of the Leased Equipment which the
Company duly orders and directs the Board so to purchase and install, the
Company (a) will withdraw the
-4-
<PAGE> 5
order and direction in question, or (b) will itself effect the construction or
purchase and installation ordered thereby, for and in the name and behalf of the
Board, in which case the Company shall be entitled to reimbursement from the
Construction Fund for the costs incurred by it in effecting such construction or
purchase and installation, as the case may be.
The Board and the Company shall from time to time each appoint by
written instrument an agent or agents authorized to act for each respectively in
any or all matters relating to the construction of the Plant, the purchase and
installation of the Leased Equipment and payments out of the Construction Fund.
One of the agents appointed by the Company shall be designated its "Project
Manager". Either the Board or the Company may from time to time revoke, amend or
otherwise limit the authorization of any agent appointed by it to act on its
behalf and designate another agent or agents to act on its behalf, provided that
there shall be at all times at least one agent authorized to act on behalf of
the Board, and at least one agent (who shall be the Project Manager) authorized
to act on behalf of the Company, with reference to all the foregoing matters. In
the event that after reasonable request made to the Board by the Company, the
Board fails or refuses to enter into or execute any contract or order for such
construction, purchase or installation and fails or refuses to issue or execute
a payment requisition from the Construction Fund for payment of any item that
may under the terms of the Mortgage be paid from the Construction Fund, the
Project Manager then designated by the Company, who is hereby irrevocably
appointed as agent for the Board for such purposes, (a) may enter into, execute
and deliver any such contract or order, for and in the name and on behalf of the
Board, or (b) may issue and execute, also for and in the name and behalf of the
Board and without any approval of any officer, employee or other agent thereof,
payment requisition on the Construction Fund, as the case may be.
Section 1.2 Development and Design Expenses Insured by Company. In
order to expedite the construction of the Plant, the Board has heretofore
authorized the Company to go forward with the planning, development and design
thereof and with the planning, development and design of the items of Leased
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Equipment to be installed in the Plant. The Board acknowledges that all
reasonable costs, expenses and fees (including, without limitation, engineering,
legal, procurement, accounting and auditing fees and expenses) incurred by the
Company in connection with such planning, development and design (whether before
or after the execution and delivery of this Lease Agreement or before or after
the issuance and sale of the Bonds) constitute a part of the project costs, for
which the Company shall be entitled to reimbursement from the Construction Fund.
Section 1.3 No Warranty of Suitability by Board. The Company
recognizes that since the plans and specifications for the Plant are to be
prepared by it and that since the items of Leased Equipment are to be selected
by it, the Board can make no warranty, either express or implied, or offer any
assurances that the Plant or the Leased Equipment will be suitable for the
Company's purposes or needs or that the proceeds derived from the sale of the
Bonds will be sufficient to pay in full all the project costs.
Section 1.4 Completion of the Project. Bonds in the principal amount of
$500,000, referred to in the mortgage as the "Additional Bonds" will not be sold
and delivered except as required by, and subject to, the provisions of this
section. In the event that for any reason the amount on deposit in the
Construction Fund is insufficient to pay all costs of completing the Project,
the Company shall nevertheless complete the Project without delay and pay all
costs thereof in excess of the amount available therefor in the Construction
Fund; and the Company may in such event, at its option, elect to have all or any
part of the Additional Bonds (but not exceeding an amount sufficient to produce
monies required to pay the cost of completing the Project) offered for sale and
the net sale proceeds (less interest to May 1, 1965) deposited in the
Construction Fund. Such option may be exercised by the Company by notifying the
Board and the Trustee in writing, on or before May 1, 1965, that it desires to
have a specified amount of the Additional Bonds offered for sale. The Board and
the Trustee will promptly take all action required to have the amount of
Additional Bonds so designated offered for sale. In the event that any such
Additional Bonds are issued and sold, the proceeds of the sale of such
Additional Bonds (less the expenses of
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issuance and sale, which shall be paid therefrom, and an amount equal to the
interest to become due on such Additional Bonds to and including May 1, 1965,
which shall be deposited in the Bond and Interest Fund provided in the Mortgage)
shall be deposited in the Construction Fund. The Company may be reimbursed from
the Construction Fund for all monies necessarily expended by the Company in the
acquisition of the Project after the monies in the Construction Fund were
exhausted and before the proceeds of the sale of the Additional Bonds were
deposited in the Construction Fund. Any Bonds not sold and delivered on or
before November 1, 1965, will be cancelled and will not thereafter be issued or
reissued. The obligation of the Company to complete the Project without delay
shall not be contingent upon the sale or delivery of any of the Additional
Bonds; and the Company shall be obligated to continue the construction and
acquisition of the Project without interruption, at its own expense, regardless
of its notice to the Board and the Trustee, or any delay in the sale or delivery
of the Bonds or the inability of the Board to sell the same. The Company shall
not by reason of the payment of such excess costs from its own funds be entitled
to any diminution in the payment of the rents hereunder.
Should the Company fail to comply with the foregoing provisions of this
section, the Board shall have any one or more of the following remedies:
(a) The Trustee shall be entitled to retain all payments made as rent
under this Lease Agreement by the Company, and the Company shall be obligated to
pay to the Trustee the rental payments as they become due as liquidated damages,
subject, however, to a credit for the net proceeds which the Trustee may receive
from the sale of the Project or any part thereof, or from the lease or sublease
of the Project or any part thereof to others than the Company herein, during and
for the unexpired term of this Lease Agreement; or
(b) The Board may take possession of the, Lease Realty and complete the
Project at the expense of the Company, which expense with six per cent interest
and a reasonable attorney's fee, if the services of an attorney are required
for the collection thereof, the Company hereby agrees to pay; or
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(c) The Board may terminate this Lease Agreement and sue for damages
for breach thereof.
Section 1.5 Supplemental Agreement on Completion. Upon completion of
construction of the Plant and the purchase and installation of the Leased
Equipment therein, the Board will, on written request of the Company or the
Trustee, enter into a supplemental agreement with the Company identifying the
items of Leased Equipment installed in the Plant and confirming the lease
thereof to the Company hereunder.
ARTICLE II
Duration of Lease Term and Rental Provision
Section 2.1 Duration of Term. The primary term of this Lease Agreement
and of the lease herein made (herein called "the Primary Term") shall begin on
the date the construction of the Plant and the installation of the Leased
Equipment are completed or on May 1, 1965, whichever date is earlier, and,
subject to the provisions of this Lease Agreement, shall continue until midnight
of April 30, 1983, but the Company will be permitted to have such possession of
the Project prior to the beginning of the Primary Term as shall not interfere
with the construction of the Plant and the installation of the Leased Equipment
therein. The Board will deliver to the Company sole and exclusive possession of
the Project on the commencement date of the Primary Term, subject to the
inspection and other rights reserved in Section 6.2 hereof, and the Company will
accept possession thereof at such time; provided, however, that in the event the
Primary Term begins prior to the date the construction of the Plant and the
installation of the Leased Equipment therein are completed, the Board will be
permitted such possession of the Project as shall be necessary and convenient
for it to complete the construction of the Plant and the installation of the
Leased Equipment therein, and provided further, that the Board will be permitted
such possession of the Project as shall be necessary and convenient for it to
construct or install any additions or improvements and to make any repairs or
restorations required or permitted to be constructed, installed or made by the
Board pursuant to the
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provisions hereof or pursuant to the provisions of any agreement between the
Company and the Board supplemental hereto.
Section 2.2 Rental Provisions. For and during the Primary Term, the
Company will pay to the Board not less than the following basic rental (herein
called "Basic Rent") for use and occupancy of the Project:
(a) On or before the 20th day of each month beginning May 20, 1965, an
amount equal to one sixth (1/6) of the interest becoming due on all outstanding
Bonds on the next succeeding interest payment date, and;
(b) On October 20, 1965 and on each April 20 and October 20,
thereafter, an amount equal to the principal of the outstanding Bonds due and
payable on the then next succeeding semiannual principal payment date.
All Basic Rent payments shall be made directly to the Trustee, or to
its successor as Trustee under the Mortgage, for the account of the Board and
shall be deposited in the Bond and Interest Fund established under the Mortgage.
The monthly and semiannual installment of Basic Rent shall continue until the
amount in the Bond and Interest Fund shall have become sufficient to pay in full
the principal of (including redemption premium), and interest on all
outstanding Bonds either at maturity or on earlier redemption. Any payment of
Basic Rent due hereunder that is not made within ten (10) days of the due date
thereof shall bear interest from that date until paid at the rate of 6% per
annum.
The Company will also pay, as additional rental, the reasonable fees,
charges and expenses of the Trustee under the Mortgage (other than the initial
fee or charge of the Trustee) and of the paying agents for the Bonds, such fees,
charges and reimbursement for expenses to be paid directly to the Trustee and
such paying agents for their own account as and when such fees, charges and
expenses become due and payable.
Section 2.3 Obligations of Company Unconditional. The obligation of
the Company to pay the Basic Rent, to make all other payments provided for
herein and to perform and observe the other agreements and covenants on its part
herein contained shall be absolute and unconditional, irrespective of any rights
of set-off, recoupment or counterclaim it might otherwise have against
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the Board. The Company will not suspend or discontinue any such payment or fail
to perform and observe any of its other agreements and covenants contained
herein or terminate this Lease Agreement for any cause, including, without
limiting the generality of the foregoing, any acts or circumstances that may
constitute an eviction or constructive eviction, failure of consideration or
commercial frustration of purpose, or any damage to or destruction of the
Project, or the taking by eminent domain of title to or the right to temporary
use of all or any of the Project, or any change in the tax or other laws of the
United States of America, the State of Alabama or any political subdivision of
either thereof, or any failure of the Board to perform and observe any agreement
or covenant, whether express or implied, or any duty, liability or obligation
arising out of or connected with this Lease Agreement. Notwithstanding the
foregoing, the Company may, at its own cost and expense and in its own name or
in the name of the Board, prosecute or defend any action or proceeding or take
any other action involving third persons which the Company deems reasonably
necessary in order to secure or protect its rights of use and occupancy and
other rights hereunder. The provisions of the first and second sentences of this
section shall apply only so long as any part of the principal of and the
interest on the Bonds remains outstanding and unpaid, and nothing contained
therein shall be construed to affect adversely or to impair the option to
terminate this Lease Agreement granted in Section 8.2 hereof. Furthermore,
except as provided in the first and second sentences of this section, nothing
contained herein shall be construed to be a waiver of any rights which the
Company may have against the Board under this Lease Agreement or under any
provision of law.
Section 2.4 Investment of Funds. The Board shall cause the Trustee to
invest and reinvest the monies from time to time in the Construction Fund and
the monies from time to time in the Bond and Interest Fund in the manner and
to the extent and with such application of the income therefrom as is provided
in the Mortgage.
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ARTICLE III
Maintenance, Taxes and Insurance
Section 3.1 Maintenance, Alterations and Improvements. (a) The Company
will, at its own expense, (i) keep the Project in as reasonably safe condition
as its operations permit, and (ii) keep the Plant, the Leased Equipment and the
other improvements located on the Leased Realty in good order and repair, and
from time to time make all needful and proper repairs, renewals and replacements
thereto. The Company agrees to pay all gas, electric light and power, water,
sewer and all other charges for the operation, maintenance, use and upkeep of
the Plant, Leased Equipment and Project.
(b) The Company may, also at its own expense, make any additions,
improvements or alternations to the Project that it may deem desirable for its
business purposes, provided that such additions, improvements or alterations do
not adversely affect the value or utility of the Project or its character as a
"project" under said Act No. 648. In lieu of making such additions, improvements
or alterations itself, the Company may, if it so desires, furnish to the Board
the funds necessary therefor, in which case the Board will proceed to make such
additions, improvements or alterations.
(c) All such additions, improvements and alterations whether made by
the Company or the Board shall become a part of the Project and shall be covered
by the Mortgage; provided however, that any machinery, equipment, furniture or
fixtures installed by the Company (not the Board) on the Project without expense
to the Board and not constituting a part of the Leased Equipment or repairs,
renewals or replacements of the Leased Equipment or the Plant may be removed by
the Company at any time and from time to time while it is not in default under
the terms of this Lease Agreement; and provided further that any damage to the
Project occasioned by such removal shall be repaired by the Company at its own
expense. The Company will not permit any mechanics or other liens to stand
against the Project for labor or material furnished it in connection with any
additions, improvements, alterations or repairs so made by it. The Company may,
however, in good faith contest any such mechanics' or other liens and in
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such event may permit any such liens to remain unsatisfied and undischarged
during the period of such contest and any appeal therefrom unless by such action
the lien of the Mortgage on the Project or any part thereof, or the Project or
any part thereof shall be subject to lose or forfeiture, in either of which
events such mechanics' or other liens shall be promptly satisfied.
(d) The Company may, also at its own expense, connect or "tie-in" walls
and utility and other facilities located on the Leased Realty to other
facilities owned or leased by it on real property adjacent to the Leased Realty
or partly on such adjacent real property and partly on the Leased Realty but
only if the Company furnishes the Board and the Trustee a certificate of a
nationally recognized independent consulting engineering firm that such
connection and "tie-in" of walls and facilities will not impair the operating
unity of the Plant (that is, the operating unity of that portion of said Plant,
as extended, that is located wholly within the boundary lines of the Leased
Realty).
Section 3.2 Taxes. Other Governmental Charges and Utility Charges. The
Board and the Company acknowledge (a) that under present law no part of the
Project owned by the Board will be subject to ad valorem taxation by the State
of Alabama or by any political or taxing subdivision thereof and that under
present law the income and profits (if any) of the Board from the Project are,
not subject to either Federal or Alabama taxation, and (b) that these factors,
among others, induce the Company to enter into this Lease Agreement. However,
the Company will pay, as the same respectively become due, all taxes and
governmental charges of any kind whatsoever that may at any time be lawfully
assessed or levied against or with respect to the Project or any machinery,
equipment or other property installed or brought by the Company therein or
thereon (including, without limiting the generality of the foregoing, any taxes
levied upon or with respect to the income or profits of the Board from the
Project which, if not paid, will become a lien on the Project prior to the lien
of the Mortgage or a charge on the revenues and receipts therefrom prior to the
charge thereon and pledge or assignment thereof to be created and made in the
Mortgage), all utility and other charges incurred in the operation, maintenance,
use, occupancy and upkeep of
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the Project, and all assessments and charges lawfully made by any governmental
body for public improvements that may be secured by lien on the Project;
provided, that with respect to special assessments or other governmental charges
that may lawfully be paid in installments over a period of years, the Company
shall be obligated to pay only such installments as are required to be paid
during the term hereof. The foregoing provisions of this section shall be
effective only so long as any part of the principal of or the interest on the
Bonds remains outstanding and unpaid.
The Company may, at its own expense and in its own name and behalf or
in the name and behalf of the Board, in good faith contest any such taxes,
assessments and other charges and, in the event of any such contest, may permit
the taxes, assessments or other charges so contested to remain unpaid during the
period of such contest and any appeal therefrom unless by such action the title
of the Board to any part of the Project shall be materially endangered or the
Project or any part thereof shall become subject to loss or forfeiture, in which
event such taxes, assessments or charges shall be paid prior to becoming
delinquent. The Board will cooperate fully with the Company in any such contest.
Section 3.3 Insurance. (a) The Company will cause the Project to be
insured and at all times keep the Project insured, even during the construction
thereof, against loss and/or damage to the Project, under a policy or policies
in form and amount covering such risks as are ordinarily insured against by
similar manufacturing plants, including, without limiting the generality of the
foregoing, fire and other perils customarily covered by the extended coverage
clause of fire insurance policies, windstorm, explosion, tornado, lightning,
riots, strikes, civil commotion and malicious damage. The Company will pay all
premiums on such insurance. All such policies shall be for the benefit of the
Board, the Company and the Trustee as their interests shall appear, shall be
made payable to the Trustee and shall be deposited with the Trustee, and the
Trustee shall have the sole right to receive the proceeds from such policies and
to collect and receipt for claims thereunder. All such insurance policies shall
be taken out and maintained in generally recognized responsible insurance
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companies, each of which is qualified and authorized to assume the respective
risks undertaken, and shall be in the amount of (a) the full insurable value of
the Project, or (b) the amount required to pay the principal of and interest on
the Bonds as they mature and come due, or (c) the redemption price thereof,
whichever is less. No policy of insurance shall be so written that the proceeds
thereof will produce less than the minimum coverage required by the preceding
sentence, by reason of co-insurance provisions or otherwise, without the prior
consent thereto in writing by the Trustee. In lieu of depositing the policy or
policies of insurance with the Trustee, the Company may deposit with the Trustee
a certificate or certificates of the respective insurers attesting the fact that
such insurance is in force and effect. Prior to the expiration or cancellation
of any such policy, the Company will furnish the Trustee satisfactory evidence
that such policy has been renewed or replaced by another policy. The Company may
insure under a blanket insurance policy or policies, and in the event the
insurance coverage is by such blanket insurance coverage, it shall be sufficient
to furnish to the Trustee a certificate or duplicate copy of each such blanket
policy of insurance.
(b) The Company shall also take out and at all times maintain and pay
the premium on policies of insurance in generally recognized responsible
insurance companies, each of which in qualified to assume the risks, for the
benefit of the Trustee, the Board and the Company as their interest may appear,
against liability for injuries to persons and property or death or accidental
injuries occurring on or about the Project, or in or about adjoining streets and
passageways, in the minimum amount of $100,000 liability to any one person for
personal injury or death, $25,000 liability to any one person for property
damage, and $500,000 liability for any one accident. Such insurance shall be
provided from the date any of the Bonds are sold and delivered by the Board and
shall be effective while the Project is being constructed as well as thereafter
during the entire term of the lease. The insurance policies or certificates
evidencing the same shall be filed with the Trustee so long as any of the Bonds
shall be outstanding and thereafter with the Board. Such policies or
certificates shall be
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filed with the Trustee on or before the delivery and sale of any of the Bonds.
Such insurance may also be provided under a blanket insurance policy or policies
as hereinabove provided.
Section 3.4 Advances by Board or Trustee. In the event the Company
fails to take out or maintain the full insurance coverage required by this Lease
Agreement, fails to pay the taxes and other charges referred to in Section 3.2
hereof at or prior to the time they are there required to be paid, or fails to
keep the Project in as reasonably safe condition as its operating conditions
permit and the Plant, the Leased Equipment and the other improvements located on
the Leased Realty in good order and repair, the Board or the Trustee, after
first notifying the Company of any such failure on its part, may (but shall not
be obligated to) take out the required policies of insurance and pay the
premiums on the same, pay such taxes or other charges or make such repairs,
renewals and replacements as may be necessary to maintain the Project in as
reasonably safe condition as the Company's operations permit and the Plant, the
Leased Equipment and the other improvements located on the Leased Realty in good
order and repair, respectively; and all amounts so advanced therefor by the
Board or the Trustee shall become an additional obligation of the Company to the
Board or to the Trustee, as the case may be, which amounts, together with
interest thereon at the rate of 6% per annum from the date thereof, the Company
will pay. Any remedy herein vested in the Board or the Trustee for the
collection of the rental payments shall also be available to the Board and the
Trustee for the collection of all such amounts so advanced.
Section 3.5 Indemnity of Board. The Board shall not be liable for any
damage or personal injury to the Company, its officers, employees or the public,
caused by or growing out of any breakage, leakage, getting out of order, or
defective condition of any water or sewer pipe, fixtures, toilets, plumbing,
electric wires, gas pipes, apparatus, or connections, or machinery or equipment
or any of them, on the Leased Realty, or caused by or growing out of any defects
in the Project or any part thereof, even if such defect occurred or existed
prior to the delivery of possession of the Leased Realty and the Project to the
Company. The
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Company shall save the Board harmless from any action, suit, judgment, or
liability against the Board on account of any defects in the condition of the
premises for any personal injury or property damage occasioned or claimed to
have been occasioned thereon or thereby and shall defend the Board against all
such claims at Company's expense. The Board shall promptly notify Company of any
and all such claims and shall cooperate with the Company in the defense thereof.
Failure of the Board to notify the Company of such claim within time to permit
the Company to defend against such claim will release the Company of the
liability to defend against such claim.
ARTICLE IV
Provisions Respecting Damage,
Destruction and Condemnation
Section 4.1. Damage and Destruction Provisions. In the event that the
Project is destroyed or damaged, by whatever cause, the Company shall have the
option (a) to continue to pay the rent and to cause the Project to be repaired
or rebuilt in the same condition and value as immediately preceding the event
causing such loss, or (b) to pay to the Trustee for the account of the Bond and
Interest Fund, held by the Trustee under the Mortgage, a sum which, when added
to all insurance proceeds which the Trustee has collected on account of such
destruction or damage, shall be sufficient to pay the principal of and interest
on the Bonds as they mature and come due or to redeem the same. In the event
that the Company shall elect to cause the Project to be repaired or rebuilt, the
Company shall continue to make the rental payments provided for in this Lease
Agreement shall cause an estimate to be made of the expense of repairing and
rebuilding the Project in the same condition and value as immediately preceding
the event causing such loss, by a capable and reputable architect or engineer,
or both, acceptable to the Board and the Trustee, and the Company shall
forthwith pay to the Trustee for the account of the Construction Fund the amount
by which such estimate exceeds the insurance proceeds collected by the Trustee
on account of such damage or destruction; and the Company
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shall forthwith proceed with all practicable dispatch to cause the Project to be
repaired and rebuilt in the same condition and value as immediately preceding
the event causing such loss, and the Board shall cause the expenses thereof to
be paid by the Trustee out of the Construction Fund, as in the Mortgage
provided. If the actual cost of repairing and rebuilding the Project shall
exceed the amount available therefor in the Construction Fund, the Company shall
pay any deficiency from its own funds. In the event that the Company shall elect
not to cause the Project to be repaired or rebuilt, the Company shall forthwith
pay to the Trustee a sum of money which, when added to the insurance proceeds,
will be sufficient to pay the principal of and interest on the Bonds an they
mature and come due or to redeem the same; and upon the payment or retirement of
all Bonds and interest thereon and all other obligations under the Mortgage, the
Basic Rent for the Primary Term of the lease shall abate. Payment to the Trustee
of insurance proceeds in excess of the amounts used to repair or rebuild the
Project in the same condition and value as immediately preceding the event
causing the loss or destruction, or if insurance proceeds are paid to the
Trustee to pay or redeem the Bonds, shall be credited as follows:
(1) To the abatement of Basic Rents which will thereafter be due and
payable as herein provided and the latest installment thereof shall be first
abated; and when all Bonds and interest thereon shall have been paid in full,
whether at maturity or by call for prior redemption, and all other obligations
under the Mortgage, including the payment of the Trustee's fees, charging and
expenses, shall have been paid and discharged,
(2) The Company shall be entitled to the excess, if any, then remaining
uncredited.
Section 4.2 Condemnation Provisions. In the event the Project and the
Leased Realty or any part of either shall be taken under the exercise of the
power of eminent domain, the award of compensation, except such portion as is
allocable to the Company for damages, shall be paid to the Trustee to be applied
to the payment of principal of and interest on all Bonds then outstanding or to
redeem the same, with any excess to be paid to the Board, unless the Company
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shall have notified the Board of its desire to utilize the award for the purpose
of adapting the Project to Company's continued use. In the event Company elects
to cause the Project to be repaired or rebuilt for its continued use, the
Company shall continue to make the rental payments provided for in this Lease
Agreement and shall cause an estimate to be made of the expenses of such work by
a capable and reputable architect or engineer, or both, acceptable to the Board
and the Trustee, and the Company shall, prior to the commencement of
construction, pay to the Trustee for the account of the Construction Fund the
amount, if any, by which such estimate exceeds the condemnation award; and
Company shall forthwith proceed with all practicable dispatch to cause the
Project to be repaired or rebuilt as aforesaid, and the Board shall cause the
expenses thereof to be paid by the Trustee out of the Construction Fund. If the
cost of repairing or rebuilding the Project exceeds the amount available
therefor in the Construction Fund, the Company shall pay any deficiency from its
own funds. In the event Company elects to redeem the outstanding Bonds and the
award (or portion thereof after use by the Company as above provided) is
insufficient to pay or redeem all outstanding Bonds, the Company shall either
(a) pay to the Trustee, for the account of the Bond and Interest Fund held by
the Trustee under the Mortgage, a sum which, when added to the proceeds of the
condemnation award which shall be paid to the Trustee, shall be sufficient to
pay the principal of and interest on the Bonds as they mature and come due or to
redeem the same, or (b) continue to occupy the Leased Realty or any part thereof
then remaining and cause the Board to apply the proceeds of the award of
condemnation paid to the Trustee to the redemption of Bonds, whereupon the basic
rental payments will be reduced to the amount required to pay the principal of
and interest on the remaining outstanding Bonds as such principal and interest
become due and payable.
ARTICLE V
Certain Provisions Relating to Assignment,
Subleasing and Mortgaging and to the Bonds
Section 5.1 Provisions Relating to Assignment and Subleasing. The
Company may assign this Lease Agreement, and may sublet the Project or any
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part thereof, without the necessity of obtaining the consent of either the Board
or the Trustee. No such assignment or subleasing shall, however, in any way
relieve the Company from primary liability for any of its obligations hereunder,
and in the event of any such assignment or subleasing the Company shall continue
to remain primarily liable for payment of all rentals herein provided to be paid
by it and for performance and observance of the other agreements and covenants
on its part herein provided to be performed and observed by it.
Section 5.2 Mortgaging of Project by Board. The Board may mortgage the
Project to the Trustee as security for the payment of the Bonds, subject to this
Lease Agreement (which shall be superior to the Mortgage), all as provided in
the Mortgage, and may assign its interest in and pledge any monies receivable
under this Lease Agreement to the Trustee an security for payment of the
principal of and the interest on the Bonds. The Board may in the Mortgage
obligate itself to follow the instructions of the Trustee or the holders of the
Bonds or a certain percentage thereof in the election or pursuit of any remedies
herein vested in it. In the event the Board's interest in this Lease Agreement
is so assigned and pledged to the Trustee, the Trustee shall have all rights and
remedies herein accorded the Board and any reference herein to the Board shall
be deemed, with the necessary changes in detail, to include the Trustee, and the
Trustee and the holders of the Bonds shall be deemed to be third party
beneficiaries of the covenants and agreements of the Company herein contained.
Subsequent to the issuance of the Bonds and prior to their payment in full, the
Board and the Company shall have no power to modify, alter, amend or terminate
this Lease Agreement without the prior written consent of the Trustee and then
only as provided in the Mortgage, provided that the Board and the Company may,
without any such consent, make such modifications, alterations and amendments of
this Lease Agreement an are specifically authorized in or contemplated by this
Lease Agreement or the Mortgage. The Board will not amend the Mortgage or any
mortgage supplemental thereto without the prior written concent of the Company.
Neither, the Board nor the Company will unreasonably withhold any consent herein
or in the Mortgage required of either of them. The Company shall
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not be deemed to be a party to the Mortgage or the Bonds issued thereunder and
reference in this Lease Agreement to said Mortgage and Bonds shall not impose
any liability or obligation upon the Company other than its specific obligations
and liabilities undertaken in this Lease Agreement.
Section 5.3 Redemption of Bonds. It is understood and agreed by the
parties hereto that the amount necessary to redeem Bonds shall include, in
addition to the redemption price, all expenses necessary to effect the
redemption and interest on the Bonds to be redeemed to the next ensuing date on
which they can be redeemed, and, if all Bonds are redeemed, all other
obligations under the Mortgage, including the Trustee's fees, charges and
expenses. Any payment made by the Company to be applied to the redemption of
Bonds shall be made at least 45 days prior to the proposed redemption date and
at the time of such payment the Company shall notify the Board, the Trustee and
the original purchasers of the Bonds, in writing, as to the purpose of such
payment, and the Board, upon receiving such notice, shall be obligated and
hereby agrees to take all necessary action to have the payment made by Company
for the purpose of redeeming Bonds applied to the redemption of as many Bonds as
such payment will permit under the Bond redemption provisions of the Bonds and
the Mortgage.
Section 5.4 References to Bonds Ineffective after Bonds Paid. Upon
full payment of the Bonds, all references in this Lease Agreement to the Bonds
and the Trustee shall be ineffective and neither the Trustee nor the holders of
any of the Bonds shall thereafter have any rights hereunder, saving and
excepting those that shall have theretofore vested. For purposes of this Lease
Agreement, the Bonds shall be deemed fully paid:
(a) If there is on deposit in the Bond and Interest Fund a total amount
sufficient to pay the principal of all the then outstanding Bonds plus the
interest due thereon until and at their respective maturities and provision for
payment of all Trustee's and paying agents' fees, accured and to accrue, has
been made in a manner satisfactory to the Trustee and such paying agents, or
(b) if there have been irrevocable deposited with the Trustee (i)
monies sufficient to pay, redeem and retire all the then outstanding Bonds
(including,
-20-
<PAGE> 21
without limitation, principal, premium, interest to maturity or earliest
practicable redemption date, as the case may be, expenses of redemption and
Trustee's and paying agents' fees), and (ii) evidence satisfactory to the
Trustee that all redemption notices required by the Mortgage have been duly
given by the Board or irrevocable powers authorizing the Trustee to give such
redemption notices.
In the event the Bonds are fully paid prior to the last maturity
thereof, or an amount sufficient to pay, redeem and retire all the then
outstanding Bonds including principal, premium, interest to maturity or earliest
practicable redemption date (as the case may be), expenses of redemption and
Trustee's and paying agents' fees have been irrevocably deposited with the
Trustee in the Bond and Interest Fund for such purpose, the Company shall be
entitled to use and occupancy of the Project from the date of such payment until
the expiration of the Primary Term without the payment of any further Basic Rent
but otherwise on all the same terms and conditions hereof. If, after full
payment of the Bonds, there is any surplus remaining in the Bond and Interest
Fund, the Board will promptly pay such surplus to the Company.
ARTICLE VI
Particular Covenants of The Company
Section 6.1 General Covenants. The Company will not do or permit
anything to be done on or about the Project that will affect, impair or
contravene any policies of insurance that may be carried on the Project or any
part thereof against loss or damage by fire, casualty or otherwise. The Company
will, in the use of the Leased Realty and the Plant, the public ways abutting
the same and the Leased Equipment, comply with all lawful requirements of all
governmental bodies.
Section 6.2 Inspection of Project. The Company will permit the Board,
the Trustee, any holder of not less than $50,000 principal amount of Bonds and
their duly authorized agents, (subject to the restrictions and requirements
imposed by contracts with the United States Government or agencies thereof, or
by subcontracts governed by such contracts, being performed by the Company, or
its subtenant or subtenants, in any part of the Leased Realty
-21-
<PAGE> 22
or the Project, at all reasonable times to enter upon, examine, inspect and
photograph the Leased Realty, the Leased Equipment, the Plant and the Project;
and in the event of default as hereinafter provided, the Company will permit any
nationally recognized firm of certified public accountants designated by the
Trustee, to have access to, inspect, examine and make copies of the books and
records, accounts and data of the Company.
Section 6.3 Special Covenants. In order that the Board may be
reasonably assured of the full payment of rent over the full primary term of the
Lease,
(a) The Company shall install and maintain proper books of record and
account, in which full and correct entries shall be made in accordance with
standard accounting practice, of all business and affairs of the Company, and
shall furnish to the Board, to the Trustee and to the original purchasers of the
Bonds quarterly and annual balance sheets and income and expense statements
showing, respectively, in reasonable detail, the financial condition of the
Company at the close of each such period and its financial operations during
each such period. The annual balance sheet and income and expense statement
shall be certified in accordance with the standard form of opinion adopted by
the American Institute of Accountants, by a certified public accountant who is a
member of the said American Institute of Accountants and against whom the
Trustee makes no reasonable objection. The profit and loss statements shall
accurately reflect gross income and the net earnings of the Company.
(b) The Company will at all times keep an office or agency in the City
of Decatur, State of Alabama, where notices, requests and demands in respect of
this Lease Agreement may be served, and it will in writing notify the Board and
the Trustee of the location of each such office or agency. In default of any
such office or agency or such notification thereof, such notices, requests and
demands may be served at the principal office of the Trustee.
(c) The Company will duly pay and discharge all taxes, assessments and
other governmental charges and liens lawfully imposed upon the Leased Reality
and the Project and upon the properties of the Company, provided, how-
-22-
<PAGE> 23
ever, the Company shall not be required to pay any taxes, assessments or other
governmental charges so long as in good faith it shall contest the validity
thereof by appropriate legal proceedings.
(d) the Company will maintain and preserve its Certificate of
Incorporation or Charter and its corporate existence and organization, and its
authority to do business in the State of Alabama, and will not voluntarily
dissolve without first discharging its obligations under this Lease Agreement,
and will comply with all valid laws, ordinances, regulations and requirements
applicable to it or to its property and the Project.
