UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File
No. 1-9820
BIRMINGHAM STEEL CORPORATION
DELAWARE 13-3213634
(State of Incorporation) (I.R.S. Employer Identification No.)
1000 Urban Center Parkway, Suite 300
Birmingham, Alabama 35242
(205) 970-1200
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 and 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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 28,653,625 Shares of Common Stock, Par Value $.01 Outstanding
at November 8, 1996.
<PAGE>
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares)
September 30, June 30,
1996 1996
ASSETS (Unaudited) (Audited)
---------- ---------
Current assets:
Cash and cash equivalents $ 7,397 $ 6,663
Accounts receivable, net of allowance
for doubtful accounts of $1,579 at
September 30, 1996; $1,554 at June 30, 1996 113,719 111,565
Inventories 191,445 196,752
Prepaid expenses 1,743 1,390
Other 6,512 11,623
--------- ---------
Total current assets 320,816 327,993
Property, plant and equipment (including
property and equipment, net, held for
disposition of $18,897 and $18,210 at
September 30, 1996 and June 30, 1996,
respectively):
Land and buildings 138,684 123,465
Machinery and equipment 486,280 376,744
Construction in progress 106,605 178,011
--------- ---------
731,569 678,220
Less accumulated depreciation (143,722) (134,196)
--------- ---------
Net property, plant and equipment 587,847 544,024
Excess of cost over net assets acquired 45,255 46,077
Other assets 8,740 9,893
--------- ---------
Total assets $ 962,658 $ 927,987
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 46,120 $ -
Accounts payable 62,772 83,226
Accrued operating expenses 5,705 5,936
Accrued payroll expenses 5,722 6,888
Income taxes payable 370 369
Other accrued liabilities 26,799 19,979
--------- ---------
Total current liabilities 147,488 116,398
Deferred income taxes 49,961 50,292
Deferred compensation 5,399 5,606
Long-term debt less current portion 307,500 307,500
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, par value $.01;
authorized 5,000,000 shares - -
Common stock, par value $.01;
authorized: 75,000,000 shares;
issued and outstanding: 29,711,472
at September 30, 1996 and 29,679,761
at June 30, 1996 297 297
Additional paid-in capital 331,551 331,430
Treasury stock, 1,059,490 and 1,070,727
shares at September 30,1996 and
June 30, 1996, respectively, at cost (20,909) (21,148)
Unearned compensation (1,874) (2,165)
Retained earnings 143,245 139,777
--------- ---------
Total stockholders' equity
452,310 448,191
--------- ---------
Total liabilities and stockholders' equity $ 962,658 $ 927,987
========= =========
See accompanying notes.
<PAGE>
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
Three months ended September 30,
--------------------------------
1996 1995
-------------- -------------
Net sales $ 233,422 $ 207,252
Cost of sales:
Other than depreciation and amortization 198,700 172,799
Depreciation and amortization 10,716 8,030
------------ ------------
Gross profit 24,006 26,423
Provision for loss on mill modernization
program and unusual items 1,422 1,306
Selling, general and administrative 8,450 10,382
Interest 3,988 2,271
------------ ------------
10,146 12,464
Other income, net 614 1,363
------------ ------------
Income before income taxes 10,760 13,827
Provision for income taxes 4,412 5,649
------------ ------------
Net income $ 6,348 $ 8,178
============ ============
Weighted average shares outstanding 28,625 28,521
============ ============
Earnings per share $ 0.22 $ 0.29
============ ============
Dividends declared per share $ 0.10 $ 0.10
============ ============
See accompanying notes.
<PAGE>
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three months ended
September 30,
-------------------------
1996 1995
(unaudited) (unaudited)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,348 $ 8,178
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 10,716 8,030
Provision for doubtful accounts
receivable 15 92
Deferred income taxes (331) 1,641
Provision for loss on mill
modernization program
and unusual items - -
Other 559 720
Changes in operating assets and
liabilities, net of effects from
business acquisition:
Accounts receivable (2,169) (2,305)
Inventories 5,307 (25,054)
Prepaid expenses (353) (667)
Other current assets 5,112 6,956
Accounts payable (20,463) (5,585)
Income taxes payable - 650
Other accrued liabilities 5,425 3,594
Deferred compensation (207) (4)
-------- --------
Net cash provided by (used in)
operating activities 9,959 (3,754)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (53,471) (36,891)
Payments for business acquisitions - (11,250)
Proceeds from disposal of property,
plant and equipment - 16
Additions to other non-current assets (526) (12,765)
Reductions in other non-current assets 1,218 81
-------- --------
Net cash used in investing activities (52,779) (60,809)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings and repayments 46,120 51,063
Proceeds from issuance of long-term debt - 15,000
Proceeds from issuance of common stock 296 59
Purchase of treasury stock - (167)
Cash dividends paid (2,862) (2,851)
-------- --------
Net cash provided by financing
activities 43,554 63,104
-------- --------
Net increase (decrease) in cash and
cash equivalents 734 (1,459)
Cash and cash equivalents at:
Beginning of period 6,663 4,311
-------- --------
End of period $ 7,397 $ 2,852
======== ========
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest (net of amounts capitalized) $ (1,223) $ (445)
Income taxes $ 1 $ 162
See accompanying notes.
<PAGE>
BIRMINGHAM STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 and 1995
1. Description of the Business and Significant Accounting Policies
Description of the Business
Birmingham Steel Corporation (the Company) operates steel mini-mills in
the United States producing steel reinforcing bar, merchant products
and high quality rod and wire. The Company operates in one industry
segment and sells to third parties primarily in the construction,
manufacturing and automotive industries throughout the United States
and Canada.
Principles of consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included. All significant intercompany accounts and transactions have
been eliminated.
Inventories
Inventories are stated at the lower of cost or market value. The cost
of inventories is determined using the first-in, first-out method.
Earnings per share
Earnings per share are computed using the weighted average number of
outstanding common shares and dilutive equivalents (if any).
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121 that requires impairment losses to be recorded on
long-lived assets used in operations, including goodwill, when
impairment indicators are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets'
carrying amount. Statement No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of in future
periods. The Company adopted Statement No. 121 in the first quarter
of fiscal 1997 with no material effect on earnings or asset values.
The Company issues stock based awards in several forms which are
accounted for in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees". In October 1995,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", which provides an alternative to Opinion No. 25, in
accounting for stock-based compensation issued to employees. The
Statement allows for a fair value based method of accounting for
employee stock options and similar equity instruments. However, for
companies that continue to account for stock-based compensation
arrangements under Opinion No. 25, Statement No. 123 requires
disclosure of the pro forma effect on net income and earnings per share
of its fair value based accounting for those arrangements. The Company
has elected to continue accounting for stock-based compensation
arrangements in accordance with Opinion No. 25. However, the Company
will adopt the disclosure requirements of Statement No. 123 in its
annual report for fiscal 1997.
2. Business Acquisitions and Joint Ventures
On August 8, 1995, the Company purchased certain assets of Western
Steel Limited, a subsidiary of IPSCO Inc., located in Calgary, Alberta,
Canada for a purchase price of approximately $11,206,000. On December
13, 1995, Birmingham Recycling Investment Company, a wholly owned
subsidiary of the Company, completed a related transaction when it
purchased the stock of Richmond Steel Recycling Limited, a scrap
processing facility and subsidiary of Western Steel Limited, located in
Richmond, British Columbia, Canada for a purchase price of
approximately $5,710,000.
On August 30, 1996, the Company entered into an Equity Contribution
Agreement with American Iron Reduction, L.L.C. (AIR), a 50 percent
owned subsidiary of the Company, for the purpose of contructing a
direct reduced iron (DRI) facility in Louisiana. Under the Equity
Contribution Agreement, the Company is required to make an equity
contribution to AIR of not less than $20,000,000 and not more than
$27,500,000 upon completion of the DRI facility, which is expected to
be completed by the end of calendar year 1997. The Company also entered
into a DRI Purchase Agreement with AIR on August 30, 1996, whereby the
Company will purchase a minimum of 600,000 metric tons of DRI annually.
The DRI purchased will be utilized primarily at the Memphis melt shop
as a substitute for premium, low-residual scrap.
On September 18, 1996, Birmingham West Coast Corporation, a wholly
owned subsidiary of the Company, entered into an agreement with Raw
Materials Development Co., Ltd., an affiliate of Mitsui & Co., Ltd.
(Mitsui) forming a limited liability company in southern California to
collect, process and sell scrap. A definitive agreement to effect the
purchase of certain assets of the estate of Hiuka America Corporation
and certain of its affiliates has been executed by Mitsui and the other
parties thereto. The definitive agreement will be assigned to the
limited liability company prior to the closing of the purchase. The
purchase is contingent upon the receipt of certain regulatory and court
approvals and certain other conditions. The transaction is expected to
close by the end of calendar 1996.
3. Inventories
Inventories were valued as summarized in the following table (in
thousands):
September 30, June 30,
1996 1996
------------- -----------
At lower of cost (first-in,
first-out) or market:
Raw materials and mill supplies $ 40,301 $ 37,871
Work-in-progress 88,365 95,423
Finished goods 62,779 63,458
-------- --------
$191,445 $196,752
======== ========
4. Borrowing Arrangements
Under line of credit arrangements for short-term borrowings with four
banks, the Company may borrow up to $185,000,000 with interest at
market rates mutually agreed upon by the Company and the banks. One of
these lines of credit supports a bankers' acceptance and commercial
paper program. Approximately $138,880,000 was available under these
facilities at September 30, 1996.
On September 1, 1995, American Steel & Wire Corporation (ASW), a
wholly-owned subsidiary of the Company, issued $15,000,000 in Solid
Waste Disposal Revenue Bonds under the authority of the Ohio Water
Development Authority. The bonds have a term of thirty years at a
variable market interest rate. The proceeds of the bonds have been used
to construct a waste water treatment facility at the Company's new bar
mill located in Cleveland, Ohio.
On September 29, 1995, the Company completed a $150,000,000 private
placement of senior notes. The notes are unsecured and primarily
consist of maturities ranging from seven to ten years and a weighted
average interest rate of 7.05 percent. The proceeds of the debt issue,
which were drawn down on December 15, 1995, will be utilized primarily
to fund the current requirements of the Company's multi-year capital
expenditure program.
5. Contingencies
Environmental
The Company is subject to federal, state and local environmental laws
and regulations concerning, among other matters, waste water effluents,
air emissions and furnace dust disposal.
The Company has been advised by the Virginia Department of Waste
Management of certain conditions involving the disposal of hazardous
materials at the Company's Norfolk, Virginia property which existed
prior to the Company's acquisition of the facility. The Company has also
been notified by the Department of Toxic Substances Control (DTSC) of
the Environmental Protection Agency of the State of California of
certain environmental conditions regarding its property in Emeryville,
California. The Company has performed environmental assessments of these
sites and developed work plans for remediation of the properties for
approval by the applicable regulatory agencies. The Company has received
approval by DTSC for its remedial action plan for the Emeryville site
and is currently implementing the plan.
As part of its ongoing environmental compliance and monitoring programs,
the Company is voluntarily developing work plans for environmental
conditions involving certain of its operating facilities and properties
which are held for sale. Based upon the Company's study of the known
conditions and its prior experience in investigating and correcting
environmental conditions, the Company estimates that the potential costs
of these site restoration and remediation efforts may range from
$3,050,000 to $5,250,000. Approximately $2,659,000 of these costs is
recorded in accrued liabilities at September 30, 1996. The remaining
costs principally consist of site restoration and environmental exit
costs to ready the idle facilities for sale, and have been considered in
determining whether the carrying amounts of the properties exceed their
net realizable values. These expenditures are expected to be made in the
next one to two years, if the necessary regulatory agency approvals of
the Company's work plans are obtained. Though the Company believes it
has adequately provided for the cost of all known environmental
conditions, the applicable regulatory agencies could insist upon
different and more costly remediative measures than those the Company
believes are adequate or required by existing law. Additionally, if
other environmental conditions requiring remediation are discovered,
site restoration costs could exceed the Company's estimates. Except as
stated above, the Company believes that it is currently in compliance
with all known material and applicable environmental regulations.
Legal Proceedings
The Company is involved in litigation relating to claims arising out of
its operations in the normal course of business. Such claims are
generally covered by various forms of insurance. In the opinion of
management, any uninsured or unindemnified liability resulting from
existing litigation would not have a material effect on the Company's
business, financial position, liquidity or results of operations.