(e) The Company will not merge or consolidate with any other
corporation and will not transfer or convey all of its property, assets and
licenses, or any substantial portion thereof, except (i) upon terms and
conditions that will fully protect the interest of the Board and the holders of
the Bonds, and (ii) upon the execution and delivery to the Board and to the
Trustee of an agreement supplemental hereto which will obligate the successor
corporation or transferee to assume and perform and abide by all the terms and
conditions of this Lease Agreement. In case the Company or any successor
corporation or transferee shall be consolidated or merged with or into any other
corporation or shall make a conveyance, as permitted under the provisions of
this subsection, the corporation formed by or resulting from such consolidation
or merger, or the transferee to which such conveyance shall have been made as
aforesaid, upon complying with the provisions of this subsection, shall succeed
to and be substituted for the Company with the same force and effect as if it
had been named in and had executed this Lease Agreement as a party thereto, and
shall have and possess and may exercise, subject to the terms and conditions of
this Lease Agreement and of the Mortgage, each and every power, authority and
right herein reserved to and conferred upon the Company. The term "Company"
includes and means, unless the context otherwise requires, not only the
Fruehauf Trailer Company but also any such successor corporation or transferee.
The supplemental Lease Agreement provided for in this subsection shall never be
construed as a novation, alteration or amendment of or to this Lease Agreement,
but as part of this Lease Agreement
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<PAGE> 24
and pursuant to its terms, and nothing herein contained shall be construed as
authorizing or permitting the execution of any agreement which shall impair, or
have the effect of impairing, the obligations intended to be imposed upon the
Company by this Lease Agreement, and no such consolidation, merger or
conveyance, and no such Lease Agreement or assumption of obligations, shall
release the Company from its liability under this Lease Agreement or from the
covenants in this Lease Agreement.
ARTICLE VII
Events of Default and Remedies
Section 7.1 Events of Default Defined. The following shall be "events
of default" under this Lease Agreement, and the terms "events of default" or
"default" shall mean, whenever they are used in this Lease Agreement, any one or
more of the following events:
(a) Failure to pay any installment of Basic Rent that has become due
and payable by the terms of this Lease Agreement;
(b) Failure of the Company to perform any of its obligations under this
Lease Agreement or to duly observe any covenant, condition or agreement on its
part required to be performed, provided such failure shall have continued for a
period of thirty days after written notice by the Board of the Trustee
specifying such non-performance or breach and requiring the same to be remedied,
unless the Trustee shall have agreed in writing to an extension of such time
prior to its expiration;
(c) The filing of a voluntary petition in bankruptcy or the commission
of any act of bankruptcy by the Company, or the adjudication of the Company as a
bankrupt, or the making by the Company of an assignment for the benefit of
creditors, or the appointment by final order, judgment or decree of a court of
competent jurisdiction of a receiver for the whole or any substantial part of
the properties of the Company, provided such receiver shall not have been
removed or discharged within sixty days of the date of his qualification, unless
the Trustee shall have agreed in writing to an extension of the time within
which to remove or discharge said receiver.
-24-
<PAGE> 25
Section 7.2 Remedies on Default. Whenever any such event or default
shall have happened and be continuing, the Board of the Trustee may take any of
the following remedial steps:
(a) The Board or the Trustee may, at their option, declare all
installments of Basic Rent payable under this Lease Agreement for the remainder
of the Primary Term immediately due and payable;
(b) The Board or the Trustee may reenter and take possession of the
Leased Realty, exclude the Company from possession thereof and rent the same for
the account of the Company;
(c) The Board or the Trustee may, at their option. terminate the Lease
Agreement, exclude the Company from possession of the Leased Realty and. if the
Board or Trustee elect so to do, lease the same for the account of the Board,
holding the Company liable for all rent due up to the date such lease is made
for the account of the Board;
(d) The Board or the Trustee may take whatever action at law or in
equity may appear necessary or desirable to collect the rent then due, whether
by declaration or otherwise, or to enforce any obligation or covenant or
agreement of the Company under this Lease Agreement or by law.
Section 7.3 No Remedy Exclusive. No remedy herein conferred upon or
reserved to the Board or the Trustee is intended to be exclusive of any other
available remedy or remedies, but each and every such remedy shall be cumulative
and shall be in addition to every other remedy given under this Lease Agreement
or now or hereafter existing at law or in equity or by statute. No delay or
omission to exercise any right or power accruing upon any default shall impair
any such right or power or shall be construed to be a waiver thereof but any
such right or power may be exercised from time to time and as often as may be
deemed expedient. In order to entitle the Board or the Trustee to exercise any
remedy reserved to it in this Article VII, it shall not be necessary to give any
notice, other than such notice as is herein expressly required.
Section 7.4 Agreement to Pay Attorneys' Fees. In the event the Trustee
(in its own name or in the name and behalf of the Board) files
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<PAGE> 26
court proceedings to collect Basic Rent due hereunder or to enforce any other
obligation, covenant, agreement, term or condition of this Lease Agreement, the
Company will pay to the Trustee reasonable attorneys' fees and other expenses so
incurred by the Trustee in connection with such court proceedings.
ARTICLE VIII
Options
Section 8.1 Option to Renew. If the Company pays the rental herein
reserved to the Board and is not otherwise in default hereunder, it shall have
the right and option, herein granted by the Board, to renew the Primary Term for
a period of twenty (20) additional years from midnight of April 30, 1983 (that
is. for an additional term expiring on midnight of April 30, 2003) by giving
written notice of such renewal to the Board at least sixty (60) days prior to
the expiration of the Primary Term. The cash rental payable by the Company
during any such renewal term shall be the sum of $20,000.00 per year, payable
annually in advance, but otherwise all the terms and conditions herein contained
shall apply during such renewal term.
Section 8.2 Options to Terminate. The Company shall have, if it is not
in default hereunder, the following options to cancel or terminate the term of
this Lease Agreement:
(a) At any time prior to full payment of the Bonds. the Company may
terminate this Lease Agreement by paying to the Board and the Trustee, as
additional or prepaid rental, in bankable funds an amount which. when added to
the amount on deposit in the Bond and Interest Fund. will be sufficient to pay,
retire and redeem all the outstanding Bonds in accordance with the provisions of
the Mortgage (including, without limiting the generality of the foregoing,
principal, interest to maturity or earliest practicable redemption date, as the
case may be, premium, expenses of redemption and Trustee's and paying agents'
fees);
(b) After full payment of the Bonds, the Company may terminate this
Lease Agreement as of any then succeeding anniversary date by giving the Board
-26-
<PAGE> 27
notice in writing not less than one hundred eighty (180) days prior to the
anniversary date on which such termination is to become effective.
ARTICLE IX
Release of Unimproved Leased Realty
Section 9.1 Any part of the Leased Realty may be released from the
provisions of this Lease Agreement and the lien of the Mortgage subject to
compliance with the terms, provisions and conditions of this section. Such
release shall be effected in the following manner:
(a) The Company shall deliver to the Board and to the Trustee its
certificate (i) describing the Leased Realty to the released, which property to
be released shall not include any existing building or structure except rights
granted in party walls, the right to "tie into" existing utilities, the right to
connect and join any building, structure or improvement with existing
structures, facilities and improvements on the Leased Realty, and the right of
ingress or egress to and from the public highway which shall not interfere with
the use and occupancy of existing structures, improvements and buildings, (ii)
describing the buildings, structures, or improvements to be erected on the
property to be released and (iii) stating that such buildings, structures or
improvements are necessary to the productivity of the Company's business and
(iv) requesting that the property be so released.
(b) The Company shall also deliver to the Board and to the Trustee a
certificate by an architect registered in the State of Alabama with experience
in the design and construction of industrial buildings and structures reasonably
satisfactory to the Trustee certifying that the buildings, structures or
improvements described in the above certificate by the Company can be
constructed on the real property to be released and will not unreasonably
interfere with the use and occupancy of the existing buildings, structures and
improvements on the Leased Realty, and
(c) The Company shall pay to the Board, or if any Bonds are
outstanding, to the Trustee, an amount equal to the original cost of the Leased
Realty to be released (calculated on the basis of the average per acre cost
thereof to the
-27-
<PAGE> 28
Board) plus an additional sum equal to One Hundred Dollars ($100.00) for each
twelve months period between May 1, 1963, and the date of the release multiplied
by the number of acres to be released.
(d) The written consent of the Board to the release of such Realty
shall be delivered to the Company and to the Trustee which consent shall not be
unreasonably withheld if the two certificates hereinabove referred to have been
furnished and the Board does not have reasonable cause to believe any statement
set forth in any of said certificates are incorrect. Any realty so released from
this Lease Agreement and the lien of the Mortgage shall be the unencumbered
realty of the Board and may be leased by it under separate lease, may be
mortgaged by it under separate mortgage which may be a first lien thereon and
may be held. conveyed and otherwise used for any of the purpose or purposes for
which the Board is incorporated subject to such terms and provisions as may be
agreed upon between the Company and the Board. No release or releases effected
under the provisions of this section of any realty shall affect the liability or
the obligation of the Company for the payment of Basic Rent in the amounts and
at the times provided in this Lease Agreement and there shall be no abatement or
adjustment in the Basic Rent by reason of the release of any such realty and the
obligation and the liability of the Company shall continue in all respects as
provided in this Lease Agreement, excluding, however, any realty so released.
ARTICLE X
Miscellaneous
Section 10.1 Covenant of Quiet Enjoyment, Surrender of Project. So long
as the Company performs and observes all the covenants and agreements on its
part herein contained, it shall peaceably and quietly have, hold and enjoy the
Project during the Primary Term, subject to all the terms and provisions hereof.
At the end of the term hereof, or upon any prior termination of this Lease
Agreement, the Company will surrender possession of the Project peaceably and
promptly to the Board in good order and repair, loss by fire or other casualty
and ordinary wear and tear only excepted.
-28-
<PAGE> 29
Section 10.2 Representations. The Company represents that it has
corporate power to enter into this Lease Agreement and to perform all acts
herein required to be performed by it and that its execution and delivery hereof
have been duly authorized by all necessary corporate action. The Board
represents that it has corporate power to enter into this Lease Agreement and
that its execution and delivery hereof have been duly authorized by all
necessary corporate action.
Section 10.3 Retention of Title to Project by Board, Grant of Utility
Easements and "Tie-In" of Utility Facilities. The Board will not itself sell,
convey or otherwise dispose of all or any part of the Project during the term of
this Lease Agreement without the prior written consent of the Company. Neither
will the Board dissolve or do anything that will result in the termination of
its corporate existence. The Board will, however, grant such utility and other
similar easements over, across or under the Leased Realty as shall be requested
by the Company and as are necessary or convenient for the efficient operation of
the Project. The Board will also, upon request of the Company, (a) grant such
utility and other similar easements over, across or under the Leased Realty as
shall be necessary or convenient for the furnishing of utility and other similar
services to real property adjacent to or near the Leased Realty and owned or
leased by the Company. provided that such easements shall not adversely affect
the operations of the facilities forming a part of the Project, and (b) in
addition to the rights granted the Company in subsection (d) of Section 3.1
hereof, permit any utility and other similar facilities serving the Project to
be "tied-into" utility and other similar facilities serving real property
adjacent to or near the Leased Realty and owned or leased by the Company,
provided that such "tie-in" shall not adversely affect the operation of the
facilities forming a part of the Project and shall be so effected as to be
subject to prompt disconnection at minimum expense.
Section 10.4 This Lease a Net Lease. The Company recognizes,
understands and acknowledges that it is the intention hereof that this Lease be
a net lease and that all the Basic Rent be available for payment of debt service
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<PAGE> 30
on the Bonds. This Lease Agreement shall be construed to effectuate such intent.
Section 10.5 Installation of New Equipment By Board In the event that
at any time the Company desires to install in the Project additional machinery
and equipment the Board will, on request of the Company and upon being furnished
by the Company with the necessary funds, purchase and install in the Project
such additional machinery and equipment, which shall then become and constitute
a part of the Project, subject to the lease hereof.
Section 10.6 Notices. All notices hereunder shall be sufficient if sent
by United States registered or certified mail, postage prepaid, addressed, if to
the Board, at Decatur, Alabama; if to the Company, Detroit 32, Michigan
(Attention, President), with a duplicate copy to the address of the Project; and
if to the Trustee, Decatur, Alabama (Attention, Trust Officer). The Board, the
Company and the Trustee may, by like notice, designate any further or different
addresses to which subsequent notices shall be sent.
Section 10.7 Prior Agreements Cancelled. This Lease Agreement shall
completely and fully supersede all other prior agreements, both written and
oral, between the Board and the Company relating to the construction of the
Plant, the purchase and installation therein of the Leased Equipment. the
leasing of the Project and any options to renew. No party to any such prior
agreement shall hereafter have any rights thereunder but shall look solely to
this Lease Agreement for definition and determination of all of its rights,
liabilities and responsibilities relating to the construction of the Plant, the
purchase and installation therein of the Leased Equipment, the leasing of the
Project and any options to renew.
Section 10.8 Board's Liabilities Limited. It is understood and agreed
by and between the parties hereto that this Lease Agreement is entered into
under and pursuant to the provisions of the aforesaid Act No. 648, adopted at
the 1949 regular session of the Legislature of the State of Alabama and that no
provision of this Lease Agreement shall be construed so as to give rise to a
pecuniary liability of the Board or a charge against its
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<PAGE> 31
general credit. All obligations of the Board arising in connection with this
Lease Agreement are limited to the proper application of the proceeds of the
sale of the Bonds and revenues and receipts of the Project.
Section 10.9 Binding Effect. This Lease Agreement shall inure to the
benefit of, and shall be binding upon, the Board, the Company and their
respective successors and assigns.
Section 10.10 Severability. In the event any provision of this Lease
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.
Section 10.11 Article and Section Captions. The article and section
headings and captions contained herein are included for convenience only and
shall not be considered a part hereof or affect in any manner the construction
or interpretation hereof.
IN WITNESS WHEREOF, the Board and the Company have caused this Lease
Agreement to be executed in their respective corporate names, have caused their
respective corporate seals to be hereunto affixed, and have caused this Lease
Agreement to be attested, all by their duly authorized officers, and have caused
this lease agreement to be dated as of May 1, 1963.
THE INDUSTRIAL DEVELOPMENT
BOARD OF THE CITY OF DECATUR
By /s/ F.W. TROUP
--------------------------------------
Chairman of its Board of Directors
[SEAL]
Attest::
/s/ [ILLEGIBLE]
- ---------------------------------
Its Secretary
FRUEHAUF TRAILER COMPANY
By /s/ W.E. GRACE
--------------------------------------
Its President
[Seal]
Attest:
/s/ [ILLEGIBLE]
- ---------------------------------
SECRETARY
-31-
<PAGE> 32
STATE OF ALABAMA )
) ss.
COUNTY OF JEFFERSON )
I, the undersigned Notary Public in and for said County in said State,
hereby certify that F. W. Troup whose name as Chairman of/the Board of
Directors of THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DECATUR, a public
corporation and instrumentality under the laws of Alabama, is signed to the
foregoing instrument and who is known to me, acknowledged before me on this day
that, being informed of the contents of the within instrument, he as such
officer and with full authority, executed the same voluntarily for and as the
act of said public corporation and instrumentality.
Given under my hand and official seal of office this 13 day of May,
1963.
/s/ [ILLEGIBLE]
------------------------------
Notary Public
(My Commission Expires 2-8-64)
[NOTARIAL SEAL]
STATE OF MICHIGAN )
) ss.
COUNTY OF WAYNE )
I, the undersigned Notary Public in and for said County in said State,
hereby certify that W. E. Grace, whose name as President of FRUEHAUF TRAILER
COMPANY, organized under the laws of the State of Michigan, is signed to the
foregoing instrument and who is known to me, acknowledged before me on this day
that, being informed of the contents of the within instrument, he as such
officer and with full authority, executed the same voluntarily for and as the
act of said company.
Given under my hand and official seal of office this 10th day of May,
1963.
/s/ D.L. ACREE
------------------------------
NOTARIAL SEAL Notary Public
(My Commission Expires Oct. 15, 1963)
D.L. ACREE
[SEAL] Notary Public, Wayne County, Michigan
My Commission Expires Oct. 15, 1963
<PAGE> 33
EXHIBIT A
to this Lease Agreement is the Mortgage
and Indenture of Trust by and between
The Industrial Development Board of the
City of Decatur and State National Bank
of Decatur, dated as of May 1, 1963,
which is recorded in Volume 709, pages 568
et seq., in the office of the Judge of
Probate of Morgan County, Alabama.
[STAMP] [STAMP]
<PAGE> 34
STATE OF ALABAMA )
COUNTY OF MORGAN ) SUPPLEMENTAL LEASE AGREEMENT
SUPPLEMENTAL LEASE AGREEMENT between THE INDUSTRIAL DEVELOPMENT BOARD
OF THE CITY OF DECATUR, a public corporation and instrumentality under the laws
of the State of Alabama (herein called the "Board") and FRUEHAUF CORPORATION,
whose name was changed from Fruehauf Trailer Company, a corporation organized
and existing under the laws of the State of Michigan and authorized to do
business in the State of Alabama (herein called the "Company").
R E C I T A L S
WHEREAS, the Board and the Company have heretofore entered into a
Lease Agreement dated May 1, 1963 (the "Lease Agreement") recorded in the office
of the Judge of Probate of Morgan County in Deed Book Volume 709, pages 630 et
seq., with respect to certain real property (the "Leased Realty"), an aluminum
rolling mill and fabricating plant (the "Plant") and machinery and equipment
(the "Leased Equipment"), which realty, plant, machinery and equipment and
improvements are together therein called the Project; and
WHEREAS, the Project was acquired by the Board from the proceeds of the
sale of $5,700,000 principal amount of its First Mortgage Industrial Revenue
Bonds dated May 1, 1963, issued under and secured by a Mortgage and Indenture of
Trust dated May 1, 1963, between the Board and the State National Bank of
Decatur, as trustee, whose name has been changed to State National Bank of
Alabama, recorded in the office of the Judge of Probate
<PAGE> 35
-2-
of Morgan County in Mortgage Book Volume 709a pages 568 et seq.( the
"Mortgage"); and
WHEREAS, Section 1.5 of the Lease Agreement provides that, upon
completion of the construction of the Plant and the purchase and installation of
the Leased Equipment therein, the Board will, on written request of the Company
or the Trustee Under the Mortgage, enter into a supplemental agreement with the
Company identifying the items of Leased Equipment installed in the Plant and
confirming the lease thereof to the Company thereunder; and
WHEREAS, the construction of the Plant and the purchase and
installation of the Leased Equipment therein has been completed and the Company
and the Trustee has each requested the Board in writing to enter into a
supplemental agreement with the Company identifying the items of Leased
Equipment installed in the Plant and confirming the lease thereof to the Company
under the Lease Agreement.
NOW, THEREFORE, THIS SUPPLEMENTAL AGREEMENT:
1. The Leased Equipment consists of the following items which may be
further identified by the following Serial Numbers physically attached thereto
by the Company in the manner hereinafter referred to:
<PAGE> 36
-3-
<TABLE>
<CAPTION>
Serial
Number Item
- ------ ----
<S> <C>
1-63A Continuous casting line for casting sheets 58 inches wide, and
including a 50,000 pound capacity melting furnace
2-63A Continuous casting line for casting sheets 58 inches wide, and
including a 50,000 pound capacity melting furnace
3-63A Marinite tip milling machine and drying oven
4-63A Rolling mill for processing sheets 60 inches wide, together with
electric motor for power drive
5-63A Cut-to-length line
6-63A Cleaning and leveling line
7-63A Double paint coat line for continuous painting of 56 inch aluminum
coil, including cleaning tanks, baking oven and paint storage
tanks
8-63A Slitting line for slitting materials up to 56 inches wide
9-63A Squaring shears for cutting sheets 144 inches wide
10-63A Roll Grinder
11-63A Annealing furnace with 80,000 pound capacity
12-63A Annealing furnace with 80,000 pound capacity
13-63A C02 gas generator
14-63A Cooling towers
15-63A Propane standby equipment
16-63A Air compressor
17-63A Truck scales
</TABLE>
<PAGE> 37
-4-
2. The Company warrants and represents that it has plainly, distinctly,
permanently and conspicuously placed and fastened on each of the aforesaid items
of Leased Equipment a metal plate, readily visible, bearing the following words:
"This equipment is the property of The Industrial Development Board of the City
of Decatur, subject to the Mortgage and Indenture of Trust dated May 1, 1963,
Serial No.___", and that the respective serial numbers set forth in paragraph 1
of this Supplemental Lease Agreement appear on each such metal plate. In case
any such plate shall at any time be removed, defaced or destroyed, the Company
covenants and agrees that it will immediately cause the same to be restored and
replaced.
3. The Leased Equipment has been installed in the Plant as shown on the
following plat or drawing of the Plant and the location of each item on said
plat or drawing is identified by the respective serial number of such item:
<PAGE> 38
[MAP]
<PAGE> 39
-5-
4. The Board does hereby confirm the lease of the above-described
Leased Equipment to the Company under the Lease Agreement.
IN WITNESS WHEREOF, the Board has caused this Supplemental Lease
Agreement to be executed in its name and on its behalf by the Chairman of its
Board of Directors and its corporate seal to be hereunto affixed and attested by
its Secretary, and the Company has caused this Supplemental Lease Agreement to
be executed in its name and on its behalf by one of its officers and its
corporate seal to be hereunto affixed and attested by one of its officers, all
as of the 12 day of June, 1964.
THE INDUSTRIAL DEVELOPMENT BOARD OF
THE CITY OF DECATUR
By /s/ F.W. TROUP
--------------------------------------
Chairman of its Board of Directors
F.W. Troup
[Seal]
Attest: /s/ [ILLEGIBLE]
---------------------------------
Secretary
FRUEHAUF CORPORATION
By /s/ W. E. GRACE
-------------------------------------
Its President
----------------------------------
[Seal]
Attest: /s/ [ILLEGIBLE]
---------------------------------
Its Secretary
---------------------------------
<PAGE> 40
-6-
STATE OF ALABAMA )
) ss.
COUNTY OF MORGAN )
I, the undersigned Notary Public in and for said County in said State,
hereby certify that F. W. Troup whose name as Chairman of THE INDUSTRIAL
DEVELOPMENT BOARD OF THE CITY OF DECATUR, a public corporation and
instrumentality under the laws of Alabama, is signed to the foregoing
instrument and who is known to me, acknowledged before me on this day that,
being Informed of the contents of the within instrument, he as such officer and
with full authority, executed the same voluntarily for and as the act of said
public corporation and instrumentality.
Given under my hand and official seal of office this 11th day of June,
1964.
[SEAL]
/s/ [ILLEGIBLE]
----------------------------
Notary Public
NOTARIAL SEAL
My commission expires: July 6th, 1966
STATE OF MICHIGAN )
) ss.
COUNTY OF WAYNE )
I, the undersigned Notary Public in and for Macomb County in said
State, hereby certify that W.E. GRACE, whose name as President of FRUEHAUF
CORPORATION, organized under the laws of the State of Michigan, is signed to the
foregoing instrument and who is known to me, acknowledged before me on this day
that, being informed of the contents of the within instrument, he as such
officer and with full authority, executed the same voluntarily for and as the
act of said corporation.
Given under my hand and official seal of office this 8th day of June,
1964.
/s/ ALICE L. SWIDERSKI
----------------------------
Notary Public
NOTARIAL SEAL
ALICE L. SWIDERSKI
[STAMP]
My commission expires: Jan. 28, 1968
<PAGE> 41
STATE OF ALABAMA )
)
COUNTY OF MORGAN )
THIS AGREEMENT entered into by and between The Industrial Development
Board of the City of Decatur, a public corporation and instrumentality under the
laws of the State of Alabama (the "Board") and Fruehauf Corporation, a
corporation organized and existing under the laws of the State of Michigan and
authorized to do business in the State of Alabama, formerly Fruehauf Trailer
Company, the name of which corporation has been changed to Fruehauf Corporation
(the "Company"), on and as of April 30, 1983, WITNESSETH THAT:
R E C I T A L S
As of May 1, 1963, the Board and the Company entered into a lease
agreement which is recorded in the Office of the Judge of Probate of Morgan
County, Alabama, in Book 709, at Pages 630, et seq., to which reference is here
made for the description of the property leased thereby. On May 21, 1963, the
Board sold and conveyed to the Company an option to purchase the premises
described and referred to in said lease of May 1, 1963, at and for the sum of
Thirty Thousand and no/100 Dollars ($30,000.00), at such time as no further rent
was payable for the original term of said lease. Said lease contained an option
to renew the primary term thereof for a period of twenty additional years from
midnight of April 30, 1983, at a cash rental payable by the Company during such
renewal term in the sum of Twenty Thousand and no/100 Dollars ($20,000.00) per
year, payable annually in advance, but otherwise under all of the terms and
conditions therein contained. As of May 1, 1964, a part of the land described in
said lease of May 1, 1963, was released from that lease and was released from
said option of May 21, 1963, to the Company and a lease agreement of such part
of said property so released was entered into between the Board and the
Company, dated as of May 1, 1964, and which is recorded in the Probate Office of
Morgan County, Alabama, in Book 727, at Pages 797, et seq., to which
reference is here made for the description of the property so released from
the May 1, 1963 lease and the May 21, 1963 option. The Company has notified
the Board that it desires to renew the lease of May 1, 1963, as to the
property described therein less and except the
<PAGE> 42
property described in the lease of May 1, 1964, for an additional period of
twenty years from May 1, 1983, to April 30, 2003, at and for a cash rental
during said renewal term of Twenty Thousand and no/100 Dollars ($20,000.00) per
year, payable annually in advance, but otherwise upon all the terms and
conditions contained in said May 1, 1963, lease, which terms and conditions
shall apply during such renewal term. Also, the Company has notified the Board
that it desires to purchase an option from the Board to purchase said premises
upon which said renewal lease is to be made at any time during said renewal
period at and for the sum of Thirty Thousand and no/100 Dollars ($30,000.00)
payable in cash, with the provision that upon exercise of such option to
purchase that no further or additional rents shall be payable for any unexpired
portion of such renewal term of said lease.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements and undertakings of the parties hereinafter contained
and of the sum of One and no/100 Dollars ($1.00) cash to each of the parties in
hand paid by the other, the receipt of which is hereby acknowledged, it is
agreed, by and between the parties as follows:
1. The primary term of the above identified lease of May 1, 1963, as to
the property described therein, less and except the property described in the
above identified lease of May 1, 1964, is hereby renewed and extended for a
period of twenty additional years from midnight of April 30, 1983 to midnight of
April 30, 2003, at and for cash rental payable by the Company during such
renewal term in the amount of Twenty Thousand and no/100 Dollars ($20,000.00)
per year, payable annually in advance, but otherwise under all of the terms and
conditions contained in said lease of May 1, 1963, which shall apply during such
renewal term. The rental in the amount of Twenty Thousand and no/100 Dollars
($20,000.00) for the lease year beginning May 1, 1983, and ending April 30,
1984, in the sum of Twenty Thousand and no/100 Dollars ($20,000.00) is paid in
cash by the Company to the Board upon the execution and delivery of this
agreement, the receipt is hereby acknowledged by the Board.
-2-
<PAGE> 43
2. In consideration of the sum of One Hundred and no/100 Dollars
($100.00) cash to the Board in hand paid by the Company, the receipt of which is
hereby acknowledged, the Board hereby agrees that the Company, not being in
default under the aforementioned lease, shall have the option at any time, on
written notice to the Board of its election to exercise such option, to purchase
the premises described and referred to in said lease of May 1, 1963, except that
part thereof described in said lease of May 1, 1964, together with all
improvements thereon, including the buildings, machinery and equipment and all
other items of real or personal property referred to collectively in said lease
as "the project" for the sum of Thirty Thousand and no/100 Dollars ($30,000.00)
in cash and provided that such option shall become null and void and of no
effect if not exercised by the Company by written notice served on the Board by
delivery to the President or Secretary of the Board in person or by registered
or certified mail on or before 12:00 noon on April 30, 2003. In the event of the
exercise of such option, the property shall be conveyed to the Company, or its
nominee, by proper deed of conveyance, without special covenants of warranty,
and if such option is exercised prior to the expiration of the renewal term of
said lease, no further rental shall be payable for the unexpired portion of the
said additional or renewal term.
IN WITNESS WHEREOF, the Board and the Company have caused this
agreement to be executed in their respective corporate names and have caused
their respective corporate seals to be hereunto affixed and have caused this
agreement to be attested by their duly authorized officers and have caused this
agreement to be dated as of April 30, 1983.
THE INDUSTRIAL DEVELOPMENT BOARD
OF THE CITY OF DECATUR
[SEAL]
By: /s/ [ILLEGIBLE]
-----------------------------------
Chairman of Its Board of Directors
By: /s/ ILLEGIBLE
----------------------------
Secretary
<PAGE> 44
FRUEHAUF CORPORATION
BY: /s/ RICHARD P. HELWIG
---------------------------------
Its Vice President
[SEAL]
ATTEST:
[ILLEGIBLE] [STAMP]
- -----------------------------
Its Assistant Secretary
STATE OF ALABAMA )
)
COUNTY OF MORGAN )
I, the undersigned authority, in and for said county in said state,
hereby certify that D. C. Shelton, Jr., whose name as Chairman of the Board of
Directors of The Industrial Development Board of the City of Decatur, a public
corporation and instrumentality under the laws of Alabama, is signed to the
foregoing instrument and who is known to me, acknowledged before me on this day
that, being informed of the contents of said instrument, he, as such officer
and with full authority, executed the same voluntarily for and as the act of
said public corporation and instrumentality.
Given under my hand and official seal this 27th day of May, 1983.
[SEAL]
/s/ ILLEGIBLE
----------------------------
Notary Public
NOTARIAL SEAL
STATE OF MICHIGAN )
)
COUNTY OF WAYNE )
I, the undersigned authority, in and for said county in said state,
hereby certify that Richard P. Helwig, whose name as Vice President of Fruehauf
Corporation, a corporation organized under the laws of the State of Michigan,
is signed to the foregoing instrument, and who is known to me, acknowledged
before me on this day that, being informed of the contents of said instrument,
he, as such officer and with full authority, executed the same voluntarily for
and as the act of said corporation.
GIVEN under my hand and official seal this 24th day of June, 1983.
/s/ JEAN WESTRICK
[SEAL] ----------------------------
Notary Public
[STAMP]
[STAMP]
<PAGE> 1
EXHIBIT 10.23
[STAMP]
STATE OF ALABAMA ) May 1, 1964
COUNTY OF MORGAN )
LEASE AGREEMENT
Lease Agreement between THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF
DECATUR, a public corporation and instrumentality under the laws of the State of
Alabama (herein called the "Board"), and FRUEHAUF CORPORATION, a corporation
organized and existing under the laws of the State of Michigan and authorized to
do business in the State of Alabama (herein called the "Company").
R E C I T A L S:
The Board proposes to construct on the real property hereinafter
described an aluminum rolling mill and fabricating plant, to purchase the
machinery and equipment hereinafter described and to lease said real property,
plant, machinery and equipment to the Company. To finance the construction of
said plant and the purchase of said machinery and equipment, all for the
promotion of local manufacturing and industrial development, the Board proposes
to authorize the issuance of $2,000,000 principal amount of its First Mortgage
Industrial Revenue Bonds, to be dated May 1, 1964 (herein called the "Bonds"),
which are more particularly described in the Mortgage hereinafter referred to.
The Bonds are to be secured by a pledge and assignment of the Board's interest
in this Lease Agreement and by a pledge and assignment of the revenues and
receipts derived by the Board from the leasing or sale of the Project
hereinafter referred to and will be issued under and additionally secured by a
Mortgage and Indenture of Trust dated as of May 1, 1964, (herein called the
"Mortgage"), from the Board to the State National Bank of Alabama, Decatur,
Alabama (herein called the "Trustee"), under which the revenues and receipts
derived by the Board from the leasing or sale of the said Project will be
pledged for the payment of the principal of and the interest on the Bonds and
under which the said Project will be mortgaged and
<PAGE> 2
2
conveyed to the Trustee as additional security for payment of said principal and
interest. The Mortgage is to be in substantially the form attached hereto as
Exhibit A.
The construction of said plant, the purchase of said machinery and
equipment, the issuance and sale of the Bonds and the lease of said real
property, plant, machinery and equipment to the Company will promote industry
and develop trade by inducing manufacturing industrial and commercial
enterprises to locate in the State of Alabama, or to enlarge and expand existing
enterprises, or both, and further the use of its agricultural products and
natural resources. Under the provisions of Act No. 648 enacted at the 1949
Regular Session of the Legislature of Alabama, as amended, the Board has the
power to own said real property, to construct said plant thereon, to purchase
said machinery and equipment, to issue and sell the Bonds and to lease said real
property, plant, machinery and equipment to the Company. To achieve the
objectives mentioned above, the Board and the Company have entered into this
Lease Agreement.