6. Disposition of Idle Facilities
In Fiscal 1995, the Company entered into an agreement to sell the real
property at its idle facility in Ballard, Washington. In December, 1995,
the Company incurred a write-off of $2,055,000, which is included in the
provision for loss on mill modernization program, primarily related to
the equipment at the Ballard facility after termination of the sales
contract on the equipment. In August, 1995, the Company completed the
exchange of the idle Kent, Washington facility and other property at the
Seattle, Washington steel-making facility with the Port of Seattle for
property owned by the Port which is being used in the Company's Seattle
operations. No gain or loss was recognized as a result of the
transaction.
7. Provision for Loss on Mill Modernization and Other Unusual Items
The provision for loss on mill modernization program in the accompanying
financial statements consists of pre-operating/start-up expenses related
to the Company's on-going capital improvement plans.
8. Subsequent Events
On October 8, 1996, the Company issued a $26,000,000, 30 year variable
rate industrial revenue bond. The Company will use the proceeds of the
tax-free bond to finance certain portions of its new Memphis melt shop.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements contained in this report which are not purely historical or which
might be considered an opinion or projection concerning the Company or its
business, whether express or implied, are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements include, without limitation, statements expressing the Company's
expectations, hopes, anticipations, intentions, plans or strategies regarding
the future. Forward-looking statements involve risks and uncertainties described
below under the heading "Risk Factors That May Affect Operating Results" which
could cause actual results to differ materially from those projected.
In the first quarter of fiscal 1997, the Company reported net income of
$6,348,000, compared with $8,178,000 in the first quarter of fiscal 1996.
Earnings per share for the quarter were $.22, compared with $.29 reported in the
prior year period. First quarter earnings reflected a $1.4 million pretax charge
for expenses associated with the start-up of the new bar mill in Cleveland, Ohio
and pre-operating charges related to the new melt shop currently under
construction in Memphis, Tennessee. Prior year first quarter earnings reflected
a $1.3 million pretax charge related to the start-up of the melt shop in
Seattle, Washington. First quarter steel shipments were 669,000 tons, compared
with 574,000 tons shipped a year ago. Net sales for the first quarter were
$233,422,000, compared with $207,252,000 in the first quarter last year.
Net Sales
Net sales increased approximately 13 percent in the first quarter to
$233,422,000, compared with $207,252,000 in the prior year period. Steel
shipments in the first quarter increased approximately 17 percent from the prior
year level, resulting primarily from an increase in the sale of rebar and
rod/bar products compared with the prior year period.
The average steel selling price for the Company's rebar/merchant products was
$307 per ton in the first quarter, a rise of $7 per ton from $300 per ton in the
immediately preceding quarter but a decline of $10 per ton compared with the
first quarter of fiscal 1996. While rebar/merchant pricing experienced a
favorable increase over the immediately preceding quarter, rebar/merchant
pricing is not expected to improve further in the near term due to the onset of
the seasonally weaker winter months.
First quarter shipment of high quality rod and bar products increased 25 percent
to 154,000 tons compared with 123,000 tons in the prior year period. While
shipment volumes for rod and bar products rose, the average selling price
declined $30 per ton to $453 per ton in the first quarter compared with $483 per
ton in the prior year period. Pricing is expected to improve over the fiscal
year as the new bar mill in Cleveland completes its start-up phase of production
and begins producing higher quality bar products.
Cost of Sales
As a percentage of net sales, cost of sales (other than depreciation and
amortization) increased to 85.1 percent compared to 83.4 percent in the first
quarter last year. This increase resulted primarily from lower selling prices
and increased conversion costs at the Company's rod and bar facility in
Cleveland but was partially offset by improved raw material billet and scrap
pricing over the prior year period and record conversion costs at the Company's
rebar/merchant facilities.
During the first quarter, the Company achieved record conversion costs of $114
per ton at its rebar/merchant facilities, which equals conversion costs achieved
in the fourth quarter of fiscal 1994. The conversion costs for the first quarter
declined $5 per ton compared with $119 per ton in the first quarter of the prior
year. Conversion costs become a part of product costs and flow through inventory
into cost of sales as products are sold. Therefore, conversion costs in the
first quarter do not have a full impact on first quarter cost of sales.
Operating efficiency at the Company's rebar/merchant mini-mills was high during
the first quarter, as steel melting production records were set. The Company
also achieved record consolidated rolling production for the quarter at its
rebar/merchant and rod/wire production facilities.
Conversion costs at the Company's rod and wire facility was $77 per ton in the
first quarter compared with $58 per ton in the first quarter of last year. The
increase in conversion costs is primarily attributable to low production levels
of the new bar mill which operated in a start-up mode during the first quarter.
First quarter raw material billet cost at the Company's high quality rod and bar
mills declined $14 per ton to $357 per ton in the first quarter compared with
$371 per ton in the prior year first quarter. The Company is currently
constructing a high quality steel melting facility in Memphis to supply
approximately 1 million tons annually of the rod and bar operating billet
requirements. The facility is scheduled for start-up in the fourth quarter of
calendar 1997 at an expected capital cost of approximately $200 million.
Depreciation and amortization expense increased to $10,716,000 from $8,030,000
in the first quarter of fiscal 1996, primarily due to the recognition of
depreciation on fixed asset additions during fiscal 1996 in the first quarter of
fiscal 1997.
Selling, General and Administrative Expenses (SG&A)
SG&A decreased from $10,382,000 in the first quarter of fiscal 1996 to
$8,450,000 in the first quarter of the current fiscal year. The favorable
decline is primarily attributable to decreased costs associated with salaries
and benefits and cost savings resulting from the renegotiation of the Company's
contract with Electronic Data Systems (EDS). The EDS contract was renegotiated
in the fourth quarter of fiscal 1996. As a percent of net sales, first quarter
SG&A expenses were 3.6 percent, compared with 5.0 percent last year.
Interest Expense
Interest expense increased to $3,988,000 in the first quarter compared with
$2,271,000 in the prior year first quarter. The increase is primarily due to
interest associated with the funding of the Company's $150 million private debt
placement in the second quarter of fiscal 1996. Interest expense is expected to
increase for the remainder of the fiscal year due to an increase in debt levels.
The increase in interest was partially offset by capitalized interest related to
construction projects amounting to approximately $1.8 million in the first
quarter compared with $.9 million capitalized in the first quarter of fiscal
1996. In October of this year the Company completed the financing of a $26
million IRB related to the construction of the Memphis melting facility.
Income Taxes
Effective income tax rates for the first quarters of fiscal 1997 and fiscal 1996
were 41.0% and 40.9%, respectively.
Liquidity and Capital Resources
Operating Activities
In the first quarter of fiscal 1997, net cash provided by operating activities
was $10.0 million, compared with net cash used in operating activities of $3.8
million reported in the first quarter of last year. The favorable increase in
cash flow was essentially due to a decline in operating inventory levels at the
Company's production facilities compared to a substantial increase in inventory
in the prior year quarter offset by a decline in accounts payable. The decline
in inventories was accomplished primarily through production curtailments during
the prior year combined with increased sales volumes in the first quarter of
fiscal 1997 over the prior year.
Investing Activities
Net cash used in investing activities during the first quarter was $52.8
million, compared with $60.8 million last year. During the first quarter of the
prior year, the Company acquired certain assets of Western Steel Limited for a
purchase price of approximately $11.2 million (see Note 2 to Consolidated
Financial Statements). Capital expenditures increased during the first quarter
of the current year, related primarily to the construction of the Memphis
facility.
On August 30, 1996, the Company entered into an Equity Contribution Agreement
with American Iron Reduction, L.L.C. (AIR), a 50 percent owned subsidiary of the
Company, for the purpose of contructing a direct reduced iron (DRI) facility in
Louisiana. Under the Equity Contribution Agreement, the Company is required to
make an equity contribution to AIR of not less than $20,000,000 and not more
than $27,500,000 upon completion of the DRI facility, which is expected to be
completed by the end of calendar year 1997. The Company also entered into a DRI
Purchase Agreement with AIR on August 30, 1996, whereby the Company will
purchase a minimum of 600,000 metric tons of DRI annually. The DRI purchased
will be utilized primarily at the Memphis melt shop as a substitute for premium,
low-residual scrap.
Financing Activities
Net cash provided by financing activities was $43.6 million in the first
quarter, compared with $63.1 million in the first quarter of the prior year.
During the prior year quarter, the Company completed a $15 million, 30 year
tax-free bond financing at its facility in Cleveland. Also, pursuant to Board
authorization, the Company purchased approximately 10,000 shares of its stock in
the open market during the first quarter of the prior year.
Working Capital
Working capital at the end of the first quarter decreased to $173.3 million,
compared with $211.6 million at the end of fiscal 1996. The decrease in working
capital was essentially due to increased borrowings on the Company's short-term
lines of credit partially offset by a reduction in accounts payable.
Other Comments
On October 15, 1996, the Company declared a regular quarterly cash dividend of
$.10 (ten cents) per share which was paid November 6, 1996 to shareholders of
record on October 25, 1996.
Risk Factors That May Affect Operating Results
The statements contained in this report that are not purely historical or which
might be considered an opinion or projection concerning the Company or its
business, whether express or implied, are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements include statements regarding the Company's expectations, hopes,
anticipations, intentions, plans or strategies regarding the future.
Forward-looking statements include, but are not limited to: expectations about
environmental remediation costs, assessments of expected impact of litigation
and adequacy of insurance coverage for litigation, expectations regarding the
costs of new projects, expectations regarding future earnings, and expectations
regarding the date when facilities under construction will be operational and
the future performance and capabilities of those facilities.
All forward-looking statements included in this document are based upon
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statements. It is important to
note that the Company's actual results could differ materially from those
described or implied in such forward-looking statements. Among the factors that
could cause actual results to differ materially are the factors detailed below.
In addition, you should consider the risk factors described from time to time in
the Company's reports on Forms 10-Q, 8-K, 10-K and Annual Report to
Shareholders.
The Company is in the steel industry. The steel industry tends to be vulnerable
to economic cycles which can not be predicted. A downturn in the economy or in
the Company's markets could have a negative impact on the Company's performance.
The Company has tried to spread its sales across the reinforcing bar, merchant
product and special bar quality markets to reduce the Company's vulnerability to
an economic downturn in any one product market. The Company's performance,
however, can still be materially affected by changes in demand for any one of
its product lines and by changes in the economic condition of the construction
industry, manufacturing industry or automobile industry.
The cost of scrap iron is the largest element in the cost of the Company's
finished rebar and merchant products. The Company purchases most of its scrap
iron on a short-term basis. Changes in the price of scrap iron, therefore, can
significantly affect the Company's profitability. Changes in other raw material
prices can also influence the Company's profitability.
Energy costs are also a significant cost affecting the Company's results.
Current reforms in the electrical industry at the state and federal level are
expected to lower energy costs in the long run. However, numerous utilities and
political groups are fighting these reforms and states are approaching the
reforms in different fashions. The possibility exists, therefore, that the
Company could be exposed to energy costs which are less favorable than those
available to its competitors. Such a situation could materially affect the
Company's performance.
Until completion of the Memphis Melt Shop currently under construction, the
Company's Special Bar Quality ("SBQ") division will purchase substantially all
of its steel billets from third parties. The cost of these steel billets is the
largest element in the cost of the SBQ division's finished products. Thus, the
performance of this division, and in turn, the performance of the Company, can
be materially affected by changes in the price of the steel billets it buys from
third parties.
The Company currently is constructing a new Memphis Melt Shop to supply billets
to the Company's SBQ division and is participating in a joint venture to
construct a DRI facility in Louisiana. Delays or cost overruns in either of
these projects could materially affect the Company's future results. While both
projects are currently on schedule, these projects, like other construction
projects, can be affected or delayed by factors such as unusual weather, late
equipment deliveries, unforeseen conditions and untimely performance by
contractors. A late start-up of one or both of these projects could materially
affect the Company's results.
The Company believes its labor relations are generally good. Almost the entire
work force is non-union and the Company has never suffered a strike or other
work stoppage. If this situation changes, however, the Company's performance
could suffer material adverse effects.
The Company operates in an industry subject to numerous environmental
regulations. Changes in environmental regulations or in the interpretation or
manner of enforcement of environmental regulations could materially affect the
Company's performance. Further, the Company is planning and performing certain
environmental remediations. Unforeseen costs or undiscovered conditions
requiring unplanned expenditures in connection with such remediations could
materially affect the Company's results.
The Company's economic performance, like most manufacturing companies, is
vulnerable to a catastrophe that disables one or more of its manufacturing
facilities and to major equipment failure. Depending upon the nature of the
catastrophe or equipment failure, available insurance may or may not cover a
loss resulting from such a catastrophe or equipment failure and the loss
resulting from such a catastrophe or equipment failure could materially affect
the Company's earnings.
The Company anticipates that it will continue to borrow funds in the future.
Major increases in interest rates, depending upon the extent of the increase, or
changes in the Company's ability to borrow funds, could materially affect the
Company's performance.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in litigation relating to claims arising out of its
operations in the normal course of business. Some of these claims against the
Company are covered by insurance, although the insurance policies do include
deductible amounts. It is the opinion of management that any uninsured or
unindemnified liability resulting from existing litigation would not have a
material adverse effect on the Company's business or financial position. There
can be no assurance that insurance, including product liability insurance, will
be available in the future at reasonable rates.
By letter dated October 20, 1992, the Department of Toxic Substances Control of
the Environmental Protection Agency of the State of California ("DTSC")
submitted to Barbary Coast Steel Corporation ("BCSC"), a wholly owned subsidiary
of the Company, for its review and comment a proposed Consent Order relating to
BCSC's closed steel facility at Emeryville, California. BCSC and DTSC executed
the terms of a Consent Order on March 22, 1993. Pursuant to that Consent Order,
BCSC has completed an environmental assessment of the site and, on June 10,
1996, received DTSC approval of its proposal for the remediation of the
property. BCSC is now actively remediating the property pursuant to the approved
remedial action plan. The Company believes that the net realizable values of the
property less the remediation costs will exceed the carrying amount for the
property.
On March 26, 1993, an action entitled IMACC Corporation v. Warburton. et al. was
filed in the U.S. District Court for the Northern District of California, Case
No. C93-1114-CW, against BCSC and numerous other defendants (the Action). The
Action was brought by IMACC Corporation ("IMACC"), the parent of Myers Container
Corporation, the lessee of property in Emeryville, California on which an
industrial drum and barrel reconditioning facility operated from the 1940's
until 1991 (hereinafter, the "IMACC/Emeryville property"). BCSC owns the
property immediately south of the IMACC property. IMACC has sued BCSC, Judson
Steel Corporation ("Judson Steel") (from whom BCSC purchased the adjacent
property in October 1987), the current owners of the IMACC/Emeryville property
and other persons and entities alleged to have previously operated the drum
reconditioning facility, under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. SS 9601-9675 and
various state law causes of action, alleging that the Defendants contributed to
environmental contamination on and under the IMACC property. IMACC has since
amended its complaint several times, which now includes a citizen's suit claim
for injunctive and other equitable relief under the Resource Conservation and
Recovery Act ("RCRA"), 42 U.S.C. SS 6972.
BCSC has interposed numerous affirmative defenses to IMACC's claims. In
addition, BCSC has counterclaimed and cross-claimed against IMACC and its
predecessors, including Kaiser Steel and Myers Drum Company, alleging that their
drum reconditioning operations resulted in contamination of the BCSC property.
BCSC has also cross-claimed against Judson Steel and its corporate parent,
alleging that they must indemnify BCSC for any response costs and damages
allegedly owed to IMACC. Other parties in the case have brought additional
counterclaims and cross-claims against each other, BCSC, and other third
parties, including senior executives and shareholders of IMACC and Kaiser Steel
Resources.
In February 1996, the parties filed motions and cross-motions for summary
judgment, and to dismiss. The motions were heard on March 29, 1996. In an Order
dated July 9, 1996, the Court granted in part BCSC's summary judgment motion as
to a portion of IMACC's RCRA claim for equitable restitution. The remainder of
BCSC's motions were denied. The Court also denied defendants' summary judgment
motions for dismissal of IMACC's claim seeking to hold all defendants jointly
and severally liable for IMACC's response costs under section 107(a) of CERCLA,
which if granted would limit IMACC's CERCLA remedy to an action for contribution
under section 113(f). The Court held that IMACC may bring claims under both
sections 107 and 113 against other potentially responsible parties.
Over the past two years, the parties engaged in extensive written discovery,
produced voluminous documents and took numerous depositions. The parties have
each designated expert witnesses and exchanged expert reports. Depositions of
expert witnesses was completed in September, 1996, and the depositions of a few
remaining percipient witnesses were taken and completed in October and early
November, 1996.
IMACC has alleged that it will sustain current and prospective response and
environmental remediation costs, excluding attorneys' fees, of as much as $4.7
million in connection with the IMACC/Emeryville property. Based upon discovery
taken to date and laboratory analyses of soil samples, BCSC believes that
IMACC's contention that BCSC is responsible for contamination of the
IMACC/Emeryville property is without merit.
A final pretrial conference was held on October 11 and 18, 1996 in preparation
for a jury trial, which was then set to commence on October 28, 1996. During
October IMACC also engaged in settlement negotiations with several of the
parties in the Action, including BCSC. On or about October 25, 1996, following
extensive negotiations, IMACC, Kaiser Steel, Myers Drum Company and several
other parties affiliated with IMACC agreed through their counsel to settle the
Action pursuant to the terms of a Settlement and Release Agreement with BCSC
(the IMACC/BCSC Settlement Agreement), resolving all claims asserted against
each other in the Action. Counsel for these parties and BCSC have represented to
the Court that their clients have agreed to the settlement terms. The process of
obtaining full documentation of the settlement is now under way and is expected
to be completed shortly. Due to these and other settlement developments, the
Court has continued the trial date to November 12, 1996.
The material terms of the IMACC/BCSC Settlement Agreement include the following:
(1) establishment of an escrow account (containing $380,000) which shall be used
solely for payment and reimbursement of costs incurred in future remediation of
soil and groundwater contamination under and adjacent to the former processing
building at the southern portion of the IMACC/Emeryville property (i.e., to
remediate contamination immediately adjacent to the BCSC property); (2) IMACC
shall indemnify BCSC and subsequent owners of the BCSC property from and against
all claims arising in any way from the existing presence of contamination on or
under the IMACC/Emeryville property, with this indemnification to remain in
effect until three years after IMACC completes the remediation of the property
to the satisfaction of the DTSC; (3) the parties to the IMACC/BCSC settlement
shall dismiss with prejudice their respective claims, counterclaims and
cross-claims against each other; and (4) execution of mutual releases by all
parties to the IMACC/BCSC Settlement Agreement. In addition, the Settlement
Agreement provides that IMACC and BCSC shall file a joint motion seeking the
Court's approval of the settlement and entry of an order barring future
contribution and/or equitable indemnification claims against BCSC by any
non-settling defendants in the Action, and that the District Court shall retain
continuing jurisdiction to enforce the terms and conditions of the IMACC/BCSC
Settlement Agreement. It is expected that the joint motion for approval of the
settlement will be filed with the Court during the week of November 18, 1996.
BCSC is presently negotiating mutual release agreements with certain other
parties in the Action. Execution of such release agreements by BCSC will be
contingent upon first obtaining Court approval of the IMACC/BCSC Settlement
Agreement.
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are required to be filed with this report:
10.1 1996 Director Stock Option Plan of the Registrant
10.2 1997 Chief Executive Officer Incentive Compensation Plan
of the Registrant
10.3 Equity Contribution Agreement among American Iron
Reduction, L.L.C., GS Technologies Operating Co., Inc.,
Birmingham Steel Corporation and Nationsbank, N.A., dated
August 30, 1996
10.4 DRI Purchase Agreement between Birmingham Steel
Corporation and American Iron Reduction, L.L.C., dated as
of August 30, 1996
10.5 Operating Agreement between Birmingham West Coast
Corporation and Raw Material Development Co., Ltd., dated
as of September 18, 1996
During the quarter ended September 30, 1996, no reports on Form 8-K were
required to be filed.
<PAGE>
EXHIBITS
10.1
BIRMINGHAM STEEL CORPORATION
DIRECTOR STOCK OPTION PLAN
Section 1. Purpose of the Plan.
The purpose of the Birmingham Steel Corporation Director Stock
Option Plan (the "Plan") is to provide stock based compensation to non-employee
directors of Birmingham Steel Corporation (the "Company") in order to encourage
the highest level of director performance and to promote long-term shareholder
value by providing such directors with a proprietary interest in the Company's
success and progress through grants of options ("Options") to purchase shares of
the Company's common stock ("Common Stock").
Section 2. Certain Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Change of Control" has the meaning set forth in Section
7(b) hereof.
(c) "Change of Control Price" shall have the meaning set forth
in Section 7(d) hereof.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the Compensation and Stock Option
Committee of the Board.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Birmingham Steel Corporation, a Delaware
corporation, and any successors to such corporation.
(h) "Disability" means a permanent and total disability as
determined under procedures established by the Committee for purposes of the
Plan. The determination of Disability for purposes of this Plan shall not be
construed to be an admission of disability for any other purpose.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" means, as of any given date, the closing
price of the Common Stock on the New York Stock Exchange Composite Tape or, if
not listed on such exchange, any other national exchange on which the Common
Stock is listed or on NASDAQ. If there is no regular public trading market for
such stock, the Fair Market Value of the Common Stock shall be determined by the
Committee in good faith.
(k) "Non-Employee Director" means each member of the Board who is
not an employee of the Company or any of its subsidiaries at the date of each
grant or award.
(l) "Options" means options to purchase shares of Common Stock
granted pursuant to Section 6 of the Plan.
(m) "Plan" means the Birmingham Steel Corporation Director Stock
Option Plan.
(n) "Potential Change of Control" has the meaning set forth in
Section 7(c) hereof.
(o) "Rule 16b-3" means Rule 16b-3, as currently in effect or as
hereinafter amended or modified, promulgated under the Exchange Act.
Section 3. Administration of the Plan.
The Plan shall be administered by the Committee of the Board of
Directors of the Company. Grants of Options to purchase Common Stock under the
Plan shall be made automatically as provided in Section 6 hereof. However, the
Committee shall have full authority to interpret the Plan, to promulgate such
rules and regulations with respect to the Plan as it deems desirable, and to
make all other determinations necessary or appropriate for the administration of
the Plan, and such determinations shall be final and binding upon all persons
having an interest in the Plan.
Section 4. Common Stock Subject to the Plan.
The total number of shares of Common Stock reserved and available
for distribution under the Plan shall be 100,000. Such shares may consist, in
whole or in part, of authorized and unissued shares or treasury shares. If any
shares of Common Stock that have been optioned cease to be subject to option,
such shares shall again be available for distribution in connection with future
awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, Common Stock dividend, or other change in corporate structure
affecting the Common Stock, a substitution or adjustment shall be made in the
aggregate number of shares reserved for issuance under the Plan and in the
number and option price of shares subject to outstanding Stock Options granted
under the Plan as may be determined to be appropriate by the Committee, in its
sole discretion, provided that the number of shares subject to any award shall
always be a whole number.
Section 5. Participation.
Each Non-Employee Director shall be eligible to participate in
the Plan.
Section 6. Non-Qualified Stock Options.
(a) General. Options granted to Non-Employee Directors under the
Plan shall be options which are not intended to be "incentive stock options"
within the meaning of Section 422 of the Code.
(b) Annual Grant of Options. Options covering 1,500 shares of
common stock of the Company shall be granted to each Non-Employee Director
automatically on the date of the annual meeting of the Company's stockholders
each year.
(c) Terms of Options. Options granted under the Plan shall be
evidenced by a written agreement in such form as the Committee shall from time
to time approve, which agreements shall comply with and be subject to the
following terms and conditions:
(i) Option Price. The option price per share of Common Stock
purchasable under an Option shall be 100% of the Fair Market
Value of the Common Stock on the date of the grant of the Option.
(ii) Option Term. Each Option shall be exercisable for a
term of ten (10) years from the date such Option is granted
(subject to prior termination as hereinafter provided).
(iii) Exercisability. Except as provided in Sections 7 and
8, Options shall not become first exercisable by their terms
until the expiration of one (1) year from the date of the grant
of the Option.