Now, therefore, this Agreement
W I T N E S S E T H:
That in consideration of the respective agreements on the part of the
Board and the Company hereinafter contained, the Board does hereby lease to the
Company, and the Company does hereby rent from the Board, for and during the
Primary Term hereinafter referred to and upon and subject to the terms and
conditions hereinafter specified, the following described real property
situated in Morgan County, Alabama (the said real property being herein called
the "Leased Realty"):
<PAGE> 3
Beginning at the Northwest corner of Section 13, Township 5 South,
Range 5 West, Morgan County, Alabama, and run thence S 0 degrees 54' W along the
west boundary line of said Section 13 a distance of 30 feet to a point on the
south right of way line of Alabama Highway No. 20; thence S 89 degrees 03' E
along the south right of way line of said Alabama Highway No. 20 a distance of
41.5 feet to an iron pin; thence S 0 degrees 54' W a distance of 423.38 feet to
a point; thence N 89 degrees 06' W a distance of 75.25 feet to the true point of
beginning; thence from the true point of beginning S 1 degree 05' W a distance
of 38 feet to a point; thence S 88 degrees 55' E a distance of 14.9 feet to a
point; thence S 1 degree 05' W a distance of 20.43 feet to a point; thence S
88 degrees 55' E a distance of 1.10 feet to a point; thence S 1 degree 05' W a
distance of 165.57 feet to a point; thence N 88 degrees 55' W a distance of 16
feet to a point; thence S 1 degree 05' W a distance of 249.05 feet to a point;
thence S 88 degrees 55' E a distance of 16 feet to a point; thence S 1 degree
05' W a distance of 172 feet to a point; thence N 88 degrees 55' W a distance of
204.42 feet to a point; thence N 1 degree 05' E a distance of 82 feet to a
point; thence S 88 degrees 55' E a distance of 124.42 feet to a point; thence N
1 degree 05' E a distance of 564.05 feet to a point; thence S 88 degree 55' E a
distance of 64 feet to the true point of beginning; together with (i) the right
to connect and join any building, structure or improvement that may be
constructed on the above described real property with existing structures,
facilities and improvements adjacent to or abutting said real property, (ii) the
right to tie into existing utilities situated on property adjacent to or
abutting said real property and (iii) the right of ingress and egress to and
from Alabama Highway No. 20 over property situated north of the above described
real property, which right of ingress and egress, however, shall not interfere
with the use and occupancy of existing structures, improvements or buildings.
<PAGE> 4
4
together with the Plant and the Leased Equipment (hereinafter identified) and
all other improvements thereto now or hereafter made (the said real property,
plant, improvements, machinery and equipment, as they may at any time exist,
being herein together called the "Project"). The Leased Equipment shall consist
of the following items, which shall be further identified by the following
serial numbers to be affixed thereto by the Company as provided in Section 1.5
of this Lease Agreement:
Serial
Number Item
------ ----
1-64A Continuous casting line for casting sheets 58" wide
including 50,000 pound capacity melting furnace.
2-64A Continuous casting line for casting sheets 58" wide
including 50,000 pound capacity melting furnace.
3-64A Marinite tip milling machine and drying oven
4-64A C02 gas generator
5-64A Annealing furnace with an 80,000 lb. capacity.
The items of Leased Equipment identified by serial number 4-64A, the C02 gas
generator, and by serial number 5-64A, the annealing furnace, shall be installed
in the Plant (hereinafter defined) at the location shown on the following plat
or drawing and the items of Leased Equipment identified by serial number 1-64A
and 2-64A, the two continuous casting lines, and serial number 3-64A, the
marinite tip milling machine and drying oven, will be installed in the building
adjacent to and west of the Plant (herein called the "Adjacent Building") at the
respective locations shown on said plat or drawing:
<PAGE> 5
[MAP]
<PAGE> 6
The following legends appearing on the foregoing plat or drawing, to-wit, 1-63A,
2-63A, 3-63A, 4-63A, 5-63A, 6-63A, 7-63A, 8-63A, 9-63A, 10-63A, 11-63A 12-63A,
l3-63A, 14-63A, 15-63A, 16-63A, and 17-63A, show the location of various items
of machinery and equipment now owned by the Board (herein called the "Existing
Equipment") and now installed in the Adjacent Building which Existing Equipment
and Adjacent Building are subject to that certain Mortgage and Indenture of
Trust between the Board and the State National Bank of Alabama, recorded in the
office of the Judge of Probate of Morgan County in Volume 709 at Pages 568, et
seq., securing $5,700,000 principal amount of the Board's First Mortgage
Industrial Revenue Bonds dated May 1, 1963, as supplemented by the Supplemental
Mortgage and Indenture of Trust recorded in the office of the Judge of Probate
of Morgan County in Volume 732 pages 637, and which Existing Equipment and
Adjacent Building are now leased by the Board to Fruehauf Corporation under
separate Lease Agreement dated May 1, 1963, and recorded in the office of the
Judge of Probate of Morgan County in Volume 709 at pages 630, et seq., and
Supplemental Lease Agreement recorded in said office in Volume 732 at pages 645,
The Adjacent Building and the Existing Equipment are not subject to the
provisions of this Lease Agreement but are shown on the aforesaid plat or map
solely for identification purposes and solely for the purpose of showing the
location of the Existing Equipment in relation to the items of Leased Equipment
which are subject to the provisions of this Lease Agreement.
This Lease Agreement is made upon and subject to the following terms and
conditions, to each of which the Board and the Company hereby agree:
<PAGE> 7
7
ARTICLE I
ACQUISITION OF THE PLANT AND THE
LEASED EQUIPMENT
Section 1.1 Agreement to Construct Plant and to Purchase Leased
Equipment. Promptly following the issuance and sale of the Bonds and out of the
principal proceeds derived therefrom, the Board (a) will construct on the Leased
Realty an aluminum rolling mill and fabricating plant with approximately 48,000
square feet of floor space substantially in accordance with plans and
specifications therefor to be prepared by the Company for the account of the
Board and to be furnished to the Board by the Company, and (b) will purchase the
Leased Equipment. All contracts and orders for such construction and purchase,
which contracts and orders may provide for progress payments, and all request
for payments out of the Construction Fund (to be created in the Mortgage and
herein called the "Construction Fund") shall be signed on behalf of the Board,
subject to written approval by the Company in all respects. If after the
exercise of due diligence by the Board, it is impossible for the Board to
construct any part of the Plant which the Company duly orders and directs the
Board so to construct or to purchase any item of the Leased Equipment which the
Company duly orders and directs the Board so to purchase, the Company (a) will
withdraw the order and direction in question, or (b) will itself effect the
construction or purchase ordered thereby, for and in the name and on behalf of
the Board, in which case the Company shall be entitled to reimbursement from the
Construction Fund for the costs incurred by it in effecting such construction or
purchase, as the case may be.
The Board and the Company shall from time to time each appoint by
written instrument an agent or agents authorized to act for each respectively in
any or all matters relating to the construction of the Plant, the purchase of
the Leased Equipment and
<PAGE> 8
8
payments out of the Construction Fund. One of the agents appointed by the
Company shall be designated its "Project Manager". Either the Board or the
Company may from time to time revoke, amend or otherwise limit the authorization
of any agent appointed by it to act on its behalf and designate another agent or
agents to act on its behalf, provided that there shall be at all times at least
one agent authorized to act on behalf of the Board, and at least one agent (who
shall be the Project Manager) authorized to act on behalf of the Company, with
reference to all the foregoing matters. In the event that after reasonable
request made to the Board by the Company, the Board fails or refuses to enter
into or execute any contract or order for such construction or purchase and
fails or refuses to issue or execute a payment requisition from the Construction
Fund for payment of any item that may under the terms of the Mortgage be paid
from the Construction Fund, the Project Manager then designated by the Company,
who is hereby irrevocably appointed as agent for the Board for such purposes,
(a) may enter into, execute and deliver any such contract or order, for and in
the name and on behalf of the Board, or (b) may issue and execute, also for and
in the name and behalf of the Board and without any approval of any officer,
employee or other agent thereof, payment requisition on the Construction Fund,
as the case may be.
Section 1.2 Development and Design Expenses Incurred by Company. In
order to expedite the construction of the Plant, the Board has heretofore
authorized the Company to go forward with the planning, development and design
thereof and with the planning, development and design of the items of Leased
Equipment. The Board acknowledges that all reasonable costs, expenses and fees
(including, without limitation, engineering, legal, procurement, accounting and
auditing fees and expenses) incurred by the Company in connection with such
planning, development and design (whether
<PAGE> 9
9
before or after the execution and delivery of this Lease Agreement or before or
after the issuance and sale of the Bonds) constitute a part of the project
costs, for which the Company shall be entitled to reimbursement from the
Construction Fund.
Section 1.3 No Warranty of Suitability by Board. The Company recognizes
that since the plans and specifications for the Plant are to be prepared by it
and that since the items of Leased Equipment are to be selected by it, the Board
can make no warranty, either express or implied, or offer any assurances that
the Plant or the Leased Equipment will be suitable for the Company's purposes or
needs or that the proceeds derived from the sale of the Bonds will be sufficient
to pay in full all the project costs.
Section 1.4 Completion of the Project. If the Construction Fund shall be
insufficient to pay fully all sums required to construct the Plant and purchase
all items of Leased Equipment, the Company shall be obligated to complete the
construction and acquisition of the Project without interruption, at its own
expense and the Company shall pay any such deficiency by making payments
directly to the construction contractor or contractors and to the suppliers of
materials, machinery and equipment as the same shall become due, and the Company
shall save the Board whole and harmless from any obligation to pay such
deficiency. The Company shall not by reason of the payment of such excess costs
from its own funds be entitled to any diminution in the payment of the rents
hereunder.
Should the Company fail to comply with the foregoing provisions of this
section, the Board shall have any one or more of the following remedies:
(a) The Trustee shall be entitled to retain all payments made as rent
under this Lease Agreement by the Company, and the Company shall be obligated to
pay to the Trustee the rental payments as they become due as liquidated damages,
subject, however, to a credit for the net proceeds which the Trustee may receive
<PAGE> 10
10
from the sale of the Project or any part thereof, or from the lease or sublease
of the Project or any part thereof to others than the Company herein, during and
for the unexpired term of this Lease Agreement; or
(b) The Board may take possession of the Lease Realty and complete the
Project at the expense of the Company, which expense with six per cent interest
and a reasonable attorney's fee, if the services of an attorney are required for
the collection thereof, the Company hereby agrees to pay; or
(c) The Board may terminate this Lease Agreement and sue for damages for
breach thereof.
Section 1.5 Installation of Leased Equipment. The Company hereby grants
to the Board the right to enter the Adjacent Building for the purpose of
installing therein the items of Leased Equipment hereinabove identified with
Serial Numbers 1-64A, 2-64A and 3-64A. None of said items of Leased Equipment
shall be so installed that it cannot be removed without injury to the Adjacent
Building. All of said items of Leased Equipment shall remain personal property
although physically attached to the Adjacent Building. At the time of the
installation of any item of Leased Equipment either in the Adjacent Building or
in the Plant and any renewals or replacements thereof as provided in Sections
3.1 and 4.1 hereof, the Company shall plainly, distinctly, permanently and
conspicuously place and fasten on each such item a metal plate, readily visible,
bearing the following words: "This equipment is the property of The Industrial
Development Board of the City of Decatur subject to the Mortgage and Indenture
of Trust dated May 1, 1964, Serial Number _______" and the Serial Number on the
metal plate on each item of the Leased Equipment shall correspond to the Serial
Number for such item as hereinabove set forth. In case any such plate shall at
any time be removed, defaced or destroyed, the Company shall immediately cause
the same to berestored or replaced.
<PAGE> 11
11
Section 1.6 The Company will not change the location of any items of
Leased Equipment either in the Plant or in the Adjacent Building without the
prior written approval of the Board and of the Trustee, which approvals shall
not be unreasonably withheld if the Company shall enter into a supplemental
agreement with the Board identifying the items of Leased Equipment with respect
to its new location and confirming the lease thereof hereunder.
ARTICLE II
DURATION OF LEASE TERM AND RENTAL PROVISION
Section 2.1 Duration of Term. The primary term of this Lease Agreement
and of the lease herein made (herein called the "Primary Term") shall begin on
the date the construction of the Plant and the installation of the Leased
Equipment are completed or on May 1, 1965, whichever date is earlier, and,
subject to the provisions of this Lease Agreement, shall continue until midnight
of April 30, 1984, but the Company will be permitted to have such possession of
the Project prior to the beginning of the Primary Term as shall not interfere
with the construction of the Plant and the installation of the Leased Equipment.
The Board will deliver to the Company sole and exclusive possession of the
Project on the commencement date of the Primary Term, subject to the inspection
and other rights reserved in Section 6.2 hereof, and the Company will accept
possession thereof at such time; provided, however, that in the event the
Primary Term begins prior to the date the construction of the Plant and the
installation of the Leased Equipment therein are completed, the Board will be
permitted such possession of the Project as shall be necessary and convenient
for it to complete the construction of the Plant and the installation of the
Leased Equipment, and provided further, that the Board will be permitted such
possession of the Project as shall be necessary and convenient for it to
construct or install any additions or improvements and to
<PAGE> 12
12
make any repairs or restorations required or permitted to be constructed,
installed or made by the Board pursuant to the provisions hereof or pursuant to
the provisions of any agreement between the Company and the Board supplemental
hereto.
Section 2.2 Rental Provisions. For and during the Primary Term, the
Company will pay to the Board not less than the following basic rental (herein
called "Basic Rent") for use and occupancy of the Project:
(a) On or before the 20th day of each month beginning May 20, 1965, an
amount equal to one sixth (1/6) of the interest becoming due on all outstanding
Bonds on the next succeeding interest payment date, and;
(b) On October 20, 1965 and on each April 20 and October 20, thereafter,
an amount equal to the principal of the outstanding Bonds due and payable on the
then next succeeding semiannual principal payment date.
All Basic Rent payments shall be made directly to the Trustee or to its
successor as Trustee under the Mortgage, for the account of the Board and shall
be deposited in the Bond and Interest Fund established under the Mortgage. The
monthly and semiannual installment of Basic Rent shall continue until the amount
in the Bond and Interest Fund shall have become sufficient to pay in full the
principal of (including redemption premium), and interest on all outstanding
Bonds either at maturity or on earlier redemption. Any payment of Basic Rent due
hereunder that is not made within ten (10) days of the due date thereof shall
bear interest from that date until paid at the rate of 6% per annum.
The Company will also pay, as additional rental, the reasonable fees,
charges and expenses of the Trustee under the Mortgage (other than the initial
fee or charge of the Trustee) and of the paying agents for the Bonds, such fees,
charges and reimbursement
<PAGE> 13
13
for expenses to be paid directly to the Trustee and such paying agents for their
own account as and when such fees, charges and expenses become due and
payable.
Section 2.3 Obligations of Company Unconditional. The obligation of the
Company to pay the Basic Rent, to make all other payments provided for herein
and to perform and observe the other agreements and covenants on its part herein
contained shall be absolute and unconditional, irrespective of any rights of
set-off, recoupment or counter-claim it might otherwise have against the Board.
The Company will not suspend or discontinue any such payment or fail to perform
and observe any of its other agreements and covenants contained herein or
terminate this Lease Agreement for any cause, including, without limiting the
generality of the foregoing, any acts or circumstances that may constitute an
eviction or constructive eviction, failure of consideration or commercial
frustration of purpose, or any damage to or destruction of the Project, or the
taking by eminent domain of title to or the right to temporary use of all or any
of the Project, or any change in the tax or other laws of the United States of
America, the State of Alabama or any political subdivision of either thereof, or
any failure of. the Board to perform and observe any agreement or covenant,
whether express or implied, or any duty, liability or obligation arising out of
or connected with this Lease Agreement. Notwithstanding the foregoing, the
Company may, at its own cost and expense and in its own name or in the name of
the Board, prosecute or defend any action or proceeding or take any other action
involving third persons which the Company deems reasonably necessary in order to
secure or protect its rights of use and occupancy and the other rights
hereunder. The provisions of the first and second sentences of this section
shall apply only so long as any part of the principal of and the interest on the
Bonds remains outstanding and unpaid,
<PAGE> 14
14
and nothing contained therein shall be construed to affect adversely or to
impair the option to terminate this Lease Agreement granted in Section 8.2
hereof. Furthermore, except as provided in the first and second sentences of
this section, nothing contained herein shall be construed to be a waiver of any
rights which the Company may have against the Board under this Lease Agreement
or under any provision of law.
Section 2.4 Investment of Funds. The Board shall cause the Trustee to
invest and reinvest the monies from time to time in the Construction Fund and
the monies from time to time in the Bond and Interest Fund in the manner and to
the extent and with such application of the income therefrom as is provided in
the Mortgage.
ARTICLE III
MAINTENANCE, TAXES AND INSURANCE
Section 3.1 Maintenance, Alterations and Improvements.
(a) The Company will, at its own expense, (i) keep the Project in as
reasonably safe condition as its operations permit, and (ii) keep the Plant and
the Leased Equipment in good order and repair, and from time to time make all
needful and proper repairs, renewals and replacements thereto. The Company
agrees to pay all gas, electric light and power, water, sewer and all other
charges for the operation, maintenance, use and upkeep of the Plant, Leased
Equipment and Project.
(b) The Company may, also at its own expense, make any additions,
improvements or alterations to the Project that it may deem desirable for its
business purposes, provided that such additions, improvements or alterations do
not adversely affect the value or utility of the Project or its character as a
"project" under said Act No. 648. In lieu of making such additions, improvements
or alterations itself, the Company may, if it so desires, furnish to the Board
the funds necessary therefor, in which case
<PAGE> 15
15
the Board will proceed to make such additions, improvements or alterations.
(c) All such additions, improvements and alterations whether made by the
Company or the Board shall become a part of the Project and shall be covered by
the Mortgage; provided however, that any machinery, equipment, furniture or
fixtures installed by the Company (not the Board) on the Project without expense
to the Board and not constituting a part of the Leased Equipment or repairs,
renewals or replacements of the Leased Equipment or the Plant may be removed by
the Company at any time and from time to time while it is not in default under
the terms of this Lease Agreement; and provided further that any damage to the
Project occasioned by such removal shall be repaired by the Company at its own
expense. The Company will not permit any mechanics or other liens to stand
against the Project for labor or material furnished it in connection with any
additions, improvements, alterations or repairs so made by it. The Company may,
however, in good faith contest any such mechanics' or other liens and in such
event may permit any such liens to remain unsatisfied and undischarged during
the period of such contest and any appeal therefrom unless by such action the
lien of the Mortgage on the Project or any part thereof, or the Project or any
part thereof shall be subject to loss or forfeiture, in either of which events
such mechanics' or other liens shall be promptly satisfied.
(d) The Company may, also at its own expense, connect or "tie-in" walls
and utility and other facilities located on the Leased Realty to other
facilities owned or leased by it on real property adjacent to the Leased Realty
or partly on such adjacent real property and partly on the Leased Realty but
only if the Company furnishes the Board and the Trustee a certificate of a
nationally recognized independent consulting engineering firm that such
<PAGE> 16
16
connection and "tie-in" of walls and facilities will not impair the operating
unity of the Plant (that is, the operating unity of that portion of said Plant,
as extended, that is located wholly within the boundary lines of the Leased
Realty).
Section 3.2 Taxes, Other Governmental Charges and Utility Charges. The
Board and the Company acknowledge (a) that under present law no part of the
Project owned by the Board will be subject to ad valorem taxation by the State
of Alabama or by any political or taxing subdivision thereof and that under
present law the income and profits (if any) of the Board from the Project are
not subject to either Federal or Alabama taxation, and (b) that these factors,
among others, induce the Company to enter into this Lease Agreement. However,
the Company will pay, as the same respectively become due, all taxes and
governmental charges of any kind whatsoever that may at any time be lawfully
assessed or levied against or with respect to the Project or the Leased
Equipment or any machinery, equipment or other property installed or brought by
the Company in the Plant (including, without limiting the generality of the
foregoing, any taxes levied upon or with respect to the income or profits of the
Board from the Project which, if not paid, will become a lien on the Project
prior to the lien of the Mortgage or a charge on the revenues and receipts
therefrom prior to the charge thereon and pledge or assignment thereof to be
created and made in the Mortgage), all utility and other charges incurred in the
operation, maintenance, use, occupancy and upkeep of the Project, and all
assessments and charges lawfully made by any governmental body for public
improvements that may be secured by lien on the Project; provided, that with
respect to special assessments or other governmental charges that may lawfully
be paid in installments over a period of years, the Company shall be obligated
to pay only such installments as are required to be paid during the term hereof.
The foregoing
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17
provisions of this section shall be effective only so long as any part of the
principal of or the interest on the Bonds remains outstanding and unpaid.
The Company may, at its own expense and in its own name and behalf or
in the name and behalf of the Board, in good faith contest any such taxes,
assessments and other charges and, in the event of any such contest, may permit
the taxes, assessments or other charges so contested to remain unpaid during the
period of such contest and any appeal therefrom unless by such action the title
of the Board to any part of the Project shall be materially endangered or the
Project or any part thereof shall become subject to loss or forfeiture in which
event such taxes, assessments or charges shall be paid prior to becoming
delinquent. The Board will cooperate fully with the Company in any such contest.
Section 3.3 Insurance. (a) The Company will cause the Project to be
insured and at all times keep the Project insured, even during the acquisition
thereof, against loss and/or damage to the Project, under a policy or policies
in form and amount covering such risks as are ordinarily insured against by
similar manufacturing plants, machinery and equipment, including, without
limiting the generality of the foregoing, fire and other perils customarily
covered by the extended coverage clause of fire insurance policies, windstorm,
explosion, tornado, lightning, riots, strikes, civil commotion and malicious
damage. The Company will pay all premiums on such insurance. All such policies
shall be for the benefit of the Board, the Company and the Trustee as their
interests shall appear, shall be made payable to the Trustee and shall be
deposited with the Trustee, and the Trustee shall have the sole right to receive
the proceeds from such policies and to collect and receipt for claims
thereunder. All such insurance policies shall be taken out and maintained in
generally recognized responsible insurance
<PAGE> 18
18
companies, each of which is qualified and authorized to assume the respective
risks undertaken, and shall be in the amount of (a) the full insurable value of
the Project, or (b) the amount required to pay the principal of and interest on
the Bonds as they mature and come due, or (c) the redemption price thereof,
whichever is less. No policy of insurance shall be so written that the proceeds
thereof will produce less than the minimum coverage required by the preceding
sentence, by reason of co-insurance provisions or otherwise, without the prior
consent thereto in writing by the Trustee. In lieu of depositing the policy or
policies of insurance with the Trustee, the Company may deposit with the Trustee
a certificate or certificates of the respective insurers attesting the fact that
such insurance is in force and effect. Prior to the expiration or cancellation
of any such policy, the Company will furnish the Trustee satisfactory evidence
that such policy has been renewed or replaced by another policy. The Company may
insure under a blanket insurance policy or policies, and in the event the
insurance coverage is by such blanket insurance coverage, it shall be sufficient
to furnish to the Trustee a certificate or duplicate copy of each such blanket
policy of insurance.
(b) The Company shall also take out and at all times maintain and pay
the premium on policies of insurance in generally recognized responsible
insurance companies, each of which is qualified to assume the risks, for the
benefit of the Trustee, the Board and the Company as their interest may appear,
against liability for injuries to persons and property or death or accidental
injuries occurring on or about the Plant, or in or about adjoining streets and
passageways, or in connection with the Leased Equipment, in the minimum amount
of $100,000 liability to any one person for personal injury or death, $25,000
liability to any one person for property damage, and $500,000 liability for any
one accident. Such
<PAGE> 19
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insurance shall be provided from the date any of the Bonds are sold and
delivered by the Board and shall be effective while the Project is being
constructed as well as thereafter during the entire term of the lease. The
insurance policies or certificates evidencing the same shall be filed with the
Trustee so long as any of the Bonds shall be outstanding and thereafter with the
Board. Such policies or certificates shall be filed with the Trustee on or
before the delivery and sale of any of the Bonds. Such insurance may also be
provided under a blanket insurance policy or policies as hereinabove provided.
Section 3.4 Advances by Board or Trustee. In the event the Company
fails to take out or maintain the full insurance coverage required by this Lease
Agreement, fails to pay the taxes and other charges referred to in Section 3.2
hereof at or prior to the time they are there required to be paid, or fails to
keep the Project in as reasonably safe condition as its operating conditions
permit and the Plant and the Leased Equipment in good order and repair, the
Board or the Trustee, after first notifying the Company of any such failure on
its part, may (but shall not be obligated to) take out the required policies of
insurance and pay the premiums on the same, pay such taxes or other charges or
make such repairs, renewals and replacements as may be necessary to maintain the
Project in as reasonably safe condition as the Company's operations permit and
the Plant and the Leased Equipment in good order and repair, respectively; and
all amounts so advanced therefor by the Board or the Trustee shall become an
additional obligation of the Company to the Board or to the Trustee, as the case
may be, which amounts, together with interest thereon at the rate of 6% per
annum from the date thereof, the Company will pay. Any remedy herein vested in
the Board or the Trustee for the collection of the rental payments shall also be
available to the Board and the Trustee for the collection of all such amounts so
advanced.
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Section 3.5 Indemnity of Board. The Board shall not be liable for any
damage or personal injury to the Company, its officers, employees or the public,
caused by or growing out of any breakage, leakage, getting out of order, or
defective condition of any item of Leased Equipment or of water or sewer pipe,
fixtures, toilets, plumbing, electric wires, gas pipes, apparatus, or
connections, or machinery or equipment or any of them, on the Leased Realty, or
caused by or growing out of any defects in the Project or any part thereof, even
if such defect occurred or existed prior to the delivery of possession of the
Leased Realty and the Project to the Company. The Company shall save the Board
harmless from any action, suit, judgment, or liability against the Board on
account of any defects in the condition of the Leased Realty, the Plant or the
Leased Equipment for any personal injury or property damage occasioned or
claimed to have been occasioned thereon or thereby and shall defend the Board
against all such claims at Company's expense. The Board shall promptly notify
Company of any and all such claims and shall cooperate with the Company in the
defense thereof. Failure of the Board to notify the Company of such claim
within time to permit the Company to defend against such claim will release the
Company of the liability to defend against such claim.
ARTICLE IV
PROVISIONS RESPECTING DAMAGE,
DESTRUCTION AND CONDEMNATION
Section 4.1 Damage and Destruction Provisions. In the event that the
Project, including any item of Leased Equipment, is destroyed or damaged, by
whatever cause, the Company shall have the option (a) to continue to pay the
rent and to cause the Project to be repaired or rebuilt in the same condition
and value as immediately preceding the event causing such loss, or (b) to pay to
the Trustee for the account of the Bond and Interest Fund, held by the
<PAGE> 21
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Trustee under the Mortgage, a sum which, when added to all insurance proceeds
which the Trustee has collected on account of such destruction or damage, shall
be sufficient to pay the principal of and interest on the Bonds as they mature
and come due or to redeem the same. In the event that the Company shall elect to
cause the Project to be repaired or rebuilt, the Company shall continue to make
the rental payments provided for in this Lease Agreement shall cause an estimate
to be made of the expense of repairing or rebuilding the Project in the same
condition and value as immediately preceding the event causing such loss, by a
capable and reputable architect or engineer, or both, acceptable to the Board
and the Trustee, and the Company shall forthwith pay to the Trustee for the
account of the Construction Fund the amount by which such estimate exceeds the
insurance proceeds collected by the Trustee on account of such damage or
destruction; and the Company shall forthwith proceed with all practicable
dispatch to cause the Project to be repaired or rebuilt in the same condition
and value as immediately preceding the event causing such loss, and the Board
shall cause the expenses thereof to be paid by the Trustee out of the
Construction Fund, as in the Mortgage provided. If the actual cost of repairing
or rebuilding the Project shall exceed the amount available therefor in the
Construction Fund, the Company shall pay any deficiency from its own funds. In
the event that the Company shall elect not to cause the Project to be repaired
or rebuilt, the Company shall forthwith pay to the Trustee a sum of money which,
when added to the insurance proceeds, will be sufficient to pay the principal of
and interest on the Bonds as they mature and come due or to redeem the same; and
upon the payment or retirement of all Bonds and interest thereon and all other
obligations under the Mortgage, the Basic Rent for the Primary Term of the lease
shall abate. Payment to the Trustee of insurance proceeds in excess of the
<PAGE> 22
22
amounts used to repair or rebuild the Project in the same condition and value as
immediately preceding the event causing the loss or destruction, or if insurance
proceeds are paid to the Trustee to pay or redeem the Bonds, shall be credited
as follows:
(1) To the abatement of Basic Rents which will thereafter be due and
payable as herein provided and the latest installment thereof shall be first
abated; and when all Bonds and interest thereon shall have been paid in full,
whether at maturity or by call for prior redemption, and all other obligations
under the Mortgage, including the payment of the Trustee's fees, charges and
expenses, shall have been paid and discharged.
(2) The Company shall be entitled to the excess, if any, then remaining
uncredited.
Section 4.2 Condemnation Provisions. In the event the Project and the
Leased Realty or any part of either shall be taken under the exercise of the
power of eminent domain, the award of compensation, except such portion as is
allocable to the Company for damages, shall be paid to the Trustee to be applied
to the payment of principal of and interest on all Bonds then outstanding or to
redeem the same, with any excess to be paid to the Board, unless the Company
shall have notified the Board of its desire to utilize the award for the purpose
of adapting the Project to Company's continued use. In the event Company elects
to cause the Project to be repaired or rebuilt for its continued use, the
Company shall continue to make the rental payments provided for in this Lease
Agreement and shall cause an estimate to be made of the expenses of such work by
a capable and reputable architect or engineer, or both, acceptable to the Board
and the Trustee, and the Company shall, prior to the commencement of
construction, pay to the Trustee for the account of the Construction Fund the
amount, if any, by which such estimate exceeds the condemnation award; and
Company shall
<PAGE> 23
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forthwith proceed with all practicable dispatch to cause the Project to be
repaired or rebuilt as aforesaid, and the Board shall cause the expenses thereof
to be paid by the Trustee out of the Construction Fund. If the cost of repairing
or rebuilding the Project exceeds the amount available therefor in the
Construction Fund, the Company shall pay any deficiency from its own funds. In
the event Company elects to redeem the outstanding Bonds and the award (or
portion thereof after use by the Company as above provided) is insufficient to
pay or redeem all outstanding Bonds, the Company shall either (a) pay to the
Trustee, for the account of the Bond and Interest Fund held by the Trustee under
the Mortgage, a sum which, when added to the proceeds of the condemnation award
which shall be paid to the Trustee, shall be sufficient to pay the principal of
and interest on the Bonds as they mature and come due or to redeem the same, or
(b) continue to use and occupy the Project or any part thereof then remaining
and cause the Board to apply the proceeds of the award of condemnation paid to
the Trustee to the redemption of Bonds, whereupon the basic rental payments will
be reduced to the amount required to pay the principal of and interest on the
remaining outstanding Bonds as such principal and interest become due and
payable.
ARTICLE V
CERTAIN PROVISIONS RELATING TO ASSIGNMENT,
SUBLEASING AND MORTGAGING AND TO THE BONDS
Section 5.1 Provisions Relating to Assignment and Subleasing. The
Company may assign this Lease Agreement, and may sublet the Project or any part
thereof, without the necessity of obtaining the consent of either the Board or
the Trustee. No such assignment or subleasing shall, however, in any way relieve
the Company from primary liability for any of its obligations hereunder, and in
the event of any such assignment or subleasing the Company
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shall continue to remain primarily liable for payment of all rentals, herein
provided to be paid by it and for performance and observance of the other
agreements and covenants on its part herein provided to be performed and
observed by it.
Section 5.2 Mortgaging of Project by Board. The Board may mortgage the
Project to the Trustee as security for the payment of the Bonds, subject to this
Lease Agreement (which shall be superior to the Mortgage), all as provided in
the Mortgage, and may assign its interest in and pledge any monies receivable
under this Lease Agreement to the Trustee as security for payment of the
principal of and the interest on the Bonds. The Board may in the Mortgage
obligate itself to follow the instructions of the Trustee or the holders of the
Bonds or a certain percentage thereof in the election or pursuit of any remedies
herein vested in it. In the event the Board's interest in this Lease Agreement
is so assigned and pledged to the Trustee, the Trustee shall have all rights and
remedies herein accorded the Board and any reference herein to the Board shall
be deemed, with the necessary changes in detail, to include the Trustee, and the
Trustee and the holders of the Bonds shall be deemed to be third party
beneficiaries of the covenants and agreements of the Company herein contained.
Subsequent to the issuance of the Bonds and prior to their payment in full, the
Board and the Company shall have no power to modify, alter, amend or terminate
this Lease Agreement without the prior written consent of the Trustee and then
only as provided in the Mortgage, provided that the Board and the Company may,
without any such consent, make such modifications, alterations and amendments of
this Lease Agreement as are specifically authorized in or contemplated by this
Lease Agreement or the Mortgage. The Board will not amend the Mortgage or any
mortgage supplemental thereto without the prior written consent of the Company.