(iv) Method of Exercise. Options may be exercised in whole
or in part at any time during the option period by giving written
notice of exercise to the Company specifying the number of shares
to be purchased, accompanied by payment in full of the purchase
price, in cash, by check or such other instrument as may be
acceptable to the Committee. Payment in full or in part may also
be made in the form of unrestricted Common Stock already owned by
the optionee (based on the Fair Market Value of the Common Stock
on the date the Option is exercised). No shares of Common Stock
shall be issued until full payment therefor has been made. An
optionee shall have the right to dividends or other rights of a
stockholder with respect to shares subject to an Option for which
the optionee has given written notice of exercise and has paid in
full for such shares.
(v) Non-transferability of Options; Exception. Except as
otherwise set forth in this Section 6(v), no Option shall be
transferable by the optionee otherwise than by will or by the
laws of descent and distribution, and all Options shall be
exercisable, during the optionee's lifetime, only by the
optionee. The Committee shall have the discretionary authority,
however, to grant Options which would be transferable to members
of an optionee's immediate family, including trusts for the
benefit of such family members and partnerships in which such
family members are the only partners. For purposes of Section 8,
a transferred Option may be exercised by the transferee only to
the extent that the optionee would have been entitled had the
option not been transferred.
Section 7. Change of Control.
The following acceleration and valuation provisions shall apply
in the event of a "Change of Control" or "Potential Change of Control," as
defined in this Section 7:
(a) In the event of a "Change of Control," as defined in Section
7(b) below, unless otherwise determined by the Committee or the Board in writing
at or after the grant of awards hereunder, but prior to the occurrence of such
Change of Control, or, if and to the extent so determined by the Committee or
the Board in writing at or after the grant of awards hereunder (subject to any
right of approval expressly reserved by the Committee or the Board at the time
of such determination) in the event of a "Potential Change of Control," as
defined in Section 7(c) below:
(i) any Options awarded under the Plan not previously
exercisable and vested shall become fully exercisable and vested;
(ii) the value of all outstanding Options shall, to the
extent determined by the Committee or after grant, be cashed out
on the basis of the "Change of Control Price" (as defined in
Section 7(d) below) as of the date the Change of Control occurs
or Potential Change of Control is determined to have occurred, or
such other date as the Committee may determine prior to the
Change of Control or Potential Change of Control.
(b) For purposes of Section 7(a) above, a "Change of Control"
means the happening of any of the following:
(i) when any "person," as such term is used in Sections
13(d) and 14(d) of the Exchange Act (other than the Company or
any Company employee benefit plan, including its trustee), is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Company representing twenty percent (20%) or more of the combined
voting power of the Company's then outstanding securities;
(ii) the occurrence of any transaction or event relating to
the Company required to be described pursuant to the requirements
of Item 6(e) of Schedule 14A of Regulation 14A of the Securities
and Exchange Commission under the Exchange Act;
(iii) when, during any period of two (2) consecutive years
during the existence of the Plan, the individuals who, at the
beginning of such period, constitute the Board cease, for any
reason other than death, to constitute at least a majority
thereof, unless each director who was not a director at the
beginning of such period was elected by, or on the recommendation
of, at least two-thirds (2/3) of the directors at the beginning
of such period; or
(iv) the occurrence of a transaction requiring stockholder
approval for the acquisition of the Company by an entity other
than the Company or a subsidiary of the Company through purchase
of assets, or by merger, or otherwise.
(c) For purposes of Section 7(a) above, a "Potential Change of
Control" means the happening of any of the following:
(i) the entering into an agreement by the Company, the
consummation of which would result in a Change of Control of the
Company as defined in Section 7(b) above; or
(ii) the acquisition of beneficial ownership directly or
indirectly, by any entity, person or group (other than the
Company, a subsidiary of the Company, or any Company employee
benefit plan, including its trustee) of securities of the Company
representing five percent (5%) or more of the combined voting
power of the Company's outstanding securities and the adoption by
the Board of Directors of a resolution to the effect that a
Potential Change of Control of the Company has occurred for
purposes of this Plan.
(d) For purposes of this Section 7, "Change of Control Price"
means the highest price per share paid in any transaction reported on the New
York Stock Exchange, or paid or offered in any transaction related to a
potential or actual Change of Control of the Company at any time during the
preceding sixty (60) day period as determined by the Committee, except that, in
the case of Options, such price shall be based only on transactions reported for
the date on which the Committee decides to cash out such Options.
Section 8. Termination of Directorship.
(a) Termination by Reason of Disability or Death. Upon the
termination of a Non-Employee Director by reason of Disability or death, any
Options held by such optionee shall be immediately exercisable, notwithstanding
the provisions of Section 6 hereof, and may thereafter be exercised by the
optionee or, in the case of death, by the legal representative of the estate or
by the legatee of the optionee under the will of the optionee, until the earlier
of (i) the expiration of the stated term of such Options or (ii) the first
anniversary of the death or Disability of the optionee, as the case may be.
(b) Termination by Reason of Retirement. If an optionee's status
as a Non-Employee Director with the Company terminates by reason of retirement,
any Options held by such optionee may thereafter be exercised, to the extent
exercisable under the provisions of Section 6 hereof, until the earlier of (i)
the expiration of the stated term of the Options or (ii) the third anniversary
of the effective date of such optionee's retirement. If the retired optionee
dies while any Options are still outstanding, such Options may be exercised by
the legal representative of the estate or by the legatee of the optionee under
the will of the optionee, until the earlier of (i) the expiration of the stated
term of the Options or (ii) the first anniversary of the death of the optionee.
(c) Other Termination. Upon the termination of a Non-Employee
Director with the Company for any reason other than Disability, death or
retirement, any Options held by such optionee shall terminate as of the
effective date of such Non-Employee Director's termination.
Section 9. Termination or Amendment of the Plan.
The Board may suspend or terminate the Plan or any portion
thereof at any time, and the Board may amend the Plan from time to time as may
be deemed to be in the best interests of the Company; provided, however, that no
such amendment, alteration or discontinuation shall be made (a) that would
impair the rights of a Non-Employee Director with respect to Options theretofore
awarded, without such person's consent, or (b) without the approval of the
stockholders (i) if such approval is necessary to comply with any legal, tax or
regulatory requirement, including any approval requirement which is a
prerequisite for exemptive relief from Section 16(b) of the Exchange Act; or
(ii) to increase the maximum number of shares subject to this Plan, increase the
maximum number of shares issuable to any Non-Employee Director under this Plan,
or change the definition of persons eligible to receive awards under this Plan,
or (c) if the Plan has been amended within the preceding six (6) months, unless
such amendment is necessary to comply with changes in the Internal Revenue Code
of 1986, as amended, or the Employee Retirement Income Security Act of 1974, as
amended, or rules promulgated thereunder.
Section 10. Section 16.
It is intended that the Plan and any grants made to a person
subject to Section 16 of the Exchange Act meet all of the requirements of Rule
16b-3. If any provision of the Plan or any award hereunder would disqualify the
Plan or such award, or would otherwise not comply with Rule 16b-3, such
provision or award shall be construed or deemed amended to conform to Rule
16b-3.
Section 11. General Provisions.
(a) No Right of Continued Service. Nothing in the Plan shall be
deemed to create any obligation on the part of the Board to nominate any Non-
Employee Director for reelection by the Company's stockholders.
(b) Payment of Taxes. An optionee shall, no later than the date
as of which the value of any portion of the Option first becomes includable in
the optionee's gross income for federal income tax purposes, make arrangements
satisfactory to the Committee regarding payment of any federal, state, local or
FICA taxes of any kind required by law to be withheld with respect to the
Option.
(c) Shares. The shares of Common Stock issued upon the exercise
of Options under the Plan may be either authorized but unissued shares or shares
which have been or may be reacquired by the Company, as determined from time to
time by the Board.
(d) Governing Law. The Plan and all actions taken thereunder
shall be governed by and construed in accordance with the laws of the State of
Delaware (other than its law respecting choice of law). The Plan shall be
construed to comply with all applicable law, and to avoid liability to the
Company or a Non-Employee Director, including, without limitation, liability
under Section 16(b) of the Exchange Act.
(e) Effective Date of Plan. The Plan shall be effective on the
date it is approved by a majority vote of the holders of the Company's Common
Stock.
(f) Term of Plan. No Option shall be granted pursuant to the Plan
on or after the tenth anniversary of the effective date of the Plan, but awards
granted prior to such date may extend beyond that date.
(g) Headings. The headings contained in this Plan are for
reference purposes only and shall not affect the meaning or interpretation of
this Plan.
(h) Severability. If any provision of this Plan shall for any
reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereby, and this Plan
shall be construed as if such invalid or unenforceable provision were omitted.
(i) Successors and Assigns. This Plan shall inure to the benefit
of and be binding upon each successor and assign of the Company. All obligations
imposed upon a Non-Employee Director, and all rights granted to the Company
hereunder, shall be binding upon the Non-Employee Director's heirs, legal
representatives and successors.
<PAGE>
10.2
BIRMINGHAM STEEL CORPORATION
CHIEF EXECUTIVE OFFICER INCENTIVE COMPENSATION PLAN
Section 1. Purpose of the Plan. The purpose of the Birmingham Steel
Corporation Chief Executive Officer Incentive Compensation Plan (the "Plan") is
to provide supplementary annual cash compensation to the Company's Chief
Executive Officer, in order to motivate and retain the Company's Chief Executive
Officer and to assist the Company in reaching its financial and strategic
objectives.
Section 2. Certain Definitions.
(a) "Award" means a cash bonus award payable to the
Participant under the Plan.
(b) "Award Schedule" means the schedule prepared by the
Committee for each Plan Year establishing, among other things, the performance
goals for a given Plan Year for the Participant and the Target Award for the
Participant.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means the committee appointed by the Board to
administer the Plan, which at all times shall consist of two or more members of
the Board who are deemed to be "outside directors" within the meaning set forth
in Section 162(m) of the Code and the regulations thereunder.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Birmingham Steel Corporation, a Delaware
corporation, and any successors to such corporation.
(h) "Disability" means a permanent and total disability as
determined under procedures established by the Committee for purposes of the
Plan. The determination of Disability for purposes of the Plan shall not be
construed to be an admission of disability for any other purpose.
(i) "Final Award" means the actual cash amount earned for a
Plan Year by the Participant, as determined by the Committee at the end of such
Plan Year in accordance with Section 6 hereof; provided, however, that the value
of a Final Award shall not exceed the stated value of Target Award.
(j) "Participant" means the Company's Chief Executive
Officer.
(k) "Plan Year" means the fiscal year of the Company for
which an Award is granted.
(l) "Target Award" means the maximum cash value of the Award
to be paid to the Participant with respect to a given Plan Year if all
performance goals and other terms for such Plan Year are satisfied; provided,
however, that the Target Award shall not exceed two hundred percent (200%) of
the Participant's total cash compensation for the given Plan Year.
Section 3. Administration. The Plan shall be administered by the
Committee. The Committee shall have all the powers vested in it by the terms of
this Plan, such powers to include authority (within the limitations described
herein) to establish performance goals under the Plan, to determine the time
when Awards will be granted, and to determine whether the objectives and
conditions for earning Awards have been met. Subject to the limitations set
forth in Section 162(m) of the Code, the Committee shall have full power and
authority to administer and interpret the Plan and to adopt such rules,
regulations, agreements, guidelines and instruments for the administration of
the Plan as the Committee deems necessary or advisable. The Committee's
interpretations of the Plan, and all actions taken and determinations made by
the Committee pursuant to the powers vested in it hereunder, shall be conclusive
and binding on all parties concerned, including the Company and its
stockholders. Notwithstanding any other provisions of this Plan, the Committee
shall not have the discretion to increase the amount of compensation payable
with respect to a specific Award or to adjust such performance goals after the
date which is ninety (90) days following the beginning of the Plan Year.
Section 4. Eligibility and Participation. Participation in the
Plan shall be limited to the Company's Chief Executive Officer.
Section 5. Award Determination.
(a) Awards granted to the Participant shall be based upon the
accomplishment of specific performance goals. Not later than ninety (90) days
after the beginning of each Plan Year, the Committee shall establish in writing
(i) the performance goals for the Plan Year, (ii) the Target Award for the Plan
Year and (iii) the method for computing the amount of the Final Award if and to
the extent that such goals are satisfied, all of which shall be set forth on an
Award Schedule for that Plan Year.
(b) The Committee shall establish objective performance
goals based on the following: pre-tax earnings, stock price, return on average
capital and safety.
(c) Within sixty (60) days of the end of the Plan Year, the
Committee shall certify in writing the extent to which the performance goals and
any other material terms were satisfied. Based on the level of achievement of
the pre-established performance goals, Final Awards (i.e., the amount of cash)
shall be determined by the Committee for the Plan Year.
(d) Participant shall not receive any payout when the
minimum performance goals are not achieved.
Section 6. Payment of Final Awards.
(a) Subject to the provisions of Section 7 hereof, the payment
of cash with respect to a Final Award shall be made as soon as practicable
following the end of the Plan Year, but in no event later than seventy-five (75)
days after the end of the Plan Year.
(b) The Participant shall have no interest whatsoever in any
specific asset of the Company as a result of the grant of an Award hereunder or
the satisfaction of performance goals with respect thereto. To the extent that
the Participant acquires a right to receive payments under the Plan, such right
shall be equivalent to that of an unsecured general creditor of the Company.
Section 7. Vesting; Termination of Employment.
(a) If the Participant's employment with the Company continues
for the entire Plan Year, the Participant shall be entitled to receive full
payment of the Final Award amount determined under Section 5 for the Plan Year
in accordance with the terms of the Plan.
(b) In the event of the death, Disability or retirement of the
Participant during a Plan Year, the Committee (in its sole discretion) will
determine on a pro rata basis the amount of the partial Award (if any) to be
paid to the Participant (or to his personal representative) for such Plan Year.
Payments will be made in accordance with the terms of the Plan.
(c) If during a Plan Year, the Participant's employment with
the Company terminates by reason of resignation or discharge, the Committee (in
its sole discretion) will determine on a pro rata basis the amount of partial
Award (if any) to be paid to the Participant for such Plan Year. Payments will
be made in accordance with the terms of the Plan.
(d) The Participant may designate, in writing and on such form
as the Company may prescribe, one or more beneficiaries to receive any amount
that is payable in the event of Participant's death. In the event of
Participant's death, any Award that is payable to the Participant shall be paid
to his beneficiary or, in the event that no beneficiary has been designated, to
his estate.
Section 8. Rights of Participant. Nothing in the Plan shall interfere
with or limit in any way the right of the Company to terminate the Participant's
employment at any time, nor confer upon the Participant any right to continue in
the employment of the Company.
Section 9. Amendment or Modification. The Committee, in its sole
discretion, without notice, at any time and from time to time, may modify or
amend, in whole or in part, any or all of the provisions of the Plan, or suspend
or terminate it entirely; provided, however, that no such modification,
amendment, suspension, or termination may, without the consent of the
Participant, reduce the right of the Participant to receive an Award hereunder
to which he is otherwise entitled; and, provided further, that unless the
stockholders of the Company shall have first approved thereof, no amendment of
the Plan shall be effective which would change the criteria upon which Awards
may be based or which would increase the maximum amount which can be paid to the
Participant under the Plan.
Section 10. Section 162(m) of the Code. It is intended that the Plan
and any Awards granted hereunder meet all of the requirements of Section 162(m)
of the Code and the regulations thereunder. Unless otherwise determined by the
Committee, if any provision of the Plan or any Award hereunder would disqualify
the Plan or such Award, or would otherwise not comply with Section 162(m) of the
Code, such provision or Award shall be construed or deemed amended to conform to
Section 162(m) of the Code.
Section 11. Miscellaneous.
(a) The Plan shall be governed by and construed in accordance
with the laws of the State of Delaware.
(b) The Company shall have the right to deduct from all
payments under the Plan any federal, state or local taxes required by law to be
withheld with respect to such payments.
(c) In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
(d) All costs of implementing and administering the Plan
shall be borne by the Company.
(e) All obligations of the Company under the Plan shall be
binding upon and inure to the benefit of any successor to the Company, whether
the existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
(f) Nothing contained in the Plan and no action taken pursuant
thereto shall create or be construed to create a trust of any kind, or a
fiduciary relationship between the Company or a subsidiary or any other person.
(g) No Award under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge, either voluntary or involuntary, and any attempt to so alienate,
anticipate, sell, transfer, assign, pledge, encumber or charge the same shall be
null and void. No such amount shall be liable for or subject to the debts,
contracts, liabilities, engagements, or torts of Participant or any person to
whom such benefits or funds are or may be payable.
<PAGE>
10.3
AMERICAN IRON REDUCTION PROJECT FINANCING
EQUITY CONTRIBUTION AGREEMENT
Dated as of August 30, 1996
among
AMERICAN IRON REDUCTION, L.L.C.,
GS TECHNOLOGIES OPERATING CO., INC.,
BIRMINGHAM STEEL CORPORATION
and
NATIONSBANK, N.A., as Administrative Agent
and as Collateral Agent
TABLE OF CONTENTS
Page
Section 1. Representations and Warranties.................... 1
Section 2. Consent of the Members............................ 3
Section 3. Capital Contributions............................. 3
Section 4. Covenants of the Members.......................... 6
Section 5. Amendments, Etc................................... 7
Section 6. Notices........................................... 7
Section 7. No Waiver; Remedies............................... 8
Section 8. Continuing Agreement; Transfer of Notes........... 8
Section 9. Assignment; Transfer.............................. 8
Section 10. Expenses.......................................... 9
Section 11. Members' Remedies................................. 9
Section 12. Waiver of Subrogation............................. 9
Section 13. Limitation of Members' Liability.................. 9
Section 14. Enforcement Action............................... 10
Section 15. Governing Law.................................... 10
Section 16. Submission To Jurisdiction; Waivers.............. 10
Section 17. Counterparts..................................... 11
EQUITY CONTRIBUTION AGREEMENT
EQUITY CONTRIBUTION AGREEMENT (the "Agreement") dated as of August 30,
1996 made among AMERICAN IRON REDUCTION, L.L.C., a Delaware limited liability
company (together with its successors and assigns, the "Company"), GS
TECHNOLOGIES OPERATING CO., INC., a Delaware corporation ("GSTOC"), BIRMINGHAM
STEEL CORPORATION, a Delaware corporation ("BSC"; each of GSTOC and BSC
sometimes individually called a "Member" and collectively the "Members"), and
NATIONSBANK, N.A., as Administrative Agent (in such capacity, the
"Administrative Agent") pursuant to the Credit Agreement referred to below and
as Collateral Agent (in such capacity, the "Collateral Agent") for itself and
the Secured Parties under the Security Agreement (as such term is defined in the
Credit Agreement referred to below).
Preliminary Statement. Each Member owns 50% of the membership interests
in the Company which has been formed for the purpose of developing,
constructing, owning and operating a direct reduced iron facility in St. James
Parish, Louisiana (the "Project"). In order to finance a portion of the
construction and operating costs of the Project, the Company has entered into a
Credit and Reimbursement Agreement dated as of August 30, 1996 (as it may
hereafter be amended, modified or supplemented from time to time, the "Credit
Agreement") with the Lenders named therein and the Agents party thereto.
Capitalized terms used in this Agreement and not otherwise defined herein shall
have the meanings ascribed to such terms in the Credit Agreement as in effect on
the date hereof.
It is a condition precedent to (i) the making of the Loans by the
Lenders to the Company and the obligation of the Issuing Bank to issue, and the
Lenders to participate in, the Facility Letters of Credit under the Credit
Agreement and (ii) the obligation of the Bond LC Issuer to issue, and the Bond
LC Lenders to participate in, the Bond Letter of Credit under the Bond
Documents, that each Member shall severally commit to contribute its respective
share of the Members' equity investment in the Company contemplated herein and
in the Credit Agreement. Pursuant to the Security Documents, the Collateral
Agent has agreed to act as Collateral Agent for the benefit of the Secured
Parties, to hold, administer and apply the Collateral described therein on the
terms set forth therein.
In consideration of the foregoing and in order to induce the Lenders to
make the Loans to the Company, to induce the Issuing Bank to issue, and the
Lenders to participate in, the Bond Letter of Credit under the Credit Agreement,
to induce the Company to enter into the Credit Agreement and to induce the
Members to enter into this Agreement, the Members, the Company, the
Administrative Agent, for the Lenders, and the Collateral Agent, for the ratable
benefit of the Secured Parties, agree as follows:
Section 1. Representations and Warranties. Each Member hereby makes to
the Company, the Administrative Agent and the Collateral Agent the
representations and warranties set forth in Section 2 of its respective Sponsor
Performance and Indemnity Agreement (except that with respect to the Company,
Section 2(p) is excluded). Such representations and warranties are incorporated
by reference in this Section 1 and may be relied on as if such representations
and warranties were fully set forth herein.
Section 2. Consent of the Members. Each of the Members severally
acknowledges receipt of an execution copy of the Credit Agreement and all
Schedules and Exhibits thereto and hereby confirms its consent that the Company
(i) enter into the Credit Agreement, and the other Project Documents to which it
is or is intended to be a party and (ii) perform its obligations under the
Credit Agreement and such other Project Documents.
Section 3. Capital Contributions.
3.1. Capital Contributions. Capitalized terms used in this Section 3.1
and not previously used in this Agreement or otherwise defined in the Credit
Agreement shall have the meanings ascribed to such terms in the LLC Agreement
(as in effect on the date hereof, and with any modifications that have been
approved by the Administrative Agent).
(a) Contribution of Initially Contributed Assets. Upon the
execution and delivery of this Agreement, GSTOC shall contribute the
Initially Contributed Assets, as described on Schedule B hereto, to the
capital of the Company, free and clear of any liens or encumbrances.
The Members agree that the Gross Asset Value of the Initially
Contributed Assets shall be $5,000,000.
(b) Cash Capital Contributions Made as of the Initial
Disbursement Date. As of the Initial Disbursement Date, each Member has
made the expenditures set forth on Schedule C hereto in connection with
the Project, which expenditures shall be deemed cash Capital
Contributions to the Company. In the event the Company becomes entitled
to request and receive an advance under the Credit Agreement for
reimbursement of such costs and expenses previously paid by the Company
and/or the Members, the Company shall promptly make such a request and,
to the extent of funds received for the requested reimbursement,
reimburse the Members for the cash Capital Contributions made by them
pursuant to this subsection (b) in the same proportion as such cash
Capital Contributions were made by them.
(c) Cash Capital Contributions Following Initial Disbursement
Date to Complete Project. To the extent that, after the Initial
Disbursement Date, the Total Construction Loan Commitment less the
Contingent Loan Commitment has been fully drawn, each Member shall make
cash Capital Contributions from time to time, in accordance with their
respective Funding Ratios, in such amounts and at such times as the
Members reasonably and in good faith determine are required, or as are
requested by the Company or, if an Event of Default has occurred and is
continuing, by the Administrative Agent, to permit the Company to
complete the construction and development of the Project; provided,
however, that (i) the obligation of GSTOC to make cash Capital
Contributions pursuant to this subsection (c) shall not exceed
$15,000,000 in the aggregate, minus any unreimbursed cash Capital
Contributions made by GSTOC under subsection (b) of this Section 3.1,
and (ii) the obligation of BSC to make cash Capital Contributions
pursuant to this subsection (c) shall not exceed $20,000,000, in the
aggregate minus any unreimbursed cash Capital Contributions made by BSC
under subsection (b) of this Section 3.1. Each Member agrees that any
such cash Capital Contribution required to be made under this
subsection (c) shall be made within three (3) Business Days after
receipt of a written request therefor from the Company or, if an Event
of Default has occurred and is continuing, from the Administrative
Agent.
(d) Contingent Equity Contributions. Within three (3) Business
Days after receipt of a written notice from the Company or, if an Event
of Default has occurred and is continuing, from the Administrative
Agent that a Cost Overrun has occurred, each Member shall make cash
Capital Contributions from time to time in an amount necessary to
permit the Company to pay fifty percent (50%) of any expenses incurred,
or reasonably expected to be incurred within the next 90 days, by the
Company as a result of such Cost Overrun; provided, however, that (A)
the obligation of each Member to make cash Capital Contributions
pursuant to this subsection (d) shall not exceed $7,500,000, in the
aggregate, and (B) neither Member shall have any obligation to make
cash Capital Contributions under this subsection (d) for any such
notice which is received after the earliest to occur of (1) the Final
Completion Date, (2) the Term Loan Conversion Date and (3) the date
which occurs sixty (60) months following the Closing Date. Any Special
Payments recovered by the Company shall be applied in accordance with
Section 3.04(b)(iii) of the Credit Agreement.