Neither the Board nor the Company will
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unreasonably withhold any consent herein or in the Mortgage required of either
of them. The Company shall not be deemed to be a party to the Mortgage or the
Bonds issued thereunder and reference in this Lease Agreement to said Mortgage
and Bonds shall not impose any liability or obligation upon the Company other
than its specific obligations and liabilities undertaken in this Lease
Agreement.
Section 5.3 Redemption of Bonds. It is understood and agreed by the
parties hereto that the amount necessary to redeem Bonds shall include, in
addition to the redemption price, all expenses necessary to effect the
redemption and interest on the Bonds to be redeemed to the next ensuing date on
which they can be redeemed, and, if all Bonds are redeemed, all other
obligations under the Mortgage, including the Trustee's fees, charges and
expenses. Any payment made by the Company to be applied to the redemption of
Bonds shall be made at least 45 days prior to the proposed redemption date and
at the time of such payment the Company shall notify the Board, the Trustee and
the original purchasers of the Bonds, in writing, as to the purpose of such
payment, and the Board, upon receiving such notice, shall be obligated and
hereby agrees to take all necessary action to have the payment made by Company
for the purpose of redeeming Bonds applied to the redemption of as many Bonds as
such payment will permit under the Bond redemption provisions of the Bonds and
the Mortgage.
Section 5.4 References to Bonds Ineffective after Bonds Paid. Upon full
payment of the Bonds, all references in this Lease Agreement to the Bonds and
the Trustee shall be ineffective and neither the Trustee nor the holders of any
of the Bonds shall thereafter have any rights hereunder, saving and excepting
those that shall have theretofore vested. For purposes of this Lease Agreement,
the Bonds shall be deemed fully paid:
(a) If there is on deposit in the Bond and Interest Fund
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a total amount sufficient to pay the principal of all the then outstanding Bonds
plus the interest due thereon until and at their respective maturities and
provision for payment of all Trustee's and paying agents' fees, accrued and to
accrue, has been made in a manner satisfactory to the Trustee and such paying
agents, or
(b) If there have been irrevocably deposited with the Trustee (i)
monies sufficient to pay, redeem and retire all the then outstanding Bonds
(including, without limitation, principal, premium, interest to maturity or
earliest practicable redemption date, as the case may be, expenses of redemption
and Trustee's and paying agents' fees), and (ii) evidence satisfactory to the
Trustee that all redemption notices required by the Mortgage have been duly
given by the Board or irrevocable powers authorizing the Trustee to give such
redemption notices.
In the event the Bonds are fully paid prior to the last maturity
thereof, or an amount sufficient to pay, redeem and retire all the then
outstanding Bonds including principal, premium, interest to maturity or earliest
practicable redemption date (as the case may be), expenses of redemption and
Trustee's and paying agents' fees have been irrevocably deposited with the
Trustee in the Bond and Interest Fund for such purpose, the Company shall be
entitled to use and occupancy of the Project from the date of such payment until
the expiration of the Primary Term without the payment of any further Basic Rent
but otherwise on all the same terms and conditions hereof. If, after full
payment of the Bonds, there is any surplus remaining in the Bond and Interest
Fund, the Board will promptly pay such surplus to the Company.
ARTICLE VI
PARTICULAR COVENANTS OF THE COMPANY
Section 6.1 General Covenants. The Company will not do or permit
anything to be done on or about the Project that will affect,
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impair or contravene any policies of insurance that may be carried on the
Project or any part thereof against loss or damage by fire, casualty or
otherwise. The Company will, in the use of the Leased Realty and the Plant, the
public ways abutting the same and the Leased Equipment, comply with all lawful
requirements of all governmental bodies.
Section 6.2 Inspection of Project. The Company will permit the Board,
the Trustee, any holder of not less than $50,000 principal amount of Bonds and
their duly authorized agents (subject to the restrictions and requirements
imposed by contracts with the United States Government or agencies thereof, or
by subcontracts governed by such contracts, being performed by the Company, or
its subtenant or subtenants, in any part of the Leased Realty or the Project or
the Adjacent Building), at all reasonable times to enter upon, examine, inspect
and photograph the Leased Realty, the Leased Equipment (including the Leased
Equipment situated in the Adjacent Building), the Plant and the Project; and in
the event of default as hereinafter provided, the Company will permit any
nationally recognized firm of certified public accountants designated by the
Trustee, to have access to, inspect, examine and make copies of the books and
records, accounts and data of the Company.
Section 6.3 Special Covenants. In order that the Board may be
reasonably assured of the full payment of rent over the full Primary Term of
the Lease,
(a) The Company shall install and maintain proper books of record and
account, in which full and correct entries shall be made in accordance with
standard accounting practice, of all business and affairs of the Company, and
shall furnish to the Board, to the Trustee and to the original purchasers of the
Bonds quarterly and annual balance sheets and income and expense statements
showing, respectively, in reasonable detail, the financial condition of the
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Company at the close of each such period and its financial operations during
each such period. The annual balance sheet and income and expense statement
shall be certified in accordance with the standard form of opinion adopted by
the American Institute of Accountants, by a certified public accountant who is a
member of the said American Institute of Accountants and against whom the
Trustee makes no reasonable objection. The profit and loss statements shall
accurately reflect gross income and the net earnings of the Company.
(b) The Company will at all times keep an office or agency in the City
of Decatur, State of Alabama, where notices, requests and demands in respect of
this Lease Agreement may be served, and it will in writing notify the Board and
the Trustee of the location of each such office or agency. In default of any
such office or agency or such notification thereof, such notices, requests and
demands may be served at the principal office of the Trustee.
(c) The Company will duly pay and discharge all taxes, assessments and
other governmental charges and liens lawfully imposed upon the Leased Realty,
the Leased Equipment and the Plant and upon the properties of the Company,
provided, however, the Company shall not be required to pay any taxes,
assessments or other governmental charges so long as in good faith it shall
contest the validity thereof by appropriate legal proceedings.
(d) The Company will maintain and preserve its Certificate of
Incorporation or Charter and its corporate existence and organization, and its
authority to do business in the State of Alabama, and will not voluntarily
dissolve without first discharging its obligations under this Lease Agreement,
and will comply with all valid laws, ordinances, regulations and requirements
applicable to it or to its property and the Project.
(e) The Company will not merge or consolidate with any
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other corporation and will not transfer or convey all of its property, assets
and licenses, or any substantial portion thereof, except (i) upon terms and
conditions that will fully protect the interest of the Board and the holders of
the Bonds, and (ii) upon the execution and delivery to the Board and to the
Trustee of an agreement supplemental hereto which will obligate the successor
corporation or transferee to assume and perform and abide by all the terms and
conditions of this Lease Agreement. In case the Company or any successor
corporation or transferee shall be consolidated or merged with or into any other
corporation or shall make a conveyance, as permitted under the provisions of
this subsection, the corporation formed by or resulting from such consolidation
or merger, or the transferee to which such conveyance shall have been made as
aforesaid, upon complying with the provisions of this subsection, shall succeed
to and be substituted for the Company with the same force and effect as if it
had been named in and had executed this Lease Agreement as a party thereto, and
shall have and possess and may exercise, subject to the terms and conditions of
this Lease Agreement and of the Mortgage, each and every power, authority and
right herein reserved to and conferred upon the Company. The term "Company"
includes and means, unless the context otherwise requires, not only the Fruehauf
Corporation but also any such successor corporation or transferee. The
supplemental Lease Agreement provided for in this subsection shall never be
construed as a novation, alteration or amendment of or to this Lease Agreement,
but as part of this Lease Agreement and pursuant to its terms, and nothing
herein contained shall be construed as authorizing or permitting the execution
of any agreement which shall impair, or have the effect of impairing, the
obligations intended to be imposed upon the Company by this Lease Agreement, and
no such consolidation, merger or conveyance, and no such Lease Agreement or
assumption of obligations,
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shall release the Company from its liability under this Lease Agreement or from
the covenants in this Lease Agreement.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1 Events of Default Defined. The following shall be "events
of default" under this Lease Agreement, and the terms "events of default" or
"default" shall mean, whenever they are used in this Lease Agreement, any one or
more of the following events:
(a) Failure to pay any installment of Basic Rent that has become due
and payable by the terms of this Lease Agreement;
(b) Failure of the Company to perform any of its obligations under this
Lease Agreement or to duly observe any covenant, condition or agreement on its
part required to be performed, provided such failure shall have continued for a
period of thirty days after written notice by the Board or the Trustee
specifying such non-performance or breach and requiring the same to be remedied,
unless the Trustee shall have agreed in writing to an extension of such time
prior to its expiration;
(c) The filing of a voluntary petition in bankruptcy or the commission
of any act of bankruptcy by the Company, or the adjudication of the Company as a
bankrupt, or the making by the Company of an assignment for the benefit of
creditors, or the appointment by final order, judgment or decree of a court of
competent jurisdiction of a receiver for the whole or any substantial part of
the properties of the Company, provided such receiver shall not have been
removed or discharged within sixty days of the date of his qualification, unless
the Trustee shall have agreed in writing to an extension of the time within
which to remove or discharge said receiver.
Section 7.2 Remedies on Default. Whenever any such event or default
shall have happened and be continuing, the Board or the
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Trustee may take any of the following remedial steps;
(a) The Board or the Trustee may, at their option, declare
all installments of Basic Rent payable under this Lease Agreement for
the remainder of the Primary Term immediately due and payable;
(b) The Board or the Trustee may reenter and take
possession of the Leased Realty, exclude the Company from possession
thereof, enter into the Adjacent Building, remove the Leased Equipment
therefrom and rent the Project or any part thereof, for the account of
the Company;
(c) The Board or the Trustee may, at their option,
terminate the Lease Agreement, exclude the Company from possession of
the Leased Realty and the Leased Equipment, remove any item of Leased
Equipment from the Adjacent Building and, if the Board or Trustee elect
so to do, lease the Project for the account of the Board, holding the
Company liable for all rent due up to the date such lease is made for
the account of the Board;
(d) The Board or the Trustee may take whatever action at
law or in equity may appear necessary or desirable to collect the rent
then due, whether by declaration or otherwise, or to enforce any
obligation or covenant or agreement of the Company under this Lease
Agreement or by law.
Section 7.3 No Remedy Exclusive. No remedy herein conferred
upon or reserved to the Board or the Trustee is intended to be
exclusive of any other available remedy or remedies, but each and every
such remedy shall be cumulative and shall be in addition to every other
remedy given under this Lease Agreement or now or hereafter existing at
law or in equity or by statute. No delay or omission to exercise any
right or power accruing upon any default shall impair any such right or
power or shall be construed to be a waiver thereof but any such right
or power may be exercised from time to time and as often as may be
deemed expedient. In order to
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entitle the Board or the Trustee to exercise any remedy reserved to it
in this Article VII, it shall not be necessary to give any notice;
other than such notice as is herein expressly required.
Section 7.4 Agreement to Pay Attorneys' Fees. In the event
the Trustee (in its own name or in the name and behalf of the Board)
files court proceedings to collect Basic Rent due hereunder or to
enforce any other obligation, covenant, agreement, term or condition of
this Lease Agreement, the Company will pay to the Trustee reasonable
attorneys' fees and other expenses so incurred by the Trustee in
connection with such court proceedings.
ARTICLE VIII
OPTIONS
Section 8.1 Option to Renew. If the Company pays the rental
herein reserved to the Board and is not otherwise in default hereunder,
it shall have the right and option, herein granted by the Board, to
renew the Primary Term for a period of twenty (20) additional years
from midnight of April 30, 1984 (that is, for an additional term
expiring on midnight of April 30, 2004) by giving written notice of
such renewal to the Board at least sixty (60) days prior to the
expiration of the Primary Term. The cash rental payable by the Company
during any such renewal term shall be the sum of $10,000 per year,
payable annually in advance, but otherwise all the terms and conditions
herein contained shall apply during such renewal term.
Section 8.2 Options to Terminate. The Company shall have,
if it is not in default hereunder, the following options to cancel or
terminate the term of this Lease Agreement:
(a) At any time prior to full payment of the Bonds, the
Company may terminate this Lease Agreement by paying to the Board and
the Trustee, as additional or prepaid rental, in bankable funds an
amount which, when added to the amount on deposit in the Bond
<PAGE> 33
33
and Interest Fund, will be sufficient to pay, retire and redeem all the
outstanding Bonds in accordance with the provisions of the Mortgage
(including, without limiting the generality of the foregoing,
principal, interest to maturity or earliest practicable redemption
date, as the case may be, premium, expenses of redemption and Trustee's
and paying agents' fees);
(b) After full payment of the Bonds, the Company may
terminate this Lease Agreement as of any then succeeding anniversary
date by giving the Board notice in writing not less than one hundred
eighty (180) days prior to the anniversary date on which such
termination is to become effective.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Covenant of Quiet Enjoyment, Surrender of
Project. So long as the Company performs and observes all the covenants
and agreements on its part herein contained, it shall peaceably and
quietly have, hold and enjoy the Project during the Primary Term,
subject to all the terms and provisions hereof. At the end of the term
hereof, or upon any prior termination of this Lease Agreement, the
Company will permit the Board to remove any item of Leased Equipment
then situated in the Adjacent Building from said Building and will
surrender possession of the Project peaceably and promptly to the Board
in good order and repair, loss by fire or other casualty and ordinary
wear and tear only excepted.
Section 9.2 Representations. The Company represents that it
has corporate power to enter into this Lease Agreement and to perform
all acts herein required to be performed by it and that its execution
and delivery hereof have been duly authorized by all necessary
corporate action. The Board represents that it has corporate power to
enter into this Lease Agreement and that its execution and delivery
hereof have been duly authorized by all necessary
<PAGE> 34
34
corporate action.
Section 9.3 Retention of Title to Project by Board, Grant
of Utility Easements and "Tie-In" of Utility Facilities. The Board will
not itself sell, convey or otherwise dispose of all or any Part of the
Project during the term of this Lease Agreement without the prior
written consent of the Company. Neither will the Board dissolve or do
anything that will result in the termination of its corporate
existence. The Board will, however, grant such utility and other
similar easements over, across or under the Leased Realty as shall be
requested by the Company and as are necessary or convenient for the
efficient operation of the Project. The Board will also, upon request
of the Company, (a) grant such utility And other similar easements
over, across or under the Leased Realty as shall be necessary or
convenient for the furnishing of utility and other similar services to
real property adjacent to or near the Leased Realty and owned or leased
by the Company, provided that such easements shall not adversely affect
the operations of the facilities forming a part of the Project, and (b)
in addition to the rights granted the Company in subsection (d) of
Section 3.1 hereof, permit any utility and other similar facilities
serving the Project to be "tied-into" utility and other similar
facilities serving real property adjacent to or near the Leased Realty
and owned or leased by the Company, provided that such "tie-in" shall
not adversely affect the operation of the facilities forming a part of
the Project and, shall be so affected as to be subject to prompt
disconnection at minimum expense.
Section 9.4 This Lease a Net Lease. The Company recognizes,
understands and acknowledges that it is the intention hereof that this
Lease be a net lease and that all the Basic Rent be available for
payment of debt service on the Bonds. This Lease Agreement shall be
construed to effectuate such intent.
<PAGE> 35
35
Section 9.5 Installation of New Equipment by Board. In the
event that at any time the Company desires to install in the Project
additional machinery and equipment the Board will, on request of the
Company and upon being furnished by the Company with the necessary
funds, purchase and install in the Project such additional machinery
and equipment, which shall then become and constitute a part of the
Project, subject to the lease hereof.
Section 9.6 Notices. All notices hereunder shall be
sufficient if sent by United States registered or certified mail,
postage prepaid, addressed, if to the Board, at Decatur, Alabama; if to
the Company, Detroit 32, Michigan (Attention, President), with a
duplicate copy to the address of the Project; and if to the Trustee,
Decatur, Alabama (Attention, Trust Officer). The Board, the Company and
the Trustee may, by like notice, designate any further or different
addresses to which subsequent notices shall be sent.
Section 9.7 Prior Agreements Cancelled. This Lease
Agreement shall completely and fully supersede all other prior
agreements, both written and oral, between the Board and the Company
relating to the construction of the Plant, the purchase of the Leased
Equipment, the leasing of the Project and any options to renew. No
party to any such prior agreement shall hereafter have any rights
thereunder but shall look solely to this Lease Agreement for definition
and determination of all of its rights, liabilities and
responsibilities relating to the construction of the Plant, the
purchase of the Leased Equipment, the leasing of the Project and any
options to renew.
Section 9.8 Board's Liabilities Limited. It is understood
and agreed by and between the parties hereto that this Lease Agreement
is entered into under and pursuant to the provisions of the aforesaid
Act No. 648, adopted at the 1949 Regular Session of the Legislature of
the State of Alabama and that no provision of this Lease Agreement
shall be construed so as to give rise to a pecuniary
<PAGE> 36
36
liability of the Board or a charge against its general credit. All obligations
of the Board arising in connection with this Lease Agreement are limited to the
proper application of the proceeds of the sale of the Bonds and revenues and
receipts of the Project.
Section 9.9 Binding Effect. This Lease Agreement shall inure to the
benefit of, and shall be binding upon, the Board, the Company and their
respective successors and assigns.
Section 9.10 Severability. In the event any provision of this Lease
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provisions hereof.
Section 9.11 Article and Section Captions. The article and section
headings and captions contained herein are included for convenience only and
shall not be considered a part hereof or affect in any manner the construction
or interpretation hereof.
IN WITNESS WHEREOF, the Board and the Company have caused this Lease
Agreement to be executed in their respective corporate names, have caused their
respective corporate seals to be hereunto affixed, and have caused this Lease
Agreement to be attested, all by their duly authorized officers, and have
caused this Lease Agreement to be dated as of May 1, 1964.
THE INDUSTRIAL DEVELOPMENT BOARD
[SEAL] OF THE CITY OF DECATUR
By /s/ F. W. TROUP
----------------------------------
Chairman of its Board of Directors
Attest:
/s/ ILLEGIBLE
-------------------------------
Its Secretary
FRUEHAUF CORPORATION
By /s/ W. E. GRACE
----------------------------------
Its President
[SEAL]
Attest:
/s/ ILLEGIBLE
-------------------------------
Secretary
<PAGE> 37
STATE OF ALABAMA )
) ss.
COUNTY OF MORGAN )
I, the undersigned Notary Public in and for said County in said
State, hereby certify that F. W. Troup whose name as Chairman of THE INDUSTRIAL
DEVELOPMENT BOARD OF THE CITY OF DECATUR, a public corporation and
instrumentality under the laws of Alabama, is signed to the foregoing
instrument and who is known to me, acknowledged before me on this day that,
being informed of the contents of the within instrument, he as such officer and
with full authority, executed the same voluntarily for and as the act of said
public corporation and instrumentality.
Given under my hand and official seal of office this 11th day of
June, 1964.
/s/ JOHN A. CADDELL
----------------------------
Notary Public
[NOTARIAL SEAL]
My commission expires: July 6, 1966.
STATE OF MICHIGAN
ss.
COUNTY OF WAYNE
I, the undersigned Notary Public in and for Macomb County in said
State, hereby certify that W. E. Grace, whose name as President of FREUHAUF
CORPORATION, organized under the laws of the State of Michigan, is signed to the
foregoing instrument and who is known to me, acknowledged before me on this day
that, being informed of the contents of the within instrument, he as such
officer and with full authority, executed the same voluntarily for and as the
act of said company.
Given under my hand and official seal of office this 10th day of
June, 1964.
/s/ ALICE L. SWIDERSKI
----------------------------
Notary Public
[NOTARIAL SEAL]
My commission expires January 28, 1968.
<PAGE> 38
Exhibit A to this lease agreement, the Mortgage and Indenture of
Trust dated as of May 1, 1964 is recorded in the office of the Judge
of Probate of Morgan County in the Mortgage Records, Volume No. 4,
pp. _____.
State of Alabama, Morgan County
I hereby certify that this instrument
was filed in this office for record JUN 15
1964 at 1:15 o'clock PM, and recorded in
Book 727 of DEEDS, Page 797.
/s/ ILLEGIBLE
Judge of Probate
<PAGE> 39
STATE OF ALABAMA )
)
COUNTY OF MORGAN )
THIS AGREEMENT entered into by and between The Industrial Development
Board of the City of Decatur, a public corporation and instrumentality under
the laws of the State of Alabama (the "Board") and Fruehauf Corporation, a
corporation organized and existing under the laws of the State of Michigan and
authorized to do business in the State of Alabama (the "Company"), on and as of
April 30, 1984,
WITNESSETH THAT:
RECITALS
As of May 1, 1964, the Board and the Company entered into a lease
agreement which is recorded in the Office of the Judge of Probate of Morgan
County, Alabama, in Book 727, at Pages 797, et seq., to which reference is here
made for the description of the property leased thereby. On June 16, 1964, the
Board sold and conveyed to the Company an option to purchase the premises
described and referred to in said lease of May 1, 1964, at and for the sum of
One Thousand and no/100 Dollars ($1,000.00), at such time as no further rent
was payable for the original term of said lease. Said lease contained an
option to renew the primary term thereof for a period of twenty additional years
from midnight of April 30, 1984, at a cash rental payable by the Company during
such renewal term in the sum of Ten Thousand and no/100 Dollars ($10,000.00) per
year, payable annually in advance, but otherwise under all of the terms and
conditions therein contained. The Company has notified the Board that it
desires to renew the lease of May 1, 1964, as to the property described therein
for an additional period of twenty years from May 1, 1984, to April 30, 2004, at
and for a cash rental during said renewal term of Ten Thousand and no/100
Dollars ($10,000.00) per year, payable annually in advance, but otherwise upon
all the terms and conditions contained in said May 1, 1964 which terms
and conditions shall apply during such renewal term. Also, the Company has
notified the Board that it desires purchase an option from the Board to
purchase said
<PAGE> 40
premises upon which said renewal lease is to be made at any time during said
renewal period at and for the sum of One Thousand and no/100 Dollars
($1,000.00) payable in cash, with the provision that upon exercise of such
option to purchase that no further or additional rents shall be payable for any
unexpired portion of such renewal term of said lease.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements and undertakings of the parties hereinafter contained and of the
sum of One and no/100 Dollars ($1.00) cash to each of the parties in hand paid
by the other, the receipt of which is hereby acknowledged, it is agreed, by and
between the parties as follows:
1. The primary term of the above identified lease of May 1, 1964, as to
the property described therein, is hereby renewed and extended for a period of
twenty additional years from midnight of April 30, 1984 to midnight of April 30,
2004, at and for cash rental payable by the Company during such renewal term in
the amount of Ten Thousand and no/100 Dollars ($10,000.00) per year, payable
annually in advance, but otherwise under all of the terms and conditions
contained in said lease of May 1, 1964, which shall apply during such renewal
term. The rental in the amount of Ten Thousand and no/100 Dollars ($10,000.00)
for the lease year beginning May 1, 1984, and ending April 30, 1985, in the sum
of Ten Thousand and no/100 Dollars ($10,000.00) is paid in cash by the Company
to the Board upon the execution and delivery of this agreement, the receipt of
which is hereby acknowledged by the Board.
2. In consideration of the sum of One Hundred and no/100 Dollars
($100.00) cash to the Board in hand paid by the Company, the receipt of which is
hereby acknowledged, the Board hereby agrees that the Company, not being in
default under the aforementioned lease, shall have the option at any time, on
written notice to the Board of its election to exercise such option, to purchase
the premises described and referred to in said lease of May 1, 1964, together
with all improvements thereon, including the buildings,
<PAGE> 41
machinery and equipment and all other items of real or personal property
referred to collectively in said lease as "the project" for the sum of One
Thousand and no/100 Dollars ($1,000.00) in cash provided that such option shall
become null and void and of no effect if not exercised by the Company by
written notice served on the Board by delivery to the President or Secretary of
the Board in person or by registered or certified mail on or before 12:00
o'clock noon on April 30, 2004. In the event of the exercise of such option,
the property shall be conveyed to the Company, or its nominee, by proper deed
of conveyance, without special covenants of warranty, and if such option is
exercised prior to the expiration of the renewal term of said lease, no further
rental shall be payable for the unexpired portion of the said additional or
renewal term.
IN WITNESS WHEREOF, the Board and the Company have caused this agreement
to be executed in their respective corporate names and have caused their
respective corporate seals to be hereunto affixed and have caused this agreement
to be attested by their duly authorized officers and have caused this agreement
to be dated as of April 30, 1984.
THE INDUSTRIAL DEVELOPMENT BOARD
[SEAL] OF THE CITY OF DECATUR
BY: /s/ B. C. SHELTON, JR.
-----------------------------------
Chairman of It's Board of Directors
ATTEST:
/s/ JAMES B. RIGGS
- ------------------------------
Its Secretary
<PAGE> 42
FRUEHAUF CORPORATION
By:/s/ Illegible
------------------------------
Its Vice President
[SEAL]
ATTEST: State of Alabama
Morgan County
/s/ BARRY J. MILLER I hereby certify that no Mortgage Tax has
- ----------------------- been collected on this instrument.
Its Ass't Secretary
/s/ BOBBY DAY
Judge of Probate
"NO TAX COLLECTED"
STATE OF ALABAMA )
)
COUNTY OF MORGAN )
I, the undersigned authority, in and for said county in said state,
hereby certify that B. C. Shelton, Jr., whose name as Chairman of the Board of
Directors of The Industrial Development Board of the City of Decatur, a public
corporation and instrumentality under the laws of Alabama, is signed to the
foregoing instrument and who is known to me, acknowledged before me on this day
that, being informed of the contents of said instrument, he, as such officer
and with full authority, executed the same voluntarily for and as the act of
said public corporation and instrumentality.
GIVEN under my hand and official seal this 16th day of February, 1984.
/s/ JOHN A. CADDELL
------------------------------
NOTARY PUBLIC
[NOTARIAL SEAL]
STATE OF MICHIGAN )
)
COUNTY OF WAYNE )
I, the undersigned authority, in and for said county in said state,
hereby certify that G. F. Malley, whose name as Vice-President of Fruehauf
Corporation, a corporation organized under the laws of the State of Michigan,
is signed to the foregoing instrument, and who is known to me, acknowledged
before me on this day that, being informed of the contents of said instrument,
he, as such officer and with full authority, executed the same voluntarily for
and as the act of said corporation.
GIVEN under my hand and official seal this 9th day of February, 1984.
/s/ ANNE M. SPIRUDA
------------------------------
NOTARY PUBLIC
[NOTARIAL SEAL]
My Commission Expires June 29, 1987
<PAGE> 1
EXHIBIT 10.24
[THOMAS ABSTRACT COMPANY, INC. LETTERHEAD]
STATE OF ALABAMA )
COUNTY OF MORGAN )
LEASE AGREEMENT dated as of the first day of October, 1965, between
THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DECATUR, a public corporation
and instrumentality under the laws of the State of Alabama (the "Board"), and
FRUEHAUF CORPORATION, a corporation organized and existing under THE LAWS OF
THE State of Michigan, and authorized to do business in the State of Alabama
(the "Company").
R E C I T A L S
The Board, contemporaneously with and in reliance upon the execution
and delivery by the Company of this Lease Agreement, has issued $3,660,000
principal amount of its Industrial Revenue Bonds dated October 1, 1965 (the
"Bonds") under a Mortgage and Indenture of Trust dated as of October 1, 1965,
from the Board to the State National Bank of Alabama, Decatur, Alabama, as
Trustee (the "Mortgage") and has pledged and assigned under the Mortgage this
Lease Agreement and the rents payable hereunder to the payment of the principal
of and interest on the Bonds. A copy of the Mortgage Is attached hereto as
Exhibit A
NOW, THEREFORE, THIS AGREEMENT
W I T N E S S E T H:
That in consideration of the respective agreements on the part of the
Board and the Company hereinafter contained, the Board does hereby lease to the
Company and the Company does hereby rent from the Board, for and during the
Primary Term hereinafter referred to and upon and subject to the terms and
conditions hereinafter specified, the following described real property
situated in Morgan County, Alabama (the said real property being herein called
the "Leased Realty"):
<PAGE> 2
2
15.783 acres constituting all of Tract No. 13 being in Sections 13 and
14, Township 5, Range 5 West, said tract being according to the Subdivision of
the L. W. Norton Farm as surveyed and platted by J. M. Holt, Surveyor, as shown
by map or plat of said Subdivision filed in the Probate Office of Morgan County,
Alabama, March 3, 1928, in Plat Book at page 62; less and except that part of
Tract No. 13 described as follows, to-wit: beginning at a point on the Southerly
right of way line of Alabama Highway No. 20, which is 41.5 feet East of a point
30 feet South of the Northeast corner of Section 14, Township 5 South, Range 5
West, and running thence South 0 degrees 54 minutes West 230 feet; thence North
89 degrees 06 minutes West 68 feet; thence South 0 degrees 54 minutes West 70
feet; thence South 89 degrees 06 minutes East 68 feet; thence South 0 degrees 54
minutes West 122 feet; thence North 89 degrees 06 minutes West 60 feet; thence
South 0 degrees 54 minutes West 60 feet; thence South 89 degrees 06 minutes East
60 feet; thence South 0 degrees 54 minutes West 1122.04 feet; thence South 76
degrees 49 minutes West 341.76 feet; thence North 0 degrees 57 minutes East
1139.77 feet; thence South 89 degrees 03 minutes East 69 feet; thence North 0
degrees 57 minutes East 125 feet; thence South 89 degrees 03 minutes East 151
feet; thence North 0 degrees 57 minutes East 422.70 feet to a point on the South
margin of Alabama Highway No. 20; thence South 89 degrees 03 minutes East along
the South margin of Alabama Highway No. 20, 110 feet to the point of beginning,
also
9.36 acres known as Tract No. 14 in Section 14, Township 5, Range 5
West, said Tract 14 being according to the aforesaid subdivision, also
9.35 acres known as Tract No. 15 in Section 14, Township 5, Range 5
West, said Tract 15 being according to the aforesaid subdivision.
Subject, however, to (1) the right of way over the South 30 feet
thereof, as provided in the deed from L.W. Norton to W.H. Anderson, dated March
1, 1928, and recorded in Deed Book 356, page 328, in the Probate Office of
Morgan County, Alabama, (2) any rights which may still exist under the condition
respecting the drainage system, as set forth in said deed from L.W. Norton to
W.H. Anderson dated March 1, 1928, and (3) that certain Mortgage and Indenture
of Trust by and between the City of Decatur (the "City") and the First National
bank of Montgomery, Montgomery, Alabama (the "First of Montgomery"), dated as of
August 1, 1957 (the "1957 Mortgage"), recorded in the office of the Judge of
Probate in Mortgage Book 589, at pages 41, et seq., under which the City of
Decatur has heretofore issued and there are now outstanding $1,600,000 principal
amount of its First Mortgage Industrial Development Revenue Bonds dated August
1, 1957 (the "1957 Bonds");
<PAGE> 3
3
together with the existing buildings, and improvements on the Leased Realty
and the machinery and equipment more particularly described on Exhibit B
attached hereto (the "Leased Equipment") and all additional buildings,
improvements, machinery and equipment acquired from the proceeds of the sale of
the Bonds (the Leased Realty, Leased Equipment, buildings and improvements as
they may at any time exist, being herein together called the "Project").
This Lease is made, however, upon and subject to the following terms
and conditions, to each of which the Board and the Company hereby agree:
ARTICLE I
Section 1.1 The Board, out of the proceeds derived from the sale of
the Bonds, has (a) deposited in the Bond and Interest Fund established under
the Mortgage the amount received as accrued interest from the sale of the
Bonds, (b) paid to the City for the transfer by the City to the Board of the
Leased Realty and the buildings, improvements, machinery and equipment thereon
a sum which when invested in certificates of deposit as provided in the Trust
Agreement referred to in Section 1.2 herein, will produce funds which, together
with the amount in the Bond and Interest Fund established under the 1957
Mortgage, are estimated to be sufficient to pay the principal of and interest
on the 1957 Bonds as the same become due and payable, (c) paid the acceptance
fee of the Trustee under the Mortgage and (d) deposited the balance of the
proceeds in the Construction Fund established under the Mortgage.
Section 1.2 The 1957 Lease. The Parties hereto recognize the matters
set forth in this section and in view thereof have provided and do hereby agree
as herein set forth. The Leased Realty and the buildings, machinery and
equipment purchased by
<PAGE> 4
4
the City from the proceeds of the sale of the 1957 Bonds and transferred by the
City to the Board as aforesaid, are now leased by the City to the Company
under Lease Agreement dated August 1, 1957 (the "1957 Lease"), under which 1957
Lease the Company has agreed to pay basic rentals in amounts sufficient to
provide for the payment of the principal of and interest on the 1957 Bonds.
The 1957 Lease and the rentals payable thereunder are pledged under the 1957
mortgage to the payment of the principal of and interest on the 1957 Bonds.
Subject to conditions and restrictions, etc.
IN WITNESS WHEREOF, the Board and the Company have caused this Lease
Agreement to be executed in their respective corporate names, have caused their
respective corporate seals to be hereunto affixed, and have caused this Lease
Agreement to be attested, all by their duly authorized officers.