(e) Additional Capital Contributions on Term Loan Conversion
Date. Notwithstanding anything herein to the contrary, on the earlier
to occur of (i) the Term Loan Conversion Date and (ii) the Construction
Loan Maturity Date, each Member shall make a cash Capital Contribution
so that the total unreimbursed cash Capital Contribution pursuant to
subsections (b) and (c) of this Section 3.1 from GSTOC at such date is
not less than to $15,000,000 and from BSC at such date is not less than
$20,000,000, and such amounts shall be applied in accordance with
Sections 4.1 and 4.13 of the Security Deposit Agreement to fund the
Debt Service Reserve Account and the Completion Account and to reduce
amounts outstanding under the Construction Loans. The Company shall
provide the Members written notice of the amount of their respective
obligations for cash Capital Contributions under this Section 3.1(e) no
less than three (3) Business Days prior to the earlier to occur of (A)
the Term Loan Conversion Date and (B) the Construction Loan Maturity
Date.
(f) Capital Contributions Upon Event of Default.
Notwithstanding anything herein to the contrary, upon the occurrence
and during the continuation of a Material Event of Default, the
Administrative Agent shall have the ability to request, and each Member
shall have the obligation to fund, cash Capital Contributions in an
amount equal to $15,000,000 less prior aggregate cash Capital
Contributions made pursuant to this Agreement from GSTOC (other than
those constituting the Contingent Equity Amount) and in an amount equal
to $20,000,000 less prior aggregate cash Capital Contributions made
pursuant to this Agreement from BSC (other than those constituting the
Contingent Equity Amount), and such amounts shall be applied in
accordance with Section 4.16 of the Security Deposit Agreement. Each
Member agrees that any such cash Capital Contribution required to be
made under this subsection (f) shall be made within three (3) Business
Days after receipt of a written request therefor from the
Administrative Agent.
(g) Maximum Member Liability for Committed and Contingent
Capital Contributions. Notwithstanding anything herein or in the LLC
Agreement to the contrary, neither GSTOC nor BSC shall be obligated to
make cash Capital Contributions hereunder in excess of $22,500,000 in
the aggregate and $27,500,000 in the aggregate, respectively.
(h) The Committed Equity GSTOC Letter of Credit.
(i) If GSTOC shall fail to pay when due any cash
Capital Contributions required to be made pursuant to
subsections (c), (e) or (f) of this Section 3.1, the Committed
Equity GSTOC Letter of Credit shall be drawn upon to pay any
such amounts in accordance with its terms. The relevant
required cash Capital Contribution shall be deemed satisfied
to the extent of the amount drawn on the Committed Equity
GSTOC Letter of Credit.
(ii) If the issuer of the Committed Equity GSTOC Letter of
Credit shall provide notice, in accordance with its terms,
that such letter of credit shall not be renewed, the Committed
Equity GSTOC Letter of Credit may be drawn upon in full in
accordance with its terms and the amount drawn shall be held
and applied in accordance with this Agreement and the Security
Deposit Agreement.
(iii) The amount available to be drawn under the Committed
Equity GSTOC Letter of Credit shall be reduced by each cash
Capital Contribution made by GSTOC in accordance with
subsections (c), (e) and (f) of this Section 3.1. The
Administrative Agent shall promptly submit a reduction notice
to the issuer of such letter of credit in accordance with the
terms thereof to effect all such reductions, provided that the
Administrative Agent shall have first been notified in writing
by the Deposit Agent that a cash Capital Contribution has been
made by GSTOC and deposited in the Funding Account (as such
term is defined in the Security Deposit Agreement). The
Collateral Agent shall draw on the Committed Equity GSTOC
Letter of Credit in accordance with its terms.
(i) The Contingent Equity GSTOC Letter of Credit.
(i) If GSTOC shall fail to pay when due any cash
Capital Contributions required to be made pursuant to
subsection (d) of this Section 3.1, the Contingent Equity
GSTOC Letter of Credit shall be drawn upon to pay any such
amounts in accordance with its terms. The relevant required
cash Capital Contribution shall be deemed satisfied to the
extent of the amount drawn on the Contingent Equity GSTOC
Letter of Credit.
(ii) Notwithstanding the limitations imposed on the making
of Capital Contributions in Section 3.1(d) hereof, if the
issuer of the Contingent Equity GSTOC Letter of Credit shall
provide notice, in accordance with its terms, that such letter
of credit shall not be renewed, the Contingent Equity GSTOC
Letter of Credit may be drawn upon in full in accordance with
its terms and the amount drawn shall be held and applied in
accordance with this Agreement and the Security Deposit
Agreement.
(iii) The amount available to be drawn under the Contingent
Equity GSTOC Letter of Credit shall be reduced by each cash
Capital Contribution made by GSTOC in accordance with
subsection (d) of this Section 3.1. The Administrative Agent
shall promptly submit a reduction notice to the issuer of such
letter of credit in accordance with the terms thereof to
effect all such reductions, provided that the Administrative
Agent shall have first been notified in writing by the Deposit
Agent that a cash Capital Contribution has been made by GSTOC
and deposited in the Funding Account. The Collateral Agent
shall draw on the Contingent Equity GSTOC Letter of Credit in
accordance with its terms.
3.2. Payments Generally. All cash Capital Contributions under Section
3.1 shall be paid to the Company by wire transfer of immediately available funds
(i) if due on or prior to the Term Loan Conversion Date, to the Funding Account
and (ii) if due thereafter, to the Operating Account, in accordance with the
wiring instructions set forth in Schedule A hereto. Amounts due hereunder and
not paid when due shall bear interest at a rate per annum equal to the Base Rate
plus 2%. Whenever any cash Capital Contributions shall be stated to be due on a
day which is not a Business Day, the due date thereof shall be extended to the
next succeeding Business Day. In no event shall the amount of interest payable
hereunder exceed the maximum amount of interest permitted by applicable law.
3.3. Requests for Payment. The Company shall make all requests to
receive cash Capital Contributions from the Members on a timely basis so as to
enable the Company to pay the Obligations under the Credit Documents and all
Project Costs, operating expenses and capital expenditures as and when due in
accordance with the terms hereof. The Company shall promptly notify the
Administrative Agent of all such requests made for cash Capital Contributions
pursuant to Section 3.1 hereof.
3.4. No Set Off, Etc. The obligations, and the contingent obligations
when matured, of each Member under this Section 3 shall be absolute and
unconditional under any and all circumstances, including without limitation, the
existence of any indebtedness owing by the Company to any Member or of any
set-off, counterclaim, recoupment, defense or other right or claim which any
Member may have against the Company or any other Person, the dissolution,
bankruptcy, insolvency or reorganization of the Company or any other Person or
the pendency against the Company or any other Person of any case, suit or
proceeding under any bankruptcy or insolvency law or any other law providing for
the relief of debtors or any other circumstances whatsoever which might
otherwise constitute an excuse for non-performance of the obligations of any
Member under this Section 3, whether similar or dissimilar to any of the
circumstances herein specified. The obligations of each Member to make the
equity contributions as provided in this Section 3 shall not be affected by any
default by the Company in the performance or observance of any of its agreements
or covenants in any of the Project Documents to which it is a party and, except
as otherwise provided herein, shall not be subject to any abatement, reduction,
limitation, impairment, termination, set-off, defense, counterclaim or
recoupment whatsoever or any right to any thereof, and shall not be released,
discharged or in any way affected by any reorganization, arrangement, compromise
or plan affecting the Company, or by any compromise, settlement, release,
modification, amendment (whether material or otherwise), waiver or termination
of any or all of the obligations, conditions, covenants or agreements of any
Person in respect of any of the Project Documents, or by the occurrence of any
Default, or any "event of default" under, or by the taking or omission of any
action referred to in, any of the other Project Documents, or by the exchange,
surrender, substitution or modifications of any security for the Obligations, or
by any lack of validity or enforceability of the Credit Agreement or any of the
other Project Documents, whether or not any Member shall have notice or
knowledge of any of the foregoing.
Section 4. Covenants of the Members.
Each of the Members severally agrees that, so long as any of the
Obligations shall remain unpaid or any Lender shall have any Commitment, it
will, unless the Required Lenders shall otherwise consent in writing:
(a) Not terminate this Agreement, the LLC Agreement or any
other Project Document to which it is a party (except as provided in
accordance with the DRI Purchase Agreements), or agree to any amendment
or modification thereof which would reduce the Members' monetary
obligations to the Secured Parties or otherwise have a material adverse
effect on the interests of the Secured Parties in their capacity as
such or the Lenders in their capacity as such.
(b) Not sell, assign or otherwise transfer, or create or
permit any Lien to exist (directly or indirectly) upon its interest now
or hereafter existing in the Company except as permitted in accordance
with Section 3.1(h) or 3.1(n) of such Member's Sponsor Performance and
Indemnity Agreement.
(c) Each Member shall cooperate with the Collateral Agent and
the Secured Parties and with the Administrative Agent and the Lenders
and take such actions and execute such further instruments and
documents as the Collateral Agent or the Administrative Agent shall
reasonably request to carry out the transactions contemplated by this
Agreement.
Section 5. Amendments, Etc.
No amendment or waiver of any provision of this Agreement nor consent
to any departure by any Member or the Company therefrom shall in any event be
effective unless the same shall be in writing and signed by the Administrative
Agent at the request of the Required Lenders (as required by the Credit
Agreement), and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
Section 6. Notices.
All demands, notices and other communications provided for hereunder
shall be in writing and sent by mail, telex, telecopier or hand delivery to any
Member at its address on the signature pages hereof, to the Company with copies
to (x) the Administrative Agent at its address on the signature pages of the
Credit Agreement and (y) the Collateral Agent or any Secured Party at its
address specified in the Security Agreement, or as to each party at such other
address as shall be designated by such party in a written notice to each other
party complying as to delivery with the term of this Section. All such demands,
notices and other communications shall be effective, (i) when mailed, five days
after deposited in the mails, postage prepaid, (ii) when delivered by hand or by
an air express service or other courier, upon receipt, (iii) when delivered by
telex, upon receipt of the appropriate answer back, and (iv) when delivered by
telecopier, upon receipt of an acknowledgement of receipt in writing, in each
case addressed as aforesaid. Notwithstanding any provision of this Agreement to
the contrary, all notices and requests for contribution or payment required to
be furnished by the Company, pursuant to the terms and provisions of this
Agreement shall, on and after the commencement of bankruptcy or insolvency
proceedings with respect to the Company, be deemed given at the time required to
be made hereunder without any action by the Company.
Section 7. No Waiver; Remedies.
(a) No failure on the part of the Company, the Collateral
Agent or any Secured Party or the Administrative Agent or any Lender to
exercise, and no delay in exercising, any right hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
(b) Upon any failure by a Member to comply with its
obligations hereunder, the Company shall be authorized to demand
specific performance of such obligations, whether or not such party
shall have complied with the provisions of this Agreement applicable to
it. Each Member hereby waives any defense based on the adequacy of a
remedy at law which might be asserted as a bar to the remedy of
specific performance in any action brought therefor by any such party.
(c) On and after the commencement of bankruptcy or insolvency
proceedings with respect to the Company or any Member, the Company or
such Member, as the case may be, hereby waives presentment, demand,
protest or any notice (to the extent permitted by law) of any kind in
connection with this Agreement.
Section 8. Continuing Agreement; Transfer of Notes.
This Agreement is a continuing agreement and shall (i) remain in full
force and effect so long as any Member shall have any obligation to make Capital
Contributions pursuant to Section 3 hereof, (ii) be binding upon the Members and
the Company and their respective successors and assigns, and (iii) inure to the
benefit of and be enforceable by the Company, the Secured Parties, the
Collateral Agent, the Lenders and the Administrative Agent and their respective
permitted successors, transferees and assigns.
Section 9. Assignment; Transfer.
(a) The Company may not assign its rights or obligations
hereunder except to the Collateral Agent on the terms provided in the
Security Documents or as the Collateral Agent shall otherwise agree.
(b) Except as otherwise provided in this Agreement, no Member
may assign or be released from its obligations hereunder without the
consent of the Collateral Agent.
(c) No transfer or assignment by a Member of all or any
portion of its membership interest in the Company shall relieve such
Member of its obligations hereunder.
Section 10. Expenses.
In the event a Member shall default in any of its obligations
hereunder, such Member shall pay the reasonable out-of-pocket costs of the
Collateral Agent, the Administrative Agent or the Company, as the case may be
(including reasonable fees and expenses of legal counsel), incurred in
connection with the enforcement of this Agreement against it.
Section 11. Members' Remedies.