THE INDUSTRIAL DEVELOPMENT BOARD
OF THE CITY OF DECATUR
By /s/ F. W. TROUP
---------------------------------------
Chairman of its Board of Directors
[S E A L]
Attest:
/s/ [ILLEGIBLE]
- ----------------------------
Its Secretary
FRUEHAUF CORPORATION
By /s/ ROBERT D. ROWAN
---------------------------------------
Its VICE PRESIDENT
[S E A L]
Attest:
/s/ [ILLEGIBLE]
- ---------------------------------
Its SECRETARY
<PAGE> 5
STATE OF ALABAMA )
) ss.
COUNTY OF MORGAN )
I, the undersigned Notary Public in and for said County in said State,
hereby certify that F. W. Troup whose name as Chairman of THE INDUSTRIAL
DEVELOPMENT BOARD OF THE CITY OF DECATUR, a public corporation and
instrumentality under the laws of Alabama, is signed to the foregoing
instrument and who is known to me, acknowledged before me on this day that,
being informed of the contents of the within instrument, he as such officer and
with full authority, executed the same voluntarily for and as the act of said
public corporation and instrumentality.
Given under my hand and official seal of office this 21st day of June,
1965.
/s/ JOHN A. CADDELL
--------------------------------------------
Notary Public
NOTARIAL SEAL
My Commission expires: 7-6-66
STATE OF MICHIGAN )
) ss.
COUNTY OF WAYNE )
I, the undersigned Notary Public in and for said County in said State,
hereby certify that Robert D. Rowan, whose name as Vice President of FRUEHAUF
CORPORATION, organized under the laws of the State of Michigan, is signed to the
foregoing instrument and who is known to me, acknowledged before me on this day
that, being informed of the contents of the within instrument, he as such
officer and with full authority, executed the same voluntarily for and as the
act of said company.
Given under my hand and official seal of office this 17th day of
January, 1966.
/s/ ALICE L. SWIDERSKI
------------------------------------------
Notary Public
Alice L. Swiderski
Notary Public, Macomb County, Mich.
Acting in Wayne County, Michigan
My Commission Expires Jan. 28, 1968
NOTARIAL SEAL
My commission expires:
----------------
<PAGE> 6
EXHIBIT A
To this lease agreement is the mortgage and indenture trust dated
October 1, 1965 which has been recorded in the office of the Judge of Probate of
Morgan County in mortgage
book 763 pages 239 et. seq.
--- ---
<PAGE> 7
EXHIBIT B
TO LEASE AGREEMENT DATED AS OF
OCTOBER 1, 1965, BETWEEN THE
INDUSTRIAL DEVELOPMENT BOARD OF
THE CITY OF DECATUR, AND
FRUEHAUF CORPORATION
Furnaces
(a) Two (2) 50,000 lb. Gillespie & Powers aluminum melting furnaces with
associated log casting equipment.
(b) One (1) 155,000 lb. Loftus log homogenizing furnace.
Extrusion Presses
(a) One (1) 1,400 ton Watson Stillman extrusion press with a 25 ton
hydraulic stretcher, a 7" Magnethermic induction billet heater and
other related accessories and equipment.
(b) One (1) 2,200 ton Watson Stillman extrusion press with a 60 ton
hydraulic stretcher, a 9" Magnethermic billet heater and other related
accessories and equipment.
(c) One (1) 2,200 ton Watson Stillman extrusion press with a 100 ton
hydraulic stretcher, a 5" x 14" Magnethermic billet induction billet
heater and other related accessories and equipment.
(d) One (1) 3,500 ton Watson Stillman extrusion press with a 200 ton
hydraulic stretcher, a Grance gas fired billet heater and other related
accessories and equipment.
Extrusion Paint Facility
one (1) complete semi-automatic paint finishing system for cleaning and
painting aluminum extrusions. System includes, chemical pretreatment stages,
dryoff oven, two (2) paint booths, paint bake oven, electrostatic painting
equipment, powered conveyor, and related controls and accessories.
Fabrication Equipment
Various press brakes, contour correcting machines, straightening machines,
aging ovens, punch presses, Radial saws, welders and other lesser equipment for
fabricating aluminum extrusions into finished trailer parts.
Tool Room and Maintenance Equipment
One (1) Elox electric discharge type die making machine.
One (1) Lindberg die heat treat equipment.
Various lathes, drill presses, milling machines, grinders, shapers and related
miscellaneous equipment utilized in fabricating tools and dies in support of the
production departments.
[STAMP]
<PAGE> 8
THIS AMENDATORY LEASE AGREEMENT dated as of August 15, 1978, by and
between The Industrial Development Board of the City of Decatur, a public
corporation and instrumentality under the laws of the State of Alabama (the
"Board") and Fruehauf Corporation, a corporation organized and existing under
the laws of the State of Michigan and authorized to do business in the State of
Alabama (the "Company").
R E C I T A L S:
The Board, as Lessor, and the Company, as Lessee, have heretofore
entered into that certain Lease Agreement dated as of August 1, 1965 (the "Lease
Agreement"), which Lease Agreement is recorded in the office of the Judge of
Probate of Morgan County in Volume 763, pages 300 et seq. The Lease Agreement
was heretofore pledged and assigned and the Leased Realty, as therein defined,
mortgaged by the Board under a Mortgage and Indenture of Trust dated as of
October 1, 1965 (the "Mortgage") by and between the Board and Central Bank of
Alabama, N.A., (formerly the State National Bank of Alabama) as Trustee, which
Mortgage is recorded in the office of the Judge of Probate of Morgan County in
Volume 763, pages 239 et seq.
All documents necessary to effect a release of the real property
hereinafter described from the provisions of the Lease Agreement as required by
Section 9.5 of the Lease Agreement and from the lien of the Mortgage as
required by Section 21 of the Mortgage have heretofore been executed and filed
and the Trustee has executed a release dated August 15, 1978, releasing said
real property from the lien of the Mortgage, which release is recorded in the
office of the Judge of Probate of Morgan County in Volume 994, pages 625 et
seq.
The parties hereto desire to evidence their consent to the release of
said real property from the provisions of the Lease Agreement.
<PAGE> 9
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and provisions of the parties hereto the parties do hereby covenant,
agree and provide as follows:
1. The Lease Agreement in hereby amended by eliminating from the
Leased Realty, as therein defined and described, the following described
property:
Beginning at the Northeast corner of Section 14, Township 5 South,
Range 5 West, Morgan County, Alabama, and run thence S 0 degrees 54'W
(Magnetic Bearing) along the east boundary of Section 14 a distance of
30.00 feet to a point on the south right of way margin of Alabama
Highway No. 20; thence N 89 degrees 03'W along the south right of way
margin of Alabama Highway No. 20 a distance of 67.4 feet to a point;
thence N 89 degrees 08'W along the south right of way margin of Alabama
Highway No. 20 a distance of 572.02 feet to a point; thence S 0 degrees
54'W a distance of 1023.75 feet to the true point of beginning of the
tract herein described; thence from the true point of beginning run S
89 degrees 06'E a distance of 195.00 feet to a point; thence N 0
degrees 54'E a distance of 12.00 feet to a point; thence S 89 degrees
06'E a distance of 32.00 feet to a point; thence S 0 degrees 54'W a
distance of 24.00 feet to a point; thence N 89 degrees 06'W a distance
of 15.00 feet to a point; thence S 0 degrees 54'W a distance of 150.00
feet to a point; thence N 89 degrees 06'W a distance of 10.00 feet to a
point; thence S 0 degrees 54'W a distance of 305.00 feet to a point;
thence N 89 degrees 06'W a distance of 380.00 feet to a point; thence N
0 degrees 54'E a distance of 467.00 feet to a point; thence S 89
degrees 06'E a distance of 178.00 feet to the true point of beginning,
lying and being within the NE 1/4 of Section 14, Township 5 South,
Range 5 West, Morgan County, Alabama and containing 4.1241 acres, more
or less, subject, however, to (1) the right of way over the South 30
feet thereof, as provided in the deed from L.W. Norton to W.H.
Anderson, dated March 1, 1928, and recorded in Deed Book 356, Page 328,
in the Probate Office of Morgan County, Alabama, and (2) any rights
which may still exist under the condition respecting the drainage
system, as set forth in said deed from L.W. Norton to W. H. Anderson
dated March 1, 1928, together with (i) the right to connect and join
any building, structure or improvement that may be constructed on the
above described real property with existing structures, facilities and
improvements adjacent to or abutting said real property, and (ii) the
right to tie into existing utilities situated on property adjacent to
or abutting said real property.
Also an easement for access, ingress and egress across a portion of
Tracts 14 and 15, according to the Map of Property belonging to L.W.
Norton, as recorded in the Morgan County Probate Office in Plat Book
1, at Page 62, and being more particularly described as follows:
Beginning at the northeast corner of Section 14, Township 5 South,
Range 5 West, Morgan County, Alabama, and run
<PAGE> 10
thence S 0 degrees 54'W along the east boundary of said Section 14, a
distance of 30.00 feet to a point on the south right of way margin of
Alabama Highway No. 20; thence N 89 degrees 3'W along the south right
of way margin of Alabama Highway No. 20 a distance of 67.4 feet to a
point; thence N 89 degrees 08'W along the south right of way margin of
Alabama Highway No. 20 a distance of 921.10 feet to the true point of
beginning of the tract herein described; thence from the true point of
beginning continue N 89 degrees 08'W along the south right of way
margin of Alabama Highway 20 a distance of 50.00 feet to an iron pipe
on the northwest corner of Tract 15; thence S 0 degrees 54'W along the
west boundary of Tract 15 a distance of 1490.52 feet to a point; thence
S 89 degrees 06'E a distance of 221.08 feet to a point on the west
boundary of the real estate described for Fruehauf - 1978 Extrusion
Expansion; thence N 0 degrees 54'E along the west boundary of said real
estate a distance of 50.00 feet to a point; thence N 89 degrees 06'W a
distance of 171.08 feet to a point; thence N 0 degrees 54'E a distance
of 1440.55 feet to the true point of beginning, lying and being within
the NE 1/4 of Section 14, Township 5 South, Range 5 West, Morgan County
Alabama, and containing 1.9073 acres, more or less.
2. The above described property is hereby released from the provisions
of the Lease Agreement.
3. The Company does hereby covenant and agree that the aforesaid
release shall not affect the liability or obligation of the Company for the
payment of Basic Rent in amounts and at the times provided in the Lease
Agreement, and that there shall be no abatement or adjustment in the Basic Rent
by reason of the release of such realty and the obligation and liability of the
Company shall continue in all respects as provided in the Lease Agreement,
excluding, however, the property so released.
4. The provisions of the Lease Agreement as hereby amended are in all
respects hereby ratified, approved and confirmed.
IN WITNESS WHEREOF, the Board and the Company have caused this
Amendatory Lease Agreement to be executed in their respective corporate names,
have caused their respective corporate seals to be hereunto affixed, and have
caused this Amendatory Lease Agreement to be attested by their duly authorized
officers.
THE INDUSTRIAL DEVELOPMENT BOARD OF
THE CITY OF DECATUR
BY /s/ B.C. SHELTON, JR.
--------------------------------------------
Chairman of the Board of Directors
[S E A L]
Attest: /s/ [ILLEGIBLE]
----------------------------
Secretary
<PAGE> 11
FRUEHAUF CORPORATION
By /s/ Frank P. Coyer Jr.
------------------------------------
Its Vice President
------------------------------------
[SEAL]
Attest /s/ [Illegible]
------------------------------------
Its Secretary
------------------------------------
STATE OF ALABAMA )
COUNTY OF MORGAN )
I, the undersigned Notary Public in and for said County in said State,
hereby certify that B.C. Shelton, Jr., whose name as Chairman of The Industrial
Development Board of the City of Decatur, a public corporation and
instrumentality under the laws of Alabama, is signed to the foregoing instrument
and who is known to me, acknowledged before me on this day that, being informed
of the contents of the within instrument, he as such officer and with full
authority, executed the same voluntarily for and as the act of said public
corporation and instrumentality.
Given under my hand and official seal of office this 24th day of
August, 1978.
/s/ John A. Caddell
-------------------------------
Notary Public
[SEAL]
NOTARIAL SEAL
My commission expires: 10-17-78
----------------
STATE OF )
COUNTY OF )
I, the undersigned Notary Public in and for said County in said State,
hereby certify that Frank P. Coyer Jr., whose name as Vice President of
Fruehauf Corporation, organized under the laws of the State of Michigan, is
signed to the foregoing instrument and who is known to me,
<PAGE> 12
acknowledged before me on this day that, being informed of the contents of the
within instrument, he as such officer and with full authority, executed the
same voluntarily for and as the act of said company.
Given under my hand and official seal of office this 28th day of
August, 1978.
/s/ [ILLEGIBLE]
--------------------
Notary Public
[NOTARIAL SEAL]
My commission expires: September 2, 1981
<PAGE> 1
EXHIBIT 10.25
===============================================================================
LEASE AGREEMENT
Dated as of December 1, 1978
BETWEEN
THE INDUSTRIAL DEVELOPMENT BOARD
OF
THE CITY OF DECATUR (ALABAMA)
AND
FRUEHAUF CORPORATION
(Plant Project)
===============================================================================
As set forth in Section 11.2 hereof, The Industrial Development Board of the
City of Decatur has assigned all of its right, title and interest in and to this
Lease Agreement to The First National Bank of Birmingham, as Trustee under the
Indenture of Mortgage and Deed of Trust dated as of December 1, 1978, referred
to herein.
This instrument was
prepared by:
M.C. O'Neal
Cabaniss, Johnston, Gardner,
Dumas & O'Neal
1900 First National-Southern
Natural Building
Birmingham, Alabama 35203
<PAGE> 2
LEASE AGREEMENT
TABLE OF CONTENTS
(This Table of Contents is not a part of this
Agreement and is only for convenience of
reference)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
Definitions
Section 1.1 Definitions ....................................... 1
Section 1.2 Effect of Headings and Table of Contents .......... 6
ARTICLE II
Representations
Section 2.1 Representations by the Board ...................... 7
Section 2.2 Representations by the Lessee ..................... 7
ARTICLE III
Lease of Project; Title and Condition;
Use and Quiet Enjoyment
Section 3.1 Lease ............................................ 9
Section 3.2 Title and Condition .............................. 9
Section 3.3 Disclaimer of Warranties ......................... 9
Section 3.4 Use of Project and Quiet Enjoyment ............... 10
ARTICLE IV
Acquisition and Construction of the Project;
Application of Bond Proceeds
Section 4.1 Agreement to Acquire and Construct the Project ... 10
Section 4.2 Application of Bond Proceeds ..................... 11
Section 4.3 Disbursements from the Project Fund .............. 11
Section 4.4 Certification of Completion Date ................. 14
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.5 Insufficiency of Project Fund ..................... 15
ARTICLE V
Lease Term; Rentals
Section 5.1 Lease Term; Renewal Term ......................... 15
Section 5.2 Basic Rent and Additional Rent .................... 17
Section 5.3 Prepayment of Basic Rent .......................... 18
Section 5.4 Obligations of Lessee Unconditional ............... 19
ARTICLE VI
Covenants of Lessee
Section 6.1 Maintenance and Modifications .................... 19
Section 6.2 Alterations and Additional Improvements .......... 20
Section 6.3 Disposition of Project Equipment, Covenant
Against Waste .................................. 21
Section 6.4 Taxes; Mechanics' and Materialmen's Liens ........ 22
Section 6.5 Insurance ........................................ 24
Section 6.6 Permitted Contests ............................... 26
Section 6.7 Indemnification of Board ......................... 27
Section 6.8 Further Assurances ............................... 28
Section 6.9 Reports; Certificates as to No Default ........... 28
Section 6.10 Notice of Default ................................ 29
ARTICLE VII
Casualty and Condemnation
Section 7.1 Casualty ......................................... 29
Section 7.2 Condemnation ..................................... 30
ARTICLE VIII
Purchase of Project
Section 8.1 General Option to Purchase ....................... 32
Section 8.2 Option to Purchase Upon Certain Contingencies .... 32
Section 8.3 Obligation to Purchase Upon Casualty or
Condemnation ................................... 33
Section 8.4 Refunding Limitations ............................ 34
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 8.5 Option to Purchase Unimproved Land ............... 35
Section 8.6 Easements ........................................ 37
Section 8.7 Obligation to Purchase upon Termination; Option
to Purchase During Renewal Terms ............... 38
Section 8.8 Closing to Purchase .............................. 39
ARTICLE IX
Corporate Existence; Consolidation, Merger, Etc.
Section 9.1 Corporate Existence; Qualification in Alabama .... 40
Section 9.2 Consolidation or Merger .......................... 40
Section 9.3 Assignment or Subleasing ......................... 40
ARTICLE X
Events of Default and Remedies
Section 10.1 Events of Default ................................ 41
Section 10.2 Remedies on Default .............................. 42
Section 10.3 Additional Rights of the Board ................... 45
Section 10.4 No Remedy Exclusive .............................. 46
Section 10.5 No Additional Waiver Implied by One Waiver ....... 46
ARTICLE XI
Provisions Relating to Indenture
Section 11.1 Restrictions on Termination or Modification
of this Agreement .............................. 46
Section 11.2 Lessee's Assent to Indenture ..................... 47
Section 11.3 Supplemental Indentures .......................... 48
Section 11.4 Method of Payment ................................ 48
ARTICLE XII
Miscellaneous
Section 12.1 No Merger ........................................ 48
Section 12.2 Limitation on Board's Liability .................. 48
Section 12.3 Governing Law .................................... 49
Section 12.4 Notices .......................................... 49
Section 12.5 Binding Effect ................................... 49
Section 12.6 Execution in Counterparts ........................ 49
Section 12.7 Severability ..................................... 50
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
Signatures ......................................................... 50
Acknowledgments .................................................... 51
</TABLE>
Schedule A - Description of Leased Land
Schedule B - Description of Project Equipment
-iv-
<PAGE> 6
LEASE AGREEMENT dated as of December 1, 1978, between THE INDUSTRIAL
DEVELOPMENT BOARD OF THE CITY OF DECATUR, a public corporation duly organized
and existing under the laws of the State of Alabama (the "Board"), whose address
is P.O. Box 1727, Decatur, Alabama 35602, and FRUEHAUF CORPORATION, a Michigan
corporation (the "Lessee"), whose address is 10900 Harper Avenue, Detroit,
Michigan 48232.
ARTICLE I
Definitions
Section 1.1. Definitions.
(a) For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(1) "This Agreement" means this instrument as originally executed or
as it may from time to time be supplemented or amended by one or more
instruments supplemental hereto entered into pursuant to the applicable
provisions hereof.
(2) All references in this instrument to designated "Articles",
"Sections" and other subdivisions are to the designated Articles, Sections
and other subdivisions of this instrument as originally executed. The words
"herein", "hereof" and "hereunder" and other words of similar import refer
to this Agreement as a whole and not to any particular Article, Section or
other subdivision.
(3) The terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular.
(4) All accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles.
<PAGE> 7
(b) For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
"Additional Rent" means the rent payable under Section 5.2 (b), (c) or
(d).
"Affiliate" means as specified in Section 8.4.
"Authorized Lessee Representative" means at any time each officer or
employee of the Lessee authorized to act hereunder and under the Indenture on
behalf of the Lessee as evidenced by a Lessee Certificate to such effect and
containing the specimen signature of such officer.
"Basic Rent" means the rent payable under Sections 5.2(a) and 5.3.
"Board" means the Person named as the Board in the first paragraph of
this instrument until a successor public corporation shall have become such
pursuant to Section 6.5 of the Indenture, and thereafter Board shall mean such
successor.
"Bond" or "Bonds" means the 9.70% First Mortgage Industrial
Development Revenue Bonds (Fruehauf Corporation Plant Project) Series 1978A, due
December 1, 1998, of the Board issued and to be issued pursuant to the
Indenture.
"Bond Fund" means the Bond Fund created by Section 8.2 of the
Indenture.
"Bond Payment Date" means the date on which the principal of (and
premium, if any) or interest on any of the Bonds becomes due and payable,
whether on a Redemption Date or a Sinking Fund Payment Date (each as defined in
the Indenture), at Stated Maturity, by declaration or acceleration or otherwise,
in accordance with the terms of the Bonds and the Indenture, including, without
limitation, Section 6.1 of the Indenture.
"Bond Purchase Agreement" means the Bond Purchase Agreement dated as
of December 1, 1978, among the Board, the Lessee and Connecticut General Life
Insurance Company.
"Business Day" means any day other than a Saturday, a Sunday, any
legal holiday in the State in which the place of payment is located or any other
day on which the State banking
-2-
<PAGE> 8
institutions in such place of payment are authorized to suspend operations
under the laws of said State.
"Default" means an event or condition the occurrence of which would,
with the lapse of time or the giving of notice or both, become an Event of
Default.
"Event of Default" means those events specified in Section 10.1.
"Financing Act" means Act No. 648, enacted at the 1949 Regular Session
of the Legislature of Alabama, as heretofore amended, and further supplemented
by Act No. 1893, enacted at the 1971 Regular Session of the Legislature of
Alabama (Code of Alabama 1975, Title 11, Section 11-54-80 et seq.).
"Guaranty" means the Guaranty and Financial Agreement of even date
herewith among the Lessee, the Trustee and Connecticut General Life Insurance
Company (relating to the Bonds), as supplemented and amended.
The term "holder" when used with respect to any Bond means a Bondholder
as defined in the Indenture.
"Indenture" means the Indenture of Mortgage and Deed of Trust of even
date herewith between the Board and The First National Bank of Birmingham, as
Trustee, as supplemented and amended.
"Independent Engineer" means an engineer or an engineering firm
registered and qualified to practice the profession of engineering under the
laws of Alabama and who or which is not the full-time employee of the Board or
the Lessee.
"Leased Land" means the property described in Schedule A attached
hereto and made a part hereof.
"Lessee" means Fruehauf Corporation until a successor corporation shall
have become such pursuant to Section 9.2, and thereafter "Lessee" shall mean
such successor corporation.
"Lessee Certificate", "Lessee Request" and "Lessee Order" mean,
respectively, a written certificate, request and order signed in the name of
the Lessee by its Chairman of the Board, President or a Vice President, and by
its Treasurer, an Assistant Treasurer, Controller, an Assistant Controller,
-3-
<PAGE> 9
Secretary, or an Assistant Secretary, and delivered to the Trustee.
"Net Proceeds" means the proceeds received in respect to the Project
from any fire or extended coverage insurance or condemnation or eminent domain
award or payment, net, after deduction of all expenses incurred in the
collection thereof.
"Opinion of Counsel" means a written opinion of counsel addressed to
the Trustee, for the benefit of the Holders of the Bonds, who may (except as
otherwise expressly provided in this Agreement) be counsel for the Board or the
Lessee, and who, if not General Counsel of the Lessee, is acceptable to the
Trustee.
The term "outstanding" when used with reference to the Bonds means
Outstanding as defined in the Indenture.
"Permitted Encumbrances" with respect to the Project means:
(i) the right reserved to or vested in any municipality or public
authority by the terms of any right, power, franchise, grant, license,
permit or provision of law to terminate such right, power, franchise, grant,
license or permit, provided, that the exercise of such right would not
materially impair the use of the Project for the purposes for which it is
held by the Lessee or materially affect its value;
(ii) the right reserved to or vested in any municipality or public
authority to purchase, condemn or appropriate the Project or any part
thereof;
(iii) liens for the taxes, assessments, levies, fees, charges, duties,
imposts, claims and demands referred to in Section 6.4 which are not at the
time due and payable, or the validity or amount of which is being contested
in compliance with the provisions of Section 6.6;
(iv) easements, rights of way, restrictions and other defects, liens,
encumbrances and irregularities in the title to the Project which do not
materially impair the use thereof for the purposes for which it is held by
the Lessee or materially affect its value;
-4-
<PAGE> 10
(v) rights reserved to or vested in any municipality or public
authority to control or regulate the Project or to use the Project in any
manner which does not materially impair the use thereof for the purposes
for which it is held by the Lessee or materially affect its value;
(vi) the lien and security interest of the Indenture;
(vii) the rights of the Lessee under this Agreement; and
(viii) any encroachment, encumbrance, exception or violation set forth
in Schedule A hereto.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
"Progress Certificate" means a written certificate signed in the name
of the Lessee by an Authorized Lessee Representative, and delivered to the
Trustee.
"Project" means the Leased Land, and the Project Equipment.
"Project Costs" means the aggregate of (a) the costs reasonably and
appropriately incurred by the Board or the Lessee in connection with the
acquisition of the Project, including the acquisition and installation of the
Project Equipment, the construction of any buildings, structures or permanent
improvements on the Leased Land and interest on the Bonds during the estimated
construction period contemplated by Section 4.1, and charged or properly
chargeable to fixed property accounts in accordance with generally accepted
accounting principles, including, without limitation, engineers' and
architects' fees, charges for labor, wages, salaries, materials, supplies,
superintendence, insurance, taxes and all other items (except operating or
maintenance expenses) in connection with such construction and so charged,
properly chargeable and conforming to such accounting principles, but excluding
the cost of any materials and supplies obtained in connection with any
buildings, structures or permanent improvements constructed or to be
constructed on the Leased Land and not incorporated therein, and (b) all costs
and expenses of the Board incurred in
-5-
<PAGE> 11
connection with the sale of the Bonds, including financial advisory fees, legal
fees and expenses, title insurance expenses, recording fees, survey costs and
other financing expenses.
"Project Equipment" means the property described in Schedule B
attached hereto and made a part hereof, and any machinery, apparatus, equipment,
fittings and fixtures to be acquired in addition thereto or in substitution or
renewal or repair thereof pursuant to Sections 4.1, 6.1, 6.2, 6.3, 7.1 or 7.2,
less any removed by the Lessee in accordance with Sections 6.3, 7.1 and 7.2.
"Project Fund" means the Project Fund created by Section 7.1 of the
Indenture.
"Redemption Date" when used with respect to any Bonds to be redeemed
means the date fixed by the Lessee in notices given to the Board and the Trustee
hereunder for redemption by or pursuant to the Indenture.
"Redemption Price" when used with respect to any Bond to be redeemed
means the price at which it is to be redeemed pursuant to the Indenture.
"Stated Maturity" when used with respect to any Bond or any
installment of interest thereon means the date specified in such Bond as the
fixed date on which the principal of such Bond or such installment of interest
is due and payable.
"Subsidiary" means as specified in Section 8.4.
"Trustee" means the Person named above as the "Trustee" under the
Indenture until a successor trustee shall have become such pursuant to the
applicable provisions of the Indenture, and thereafter "Trustee" shall mean such
successor trustee.
"Weighted Average Life to Maturity" means as specified in Section 8.4.
Section 1.2. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
-6-
<PAGE> 12
ARTICLE II
Representations
Section 2.1. Representations by the Board.
The Board hereby represents that:
(a) it is duly incorporated and existing under the provisions of the
Financing Act, has the power thereunder to enter into this Agreement and to
carry out its obligations hereunder and by proper corporate action has been
duly authorized to execute and deliver this Agreement;
(b) it proposes to lease, and upon purchase pursuant to Article VIII to
sell, the Project to the Lessee for the public purpose of promoting industry,
developing trade and furthering the use of the natural and human resources of
the State of Alabama and the development and preservation of the said
resources, by inducing manufacturing, commercial and research enterprises to
enlarge, expand and improve existing operations in said State, as contemplated
by the Financial Act;
(c) it proposes to finance actual Project Costs as certified in a
Lessee Certificate, by issuing and selling pursuant to the Bond Purchase
Agreement its Bonds in the aggregate principal amount of $3,500,000 and having
the terms and conditions specified in the Indenture; and
(d) the Project constitutes and will constitute a "project" of the
Board within the meaning of the Financing Act and the Board is issuing the Bonds
to aid in the financing of the Project to accomplish the public purposes of the
Financing Act.
Section 2.2. Representations by the Lessee.
The Lessee hereby represents that:
-7-
<PAGE> 13
(a) it is a corporation duly incorporated and existing in good standing
under the laws of the State of Michigan, is qualified to do business and is in
good standing as a foreign corporation in the State of Alabama, has power to
enter into this Agreement and by proper corporate action has been duly
authorized to execute and deliver this Agreement;
(b) it has received executed counterparts of the Indenture and the
Bond Purchase Agreement;
(c) the acquisition and construction of the Project have been approved
by the issuance of all necessary governmental construction permits and the
Project as designed complies with all presently applicable building and zoning
ordinances;
(d) it is in possession of the Leased Land and began construction of
the Project after April 6, 1978 (the date of adoption by the Board of a
resolution with respect to the Project and the financing thereof);
(e) the acquisition and construction of the Project by the Board, the
financing thereof through the sale of the Bonds and the leasing thereof
hereunder has induced it to enlarge, expand and improve existing operations in
the State of Alabama;
(f) it intends to operate the Project as a manufacturing facility
throughout the term of this Agreement, and no changes will be made in the
acquisition or construction of the Project which will have the effect of
impairing the effective use or character of the Project as contemplated by this
Agreement or of disqualifying the Project as a "project" within the meaning of
the Financing Act; and
(g) it has conveyed to the Board by warranty deed good and marketable
title to the Leased Land, and has conveyed, or as soon as possible after
acquisition and installation will from time to time convey, to the Board by bill
of sale good title to the Project Equipment, subject to Permitted Encumbrances
(other than the Indenture).
-8-
<PAGE> 14
ARTICLE III
Lease of Project, Title and Condition;
Use and Quiet Enjoyment
Section 3.1. Lease. The Board hereby leases the Project to the Lessee
for the term specified in Section 5.1 and upon the terms and conditions of this
Agreement.
Section 3.2. Title and Condition. The Project is leased subject to
(a) the rights of any parties in possession and to the existing state of the
title thereof as of the commencement of the term of this Agreement, (b) any
state of facts which an accurate survey or physical inspection thereof might
show, (c) all zoning regulations, restrictions, rules and ordinances, building
restrictions and other laws and regulations now in effect or hereafter adopted
by any governmental authority having jurisdiction, (d) with respect to
buildings, structures and other improvements, if any, located on the Project,
their condition as of the commencement of the term of this Agreement and (e)
Permitted Encumbrances (except the lien and security interest of the
Indenture). The Lessee represents to the Board that the Lessee has examined
the title to the Project immediately prior to the execution and delivery of
this Agreement and has found the same to be satisfactory for all purposes.
Section 3.3. Disclaimer of Warranties.
THE BOARD DOES NOT MAKE OR SHALL IT BE DEEMED TO HAVE MADE ANY
WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE DESIGN OR
CONDITION OF, OR AS TO THE SUITABILITY FOR ANY PURPOSE OF, THE PROJECT OR ANY
PART THEREOF OR AS TO THE ABILITY OF THE PROJECT TO PERFORM ANY FUNCTION OR ANY
WARRANTY OF MERCHANTABILITY OR FITNESS OF THE PROJECT OR ANY PART THEREOF FOR
ANY PARTICULAR PURPOSE OR AS TO THE TITLE TO OR THE BOARD'S INTEREST IN THE
PROJECT OR ANY PART THEREOF (SUBJECT TO SECTION 3.4) OR AS TO THE BOND PROCEEDS
BEING SUFFICIENT TO PAY THE PROJECT COSTS OR AS TO ANY OTHER MATTER RELATING TO
THE PROJECT OR ANY PART THEREOF, IT BEING AGREED THAT ALL SUCH RISKS, AS
BETWEEN THE BOARD, ON THE ONE HAND, AND THE LESSEE, ON THE OTHER HAND, ARE TO
BE BORNE BY THE LESSEE, AND THE BENEFITS OF ANY AND ALL IMPLIED WARRANTIES AND
REPRESENTATIONS OF THE BOARD ARE HEREBY WAIVED BY THE LESSEE.
THE LESSEE CONFIRMS THAT IT HAS SELECTED THE PROJECT AND EACH PART
THEREOF ON THE BASIS OF ITS OWN JUDGMENT AND
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<PAGE> 15
EXPRESSLY DISCLAIMS RELIANCE UPON ANY STATEMENTS, REPRESENTATIONS OR WARRANTIES
MADE BY THE BOARD, AND THE BOARD REPRESENTS AND THE LESSEE ACKNOWLEDGES THAT THE
BOARD IS NOT A MANUFACTURER OR VENDOR OF ANY PART OF THE PROJECT.
Section 3.4. Use of Project and Quiet Enjoyment.
The Lessee may use and occupy the Project for any lawful purpose
permitted by the Financing Act.
As long as the Lessee shall substantially perform and observe all
covenants and conditions required to be performed and observed by it hereunder,
the Board warrants that it will not interfere with the peaceful and quiet
occupation and enjoyment of the Project by the Lessee; provided, that the Board,
the Trustee and Connecticut General Life Insurance Company (if it or its nominee
holds any of the Bonds) and any other institutional holder of at least 25% in
principal amount of the outstanding Bonds, and their agents, may enter upon and
examine the Project in a reasonable manner and at reasonable times.
Any failure by the Board to comply with the foregoing covenant shall
not give the Lessee any right, as long as any of the Bonds are outstanding under
the Indenture, to any abatement, reduction or offset against the Basic Rent,
Additional Rent or other amounts payable by the Lessee hereunder or to fail to
perform or observe any other covenants or conditions required to be performed or
observed by the Lessee hereunder.
ARTICLE IV
Acquisition and Construction of the Project;
Application of Bond Proceeds
Section 4.1. Agreement to Acquire and Construct the Project.
The Board agrees to construct, or cause the construction of, a new
industrial manufacturing building containing 57,600 square feet of floor space
with related improvements (including, without limitation, the Project Equipment
specifically described in Schedule B and such other Project Equipment deemed
necessary or appropriate by the Lessee for the operation, maintenance or
protection of such building) for use in the manufacturing of trailers or trailer
components and other transportation-related equipment to be located on
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the Leased Land in accordance with plans and specifications, including
supplements thereto and amendments thereof, now or hereafter filed by the Lessee
in the office of the Board. The Board has heretofore appointed the Lessee as
its agent to acquire, construct and install, or cause acquisition, construction
and installation of, the aforesaid building, equipment and related improvements.
All construction and installation shall be performed in a good and
workmanlike manner in compliance with all applicable laws, ordinances, rules and
regulations and shall comply with the requirements of any insurance policy
required to be maintained by the Lessee hereunder.
The Project Equipment and each item thereof shall be so installed in
buildings or structures on the Leased Land as to be removable without
significant permanent injury or structural damage to the Project. Prior to the
installation of any item of Project Equipment, the Lessee shall plainly,
distinctly, permanently and conspicuously place and fasten on each such item a
metal or other permanent plate, readily visible, bearing the following words:
"Property of the Industrial Development Board of the City of Decatur, subject to
Indenture of Mortgage and Deed of Trust dated as of December 1, 1978 (Fruehauf
Corporation Plant Project)". In case any such plate shall at any time be
removed, defaced or destroyed, the Lessee shall immediately cause the same to be
restored or replaced.
The Board agrees to use its best efforts to complete or substantially
to complete the Project no later than June 1, 1981, subject only to such delays
in construction as are occasioned by circumstances not reasonably within its
control.
Section 4.2. Application of Bond Proceeds.
Upon the sale of the Bonds pursuant to the Bond Purchase Agreement, the
Trustee is required under Section 7.1 of the Indenture to deposit the purchase
price of the Bonds in the Project Fund.
Section 4.3. Disbursements from the Project Fund.
Unless the Trustee has actual knowledge of an Event of Default under
the Indenture or has received written advice thereof from the holders of at
least 25% in principal amount of the Bonds at the time outstanding, the Board
and the Lessee shall be entitled, in accordance with Section 7.2 of the
Indenture,
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to withdraw the moneys in the Project Fund from time to time in payment, or in
reimbursement for the payment, of Project Costs upon furnishing to the Trustee
an order, signed by an authorized officer of the Board, and accompanied by a
Progress Certificate, dated not more than 30 days prior to the request for
withdrawal, setting forth in substance as follows:
(a) as to Project Costs relating to the sale of the Bonds, that the
sum then requested to be withdrawn either has been paid by the Lessee and/or
is justly due to persons whose names and addresses shall be stated, who have
rendered services or advanced expenses in connection therewith, including
expenses contemplated by Section 3.3 of the Bond Purchase Agreement; or
(b) as to Project Costs relating to the acquisition or construction of
the Project,
(i) that the sum then requested to be withdrawn either has been
paid by the Lessee and/or is justly due to contractors, subcontractors,
materialmen, engineers, architects, or other Persons (whose names and
addresses shall be stated) who have rendered services or furnished
materials or equipment for the Project, pursuant to the plans and
specifications therefor referred to in Section 4.1, and giving a brief
description of such services and the materials or equipment and the
principal subdivisions thereof and the several amounts so paid or due
to each of said persons in respect thereof;
(ii) that the sum then requested to be withdrawn, plus all sums
previously withdrawn on account of such acquisition or construction, do
not exceed the total cost thereof insofar as actually accomplished up
to the date of said Progress Certificates;
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(iii) that, except for the amounts, if any, stated in said
Certificate to be due for services or materials and retained for
the correction of defects or similar items in accordance with the
applicable construction contract or customary practice, there is
no outstanding indebtedness known to the Lessee, after due
inquiry, which is then due and payable for labor, wages,
services, materials or supplies in connection with such
acquisition or construction;
(iv) that no part of such several amounts paid and/or due
has been or is being made the basis of the withdrawal of any
moneys from the Project Fund in any previous or then pending
application, or has been paid out of the proceeds of insurance
received by Lessee as provided in Section 6.5; and
(v) that, if any part of the sum then requested to be
withdrawn is related to the acquisition of the Project Equipment
showing a brief description thereof, such Project Equipment
either has been installed as part of the Project or the payment
therefor is to be made to the Person manufacturing, assembling or
installing such Project Equipment;
(c) as to the Project Costs relating to interest on the Bonds
due on any Bond Payment Date commencing June 1, 1979 to and including
December 1, 1981, that the sum then requested to be withdrawn is due on the
date of such Progress Certificate as Basic Rent under Section 5.3, in which
case such sum shall be deposited by the Trustee in the Bond Fund to
constitute a credit against Basic Rent or has theretofore been paid by the
Lessee (otherwise than out of the Project Fund) in which case such sum
shall be paid by the Trustee to or upon Lessee Order.
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Section 4.4. Certification of Completion Date.
Upon the completion or substantial completion of the acquisition
and construction of the Project, the Lessee will deliver to the Trustee:
(a) a Completion Certificate which shall be a Lessee Certificate
dated not more than 10 days prior to receipt by the Trustee, setting forth
in substance as follows:
(i) that the acquisition and construction of the Project
have been completed or substantially completed pursuant to the
plans and specifications therefor referred to in Section 4.1;
(ii) that all sums which the Lessee is entitled to withdraw
from the Project Fund on account of services rendered or
materials furnished in connection with the Project have been
withdrawn;
(iii) that all sums for the payment of which the Board or
the Lessee is liable in respect to such acquisition or
construction have been paid in full; and
(iv) that no Event of Default under this Agreement has
occurred and is continuing.
(b) an Opinion of Counsel is dated not more than 30 days prior
to receipt by the Trustee setting forth in substance as follows:
(i) that the Board has acquired good, valid and legal title
to the Project, including the Project Equipment described in said
Certificate, free and clear of all mortgages, liens, security
interests, charges or encumbrances, except Permitted
Encumbrances; and
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(ii) that all of the Board's right, title and interest in
and to the Project is subject to the lien and security interest
of the Indenture and that the Board has complied with Section 6.3
of the Indenture;
and counsel in giving such Opinion of Counsel may rely as to matters
related to title to the Leased Land, recording of instruments in the real
property records and priority of real property liens upon the mortgage
title policy delivered pursuant to the Bond Purchase Agreement, as the same
may have been supplemented or endorsed to a date not more than 30 days
prior to the date of such Opinion of Counsel.
Section 4.5. Insufficiency of Project Fund.
If the amount in the Project Fund is not sufficient to pay all
Project Costs of the Project, the Lessee will pay all costs in excess of such
amount without any rights of (i) set-off, counterclaim, abatement against the
Basic Rent, Additional Rent or other amounts payable by the Lessee hereunder or
(ii) reimbursement from the Trustee or the holders of the Bonds or the Board.
ARTICLE V
Lease Term; Rentals
Section 5.1. Lease Term; Renewal Term.
The original term of this Agreement shall begin upon the
delivery hereof and, subject to earlier termination under Article VIII or X,
shall expire at the close of business on the first to occur of (a) the date on
which the Indenture ceases to be of further effect pursuant to the terms of
Section 9.1 of the Indenture or (b) December 1, 1998; provided, however, that,
until the entire indebtedness on the Bonds has been paid in full and discharged,
the covenant to pay Basic Rent and Additional Rent contained in Section 5.2
shall survive the termination or expiration of this Agreement and the
satisfaction and discharge of the Indenture.
So long as no Default or Event of Default shall have occurred
and be continuing and such renewal shall not be prohibited by applicable law or
governmental regulation, upon the expiration of the original term of this
Agreement as
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aforesaid, this Agreement shall be automatically renewed for an additional term
beginning on the date of such expiration and expiring at the close of business
on November 30, 2018. Such renewal term shall commence automatically unless and
until notice is given in writing by the Lessee to the Board at least 30 days
before the expiration of the original term of its intention to terminate this
Agreement at the end of such term, in which event this Agreement shall terminate
in accordance with the terms of this Section 5.1. All of the provisions of this
Agreement shall be applicable during any such renewal term unless otherwise
agreed upon by the Board and the Lessee, except as follows:
(a) the Basic Rent during each of the first 10 years of the renewal
term shall be $778 per year and during each of the second 10 years shall be
$26,250, payable in arrears on December 1 in each year;
(b) the Trustee shall act as escrow agent on behalf of the Board for
the purposes of receiving and applying the net proceeds received by the
Lessee from sales or dispositions by the Lessee of Project Equipment
pursuant to Section 6.3 hereof, the purchase price for any unimproved land
purchased by the Lessee pursuant to Section 8.5 hereof, and the Net
Proceeds of insurance or from any condemnation or eminent domain award or
payment, which amounts shall be applied by the Trustee in the same manner
as such amounts would be applied by the Trustee under the terms of the
Indenture if the Indenture were then in effect, except that any amounts
which would have been applied for the purposes set forth in paragraphs (1)
and (2) of Section 7.3 of the Indenture shall be payable to the Lessee
promptly after the occurrence of the event or events which would have
permitted the Trustee to apply such amounts in the manner set forth in said
Section 7.3;
(c) the provisions of Article II, Article IV, Section 5.2(b) and (d),
Section 5.3, Section 6.5 (except the first and final paragraphs thereof),
Section 6.8, Section 6.9, Section 6.10, Section 9.1, Section 9.2, clauses
(b), (c), (d) and (e) of Section 10.1, Section 10.2 (except that the Board
will retain its rights and remedies afforded by Alabama law generally to
lessors and landlords), Section 10.3, Section 10.4, Section 10.5 and
Article XI of this
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Agreement shall be deemed deleted and of no force and effect during any
such renewal term; and
(d) all Lessee Certificates, Lessee Requests, Lessee Orders and
Opinions of Counsel and all other certificates, documents, opinions and
notices required to be delivered or given to the Trustee by the Lessee
during the original term of this Agreement shall be delivered or given
during such renewal term to the Trustee in its capacity as escrow agent as
aforesaid.
The Lessee and the Board agree to enter into an escrow agreement with the
Trustee containing terms substantially identical to Sections 7.1 through 7.3,
inclusive, (except that Section 7.3 shall be modified to conform to the
provisions of clause (b) above) of the Indenture or such other provisions with
respect to the application of amounts received by the Trustee as escrow agent as
may be mutually agreeable to the Lessee, the Board and the Trustee. The escrow
agreement may also contain such additional terms and provisions as may be
mutually agreeable to said parties. All fees and expenses of the Trustee as
escrow agent during any such renewal term shall be paid by the Lessee.
Section 5.2. Basic Rent and Additional Rent.
(a) On the Business Day immediately preceding each Bond Payment Date
during the original term of this Agreement, subject to Section 3.2 of the Bond
Purchase Agreement, the Lessee shall pay to the Trustee at its principal
corporate trust office, in funds immediately available to the Trustee, for the
account of the Board, as Basic Rent for the Project, a sum equal to the amount
becoming due and payable on such Bond Payment Date as principal of (including
without limitation the amounts becoming due and payable on the Bonds by
operation of the Sinking Fund provided in Article V of the Indenture) and
premium, if any, or interest on, the Bonds, less the amount to be used as a
credit against such Basic Rent pursuant to Section 4.3(c) hereof or Section
7.3(i) or 8.3 of the Indenture, and, on demand, shall pay to the Trustee
interest on any Basic Rent not paid on the due date therefor (to the extent
enforceable under applicable law) at the rate of 10.7% per annum until paid. If,
as a result of investment by the Trustee or otherwise, the immediately available
funds in the Bond Fund at the opening of business on any Bond Payment Date are
less than the amount due and payable on such Bond Payment Date as principal of
(and premium, if any) or interest on the Bonds, the Lessee shall pay to the
Trustee as aforesaid, as Basic Rent for the Project, a sum equal to
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the deficiency.
(b) The Lessee agrees to pay to the Trustee, as Additional Rent,
promptly upon receipt of an itemized request of the Trustee, all amounts owing
by the Board to the Trustee pursuant to Section 11.7 of the Indenture as
compensation, in reimbursement of expenses, disbursements and advances, or in
indemnification for loss, liability or expense incurred.
(c) The Lessee agrees to pay, from time to time to the Board, as
Additional Rent, promptly upon the request of the Board, its reasonable costs
and expenses, including legal fees of counsel for the Board, incurred in
performing its covenants (other than its covenant to pay the principal of,
premium, if any, and interest on, the Bonds) under this Agreement and the
Indenture or in performing any covenants of the Lessee under this Agreement
which have not been duly performed by the Lessee.
(d) In the event the Lessee should fail to pay when due any of the
payments required under subsections (b) or (c) of this Section, the Lessee
agrees to pay, upon demand, as Additional Rent, interest on the overdue amount
at the rate of 10.7% per annum until paid.
Section 5.3. Prepayment of Basic Rent.
The Lessee may elect to prepay Basic Rent in a sum equal to the amount
sufficient to redeem outstanding Bonds pursuant to Section 4.1(c) of the
Indenture as a whole or in part (but if in part in units of $50,000 or integral
multiples of $1,000 in excess thereof, as specified by the Lessee in the notice
referred to hereinafter) on the Business Day immediately preceding the
Redemption date by giving written notice thereof to the Board and the Trustee
not more than 60 nor less than 40 days prior to such Redemption Date, which
notice shall specify the Redemption Date and certify that the refunding
limitations set forth in Section 8.4 have been complied with in connection with
any such prepayment of Basic Rent to be made prior to December 1, 1988. Notice
having been given as aforesaid, the Lessee covenants to prepay such Basic Rent
on the Business Day immediately preceding such Redemption Date.
Neither the Lessee's exercise of any prepayment option referred to in
this Section 5.3 nor the resulting partial redemption of Bonds (otherwise than
through operation of the Sinking Fund) shall reduce or otherwise affect its
obligation
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to make the payment of Basic Rent required by Section 5.2(a).
Section 5.4. Obligations of Lessee Unconditional.
The obligations of the Lessee to pay the Basic Rent, Additional Rent
and other amounts payable hereunder and to perform and observe the other
covenants and conditions on its part contained herein shall be absolute and
unconditional and shall not be subject to diminution by set-off, counterclaim,
abatement or otherwise, and the Lessee (i) will not suspend or discontinue, or
permit the suspension or discontinuance of, any payments of Basic Rent,
Additional Rent and other amounts payable hereunder, (ii) will perform and
observe all of its other covenants and conditions contained in this Agreement,
and (iii) will not suspend the performance of its obligations hereunder for any
cause including, without limitation, the fact that the proceeds in the Project
Fund may not be sufficient to pay, or reimburse the Lessee for the payment of,
all costs in connection with the Project, the removal of any portion thereof,
failure to complete the Project, any acts or circumstances that may constitute
failure of consideration, failure of or a defect of title to the Project or any
part thereof, eviction or constructive eviction, destruction of or damage to all
or any part of the Project, the taking by condemnation of all or any part of the
Project, commercial frustration of purpose, any change in the tax or other laws
or administrative rulings of or administrative actions by the United States of
America or the State of Alabama or any political subdivision of either, any
change in the environmental or pollution control laws or administrative rulings
of or administrative actions by the United States of America or the State of
Alabama or any political subdivision of either, or any failure of the Board to
perform and observe any agreement, express or implied, or any duty, liability or
obligation arising out of or connected with this Agreement.
ARTICLE VI
Covenants of Lessee
Section 6.1. Maintenance and Modifications.
The Lessee will at its own expense maintain the Project in as
reasonably safe condition as its operations permit and in good repair and
operating condition, ordinary wear and tear excepted, making from time to time
all necessary repairs thereto and renewals and replacements thereof, whether
structural or
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non-structural, foreseen or unforeseen, or ordinary or extraordinary.
The Board shall not be required to maintain, repair or rebuild, nor to
make any alterations, replacements or renewals of any nature or description to,
the Project or any part thereof (whether structural or non-structural, foreseen
or unforeseen or ordinary or extraordinary), nor to maintain the Project of any
part thereof, in any way, and the Lessee hereby expressly waives any right to
make repairs at the expense of the Board, which may now or hereafter be provided
for in any statute or law.
In the event that any buildings, structures or other improvements on
the Leased Land (whether now situated or hereafter constructed thereon) shall
(i) encroach upon any property, street or right-of-way adjoining or adjacent to
the Leased Land, (ii) violate the agreements or conditions contained in any
restrictive covenant affecting the Leased Land or any part thereof, (iii) hinder
or obstruct any easement or right-of-way to which the Leased Land is subject
or(iv) impair the rights of others under any such easement or right-of-way, the
Lessee shall, at its expense, either (x) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation, hindrance, obstruction or impairment, whether the same
shall affect the Board, the Lessee or both, or (y) make such changes in the
buildings, structures and other improvements to the Leased Land and take such
other action as shall be reasonably necessary to remove such encroachments,
hindrances or obstructions and to end such violations or impairments, subject in
the case of any alterations or removals to the requirements of Section 6.2.
Section 6.2. Alterations and Additional Improvements.
The Lessee may, at its expense, make additions to, alterations of,
removals of and substitutions for the buildings, structures, facilities or
other improvements or portions thereof situated on the Leased Land, provided,
that (i) the market value of the Project upon completion thereof shall not
thereby be lessened, (ii) the foregoing actions shall be preformed in a good
and workmanlike manner, and (iii) such additions, alterations, removals or
substitutions shall be expeditiously completed in compliance with all laws,
ordinances, orders, rules, regulations and requirements applicable thereto. All
work done in connection with each such addition, alteration, removal or
substitution shall not violate the requirements of any insurance
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policy required to be maintained by the Lessee hereunder or the orders, rules
and regulations of the National Fire Protection Association or any body
exercising similar functions. The Lessee shall promptly pay all costs and
expenses of each such addition, alteration, removal or substitution and shall
discharge all liens filed against the Project arising out of the same. The
Lessee shall procure and pay for all permits and licenses required in
connection with any such addition, alteration, removal or substitution.
The Lessee may, at its expense, (i) construct or cause to be
constructed upon the Leased Land any additional buildings, structures or other
improvements and (ii) install, assemble or place or cause to be installed,
assembled or placed, upon the Project any items of machinery or equipment used
or useful in the Lessee's business, in each case upon compliance with all the
terms and conditions set forth in the preceding paragraph. All such buildings,
structures and other improvements, as well as any additions, alterations and
substitutions made pursuant to the preceding paragraph, shall be and remain a
part of the realty and the property of the Board, subject to this Agreement,
and the Board shall have full right, power and authority to subject the same to
the lien of the Indenture. Such machinery or equipment shall not constitute a
part of the Project nor be subject to the lien and security interest of the
Indenture and may be removed from the Project at any time prior to the
expiration or earlier termination of this Lease, provided that the Lessee shall
repair any damage to the Project resulting from such removal.
Section 6.3. Disposition of Project Equipment, Covenant Against
Waste.
The Lessee shall have the right, at any time and from time to
time, unless an Event of Default shall have occurred and be continuing under
this Agreement, without the consent of the Board, to sell or dispose of any
Project Equipment which, in the opinion of the Lessee, may have become obsolete
or unfit for use or no longer useful or profitable in the conduct of the
operations of the Lessee under this Agreement.
Any net cash proceeds received by the Lessee from the sale or
disposition of Project Equipment under this Section shall be paid to the
Trustee for deposit into the Project Fund unless the sum of such proceeds and
any other proceeds received by the Lessee from sales or dispositions of Project
Equipment during the preceding 12-month period and not paid to the Trustee
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under this Section is less than $250,000.
The Lessee shall be entitled, in accordance with Section 7.2 of
the Indenture, to withdraw such proceeds within 12 months after the receipt
thereof by the Trustee to pay, or to reimburse the Lessee for the payment of,
the cost of acquiring other Project Equipment not necessarily of the same
character, but of the value at least equal to that so sold or disposed of at
the time of sale or disposition, which shall forthwith become the property of
the Board, upon furnishing a Progress Certificate dated not more than 30 days
prior to the request for withdrawal, setting forth in substance the matters
set forth in subsection (b) of Section 4.3, but with respect to such
acquisition of Project Equipment.
Any such proceeds which remain in the Project Fund for a period
of 12 months after receipt by the Trustee shall be applied in accordance with
Section 7.3 of the Indenture and, if to be applied in redemption of Bonds under
Section 7.3(2) of the Indenture, the Lessee shall specify in a written notice
given to the Board and the Trustee the Redemption Date for such redemption.
The Lessee covenants not to do or suffer any waste to any
buildings or structures on the Leased Land or to the Project Equipment.
Section 6.4. Taxes, Mechanics' and Materialmen's Liens.
Subject to Section 6.6, the Lessee shall pay when due
(a) all taxes, assessments (including assessments for benefits
from public works or improvements, whether or not begun or completed
prior to the commencement of the term of this Agreement and whether or
not to be completed within said term), levies, fees, water and sewer
rents and charges, and all other governmental charges, general and
special, ordinary and extraordinary, and whether or not the same shall
have been within the express contemplation of the parties hereto,
together with any interest and penalties thereon, which are, at any
time, imposed or levied upon or assessed against (i) the Project or
any part thereof, (ii) any Basic Rent, Additional Rent or other
amounts payable by the Lessee under this Agreement,
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(iii) this Agreement or the leasehold estate hereby created or which arise
in respect of the operation, possession, occupancy or use of the Project
and which if not paid when due would materially impair the security of the
Bonds or materially encumber the Board's title to the Project;
(b) any gross receipts or similar taxes imposed or levied upon,
assessed against or measured by the Basic Rent, Additional Rent or other
amounts payable by the Lessee hereunder;
(c) all sales and use taxes which may be levied or assessed against
or payable by the Board or the Lessee on account of the acquisition,
leasing or use of the Project or any portion thereof; and
(d) all charges for water, gas, light, heat, telephone, electricity,
power and other utility and communication services rendered or used on or
about the Project.
The Lessee agrees to furnish to the Board, within 30 days after the last day for
payment without penalty or interest, and upon written demand by the Board or
the Trustee therefor, proof of the payment of all such taxes, assessments,
levies, fees, expenses, rents and charges and all such utility and
communication charges which are payable by the Lessee as provided in this
Section. In the event that any assessment levied or assessed against the
Project may be legally paid in installments, the Lessee shall have the option
to pay such assessments in installments.
Subject to Section 6.6 and to such delays as are occasioned by
circumstances not reasonably within the Lessee's control, the Lessee shall, at
its expense, comply with and shall cause the Project to comply with all
governmental statutes, laws, rules, orders, regulations and ordinances
affecting the Project or any part thereof, or the use thereof, including those
which require the making of any structural, unforseen or extraordinary changes,
whether or not any of the same, which may hereafter be enacted, involve a
change of policy on the part of the governmental body enacting the same. The
Lessee shall, at its expense, comply with the requirements of all policies of
insurance which at any time may be in force with respect to the Project, and
with the provisions of all contracts, agreements and restrictions affecting the
Project or any part
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thereof or the ownership, occupancy or use thereof.
Subject to Section 6.6, the Lessee will not, directly or indirectly,
create, or permit to be created or to remain, and will promptly discharge, or
cause to be discharged, any lien with respect to the Project or any part
thereof or the Lessee's interest therein or the Basic Rent, Additional Rent or
other amounts payable by the Lessee under this Agreement, other than Permitted
Encumbrances. The existence of any mechanic's, laborer's, materialman's,
supplier's or vendor's lien, or any right in respect thereof, shall not
constitute a violation of this Section, if payment is not yet due upon the
contract or for the goods or services in respect of which any such lien has
arisen.
From and after the date of delivery to the Trustee of the Completion
Certificate described in the first paragraph of Section 4.4, nothing contained
in this Agreement shall be construed as constituting, expressly or impliedly,
the consent of the Board to, or request of the Board for, the performance of
any labor or services or the furnishing of any materials for any construction,
alteration, addition, repair or demolition of or to the Project or any part
thereof by any contractor, subcontractor, laborer, materialman or vendor.
Notice is hereby given that the Board will not be liable from and after such
date for any labor, services or materials furnished or to be furnished to the
Lessee or to anyone holding the Project or any part thereof through or under
the Lessee, and that no mechanic's or other liens for any such labor, services
or materials shall attach to or affect the interest of the Board in and to the
Project.
Section 6.5. Insurance.
The Lessee will maintain, at its expense, insurance on the Project
against such casualties and contingencies of such types (including fire and
extended coverage, public liability, and workmen's compensation insurance) and
in such amounts, if any, as is customary in the case of corporations of
established reputations engaged in the same or similar business and similarly
situated; provided that the Lessee may self-insure to the extent that such
self-insurance is customary in the case of corporations of established
reputations engaged in the same or similar business and similarly situated.
The insurance referred to above shall be written by financially sound
and responsible companies which are authorized
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to do an insurance business in the State of Alabama, and such fire and extended
coverage insurance shall name as the insured parties thereunder the Board and
the Lessee, as their interests may appear. The public liability insurance
referred to above shall be written by financially sound and responsible
companies and such insurance shall name as the insured parties thereunder the
Board, the Trustee and the Lessee, as their interests may appear. Neither the
Board nor the Trustee shall be required to prosecute any claim against, or to
contest any settlement proposed by, any insurer, provided that the Lessee may,
at its expense, prosecute any such claim or contest any such settlement.
Insurance claims by reason of damage to or destruction of any portion
of the Project shall be adjusted by the Lessee, but the Board shall have the
right to join with the Lessee in adjusting any such loss.
Every fire and extended coverage insurance policy referred to above
shall bear a first mortgage endorsement in favor of the Trustee; and the
proceeds of such insurance arising out of any single casualty in excess of
$250,000 shall be made payable to the Trustee, provided that any recoveries
under any of said policies shall be applied by the Trustee in the manner
provided in Section 7.1. Each such policy shall contain an agreement by the
insurer that it waives all rights of subrogation against the Lessee, the Board
and any owner of the Project and that it will not cancel such policy except
after 10 days' prior written notice to the Board and the Trustee.
The Lessee shall deliver to the Trustee promptly after the execution
and delivery of this Agreement the original or duplicate policies or
certificates of the insurers satisfactory to the Trustee evidencing all the
insurance which is required to be maintained by the Lessee hereunder, and the
Lessee shall, within 10 days prior to the expiration of any such insurance,
deliver other original or duplicate policies or other certificates of the
insurers evidencing the renewal of such insurance, if then required to be
maintained by the Lessee hereunder.
The Lessee shall not obtain or carry separate insurance concurrent in
form or contributing in the event of loss with that required in this Section to
be furnished by the Lessee unless the Board, or the Board and the Trustee (as
specified above), are included therein as named insureds, with loss payable as
in this Agreement provided. The Lessee shall immediately notify the Board and
the Trustee whenever any such separate
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insurance is obtained and shall deliver to the Trustee the policies or
certificates evidencing the same.
All proceeds of any insurance on the Project, to the extent that the
same shall not be payable to the Trustee as aforesaid, shall be applied by the
Lessee to the repair, restoration or replacement of the property destroyed or
damaged within 12 months after receipt thereof. If the Lessee Certificate
furnished under Section 6.9 shows insurance proceeds remaining to be applied or
paid during the 12-month period referred to in the preceding sentence, the
Lessee will deliver to the Trustee, within 90 days after the end of such
12-month period, a Lessee Certificate showing that such proceeds have been so
applied.
Section 6.6. Permitted Contests.
The Lessee shall not be required to (a) pay any tax, assessment,
levy, fee, rent or charge referred to in the first paragraph of Section 6.4,
(b) comply with any statute, law, rule, order, regulation or ordinance referred
to in the second paragraph of Section 6.4, (c) discharge or remove any lien
referred to in Section 6.2 or the third paragraph of Section 6.4, or (d) obtain
any waivers or settlements or make any changes or take any action with respect
to any encroachment, hindrance, obstruction, violation or impairment referred
to in the third paragraph of Section 6.1, so long as the Lessee shall contest,
in good faith and at its expense, the existence, the amount or the validity
thereof, the amount of the damages caused thereby, the extent of its liability
therefor or for any other reason, by appropriate proceedings which shall
operate during the pendency thereof to prevent (i) the collection of, or other
realization upon, the tax, assessment, levy, fee, rent or charge or lien,
encumbrance or charge so contested, (ii) the sale, forfeiture or loss of the
Project, or any part thereof, or the Basic Rent, Additional Rent or other
amounts payable by the Lessee under this Agreement to satisfy the same or to
pay any damages caused by the violation of any such statute, law, rule, order,
regulation or ordinance or by any such encroachment, hindrance, obstruction,
violation or impairment, (iii) any interference with the use or occupancy of
the Project or any part thereof, and (iv) any interference with the payment of
the Basic Rent, Additional Rent or other amounts payable by the Lessee under
this Agreement, or any portion thereof. The Lessee further agrees that each
such contest shall be diligently prosecuted to a final conclusion. The Lessee
will save the Board harmless against any and all losses, judgments, decrees
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and costs (including all reasonable attorneys' fees and expenses) in connection
with any such contest and will, promptly after the final settlement, compromise
or determination of such contest, fully pay and discharge the amounts which
shall be levied, assessed, charged or imposed or be determined to be payable
therein or in connection therewith, together with all penalties, fines,
interests, costs and expenses thereof or in connection therewith, and perform
all acts the performance of which shall be ordered or decreed as a result
thereof. No such contest shall subject the Board or the Trustee to the risk of
any material civil liability or the risk of any criminal liability, and the
Lessee shall give such reasonable security to the Board and the Trustee as may
be reasonably requested by the Board or the Trustee to insure compliance with
the foregoing provisions of this Section.
Section 6.7. Indemnification of Board.
The Lessee agrees to pay, and to indemnify the Board against, any and
all liabilities, losses, damages, claims or actions (including all reasonable
attorneys' fees and expenses of the Lessee and the Board), of any nature
whatsoever incurred by the Board without gross negligence on its part arising
from or in connection with its performance or observance of its covenants or
conditions under the Bond Purchase Agreement, this Agreement or the Indenture,
including without limitation, (1) any injury to, or the death of, any person or
any damage to property on the Leased Land or upon adjoining sidewalks, streets
or ways, or in any manner growing out of or connected with the use, nonuse,
condition or occupation of the Project or any part thereof or resulting from
the condition thereof or of adjoining sidewalks, streets, or ways, (ii) any
other act or event occurring upon, or affecting, any part of the Project, (iii)
violation by the Lessee of any contract, agreement or restriction affecting the
Project or the use thereof of which the Lessee has notice and which shall have
existed at the commencement of the term hereof or shall have been approved by
the Lessee or of any law, ordinance or regulation affecting the Project or any
part thereof or the ownership, occupancy or use thereof and (iv) liabilities,
losses, damages, claims or actions arising out of the offer and sale of the
Bonds or a subsequent sale or distribution of any of the Bonds, except if the
same resulted from a representation or warranty of the Board in the Bond
Purchase Agreement or any certificate delivered by the Board pursuant thereto
being false or misleading in a material respect and such representation or
warranty was not based upon a similar representation or warranty of the Lessee
furnished to the Board
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in connection therewith. The Lessee hereby agrees that the Board shall not
incur any liability to the Lessee, and shall be indemnified against all
liabilities, in exercising or refraining from asserting, maintaining or
exercising any right, privilege or power given to the Board under the Indenture
if the Board is acting in good faith and without gross negligence or in reliance
upon a Lessee Request. The covenants of indemnity by the Lessee contained in
this paragraph shall survive the termination of this Agreement.
Nothing contained in the foregoing paragraph shall impose any
obligation on the Lessee to indemnify the Board when it is acting otherwise than
in its capacity as the lessor under this Agreement or the issuer of the Bonds
under the Indenture.
Section 6.8. Further Assurances.
The Lessee agrees to do, execute, acknowledge and deliver all and every
such further acts, conveyances and assurances as the Board shall reasonably
require in order that the Board may comply with its obligations under Section
6.3 of the Indenture and to cause to be furnished to the Board and the Trustee
any financing statements (and any continuation statements in respect thereof)
and the Opinions of Counsel, as required by said Section 6.3 and within the
times specified therein.
Section 6.9. Reports: Certificates as to No Default.