In the event a Member shall default in any of its payment obligations
hereunder, the other nondefaulting Member may, prior to the commencement by the
Collateral Agent of the exercise of its remedies hereunder, cure such default.
Section 12. Waiver of Subrogation.
In the event of payments by a Member to the Collateral Agent, the
Administrative Agent or any Lender, no right of subrogation is intended to be
created. If a right of subrogation is nevertheless created, however, the Members
shall not be entitled to, and shall not be subrogated to, any of the rights of
the Lenders or the Secured Parties against the Company or pursuant to any
collateral security held by the Collateral Agent for the payment of the
Obligations. If, notwithstanding the preceding sentence, any amount shall be
paid to any Member or Members on account of such subrogation rights at any time
when any of the Obligations shall not have been paid in full, such amount shall
be held by such Member or Members in trust for the Secured Parties or the
Lenders, as the case may be, segregated from other funds of such Member or
Members and be turned over to the Collateral Agent in the exact form received by
such Member or Members (duly endorsed by any such Member or Members to the
Collateral Agent if required), to be applied against the Obligations, whether
matured or unmatured, in accordance with the Security Documents.
Section 13. Limitation of Members' Liability.
(a) Each of the parties hereto agrees that the liabilities of
the Members under this Agreement are several and not joint and no
Member shall have any personal liability for the obligations of the
other Member hereunder.
(b) No Member (nor any officer, employee, executive, director,
agent, authorized representative or affiliate of such Member (herein
referred to as "operatives")) shall be personally liable for any
payments due by the Company under any of the Project Documents (except
in accordance with the GSI Guaranty and the Sponsor Performance and
Indemnity Agreements, as applicable) or for the performance of any
obligation thereunder.
Section 14. Enforcement Action.
Each Member hereby agrees that (a) pursuant to the exercise of
remedies, the Collateral Agent or the Administrative Agent or their respective
permitted designees or transferees may succeed to the rights, powers,
privileges, interest and remedies of the Company, whether arising under this
Agreement or by statute or in law or in equity or otherwise and (b) the
Collateral Agent and the Administrative Agent, each as a third party beneficiary
of this Agreement, shall have the right to enforce directly the provisions
hereof against each of the other parties hereto. In addition to, and not in
derogation of, the foregoing the Collateral Agent or the Administrative Agent
may, in addition to proceeding in their respective names or otherwise, proceed
to protect and enforce the rights of the Company under this Agreement by suit in
equity, action at law or other appropriate proceedings, whether for the specific
performance of any covenant or agreement contained in this Agreement or
otherwise, and whether or not the Member shall have complied with any of the
provisions hereof or proceeded to take any action authorized or permitted under
applicable law. Each and every right and remedy of the Collateral Agent and the
Administrative Agent shall, to the extent permitted by law, be cumulative and
shall be in addition to any other remedy given hereunder or under the Credit
Documents or any other Project Document or now or hereafter existing at law or
in equity or by statute.
Section 15. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NORTH CAROLINA.
Section 16. Submission To Jurisdiction; Waivers.
(a) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY, IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR FOR RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE
GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NORTH CAROLINA, THE
COURTS OF THE UNITED STATES OF AMERICA FOR THE WESTERN DISTRICT OF
NORTH CAROLINA, AND APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY
BE BROUGHT IN SUCH COURTS, AND WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH
ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY
REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF
MAIL), POSTAGE PREPAID, TO THE SUCH PARTY AT ITS ADDRESS SPECIFIED IN
SECTION 6 HEREOF; AND
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE
RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY
OTHER JURISDICTION.
(b) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO OR ARISING OUT OF THIS AGREEMENT.
Section 17. Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute but one and the same agreement.
<PAGE>
THUS DONE AND PASSED in Charlotte, NC on the 30th day of August, 1996,
effective as of the effective date set forth above, in the presence of the
undersigned competent witnesses who hereunto sign their names with the
undersigned party and me, Notary, after due reading of the whole.
GS TECHNOLOGIES OPERATING CO., INC.
Attest:
By:Fred Rocchio By David M. Yarborough
Name:Fred Rocchio Name: David M. Yarborough
Title:____________ Title: Vice President
Address: 1901 Roxborough Road
Suite 200
(Corporate Seal) Charlotte, NC 28211
WITNESSES:
Andrea Goodra
Charles B. Simmons
Glenda F. Dowdle
Notary Public
Printed Name: Glenda F. Dowdle
My Commission Expires: Sept. 28, 2000
<PAGE>
THUS DONE AND PASSED in Charlotte, NC on the 30th day
of August, 1996, effective as of the effective date set forth above, in the
presence of the undersigned competent witnesses who hereunto sign their names
with the undersigned party and me, Notary, after due reading of the whole.
BIRMINGHAM STEEL CORPORATION
Attest:
By:Jim F. Tierney By John M. Casey
Name:______________ Name: John M. Casey
Title:_____________ Title: Vice President
Address:1000 Urban Center Drive
Suite 300
(Corporate Seal) Birmingham, AL 35242
WITNESSES:
M. L. Nielsen
Betty A. Robison
Notary Public
Printed Name: Betty A. Robison
My Commission Expires: 4-28-98
<PAGE>
THUS DONE AND PASSED in Charlotte, NC on the 30th day
of August, 1996, effective as of the effective date set forth above, in the
presence of the undersigned competent witnesses who hereunto sign their names
with the undersigned party and me, Notary, after due reading of the whole.
AMERICAN IRON REDUCTION, L.L.C.
By John M. Casey (SEAL)
Name: John M. Casey
Title: Authorized Representative
By David M. Yarborough (SEAL)
Name: David M. Yarborough
Title: Authorized Representative
(Limited Liability
Company Seal)
WITNESSES:
Andrea Goodra
Betty A. Robinson
Notary Public
Printed Name: Betty A. Robinson
My Commission Expires: 4-28-98
<PAGE>
THUS DONE AND PASSED in Charlotte, NC on the 30th day
of August, 1996, effective as of the effective date set forth above, in the
presence of the undersigned competent witnesses who hereunto sign their names
with the undersigned party and me, Notary, after due reading of the whole.
WITNESSES: NATIONSBANK, N.A., as Administrative
M.L. Nielsen Agent and as Collateral Agent
Michael Hinds
By Jeanmarie Betz
Name: Jeanmarie Betz
Title: SVP
Betty A. Robinson
Notary Public
Printed Name: Betty A. Robinson
My Commission Expires: 4-28-98
<PAGE>
10.4
DRI PURCHASE AGREEMENT
Between
BIRMINGHAM STEEL CORP.
and
AMERICAN IRON REDUCTION, L.L.C.
Dated as of August 30, 1996
TABLE OF CONTENTS
ARTICLE 1. PURCHASE AND SALE OF DRI .........................................1
1.1 Obligation to Produce and Tender................................1
1.2 Obligation to Purchase; Quantity................................2
1.3 Termination of Buyer's Obligation to Purchase...................2
1.4 Allocation of DRI between Buyer and Co-Buyer....................3
1.5 Excess Annual Production........................................3
1.6 Economic Delivery Quantities; Invoice...........................4
ARTICLE 2. DELIVERY; TRANSPORTATION .........................................4
2.1 FOB Terms.......................................................4
2.2 Title and Risk of Loss..........................................5
2.3 Weights.........................................................5
2.4 Buyer's Obligation to Arrange Transportation....................5
ARTICLE 3. SPECIFICATIONS FOR DRI AND SAMPLING ..............................6
3.1 Specifications..................................................6
3.2 Sampling, Analyzing and Inspecting Procedures...................6
3.3 Inspection of DRI at Time of Delivery...........................6
ARTICLE 4. BILLING AND PAYMENT TERMS ........................................6
4.1 Invoice Terms...................................................6
4.2 Determination of Invoice Price..................................7
4.3 Quarterly True-Up Invoice......................................10
4.4 Termination True-Up Invoice....................................10
4.5 Payment Terms..................................................11
4.6 Voluntary Payment Terms........................................12
4.7 Increased Price Resulting from Third-Party Operator............12
ARTICLE 5. ACCOUNTING AND RECORDS ..........................................12
5.1 Maintaining Records; Access to Facility and Inspections;Audits.12
5.2 Delivery of Seller's Financial Statements......................12
5.3 Planning and Budgeting.........................................13
ARTICLE 6. WARRANTIES AND LIMITATION OF LIABILITY ..........................15
6.1 Specifications Warranty........................................15
6.2 Warranty Limitation............................................15
6.3 Claims.........................................................16
ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF BUYER .........................16
7.1 Organization; Power; Qualification.............................16
7.2 Authorization; Enforceable Obligations; Compliance with Law....17
7.3 Governmental Approval; No Conflicts............................17
ARTICLE 8. TERM, DEFAULT AND TERMINATION ...................................17
8.1 Term...........................................................17
8.2 Default........................................................18
8.2.1 Monetary Default....................................18
8.2.2 Non-Monetary Default................................18
8.2.3 Rights Upon Cancellation............................18
8.3 Bankruptcy, Receivership, etc..................................18
ARTICLE 9. FORCE MAJEURE ...................................................19
9.1 Force Majeure..................................................19
9.1.1 Force Majeure Defined...............................19
9.1.2 Effect of Force Majeure.............................20
9.2 Notice of Force Majeure........................................20
9.3 Extension......................................................20
ARTICLE 10. SELLER'S REPORTING COVENANT ....................................20
ARTICLE 11. DEFINITIONS ....................................................21
ARTICLE 12. MISCELLANEOUS ..................................................23
12.1 Notice.........................................................23
12.2 Rights and Remedies Cumulative.................................24
12.3 Taxes..........................................................24
12.4 Successors and Assigns/Assignment..............................25
12.5 Waiver.........................................................25
12.6 Governing Law..................................................25
12.7 Number.........................................................25
12.8 Table of Contents and Headings.................................25
12.9 Severability...................................................25
12.10Counterparts...................................................26
12.11Entire Agreement...............................................26
12.12No Third Party Beneficiaries...................................26
Index of Defined Terms
3-Month Trailing Expenses, 7
70% Event, 2
Agreement, 1
Annual Financial Statements, 12
Average Production of DRI, 2
Buyer, 1
Buyer Percentage, 11
Cap Price, 21
Carrier, 21
Co-Buyer, 21
Co-Buyer Agreement, 22
Credit Agreement, 22
Debt Service Period, 9
Debt Service Period Shipments, 9
delivery, 5
Expenses, 22 FOB, 22 Force Majeure, 19 GAAP, 22 Indebtedness, 22
Invoice Price, 7 Market Price for No. 1 Bundles, 22 Metric Tonne, 23
Monthly Financial Statements, 13 MT, 23 Nameplate Capacity, 23 Next
Quarters Debt Service Amount, 9 Pound, 23 Pricing Changeover Date, 23
Project Operating Budget, 13 Quarterly Debt Service Invoice Component,
10 Quarterly Period, 3 QuarterlyTrue-UpInvoice, 10 Revocation of
Termination Notice, 2 Scheduled Down-Time, 23 Scheduled Payments of
Principal, 23 Seller, 1 Shipment Period, 9 Standstill Period, 3 Term,
17 Termination Date, 17 Termination Event, 3 Termination Notice, 2
Termination True-Up Invoice, 11 Three Months Preceding Termination, 11
DRI PURCHASE AGREEMENT
THIS DRI PURCHASE AGREEMENT (the "Agreement"), dated as of August 30,
1996, is entered into between BIRMINGHAM STEEL CORP., a Delaware corporation
with its principal corporate office in Birmingham, Alabama ("Buyer"), and
AMERICAN IRON REDUCTION, L.L.C., a Delaware limited liability company with its
principal place of business in Convent, Louisiana ("Seller");
WHEREAS, Seller is in the process of constructing a Facility for the
production of DRI which Facility has a rated capacity of 1.2 million Metric
Tonnes of DRI per year; and
WHEREAS, the Co-Buyer has committed to purchase up to 600,000 Metric
Tonnes of DRI per year (to the extent the same or any portion thereof
is tendered to Co-Buyer) produced by Seller pursuant to the Co-Buyer
Agreement; and WHEREAS, Buyer desires to purchase up to 600,000 Metric
Tonnes of DRI per year to the extent the same or any portion thereof is
tendered to Buyer; and WHEREAS, Seller and Buyer desire to enter into a
long term agreement for the sale and purchase, respectively, of such
DRI pursuant to the terms and conditions hereof; NOW, THEREFORE, in
consideration of the foregoing, of the mutual covenants set forth below
and of other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by the parties hereto, the
parties hereto agree as follows:
ARTICLE 1. PURCHASE AND SALE OF DRI
1.1. Obligation to Produce and Tender
Subject to the terms and conditions of this Agreement, including,
without limitation, Article 9. hereof, Seller agrees to use commercially
reasonable efforts to produce and tender to Buyer 600,000 Metric Tonnes of DRI
during each calendar year after Completion (or the pro rated portion thereof
during any partial year of the Term after Completion).