If during any calendar year (commencing with the 1979 calendar year)
there have been either (i) any sales or disposition of Project Equipment under
Section 6.3 of $250,000 or more; or (ii) any proceeds of insurance on the
Project of $250,000 or more, have been paid as provided in Section 6.5, the
Lessee will deliver to the Trustee, within 90 days after the end of each such
calendar year, a Lessee certificate stating
(a) in respect of such sales or dispositions aggregating $250,000 or
more (i) that each such action was duly taken in conformity with Section 6.3,
(ii) the date thereof, (iii) the net cash proceeds received, (iv) the amount,
if any, of such proceeds paid to the Trustee pursuant to Section 6.3 and (v)
the amount, if any, of such proceeds remaining to be withdrawn on or before a
date to be specified therein (which shall be 12 months from the date paid to
the Trustee) under Section 6.3 or
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(b) in respect of such payments of insurance proceeds aggregating
$250,00 or more (i) the amount of and the date on which such proceeds were so
paid, (ii) the amount, if any, of such proceeds applied prior to the date of
such Lessee Certificate to the repair, restoration or replacement of the
property destroyed or damaged, and (iii) the amount, if any, of such proceeds
remaining to be applied on or before a date to be specified therein (which
shall be 12 months from the date of such receipt) under Section 7.1.
Section 6.10. Notice of Default.
The Lessee will give notice to the Board, each holder of the Bonds and
the Trustee of the occurrence of any Event of Default promptly upon having
knowledge thereof.
ARTICLE VII
Casualty and Condemnation
Section 7.1. Casualty.
If at any time after the completion or substantial completion of the
Project, the Project or any part thereof shall be damaged or destroyed by fire
or other casualty, but not to the extent contemplated by Section 8.3(a) the
Lessee shall promptly notify the Board and the Trustee thereof and the Lessee
shall within a reasonable time, subject only to such delays in acquisition or
construction as are occasioned by circumstances not reasonably within its
control, rebuild, replace or repair such damage or destruction in conformity
with Section 6.1 and the first paragraph of Section 6.2 and in such manner as to
restore the Project to at least as good a condition as existed immediately prior
to such damage or destruction and to a manufacturing unit having a fair market
value not less than the fair market value of the Project immediately prior to
such damage or destruction.
Unless the Trustee has actual knowledge of an Event of Default under
the Indenture or has received written advice thereof from the holders of at
least 25% in principal amount of the Bonds at the time outstanding, the Lessee
shall be entitled, in accordance with Section 7.2 of the Indenture, to withdraw
the Net Proceeds of insurance received by the Trustee on account of such damage
or destruction to pay, or to reimburse the Lessee
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for the payment of, the costs and expenses of rebuilding, replacing and
repairing of such damage or destruction upon receipt by the Trustee of a
Progress Certificate dated not more than 30 days prior to the request for
withdrawal, setting forth in substance the matters set forth in subsection (b)
of Section 4.3, but with respect to such rebuilding, replacing and repairing.
After the completion or substantial completion of such rebuilding,
replacing or repairing such damage or destruction, the Lessee shall deliver to
the Board a Completion Certificate and, if the costs and expenses thereof
(irrespective of any available Net Proceeds) are at least $250,000, an Opinion
of Counsel setting forth in substance the matters set forth, respectively, in
subsections (a) and (b) of Section 4.4, but with respect to such rebuilding,
replacing and repairing.
Any Net Proceeds of insurance on account of such damage or destruction
which remain in the Project Fund after the delivery to the Trustee of the
Completion Certificate and any Opinion of Counsel required under this Section
shall be applied by the Trustee in accordance with Section 7.3 of the Indenture.
Section 7.2. Condemnation.
The Lessee hereby irrevocably assigns to the Trustee any award or
payment to which the Lessee may be or become entitled during the term of this
Agreement by reason of any taking of the Project or any part thereof in or by
condemnation or other eminent domain proceeding pursuant to any law, general or
special, by any governmental authority, civil or military, whether the same
shall be paid or payable in respect of the Lessee's leasehold interest
hereunder or otherwise. The Lessee shall be entitled to direct and control the
defense of any such proceedings, and to contest the proposed taking and the
amount payable therefor by such governmental authority.
If at any time a portion of the Project shall be taken by condemnation
or other eminent domain proceedings, which taking is not sufficient to render
the remaining portion thereof unsuitable for the Lessee's continued use or
occupancy or the use or occupancy of the Project or any part thereof shall be
temporarily requisitioned by any governmental authority, civil or military,
then this Agreement shall continue in full effect without abatement or
reduction of the Basic Rent, Additional Rent or other amounts payable by the
Lessee hereunder. The Lessee shall promptly notify the Board and the Trustee
thereof,
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and in the case of such taking, the Lessee shall within a reasonable time,
subject only to such delays in acquisition or construction as are occasioned by
circumstances not reasonably within its control, repair any damage caused by
such taking in conformity with Section 6.1 and the first paragraph of Section
6.2, and in such manner as to restore the Project to at least as good a
condition as existed immediately prior to such taking or requisition. In the
event of such temporary requisition, the Lessee shall be entitled to receive
the entire Net Proceeds payable by reason of such temporary requisition.
Unless the Trustee has actual knowledge of an Event of Default under
the Indenture or has received written advice thereof from the holders of at
least 25% in principal amount of the Bonds at the time outstanding, the Lessee
shall be entitled, in accordance with Section 7.2 of the Indenture, to
withdraw the Net Proceeds received by the Trustee on account of such taking, to
pay or to reimburse the Lessee for the payment of the costs and expenses of
such repair upon receipt by the Trustee of a Progress Certificate dated not
more than 30 days prior to the request for withdrawal, setting forth in
substance the matters set forth in subsection (b) of Section 4.3 but with
respect to such repair.
After the completion or substantial completion of such repair or such
taking, the Lessee shall deliver to the Board a Completion Certificate and, if
the costs and expenses thereof (irrespective of any available Net Proceeds) are
at least $250,000, an Opinion of Counsel setting forth in substance the matters
set forth, respectively, in subsections (a) and (b) of Section 4.4, but with
respect to such repair.
Any Net Proceeds on account of such taking which remain in the Project
Fund after the delivery to the Trustee of the Completion Certificate and any
Opinion of Counsel required under this Section shall be applied by the Trustee
in accordance with Section 7.3 of the Indenture.
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ARTICLE VIII
Purchase of Project
Section 8.1. General Option to Purchase.
The Lessee is hereby granted the option to purchase the Project at any
time on any Redemption Date at a purchase price equal to the amount sufficient
to redeem the then outstanding Bonds as a whole pursuant to Section 4.1(b) of
the Indenture by giving written notice thereof to the Board and the Trustee not
more than 60 nor less than 40 days prior to such Redemption Date, which notice
shall specify the Redemption Date and certify that the refunding limitations
set forth in Section 8.4 have been complied with in connection with any such
purchase to by made prior to December 1, 1988. Notice having been given as
aforesaid, the Lessee covenants to purchase the Project on such Redemption Date
in accordance with Section 8.8.
Section 8.2. Option to Purchase Upon Certain Contingencies.
The Board hereby grants to the Lessee the option to purchase the
Project at any time on or after December 1, 1988 at a purchase price equal to
the amount sufficient to redeem the then outstanding Bonds as a whole pursuant
to Section 4.1(c) of the Indenture, in the event that:
(a) as a result of (i) any changes in the Constitution of Alabama or
the Constitution of the United States of America, (ii) any legislative or
administrative action (State or Federal) or (iii) a final decree, judgment
or order of any court (State or Federal) entered after the contest thereof
by the Lessee in good faith, this Agreement shall have become void or
unenforceable or impossible of performance in accordance with the intent of
the parties as expressed in this Agreement or any unreasonable burdens or
excessive liabilities shall have been imposed on the Board or the Lessee in
respect of the Project, or
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(b) changes in the economic availability of labor, energy sources, raw
materials, operating supplies or facilities necessary for the operation of
the Project shall have occurred or such technological or other changes
shall have occurred which, in the Lessee's reasonable judgment, render the
Project uneconomic.
If the Lessee elects to exercise such option, it shall give written notice
thereof within 90 days following such event to the Board and the Trustee
specifying as the closing date of the purchase the Redemption Date (which shall
be not less than 40 days after the date of such notice) and which shall be
accompanied by a Lessee Certificate showing the event giving rise to such option
to purchase and certifying that the Board of Directors or the Executive
Committee of such Board of Directors of the Lessee has determined to discontinue
the operations of the Lessee, at the Project (and at any adjoining or adjacent
plants of the Lessee) at the earliest practicable date. The option to purchase
having been exercised as aforesaid, the Lessee covenants to purchase the Project
on such Redemption Date in accordance with Section 8.8
Section 8.3. Obligation to Purchase Upon Casualty or Condemnation.
The Lessee hereby covenants to purchase, and the Board hereby
covenants to sell, the Project, at a purchase price equal to the amount
sufficient to redeem the then outstanding Bonds as a whole pursuant to Section
4.1(d) of the Indenture, in the event that:
(a) the Project shall be substantially damaged or destroyed in any
casualty so that, in the reasonable judgment of the Lessee, the
rebuilding, replacing and repairing of the Project would be uneconomic and
the Lessee has determined not to effect such rebuilding, replacing and
repairing, or
(b) the entire Project shall be taken in or by condemnation or eminent
domain proceedings pursuant to any law, general or special, or any
substantial portion of the Project, which is sufficient, in the reasonable
judgment of the Lessee, to render the remaining portion thereof unsuitable
for the Lessee's continued use or occupancy, shall be taken in or by such
proceedings.
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The Lessee shall give written notice within 90 days following such event to the
Board and the Trustee specifying as the closing date of the purchase the
Redemption Date (which shall be not less than 40 days after the date of such
notice) and which shall be accompanied by a Lessee Certificate showing the
event giving rise to such obligation to purchase and certifying that the Lessee
has determined to discontinue the operations of the Lessee at the Project (and
any adjoining or adjacent plants of the Lessee) at the earliest practicable
date. On the closing date specified in such notice, the purchase of the Project
will be made in accordance with Section 8.8.
Section 8.4. Refunding Limitations.
No prepayment of Basic Rent pursuant to Section 5.3 or purchase pursuant
to Section 8.1 shall be made prior to December 1, 1988 (or, in the case of a
prepayment of Basic Rent, prior to the Business Day immediately preceding
December 1, 1988), as a part of a refunding or anticipated refunding operation
by the application, directly or indirectly, to such purchase, of funds borrowed
by the Lessee or any Subsidiary or Affiliate having (i) an effective interest
cost of less than 9.70% per annum or (ii) as of the date of the proposed
prepayment or purchase, a Weighted Average Life to Maturity less than the
remaining Weighted Average Life to Maturity of the Bonds.
The term "Subsidiary" herein means, as to a particular parent corporation
at any time, any corporation of which at least a majority of the outstanding
stock having by the terms thereof ordinary voting power to elect a majority of
the directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency, is, directly
or indirectly, owned by such parent corporation, or by one or more Subsidiaries
of such parent corporation, or by such parent corporation and one or more
Subsidiaries.
The term "Affiliate" means, as to a particular corporation, a Person
(other than a Subsidiary of such corporation) (1) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, such corporation, (2) which beneficially owns or holds 5%
or more of any class of the common stock of such corporation, or (3) 5% or more
of the common stock (or in the case of a Person which is not a corporation, 5%
or more
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of the equity interest) of which is beneficially owned or held by such
corporation or a Subsidiary; and the term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction, the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
The term "Weighted Average Life to Maturity" of any indebtedness for
borrowed money means as at the time of the determination thereof the number of
years obtained by dividing the then Remaining Dollar-years of such indebtedness
by the then outstanding principal amount of such indebtedness. The term
"Remaining Dollar-years" of any indebtedness for borrowed money means the
amount obtained by (i) multiplying the amount of each then remaining sinking
fund, serial maturity or other required repayment, including repayment at final
maturity, by the number of years (calculated at the nearest one-twelfth) which
will elapse between the date of the proposed prepayment or purchase and the
date of that required repayment and (ii) totaling all the products obtained in
(i).
Section 8.5. Option to Purchase Unimproved Land.
If no Default exists under this Agreement, the Lessee shall have, and
is hereby granted, the option to purchase any part of the Leased Land (i) on
which neither a building or other fixed improvement is located (but upon which
public transportation or public utility facilities may be located) and (ii) all
boundaries of which are not less than ten feet from the nearest such building or
other fixed improvement (other than public transportation or public utility
facilities), at any time and from time to time at and for the purchase price of
$890 per acre, upon furnishing the Trustee and the Board:
(a) a Lessee Certificate showing (i) an adequate legal description of
such portion of the Leased Land, (ii) that the Lessee will exercise such
option on the date specified therein (which shall not be less than 45 nor more
than 90 days from the date of such notice) and (iii) the purpose for which such
portion of the Leased Land is being purchased will be in furtherance of the
Financing Act;
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(b) a Lessee Certificate stating that no Default exists under this
Agreement;
(c) a certificate signed by an Independent Engineer, dated not more
than 30 days prior to the date of the purchase, and stating that (i) such
portion of the Leased Land is not needed for the operation of the Project
for the purposes for which it was designed to be used or most recently
modified, and (ii) such purchase will not impair the usefulness of the
Project as a manufacturing plant and will not impair the means of ingress
thereto and egrees therefrom; and
(d) an amount of money equal to the purchase price which shall be
deposited by the Trustee in the Project Fund for application in accordance
with Section 7.3 of the Indenture.
The provisions of the first, second and third paragraphs of Section 8.8 shall be
applicable to the purchase under this Section, but only with respect to such
portion of the Leased Land. If such option relates to Leased Land on which
transportation or utility facilities are located, the Board shall retain an
easement to use such transportation or utility facilities to the extent
necessary for the efficient operation of the Project.
Notwithstanding the limitation upon the Lessee's option to purchase
part of the Leased Land set forth in clause (ii) of the first sentence of this
Section 8.5, the Lessee shall be entitled to purchase a part of the Leased Land
which has a boundary which is contiguous to a wall of a building located on the
Leased land if such part of the Leased Land is being purchased by the Lessee
for the purpose of constructing thereon an addition to such building, provided,
however, that such purchase shall in all other respects conform to the
requirements of this Section 8.5 and provide for equitable sharing of
maintenance if there is not common control by the Lessee. The Lessee and the
Board agree that all walls presently standing or hereafter erected on or
contiguous to the boundary line of the portion of the Leased Land so purchased
shall be party walls and each party grants the other a 10-foot easement
adjacent to any such party wall for the purpose of inspection, maintenance,
repair and replacement thereof and the tying-in of new construction. If the
Lessee utilizes any party wall for the purpose of tying-in construction that
will be utilized
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under common control with the Project, the Lessee may also tie in to the
utility facilities on the Leased Land for the purpose of serving the new
construction and may remove any non-loadbearing wall panels in the party wall;
provided, however, that if the property so purchased ceases to be operated
under common control with the Project or if an Event of Default occurs
hereunder, the Lessee covenants that it will install non-loadbearing wall
panels similar in quality to those that have been removed, will provide
separate utility services for the new construction and will make such other
repairs and modifications as may be reasonably necessary to restore the portion
of the building and the remainder of the Project affected by the new
construction to at least as good condition as prior to the new construction
(ordinary wear and tear excepted). No wall may be so utilized by the Lessee
unless prior thereto the Board and the Trustee have been furnished with a
certificate signed by an Independent Engineer stating that the proposed
utilization will not impair the usefulness of the Project as a manufacturing
plant.
In the event the Lessee shall exercise such option, it shall not be
entitled to any set-off, counterclaim, abatement or reduction of the Basic
Rent, Additional Rent or other sums payable by the Lessee hereunder other than
is provided in Section 7.3 of the Indenture.
Section 8.6. Easements. If no Default exists under this Agreement, the
parties hereto reserve the right, from time to time, to amend this Agreement
for the purpose of effecting the release from this Agreement of any part (or an
interest in such part) of the Leased Land with respect to which the Board
proposes to grant an easement or convey fee title for a railroad, utility
services or roads which, in the Lessee's judgment, will benefit the Project;
provided, there shall be deposited with the Trustee:
(a) an executed copy of said amendment;
(b) a resolution of the Board (i) stating that the Board is not in default
under any of the provisions of the Indenture and the Lessee is not, to the
knowledge of the Board, in default under any of the provisions of this
Agreement, (ii) giving a legal description of that portion (or the interest in
such portion) of the Leased Land to be released, (iii) stating the purpose for
which the Board desires the
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release, and (iv) requesting such release;
(c) a Lessee Certificate stating that no Default exists under this
Agreement;
(d) a copy of the instrument granting the easement or conveying the
title to a railroad, public utility or public body; and
(e) a certificate of an Independent Engineer, dated not more than 30
days prior to the date of the release, and stating that (i) the portion of
the Leased Land so proposed to be released is necessary or desirable in
order to obtain railroad, utility services or roads to benefit the Project
and is not otherwise needed for the operation of the Project for the
purposes for which it was designed to be used or most recently modified,
and (ii) the release so proposed to be made will not impair the usefulness
of the Project as a manufacturing plant and will not destroy the means of
ingress thereto and degrees therefrom.
If such release relates to Leased Land on which transportation or
utility facilities are located, the Board shall retain an easement to use such
transportation or utility facilities to the extent necessary for the efficient
operation of the Project as a manufacturing plant.
Upon compliance with the above conditions of this Section 8.6, the
Trustee shall be authorized to release any such property from the lien of the
Indenture and the Lessee shall be entitled to receive and retain any
compensation payable in connection with such grant or conveyance.
No release effected under the provisions of this Section 8.6 shall
entitle the Lessee to any set-off, counterclaim, abatement or reduction of the
Basic Rent, Additional Rent or other sums payable by the Lessee hereunder.
Section 8.7. Obligation to Purchase upon Termination: Option to
Purchase During Renewal Terms.
The Lessee hereby agrees to purchase the Project for a purchase price
of $10.00 in accordance with Section 8.8 upon the termination of this Agreement
at any time following the payment of the Bonds in full pursuant to the
Indenture. The Board hereby grants to the Lessee an option to purchase the
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Project for a purchase price of $1.00 in accordance with Section 8.8 at any time
during any renewal term of this Agreement provided for in the second paragraph
of Section 5.1, provided, that the Bonds shall have been theretofore paid in
full pursuant to the Indenture.
Section 8.8. Closing of Purchase.
At 10:00 o'clock A.M. on the date fixed for any purchase of the
Project, the Lessee shall pay to the Trustee, for the account of the Board, at
the principal corporate trust office of the Trustee, the applicable purchase
price specified in this Article, in funds immediately available to the Trustee,
against receipt by the Lessee of:
(a) a deed conveying the Board's title to the Leased Land to the
Lessee, in form suitable for recording, as such title existed on the date of
the commencement of this Agreement, subject, however, to all liens,
encumbrances and charges, exceptions and restrictions attaching thereto on or
after such date of commencement which have not been created by the Board or
which the Lessee is obligated under this Agreement to discharge and to all
applicable laws, regulations and ordinances, but free of the lien of the
Indenture and Lease,
(b) such bills of sale, Uniform Commercial Code termination statements
and other instruments as shall be necessary to transfer irrevocably and
unconditionally to the Lessee the Project Equipment and other property
comprising the Project but free of the security interest of the Indenture and
the Lease; and
(c) an assignment of all insurance policies, taxes, assumption
contracts and other contracts affecting the Project, all unpaid proceeds of
insurance (including any held for restoration) in respect of fire or other
casualty and all unpaid condemnation awards.
Any liens or encumbrances which the Board is obligated to discharge
shall not constitute an objection to title if the Board delivers at the closing
instruments sufficient to discharge the same of record.
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The Lessee shall pay all reasonable out-of-pocket expenses of the Board
incident to such conveyance and transfer (including reasonable counsel fees of
the Board and the Trustee), escrow fees, recording fees, title insurance
premiums and all applicable taxes which may be incurred or imposed by reason of
such conveyance and transfer and by reason of the delivery of said deed or other
instruments.
Upon completion of such purchase, but not prior thereto (whether or not
any delay shall be the fault of the Board), this Agreement and all obligations
hereunder shall terminate with respect to the Project, except those obligations,
actual or contingent, under this Agreement which arose prior to such date of
purchase.
ARTICLE IX
Corporate Existence; Consolidation, Merger, Etc.
Section 9.1. Corporate Existence; Qualification in Alabama.
Subject to Section 9.2, the Lessee will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and its right to do business as a foreign corporation in the State of
Alabama.
Section 9.2. Consolidation or Merger.
The Lessee shall not consolidate with or merge into any other Person or
convey or transfer or lease its properties and assets substantially as an
entirety to any Person or permit any other Person to consolidate with or merge
into it, except as permitted by the Guaranty.
Section 9.3. Assignment or Subleasing.
Subject to Section 9.2, the Lessee shall not assign this Agreement or
sublease the Project in whole or in part except under the following conditions:
(a) neither the assignment or this Agreement nor the assumption of
the obligations of the Lessee by an assignee or sublessee shall operate to
relieve the Lessee from primary liability for its obligations hereunder; and
the Lessee shall continue to remain primarily liable for payment of the Basic
Rent,
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Additional Rent and other amounts payable hereunder and for the performance
and observance of the other covenants and conditions to be performed and
observed by it to the same extent as though no assignment or sublease had
been made unless the holders of at least 66 2/3% in principal amount of the
Bonds outstanding under the Indenture give written consent otherwise;
(b) the assignee or the sublessee, as the case may be, shall
expressly assume, by an instrument supplemental hereto, executed and
delivered to the Board and the Trustee, in form satisfactory to the Trustee,
all obligations of the Lessee hereunder; and
(c) the Lessee shall deliver to the Board and the Trustee, in form
satisfactory to the Trustee, a Lessee Certificate and an Opinion of Counsel,
each stating that such assignment or sublease and such assumption of the
obligations of the Lessee hereunder comply with this Section and that all
conditions precedent provided for in this Section relating to such
assignment or sublease and assumption have been fully and legally complied
with.
ARTICLE X
Events of Default and Remedies
Section 10.1. Events of Default.
"Event of Default", whenever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
(a) default in the payment when due of any installment of Basic Rent,
Additional Rent or other amount payable hereunder;
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(b) any material representation made by the Lessee in this Agreement or
in any certificate, notice, demand or request made by the Lessee in writing
and delivered to the Board, the Trustee or any holder of the Bonds pursuant
to or in connection with any of said documents or the Indenture shall prove
to be untrue or incorrect in any material respect as of the date made;
(c) default in the performance or breach of any other covenant or
warranty of the Lessee in this Agreement and continuance of such default or
breach for a period of 60 days after any officer of the Lessee has actual
knowledge thereof; provided that if any such default (other than one
curable by payment of money) may be cured, but not within such 60-day
period, it shall not be an Event of Default hereunder unless the Lessee
does not commence to cure such default promptly during such 60-day period
or thereafter within a period of 120 days does not diligently prosecute
such curing to completion;
(d) an "Event of Default" within the meaning of the Guaranty shall
have occurred thereunder; or
(e) an "Event of Default" within the meaning of the Indenture shall
have occurred thereunder.
Section 10.2. Remedies on Default.
This Agreement and the term and estate hereby granted are subject to
the limitation that whenever an Event of Default shall gave occurred, the Board
shall have the right at its election, then or thereafter while any such Event of
Default shall continue, and notwithstanding the fact that the Board may have
some other remedy hereunder or at law or in equity, to give the Lessee written
notice of the intention of the Board to terminate the term of this Agreement on
the date specified in such notice, which shall be not less than 30 business days
after the giving of such notice, and upon the date so specified, the term of
this Agreement and the estate hereby granted shall expire and terminate with the
same force and effect as if the date specified in such notice were the date
fixed in Section 5.1 for the expiration of the term of this Agreement, and all
rights of the Lessee hereunder shall expire and terminate, but the Lessee shall
remain liable as hereinafter provided.
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If any such notice is given, the Board shall have the immediate right
of re-entry and possession of the Project and the right to remove all Persons
and property therefrom on the date specified in such notice.
In the event of any termination of the term of this Agreement as
provided above in this Section 10.2 or as permitted by law, the Lessee shall
peaceably quit and surrender the Project to the Board and the Board may without
further notice enter upon, re-enter, possess and repossess the same by summary
proceedings, ejectment or otherwise, and again have, repossess and enjoy the
same as if this Agreement had not been made, and in any such event neither the
Lessee nor any person claiming through or under the Lessee by virtue of any law
or an order of any court shall be entitled to possession or to remain in
possession of the Project, but shall forthwith quit and surrender the Project,
and the Board at its option shall forthwith, notwithstanding any other
provision of this Agreement, be entitled to recover from the Lessee (in lieu of
all other claims for damages on account of such termination) as and for
liquidated damages an amount equal to the excess of all Basic Rent reserved
hereunder for the unexpired portion of this Agreement discounted at the rate of
9.70% per annum to then present worth, over the fair rental value of the
Project at the time of termination for such unexpired portion, discounted at
the rate of 9.70% per annum to then present worth. Nothing herein contained
shall limit or prejudice the right of the Board, in any bankruptcy or
reorganization or insolvency proceeding, to prove for and obtain as liquidated
damaged by reason of such termination an amount equal to the maximum allowed by
any bankruptcy or reorganization or insolvency proceedings, or to prove for and
obtain as liquidated damages by reason of such termination, an amount equal to
the maximum allowed by any statute or rule of law.
If the Board shall re-enter and obtain possession of the Project
following an Event of Default, the Board shall have the right, without notice,
to repair or alter the Project in such manner as the Board may deem necessary
or advisable so as to put the Project in good order and to make the same
rentable, and shall have the right, at the Board's option, to re-let the Project
or a part thereof, and the Lessee agrees to pay to the Board on demand all
reasonable expenses incurred by the Board in obtaining possession and in
altering, repairing and putting the Project in good order and condition and in
re-letting the same, including reasonable fees of attorneys and architects, and
all other reasonable expenses or commissions,
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and the Lessee further agrees to pay to the Board upon the Basic Rent payment
dates following the date of such re-entry to and including December 1, 1998 the
sums of money which would have been payable by the Lessee as Basic Rent
hereunder on such Basic Rent payment dates if the Board had not re-entered and
resumed possession of the Project, deducting only the net amount of rent, if
any, which the Board shall actually receive (after deducting from the gross
receipts the expenses, costs and payments of the Board which in accordance with
the terms of this Agreement would have been borne by the Lessee) in the
meantime from and by any reletting of the Project, and the Lessee hereby agrees
to remain liable for all sums otherwise payable by the Lessee under this
Agreement, including but not limited to, the aforesaid, and the Board shall
have the right from time to time to begin and maintain successive actions or
other legal proceedings against the Lessee for the recovery of such deficiency,
expenses or damages or for a sum equal to any installments of Basic Rent or
Additional Rent and other sums payable hereunder, and to recover the same upon
the liability of the Lessee herein provided, which liability it is expressly
covenanted shall survive the initiation of any action to secure possession of
the Project. Nothing herein contained shall be deemed to require the Board to
wait to begin such action or other legal proceedings until the date when this
Agreement would have expired by limitation had there been no such Event of
Default.
If, under any of the preceding provisions of this Section 10.2, the
Board shall be entitled to give the Lessee a notice of termination of the term
of this Agreement, the Board, without giving such notice of termination and
notwithstanding the continuance of the term of this Agreement, shall have, to
the extent permitted by applicable law, all the rights, powers and remedies
given to the Board by the preceding provisions of this Section 10.2, and the
Lessee shall have the obligations imposed upon it by such provisions. No such
re-entry or taking of possession of the Project by the Board shall be construed
as an election on the Board's part to terminate the term of this Agreement
unless a written notice of such intention be given to the Lessee or unless such
termination be decreed by a court of competent jurisdiction.
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<PAGE> 50
Section 10.3. Additional Rights of the Board.
No right or remedy herein conferred upon or reserved to the Board is
intended to be exclusive of any other right or remedy, and each and every right
and remedy shall be cumulative and in addition to any other right or remedy
given hereunder or now or hereafter existing at law or in equity or by
statute. The failure of the Board to insist at any time upon the strict
performance of any covenant or agreement or to exercise any option, right,
power or remedy contained in this Agreement shall not be construed as a waiver
or a relinquishment thereof for the future. A receipt by the Board of any Basic
Rent, any Additional Rent or any other amount payable hereunder with knowledge
of the breach of any covenant or agreement contained in this Agreement shall
not be deemed a waiver of such breach, and no waiver by the Board of any
provision of this Agreement shall be deemed to have been made unless expressed
in writing and signed by the Board. In addition to other remedies provided in
this Agreement, the Board shall be entitled to the extent permitted by
applicable law, to injunctive relief in case of the violation, or attempted or
threatened violation, of any of the covenants, agreements, conditions or
provisions of this Agreement, or to a decree compelling performance of any of
the covenants, agreements, conditions or provisions of this Agreement, or to
any other remedy allowed to the Board at law or in equity.
To the extent permitted by law, the Lessee hereby waives and
surrenders for itself and all those claiming under it, including creditors of
all kinds; (i) any right and privilege which it or any of them may have under
any present or future constitution, statute or rule of law to redeem the
Project or to have a continuance of this Agreement for the terms hereby demised
after termination of the Lessee's right of occupancy by order or judgment of
any court or by any legal process or writ, or under the terms of this Agreement,
or after the termination of the term of this Agreement as herein provided, and
(ii) the benefits of any present or future constitution, statute or rule of law
which exempts property from liability for debt or for distress for rent.
If following an Event of Default, an action shall be brought for the
enforcement thereof in which it shall be finally determined that such Event of
Default has occurred, the Lessee shall pay to the Board all reasonable expenses
incurred in connection therewith, including reasonable attorneys' fees. In the
event the Board shall, without fault on its part,
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be made a party to any litigation commenced against the Lessee, if the Lessee,
at its expense, shall fail to provide the Board with counsel approved by the
Board, the Lessee shall pay all reasonable costs and reasonable attorney's fees
incurred or paid by the Board in connection with such litigation.
Section 10.4. No Remedy Exclusive.
No remedy herein conferred upon or reserved to the Board is intended
to be exclusive of any other available remedy or remedies, but each and every
such remedy shall be cumulative and shall be in addition to every other
remedy given under this Agreement or now or hereafter existing at law or in
equity or by statute. No delay or omission to exercise any right or power
accruing upon any default shall impair any such right or power or shall be
construed to be a waiver thereof, but any such right and power may be exercised
from time to time and as often as may be deemed expedient. In order to entitle
the Board to exercise any remedy reserved to it in this Article, it shall not
be necessary to give any notice, other than such notice as may be herein
expressly required.
Section 10.5. No Additional Waiver Implied by One Waiver.
In the event any covenant contained in this Agreement should be
breached and thereafter waived, such waiver shall be limited to the particular
breach so waived and shall not be deemed to waive any other breach hereunder.
ARTICLE XI
Provisions Relating to Indenture
Section 11.1. Restrictions on Termination or Modification of this
Agreement.
The Lessee covenants, for the benefit of the Trustee and the holders
of the Bonds outstanding under the Indenture, that this Agreement shall not
terminate or be terminated or surrendered (except as expressly permitted by
Article VIII, Section 9.3 or Article X) by the Lessee without the express
written consent of the Trustee and the holders of all the outstanding Bonds.
The provisions of this Agreement may, by supplements hereto and to the
Indenture, be modified or amended with the prior written consent of the Trustee
given in accordance with the provisions of Section 12.1 of the Indenture or
with the prior
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written consent of the Trustee and of the holders of not less than 66-2/3% in
principal amount of the Bonds outstanding under the Indenture given in
accordance with the provisions of Section 12.2 of the Indenture; provided,
however, that no such instrument shall, without the written consent of the
holders of all of the outstanding Bonds, change the duration of the term of this
Agreement or reduce the amount of Basic Rent payable hereunder or the purchase
price payable upon the purchase of the Project or change the place of payment
where, or the funds in which, any such Basic Rent or purchase price is payable,
or impair the right to exercise any of the remedies upon the occurrence of an
Event of Default hereunder or change the provisions of this Section. Any
attempted termination, surrender, modification or amendment otherwise than as
permitted in this Section shall be without force and effect and shall be null
and void.
Section 11.2. Lessee's Assent to Indenture.
The Lessee hereby assents to all terms and conditions of the
Indenture being delivered concurrently herewith, including, without limitation,
the assignment by the Board to the Trustee of the right, title and interest of
the Board in, to and under this Agreement and the creation of a first mortgage
lien and security interest, subject to Permitted Encumbrances, on the Project in
favor of the Trustee. If at any time the Board has the right under Section
11.9(e) of the Indenture to appoint a successor Trustee, the Lessee shall have
the right to select or approve the selection of such successor Trustee prior to
appointment by the Board. The Lessee further acknowledges that the Indenture
provides for the exercise by the Trustee of all rights of the Board hereunder to
give any consents, approvals, waivers, notices or the like and the right to take
any other discretionary action hereunder. The Lessee agrees to furnish to the
Trustee counterparts of all notices, certificates, opinions, reports or other
documents of any kind required to be delivered hereunder by the Lessee to the
Board. To the extent, if any, that this Agreement constitutes chattel paper (as
such term is defined in the Alabama Uniform Commercial Code as in effect), no
security interest in this Agreement may be created by the transfer of possession
of any counterpart thereof other than the original counterpart which shall be
identified as the counterpart containing the receipt therefor executed by the
Trustee on or immediately following the signature page hereof.
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Section 11.3. Supplemental Indentures.
As long as no Event of Default exists hereunder, the Board agrees to
enter into supplemental indentures to the Indenture permitted by Article XII
thereof only upon receipt of a Lessee Request approving the form of, and
requesting the Board to execute and deliver to the Trustee, each supplemental
indenture; provided, however, the Board shall not be obligated to enter into
any such supplemental indenture which, in the opinion of its counsel, either
has not been duly authorized by law or affects adversely the Board's rights,
duties or immunities under this Lease, the Bonds, the Indenture or the Bond
Purchase Agreement.
Section 11.4. Method of Payment.
Notwithstanding any provisions of this Agreement to the contrary,
any payment hereunder which is due on a date which is not a Business Day shall
be paid, subject to Section 3.2 of the Bond Purchase Agreement, on the next
preceding Business Day, but no such payment on a date prior to the due date
thereof shall entitle the Lessee to any discount or any credit with respect
thereto.
ARTICLE XII
Miscellaneous
Section 12.1. No Merger.
There shall be no merger of this Agreement nor of the leasehold
estate created hereby with any other estate in the Project, or any part
thereof, by reason of the fact that the same Person may acquire or own such
estates, directly or indirectly, and no such merger shall occur until all
Persons having any interest in this Agreement and the leasehold estate created
hereby shall join in a written instrument effecting such merger and shall duly
record it.
Section 12.2. Limitation on Board's Liability.
The Board is entering into this Lease in accordance with the
Financing Act and in no case whatsoever shall the Board have any pecuniary
liability for any loss in respect of any of the statements, representations,
warranties, agreements or obligations of the Board hereunder, as to all of
which the Lessee agrees to look solely to the Project, and none of which shall
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constitute an indebtedness of the Board or a loan of credit thereof within the
meaning of any constitutional or statutory provision.
Section 12.3. Governing Law.
This Agreement shall be governed exclusively by the laws of the State
of Alabama.
Section 12.4. Notices.
All notices, certificates or other communications hereunder shall be
sufficiently given and shall be deemed given when mailed by registered mail,
postage prepaid, addressed as follows:
(a) if to the Board, at P.O. Box 1727, Decatur, Alabama 35602,
Attention: Chairman;
(b) if to the Lessee, at 10900 Harper Avenue, Detroit, Michigan 48232,
Attention: General Counsel;
(c) if to the Trustee, at 1905 5th Avenue North, Birmingham, Alabama
35203, Attention: Corporate Trust Department.
A duplicate copy of each notice, certificate, report or other communication
given hereunder by either the Board or the Lessee to the other shall also be
given to the Trustee. The Board, the Lessee and the Trustee may, by notice
given hereunder, designate any further or different addresses to which
subsequent notices, certificates or other communications shall be sent.
Section 12.5. Binding Effect.
This Agreement shall inure to the benefit of and shall be binding upon
the Board and the Lessee and their successors and assigns.
Section 12.6. Execution in Counterparts.
This Agreement may be executed in counterparts, each of which shall be
an original and all of which shall constitute but one and the same instrument.
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<PAGE> 55
Section 12.7. Severability.
In the event any provision of this Agreement shall be held invalid or
unenforceable by any court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any other provisions hereof.
IN WITNESS WHEREOF, the Board and the Lessee have caused this
Agreement to be duly executed, all as of the date first above written, but
actually on the dates specified in their respective acknowledgments hereto.
THE INDUSTRIAL DEVELOPMENT BOARD
OF THE CITY OF DECATUR
[SEAL] By /s/ B. C. SHELTON JR.
[SEAL] ----------------------------------
Chairman of the Board of Directors
Attest:
/s/ [ILLEGIBLE]
- -------------------------
Secretary
FRUEHAUF CORPORATION
By /s/ FRANK P. COYER, JR.
----------------------------------
[SEAL] Vice President
[SEAL]
Attest:
/s/ [ILLEGIBLE]
- -------------------------
Secretary
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<PAGE> 56
STATE OF ALABAMA )
) SS
COUNTY OF MORGAN )
I, Gwyn L. Hayes, a Notary Public in and for said County in said State,
hereby certify that B.C. Shelton Jr. and James B. Riggs whose names as Chairman
and Secretary of THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DECATUR, a
public corporation under the laws of the State of Alabama, are signed to the
foregoing instrument and who are known to me, acknowledged before me on this
date that, being informed of the contents of the instrument, they, as such
officers and with full authority, executed the same voluntarily for and as the
act of said corporation.
GIVEN under my hand and official seal of office this 22nd day of
December, 1978.
/s/ GWYN L. HAYES
------------------------
Notary Public
[NOTARIAL SEAL]
My Commission expires: 10-11-82
----------
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<PAGE> 57
STATE OF MICHIGAN )
) SS
COUNTY OF WAYNE )
I, Geraldine M. Collins, a Notary Public in and for said County in
said State, hereby certify that Frank P. Coyer, Jr. and T. Neal Combs, whose
names as Vice President and Secretary of FRUEHAUF CORPORATION, a corporation
under the laws of the State of Michigan are signed to the foregoing instrument
and who are known to me, acknowledged before me on this day that, being
informed of the contents of the instrument, they, as such officers and with
full authority, executed the same voluntarily for and as the act of said
corporation.
GIVEN under my hand and official seal of office this 19th day of
December, 1978.
/s/ GERALDINE M. COLLINS
---------------------------------
Notary Public
[NOTARIAL SEAL]
My Commission expires: September 2, 1981
---------------------------------------
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<PAGE> 58
SCHEDULE A
DESCRIPTION OF LEASED LAND
The following described land, together with the entire interest
(whether now owned or hereafter acquired) in and to said land and the entire
interest of The Industrial Development Board of the City of Decatur (the
"Board") in and to all buildings, structures, improvements and appurtenances
now standing or at any time hereafter constructed or places upon said land,
including all right, title and interest of the Board, if any, in and to all
building material, building equipment and fixtures of every kind and nature
whatsoever on said land or in any building, structure or improvement now or
hereafter standing on said land, and the reversion or reversions, remainder or
remainders, in and to said land, said land being:
Beginning at the Northeast corner of Section 14, Township 5 South, Range 5 West,
Morgan County, Alabama, and run thence S 0 degrees 54'W (Magnetic Bearing) along
the east boundary of Section 14 a distance of 30.00 feet to a point on the south
right of way margin of Alabama Highway No. 20; thence N 89 degrees 03'W along
the south right of way margin of Alabama Highway No. 20 a distance of 67.4 feet
to a point; thence N 89 degrees 08'W along the south right of way margin of
Alabama Highway No. 20 distance of 572.02 feet to a point; thence S 0 degrees
54'W a distance of 1023.75 feet to the true point of beginning of the tract
herein described; thence from the true point of beginning run S 89 degrees 06'E
a distance of 195.00 feet to a point; thence N 0 degrees 54'E a distance of
12.00 feet to a point; thence S 89 degrees 06'E a distance of 32.00 feet to a
point; thence S 0 degrees 54'W a distance of 24.00 feet to a point; thence N 89
degrees 06'W a distance of 15.00 feet to a point; thence S 0 degrees 54'W a
distance of 150.00 feet to a point; thence N 89 degrees 06'W a distance of 10.00
feet to a point; thence S 0 degrees 54'W a distance of 305.00 feet to a point;
thence N 89 degrees 06'W a distance of 380.00 feet to a point; thence N 0
degrees 54'E a distance of 467.00 feet to a point; thence S 89 degrees 06'E a
distance of 178.00 feet to the true point of beginning, lying and being within
the NE 1/4 of Section 14, Township 5 South, Range 5 West, Morgan County, Alabama
and containing 4.1241 acres, more or less, subject, however, to (1) the right of
way over the South 30 feet thereof, as provided in the deed from L.W. Norton to
W. H. Anderson, dated March 1, 1928, and recorded in Deed Book 356, Page 328, in
the Probate Office of Morgan County, Alabama, and (2) any rights which may still
exist under the condition respecting the drainage
<PAGE> 59
system, as set forth in said deed from L. W. Norton to W. H. Anderson dated
March 1, 1928, together with (i) the right to connect and join any building,
structure or improvement that may be constructed on the above described real
property with existing structures, facilities and improvements adjacent to or
abutting said real property, and (ii) the right to tie into existing utilities
situated on property adjacent to or abutting said real property.
Also an easement for access, ingress and egress across a portion of Tracts 14
and 15, according to the Map of Property belonging to L. W. Norton, as recorded
in the Morgan County Probate Office in Plat Book 1, at Page 62, and being more
particularly described as follows:
Beginning at the northeast corner of Section 14, Township 5 South, Range 5 West,
Morgan County, Alabama, and run thence S 0 degrees 54'W along the east boundary
of said Section 14, a distance of 30.00 feet to a point on the south right of
way margin of Alabama Highway No. 20; thence N89 degrees 03'W along the south
right of way margin of Alabama Highway No. 20 a distance of 67.4 feet to a
point; thence N 89 degrees 08'W along the south right of way margin of Alabama
Highway No. 20 a distance of 921.10 feet to the true point of beginning of the
tract herein described; thence from the true point of beginning continue N 89
degrees 08'W along the south right of way margin of Alabama Highway 20 a
distance of 50.00 feet to an iron pipe on the northwest corner of Tract 15;
thence S 0 degrees 54'W along the west boundary of Tract 15 a distance of
1490.52 feet to a point; thence S 89 degrees 06'E a distance of 221.08 feet to a
point on the west boundary of the real estate described for Fruehauf - 1978
Extrusion Expansion; thence N 0 degrees 54'E along the west boundary of said
real estate a distance of 50.00 feet to a point; thence N 89 degrees 06'W a
distance of 171.08 feet to a point; thence N 0 degrees 54'E a distance of
1440.55 feet to the true point of beginning, lying and being within the NE 1/4
of Section 14, Township 5 South, Range 5 West, Morgan County, Alabama, and
containing 1.9073 acres, more or less.
<PAGE> 60
SCHEDULE B
DESCRIPTION OF PROJECT EQUIPMENT
All right, title and interest of The Industrial Development Board of
the City of Decatur, (the "Board") in and to all machinery, apparatus,
equipment, fittings and fixtures of every kind and nature whatsoever, now owned
or hereafter acquired by the Board under the foregoing instrument to which this
Schedule B is attached, and now or hereafter placed in or affixed to any
building, structure or improvement now or hereafter constructed upon any real
property which (or upon any real property an interest in which) is now or
hereafter subject to the foregoing instrument to which this Schedule B is
attached and which is used in connection with the operation, maintenance or
protection of said buildings, structures and improvements as such, including,
without limitation, all engines, furnaces, conveyors, boilers, stokers, pumps,
heaters, tanks, dynamos, motors, generators, fans, blowers, vents, switchboards,
electrical equipment, heating, plumbing, lifting and ventilating apparatus,
air-cooling and air-conditioning apparatus, gas and electrical fixtures,
elevators, escalators, shades, awnings, screens, radiators, partitions, ducts,
compressors, vacuum cleaning systems, call systems, fire prevention and
extinguishing apparatus, fixtures, partitions, furniture, furnishings, machinery
and equipment used or procured for use in connection with the operation,
maintenance or protection of such buildings, structures and improvements, as
such, whether or not affixed to said real property, together with the following
described items of machinery and equipment to be used in connection with the
operation of the manufacturing and assembling business to be conducted upon said
real property:
General Plant Equipment
Panel Corrugators (2)
[STAMP]
Panel piercing system
Piercing machine (low volume)
panel band saw and shear
[STAMP]
<PAGE> 1
EXHIBIT 10.26
[STAMP]
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment") is made
and entered into as of the 9TH day of October 1998, by and between FRUEHAUF
TRAILER CORPORATION ("Assignor"), and DECATUR ALUMINUM CORP., a Delaware
corporation ("Assignee").
RECITALS
WHEREAS, Assignor or Assignor's predecessors in title as tenants have
heretofore entered into certain leases with The Industrial Development Board of
the City of Decatur, Alabama (the "IDB") covering certain real property situated
in Morgan County, Alabama, as those leases are more particularly described on
EXHIBIT A which is attached hereto and made a part hereof for all purposes (the
leases are sometimes referred to herein as the "Leases"); and
WHEREAS, IDB has also granted to Assignee or Assignor's predecessors in
title certain options to purchase the property which is the subject of the
Leases, as those options are particularly described on Exhibit A attached hereto
(the "Decatur Options"); and
WHEREAS, Assignor and Assignee entered into that certain Sublease
Agreement dated January 7, 1994 with respect to the real and personal property
covered by the Leases (the "Sublease"); and
WHEREAS, Assignor is subject to that certain proceeding (the
"Proceeding") described as IN RE: Fruehauf Trailer Corporation, Maryland
Shipbuilding and Dry Dock Company, F.G.R., Inc., Jacksonville Shipyards, Inc.,
Fruehauf International Limited, Fruehauf Corporation, The Mercer Co.,
Deutsche-Fruehauf Holding Corporation, MJ Holdings, Inc. and E.L. Devices, Inc.,
Chapter 11 Case No. 96-1563 (PJW), in the United States Bankruptcy Court for the
District of Delaware (the "Court"); and
WHEREAS, the transaction evidenced by this Assignment is authorized
under that certain ORDER APPROVING THE SALE OF PERSONAL PROPERTY TO DECATUR
ALUMINUM CORP. FREE AND CLEAR OF LIENS, CLAIMS AND OTHER INTERESTS entered by
the Court in the Proceeding on October 8, 1998.
WHEREAS, Assignee desires to purchase from Assignor, and Assignor
desires to sell and assign to Assignee, all of Assignor's rights, title and
interest in and to the leasehold estates created under the Leases and the
Decatur Options upon the terms and conditions set forth herein.
NOW, THEREFORE, for and in consideration of the premises and the
agreements and covenants herein set forth, together with the sum of TEN DOLLARS
($10.00) and other good and valuable consideration on this day paid and
delivered by Assignee to Assignor, the receipt and sufficiency of which are
hereby acknowledged and confessed by Assignor, Assignor does hereby ASSIGN,
TRANSFER, SET OVER, DELIVER and CONVEY unto Assignee all of Assignor's right,
title and interest in the Leases and the leasehold estates created thereby, and
911 of the rights, benefits and privileges of the lessee thereunder, together
with all of Assignor's right, title and interest in and
<PAGE> 2
to the Decatur Options, free and clear of all liens, claims and encumbrances,
except Declaration of Restrictions recorded at Book 1276, Page 341 and Volume
1274, Page 650, Morgan County Probate Records, Sewer Assessment of City of
Decatur in the amount of $70,745 and 30' wide easement recorded at Book 350,
Page 328, Morgan County Probate Records, but subject to all terms, conditions,
reservations and limitations set forth in the Leases and the Decatur Options
(all such properties, rights and interests, subject as aforesaid, being
hereinafter collectively called the "Assigned Rights").
TO HAVE AND TO HOLD all and singular the Assigned Rights unto Assignee,
its heirs, executors, legal representatives, successors and assigns, forever.
1. By accepting this Assignment and by its execution hereof, Assignee
hereby assumes and agrees to perform all of the terms, covenants and
conditions of the Leases on the part of the lessee therein required to
be performed, from and after the date hereof, but not prior thereto.
2. Assignee agrees to accept the Assigned Rights, and acknowledges that
sale of the Assigned Rights as provided for herein, is made by Assignor
on an "AS IS, WHERE IS" basis. Assignee expressly acknowledges that,
except for the limited warranty of title contained herein, Assignor
makes no representation or warranty of any kind, oral or written,
express or implied, or arising by operation of law, including but not
limited to, any warranty of condition, habitability, merchantability,
or fitness for a particular use or purpose. Nothing contained herein
shall affect any rights of Assignee against any insurer of Assignor and
any third parties, other than the Liquidating Trust created or to be
created pursuant to the Plan of Reorganization approved in Case No.
96-1563 (PJW) in the United States Bankruptcy Court for the District of
Delaware, In Re: Fruehauf Trailer Corporation, et al..
3. Assignee and Assignor acknowledge and agree that the Sublease is hereby
terminated without penalty and that neither party shall have any
further liability or obligation to the other thereunder.
4. All of the covenants, terms and conditions set forth herein shall be
binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, executors, legal representatives, successors
and assigns.
5. This Assignment may be executed in identical counterparts, all of
which, when taken together, will constitute one and the same
instrument.
IN WITNESS WHEREOF, Assignee and Assignor have caused this Assignment
to be executed effective as of the 9th day of October, 1998.
2
<PAGE> 3
ASSIGNOR:
FRUEHAUF TRAILER CORPORATION,
A DELAWARE CORPORATION.
By: /s/ CHRISS W. STREET
------------------------------
Name: Chriss W. Street
----------------------------
Title: President
---------------------------
ASSIGNEE:
DECATUR ALUMINUM CORP.,
A DELAWARE CORPORATION
By: /s/ JAMES P. MARRA
------------------------------
Name: James P. Marra
----------------------------
Title: Vice President
---------------------------
3
<PAGE> 4
THE STATE OF CALIFORNIA
COUNTY OF ORANGE
I, the undersigned Notary Public in and for said County, in said State,
hereby certify that C.W. Street, whose name as President of Fruehauf Trailer
Corporation is signed to the foregoing instrument, and who is known to me,
acknowledged before me on this day that, being informed of the contents of said
instrument, he, as such officer with full authority, executed the same
voluntarily for and as the act of said corporation.
Given under my hand and official seal, this 8th day of October, 1998.
/s/ ELEANOR J. GANN
----------------------------------
Notary Public
[SEAL] Printed Name: Eleanor J. Gann
---------------------
My commission expires:
3-26-99
----------------------------------
THE STATE OF TEXAS
COUNTY OF HARRIS
I, the undersigned Notary Public in and for said County, in said State,
hereby certify that James P. Marra, whose name as Vice President of Decatur
Aluminum Corp. is signed to the foregoing instrument, and who is known to me,
acknowledged before me on this day that, being informed of the contents of said
instrument, James P. Marra, as such officer with full authority, executed the
same voluntarily for and as the act of said corporation.
Given under my hand and official seal, this 9th day of October, 1998.
/s/ DARICE ANGEL
----------------------------------
Notary Public
[SEAL] Printed Name: Darice Angel
---------------------
My commission expires:
12-10-2001
----------------------------------
4
<PAGE> 5
EXHIBIT A
TO
ASSIGNMENT AND ASSUMPTION AGREEMENT
(1)(a) Lease agreement dated May 1, 1963 between The Industrial
Development Board of the City of Decatur (the "IDB") and
Fruehauf Trailer Company predecessor in title to Fruehauf
Trailer Corporation ("Fruehauf") which was recorded in the
office of Judge of Probate of Morgan County, Alabama (the
"Recorder's Office") in Book 709 at page 630, as supplemented
by that Supplemental Lease dated as of June 12, 1964 and
recorded in the Recorder's Office in Book 732, page 645, and
as extended by agreement dated as of April 30,1983 and
recorded in the Recorder's Office in Book 1097, page 573 and
incorporating an option to purchase the leased property.
(b) An agreement of the IDB dated May 21, 1963, relating to Lease
1(a) identified above.
(c) An agreement between the IDB and Fruehauf dated as of April
30, 1983, relating to Lease 1(a) identified above.
(2)(a) Lease agreement between the IDB and Fruehauf dated May 1, 1964
and recorded in the Recorder's Office in Book 727 at pages
797 et seq. which was renewed and extended by agreement dated
as of April 30, 1984, recorded in the Recorder's Office in
Book 1113, page 160.
(b) An agreement of the IDB dated June 16, 1964, relating to Lease
2(a) identified above.
(c) An agreement between the IDB and Fruehauf dated as of April 3,
1984, relating to Lease 2(a) identified above.
(d) An option dated as of April 30, 1984 granting to Fruehauf the
option to purchase the property identified in Lease 2(a)
described above.
(3) Lease agreement between the IDB and Fruehauf dated as of
October 1, 1965 recorded in the Recorder's Office in Book 763,
page 300, as amended by agreement recorded in the Recorder's
Office in Book 995, page 653, which has been renewed and
extended, and the option on the leased property.
(4) Lease agreement between the IDB and Fruehauf dated as of
December 1, 1978 recorded in the Recorder's Office in Book
1003, page 788 and incorporating an option to purchase the
leased property.
<PAGE> 1
EXHIBIT 10.27
STATE OF ALABAMA )
:
COUNTY OF MORGAN )
THIS AGREEMENT entered into by and between The Industrial Development Board
of the City of Decatur, a public corporation and instrumentality under the laws
of the State of Alabama (the "Board") and Decatur Aluminum Corp., a Delaware
corporation (the "Company") on this 23rd day of September, 1998:
RECITALS
The Board and Fruehauf Trailer Company, a Michigan corporation ("Fruehauf
Trailer") have heretofore entered into a Lease Agreement dated as of May 1, 1963
(the "1963 Lease") which is recorded in the Office of the Judge of Probate of
Morgan County, Alabama, in Book 709, Page 630, et. seq., pursuant to which the
Board has leased to Fruehauf Trailer certain premises described and referred to
therein, together with all improvements thereon, including the buildings,
machinery and equipment and all other items of real or personal property
referred to collectively in the 1963 Lease as the "Project" (the "1963
Project"). The 1963 Lease was supplemented by a Supplemental Lease Agreement
dated June 12, 1964, and recorded in said Probate Office in Book 732, Page 645.
The initial term of the 1963 Lease expired on April 30, 1983, and the Company,
as the successor in interest to Fruehauf Trailer under the 1963 Lease, is
currently leasing the 1963 Project from the Board pursuant to a renewal term
which expires on April 30, 2003, said extension being evidenced by a certain
agreement dated as of April 30, 1983, and recorded in said Probate Office in
Book 1097, Page 593.
The Board and Fruehauf Corporation, a Michigan corporation ("Fruehauf
Corporation") have heretofore entered into a Lease Agreement dated as of May 1,
1964 (the "1964 Lease") which is rendered in the Office of the Judge of Probate
of Morgan County, Alabama, in Book 727, Page 797, et. seq., pursuant to which
the Board has leased to Fruehauf Corporation certain premises described and
referred to in the 1964 Lease, together with all improvements thereon, including
the buildings, machinery and equipment and all other items of real or personal
property referred to collectively in the 1964 Lease as the "Project" (the "1964
Project"). The initial term of the 1964 Lease expired on April 30, 1984, and the
Company, as the successor in interest to Fruehauf Corporation under the 1964
Lease, is currently leasing the 1964 Project from the Board pursuant to a
renewal option which expires on April 30, 2004, said extension being evidenced
by a certain agreement dated as of April 30, 1984, and recorded in said Probate
Office in Book 1113, Page 160.
The Board and Fruehauf Corporation have also entered into a Lease Agreement
dated as of October 1, 1965 (the "1965 Lease") which is recorded in the Office
of the Judge of Probate of Morgan County, Alabama, in Book 763, Page 300, et.
seq., pursuant to which the Board leased the premises described and referred to
in the 1965 Lease, together with all improvements thereon, including the
buildings, machinery and equipment and all other items of real or personal
property referred to collectively in the 1965 Lease as "the Project" (the "1965
Project"). The 1965 Lease was amended by an agreement dated August 15, 1978,
1
<PAGE> 2
and recorded in said Probate Office in Book 995, Page 653. The 1965 Lease
expired on September 30, 1985, and the Company, as the successor in interest to
Fruehauf Corporation under the 1965 Lease, is currently leasing the 1965 Project
from the Board pursuant to a renewal term which expires on September 30, 2005.
The Board and Fruehauf Corporation have also entered into a Lease Agreement
dated as of December 1, 1978 (the "1978 Lease") which is recorded in the Office
of the Judge of Probate of Morgan County, Alabama, in Book 1003, Page 788, et.
seq., pursuant to which the Board has leased to Fruehauf Corporation certain
premises described and referred to in the 1978 Lease, together with all
improvements thereon, including the buildings, machinery and equipment and all
other items of real or personal property referred to collectively in the 1978
Lease as "the Project" (the "1978 Project"). The initial term of the 1978 Lease
has expired, and the Company, as the successor in interest to Fruehauf
Corporation under the 1978 Lease, is currently leasing the 1978 Project from the
Board pursuant to a renewal term which expires on November 30, 2018.
The Board and the Company desire to enter into this Agreement to confirm
the rights of the Company to acquire from the Board the 1963 Project, the 1964
Project, the 1965 Project and the 1978 Project.
NOW, THEREFORE, in consideration of the payment by the Company to the Board
of $1.00 and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Board and the Company do hereby agree as
follows:
Section 1. OPTION TO PURCHASE 1963 PROJECT. The Board hereby agrees that
the Company shall have the option, at any time during which it is not in default
under the 1963 Lease, on written notice to the Board of its election to exercise
such option, to purchase the 1963 Project for the sum of $30,000; provided,
however, that the purchase option hereby granted shall become null and void and
of no effect if not exercised by the Company by written notice served on the
Board by delivery to the President or Secretary of the Board, in person or by
registered mail, on or before 12:00 noon, on April 30, 2003. In the event of the
exercise of such option, the 1963 Project shall be conveyed to the Company, or
its nominee, by proper deed of conveyance, without special covenants of
warranty, and if such option is exercised prior to the expiration of the renewal
term of the 1963 Lease, no further rental shall be payable for the unexpired
portion of the said renewal term.
Section 2. OPTION TO PURCHASE 1964 PROJECT. The Board hereby agrees that
the Company shall have the option, at any time during which it is not in default
under the 1964 Lease, on written notice to the Board of its election to exercise
such option, to purchase the 1964 Project for the sum of $1,000; provided,
however, that the purchase option hereby granted shall become null and void and
of no effect if not exercised by the Company by written notice served on the
Board by delivery to the President or Secretary of the Board, in person or by
registered mail, on or before 12:00 noon, on April 30, 2004. In the event of the
exercise of such option, the 1964 Project shall be conveyed to the Company, or
its nominee, by proper deed of conveyance, without special covenants of
warranty, and if such option is exercised prior to the expiration of the renewal
term of the 1964 Lease, no further rental shall be payable for the unexpired
portion of the said renewal term.
2
<PAGE> 3
Section 3. OPTION TO PURCHASE 1965 PROJECT. The Board hereby agrees that
the Company shall have the option, at any time during which it is not in default
under the 1965 Lease, on written notice to the Board of its election to exercise
such option, to purchase the 1965 Project for the sum of $65,000; provided,
however, that the purchase option hereby granted shall become null and void and
of no effect if not exercised by the Company by written notice served on the
Board by delivery to the President or Secretary of the Board, in person or by
registered mail, on or before 12:00 noon, on September 30, 2005. In the event of
the exercise of such option, the 1965 Project shall be conveyed to the Company,
or its nominee, by proper deed of conveyance, without special covenants of
warranty, and if such option is exercised prior to the expiration of the renewal
term of the 1965 Lease, no further rental shall be payable for the unexpired
portion of the said renewal term.
Section 4. OPTION TO PURCHASE 1978 PROJECT. The Board hereby agrees that
the Company shall have the option, at any time during which it is not in default
under the 1978 Lease, on written notice to the Board of its election to exercise
such option, to purchase the 1978 Project for the sum of $1.00; provided,
however, that the purchase option hereby granted shall become null and void and
of no effect if not exercised by the Company by written notice served on the
Board by delivery to the President or Secretary of the Board, in person or by
registered mail, on or before 12:00 noon, on November 30, 2018. In the event of
the exercise of such option, the 1978 Project shall be conveyed to the Company,
or its nominee, by proper deed of conveyance, without special covenants of
warranty, and if such option is exercised prior to the expiration of the renewal
term of the 1978 Lease, no further rental shall be payable for the unexpired
portion of the said renewal term.
Section 5. RATIFICATION OF 1963 LEASE, 1964 LEASE, 1965 LEASE AND 1978
LEASE. The Board and the Company do hereby ratify and confirm that the 1963
Lease, the 1964 Lease, the 1965 Lease and the 1978 Lease, as amended, are in
full force and effect.
3
<PAGE> 4
IN WITNESS WHEREOF, the Board and the Company have caused this agreement to
be executed in their respective corporate names and have caused their respective
corporate seals to be hereunto affixed and have caused this agreement to be
attested by their duly authorized officers and have caused this agreement to be
dated as of the date above first written.
THE INDUSTRIAL DEVELOPMENT BOARD
OF THE CITY OF DECATUR
By /s/ B. C. SHELTON, JR.
---------------------------------------
B. C. Shelton, Jr.
Its Chairman of the Board of Directors
Attest:
/s/ JAMES B. RIGGS
- -------------------------------
James B. Riggs
Its Secretary
DECATUR ALUMINUM CORP.
By /s/ JAMES P. MARRA
---------------------------------------
James P. Marra
Its VICE PRESIDENT
-----------------------------------
Attest:
/s/ JENNIFER W. BERLIN
- -------------------------------
Its
----------------------------
4
<PAGE> 5
STATE OF ALABAMA )
:
COUNTY OF MORGAN )
I, the undersigned, a notary public in and for said county in said state,
hereby certify that B. C. Shelton, Jr., whose name as Chairman of the Board of
Directors of THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF DECATUR, an Alabama
corporation, is signed to the foregoing instrument, and who is known to me,
acknowledged before me on this day that, being informed of the contents of said
instrument, he/she, as such officer and with full authority, executed the same
voluntarily for and as the act of said corporation.
Given under my hand and official seal this 23rd day of September, 1998.
/s/ JOHN A. CADDELL
-----------------------------
Notary Public
[NOTARIAL SEAL] My commission expires: June 22, 2002
5
<PAGE> 6
STATE OF TEXAS )
:
COUNTY OF HARRIS )
I, the undersigned, a notary public in and for said county in said state,
hereby certify that James P. Marra, whose name as Vice President of DECATUR
ALUMINUM CORP., a Delaware corporation, is signed to the foregoing instrument,
and who is known to me, acknowledged before me on this day that, being informed
of the contents of said instrument, he/she, as such officer and with full
authority, executed the same voluntarily for and as the act of said corporation.
Given under my hand and official seal this 9th day of October, 1998.
/s/ LANETTE HOPKINS
-----------------------------
Notary Public
[NOTARIAL SEAL] My commission expires: April 30, 2001
This Instrument Prepared By:
P. Nicholas Greenwood
Bradley Arant Rose & White LLP
2001 Park Place, Suite 1400
Birmingham, Alabama 35203
6
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
SUBSIDIARIES OF QUANEX CORPORATION JURISDICTION OF INCORPORATION
- ---------------------------------- -----------------------------
<S> <C>
Piper Impact, Inc. Delaware
Quanex Metals, Inc. Delaware
Nichols-Homeshield, Inc. Delaware
Quanex Bar, Inc. Delaware
Quanex Steel, Inc. Delaware
Quanex Health Management Company, Inc. Delaware
Quanex Manufacturing, Inc. Delaware
Quanex Solutions, Inc. Delaware
Quanex Enterprises, Inc. Delaware
Quanex Technologies, Inc. Delaware
Quanex Foreign Sales Corporation U.S. Virgin Islands
Piper Impact Europe B.V. The Netherlands
Nichols Aluminum-Alabama, Inc. Delaware
Quanex Windows, Inc. Delaware
Quanex Two, Inc. Delaware
Quanex Three, Inc. Delaware
Quanex Four, Inc. Delaware
Quanex Five, Inc. Delaware
Quanex Six, Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT NO. 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 33-23474, No. 33-29585, No. 33-22550, No. 33-35128, No. 33-38702, No.
33-46824, No. 33-57235, No. 33-54081, No. 33-54085, No. 33-54087, No.
333-18267, No. 333-22977, No. 333-36635 and No. 333-66777 of Quanex Corporation
of our report dated November 23, 1998 appearing in this Annual Report on
Form 10-K of Quanex Corporation for the year ended October 31, 1998.
Deloitte & Touche LLP
Houston, Texas
January 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF OCTOBER 31, 1998 AND THE INCOME STATEMENT FOR THE YEAR ENDED OCTOBER
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<CASH> 26,279
<SECURITIES> 0
<RECEIVABLES> 85,166
<ALLOWANCES> 11,752
<INVENTORY> 85,397
<CURRENT-ASSETS> 209,812
<PP&E> 702,955
<DEPRECIATION> 307,901
<TOTAL-ASSETS> 674,288
<CURRENT-LIABILITIES> 146,833
<BONDS> 188,302
0
0
<COMMON> 7,090
<OTHER-SE> 264,954
<TOTAL-LIABILITY-AND-EQUITY> 674,288
<SALES> 797,490
<TOTAL-REVENUES> 797,490
<CGS> 736,726
<TOTAL-COSTS> 795,226
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,088
<INTEREST-EXPENSE> 14,904
<INCOME-PRETAX> (5,964)
<INCOME-TAX> (2,087)
<INCOME-CONTINUING> (3,877)
<DISCONTINUED> 0
<EXTRAORDINARY> 13,046
<CHANGES> 0
<NET-INCOME> 9,169
<EPS-PRIMARY> 0.650
<EPS-DILUTED> 0.650
</TABLE>