1.2. Obligation to Purchase; Quantity
Buyer agrees, subject to the terms and conditions hereof, including,
without limitation, Section 1.3. hereof, to purchase 600,000 Metric Tonnes of
DRI each calendar year after Completion (or the pro rated portion thereof during
any partial year after Completion) to the extent the same or any portion thereof
is tendered to Buyer as provided in Sections 1.1. and 1.6. hereof. Buyer may,
but shall have no obligation to, purchase more than 600,000 Metric Tonnes of DRI
during any calendar year (or the pro rated portion thereof during any partial
year of the Term) during the Term. The foregoing to the contrary
notwithstanding, unless Buyer expressly agrees to do so Buyer shall have no
obligation to purchase during any calendar month more than 65,000 Metric Tonnes
of DRI. 1.3. Termination of Buyer's Obligation to Purchase
(a) If, following the Pricing Changeover Date, a Termination Event
shall occur after the end of a Preliminary Action Period and prior to the
occurrence of a 70% Event, then Buyer may, within 30 days after the occurrence
of such Termination Event, notify the Seller in writing of Buyer's election to
terminate this Agreement (hereinafter a "Termination Notice"). Receipt of such
Termination Notice by Seller shall commence a Standstill Period. Such
termination shall take effect immediately upon the expiration of such Standstill
Period unless (i) a 70% Event occurs during such Standstill Period or (ii)
Seller receives a written notice from Buyer revoking such Termination Notice
(hereinafter a "Revocation of Termination Notice") during such Standstill
Period. If Buyer is precluded from terminating this Agreement as a result of the
occurrence of a 70% Event or revokes its Termination Notice, then Buyer may not
terminate this Agreement pursuant to this Section 1.3. except upon the
occurrence of a subsequent Termination Event after the occurrence of a new
Preliminary Action Period.
(b) As used herein, the following terms shall have the meanings
set forth below:
"70% Event" shall mean the occurrence of a period of at least
30 consecutive days during which Average Production of DRI at
the Facility equals or exceeds 70% of Nameplate Capacity.
"Average Production of DRI" for a period shall mean average
daily production of DRI computed without regard to any days
during which the Facility was subject to Force Majeure or
Scheduled Down-Time.
"Standstill Period" shall mean the period which commences upon
the receipt by the Seller of a Termination Notice and which ends on the
earlier of (a) the 120th day following receipt by the Seller of such
Termination Notice; (b) the occurrence of a 70% Event; or (c) receipt
by Seller of a Revocation of Termination Notice.
"Termination Event" shall mean the occurrence of a period of
at least three consecutive months in which Average Production of DRI at
the Facility is less than 70% of Nameplate Capacity.
1.4. Allocation of DRI between Buyer and Co-Buyer
It is the intent of the parties to this Agreement that DRI produced and
sold pursuant to Section 1.1. and Section 1.2. hereof shall be shared equally
between the Buyer and the Co-Buyer. It is also the intent of the parties hereto
that the price for any such DRI purchased by the Buyer and the Co-Buyer shall be
equal such that at the end of any such year or partial year, the amount of DRI
delivered to each of the Buyer and the Co-Buyer and the aggregate price thereof
shall be equal. To such end, the Buyer and the Seller agree to cooperate with
each other and with the Co-Buyer to schedule the production and delivery of DRI
in such a way that the foregoing intent can be realized to the extent reasonably
practicable. The foregoing statement of intent shall not be, and shall not be
deemed in any way to constitute, an obligation to purchase DRI by either the
Buyer or the Co-Buyer. Any such obligation to purchase is contained in the terms
otherwise provided herein and shall not be affected by the statement of intent
contained herein. 1.5. Excess Annual Production
To the extent Seller determines that the Facility's production of DRI
during any calendar year (or partial year) may exceed the aggregate maximum
purchase commitment of Buyer hereunder for such calendar year (or partial year),
as set forth in Section 1.2. and of Co-Buyer pursuant to the comparable section
of the Co-Buyer Agreement, Buyer and the Co-Buyer shall each have the right, but
not the obligation, to purchase up to 50% of such estimated excess production
under the terms and conditions of this Agreement and the Co-Buyer Agreement,
respectively. Within fifteen (15) days of June 30 and September 30 of each year
(each a "Quarterly Period"), Seller shall analyze whether its production of DRI
for such year may exceed 1.2 million Metric Tonnes on an annualized basis. If
after each such analysis, Seller determines that its production of DRI may
exceed 1.2 million Metric Tonnes on an annualized basis during such year (or if
Buyer or Co-Buyer has previously agreed to purchase any such excess production,
Seller has determined that its production of DRI may exceed 1.2 million Metric
Tonnes plus the amount of excess production previously agreed to be purchased)
Seller shall promptly notify after each such analysis both the Buyer and the
Co-Buyer in writing of the estimated excess production, following which the
Buyer shall have a period of 10 days to elect, by written notice to Seller, to
purchase up to one half of such estimated excess production. Failure of Buyer to
provide Seller notice of its election to purchase any portion of such estimated
excess production within the prescribed time shall be deemed to be a rejection
by Buyer to purchase such estimated excess production. Any rejection (or deemed
rejection) by Buyer to purchase any estimated excess production of DRI
anticipated to be produced as of any Quarterly Period shall be irrevocable and
binding upon Buyer, but a rejection (or deemed rejection) by Buyer following the
notice for the June 30 Quarterly Period shall not preclude Buyer's acceptance of
the offer to sell any excess production following the notice for the September
30 Quarterly Period. To the extent the Co-Buyer declines to purchase a portion
of such estimated excess production, the Seller shall promptly notify the Buyer
of such declination, and the Buyer shall have a period of 10 days thereafter to
elect, by written notice to Seller, to purchase all or a portion of the
Co-Buyer's unpurchased share of such estimated excess production. If Buyer
elects to purchase all or a portion of the estimated excess production, Seller
shall be obligated to use commercially reasonable efforts to produce the portion
of such excess production as Buyer agreed to purchase. Similarly, Buyer shall be
obligated to purchase the portion of such estimated excess production Buyer has
agreed to purchase, or so much thereof as Seller shall actually tender, if less.
In the event Seller, despite using commercially reasonable efforts, does not
tender the full amount of such estimated excess production which Buyer agrees to
purchase, nothing herein shall obligate Seller to cover any such shortfall.
Buyer and Seller agree to cooperate with each other and with the Co-Buyer to
develop mutually acceptable production and delivery schedules for such estimated
excess production with an effort to maximizing production of DRI and minimizing
its storage. Nothing herein shall prevent Seller from agreeing to produce DRI in
excess of the amount referred to in Section 1.2. or Buyer from agreeing to
purchase such excess DRI so long as such agreements are in compliance with the
other terms of this Agreement; provided, however, Seller agrees that it will not
produce any DRI in excess of the amount referred to in Section 1.2. unless the
Buyer or the Co-Buyer has agreed in writing to purchase the same. 1.6. Economic
Delivery Quantities; Invoice
Notwithstanding anything herein to the contrary, Buyer shall have no
obligation to take delivery of any DRI hereunder in quantities of less than
2,500 MT per delivery. Seller agrees to use commercially reasonable efforts to
maintain inventory levels of DRI as set forth in the Project Operating Budget.
The parties hereto understand and acknowledge that production of DRI may not
equal shipments to Buyer and Co-Buyer every month. However, Seller and Buyer
agree to cooperate with each other and with Co-Buyer to minimize any differences
between production and shipment. ARTICLE 2. DELIVERY; TRANSPORTATION 2.1. FOB
Terms
Seller shall deliver DRI in the amounts determined pursuant to Sections
1.1. and 1.2. hereof to Buyer FOB Buyer's vessel or train at the Materials
Handling Facility or FOB Buyer's truck at the Facility (in either case, as
instructed by Buyer prior to delivery). For purposes hereof, "delivery" of DRI
shall mean Seller's putting the DRI in the possession of the carrier specified
by Buyer. For purposes of this Agreement, it is assumed that no DRI will be
exported from the United States.
2.2. Title and Risk of Loss
Title to and risk of loss of DRI sold by Seller to Buyer hereunder
shall pass to Buyer or its designee upon delivery to Buyer or its designee as
provided in Section 2.1. of this Agreement.
2.3. Weights
The weight of each shipment of DRI shall be determined (i) by the
Carrier by scale weights obtained at the Materials Handling
Facility if the DRI is to be shipped by rail or by means of a
draft survey conducted by an independent qualified marine
surveyor (engaged by Carrier) upon loading if shipped by ship
or barge, or (ii) by Seller by scale weights obtained at the
Facility if the DRI is to be shipped by truck.
Such weight shall be furnished to Buyer or its designee with each
shipment and shall be presumed to be correct. However, Buyer shall have the
right to investigate such weights and to otherwise verify the weight of any
shipment. To such end, Seller will at the request of Buyer exercise such rights
as it may have under the Materials Handling Agreement regarding inspection of
the Carrier's scales. In the event investigation or verification by Buyer
indicates a variance from the weight provided by the Carrier, the source of the
variance shall be jointly analyzed by representatives of the Seller, the Carrier
and the Buyer and errors when ascertained shall be promptly corrected to the
extent appropriate in accordance with the Materials Handling Agreement. 2.4.
Buyer's Obligation to Arrange Transportation
Buyer agrees to arrange for transportation for all deliveries of DRI
tendered to Buyer in accordance with the Project Operating Budget. In the event
that Seller produces and tenders DRI in accordance with such Project Operating
Budget and Buyer fails to provide transportation therefor upon tender to the
Buyer in accordance with such Project Operating Budget, Seller may, but shall
not be obligated to, arrange for the storage of such DRI at the expense of
Buyer. If Seller arranges for such storage, it shall give Buyer prompt written
notice thereof. Buyer acknowledges and agrees that the Seller may store such DRI
at the Materials Handling Facility (including rail cars located on or in
reasonable proximity to the Materials Handling Facility), at any temporary or
permanent storage facilities located at the Facility, on river barges engaged
for such purposes or at such other reasonable locations as Seller may elect. DRI
so stored shall be deemed to have been delivered to Buyer as provided in Section
2.1. hereof. ARTICLE 3. SPECIFICATIONS FOR DRI AND SAMPLING 3.1. Specifications
DRI shall be supplied in the form of pellets or in such other form as
may be agreed upon by the parties hereto. DRI delivered pursuant to this
Agreement shall have the specifications set forth on attached Schedule 1. It is
understood and agreed by the parties hereto that although individual samples of
DRI delivered pursuant to this Agreement may vary from the specifications set
forth on Schedule 1, the DRI will meet or exceed such specifications when such
samples are taken as an average over an entire shipment. No warranty is made
with respect to DRI pursuant to this Section 3.1. Any warranty made in this
Agreement is made pursuant to Section 6.1. 3.2. Sampling, Analyzing and
Inspecting Procedures
Seller shall establish and ensure the full and proper implementation of
procedures for the representative sampling and analysis of DRI produced at the
Facility. Such sampling procedures shall comply with International Standards
Organization standards and good industry practices. Seller shall conduct its
analysis of the samples at the Facility prior to delivery thereof. Buyer shall
have the right to audit such procedures and their implementation as well as all
analytical results relating to shipments of DRI delivered to Buyer at reasonable
times and with reasonable frequency. Buyer shall also have the right to inspect
and observe the process at the Facility. Copies of applicable test results shall
be provided to Buyer by Seller upon receipt of a written request for such
results. Seller shall retain such samples for a period of not less than 6 months
and shall make the same available to Buyer upon its reasonable request.
3.3. Inspection of DRI at Time of Delivery
Seller shall give Buyer oral notice of its intent to deliver a shipment
of DRI in accordance with the Project Operating Budget, and Buyer shall have the
right to inspect the same at the time of delivery.
ARTICLE 4. BILLING AND PAYMENT TERMS
4.1. Invoice Terms
Seller shall invoice Buyer on the date Seller delivers DRI to Buyer as
provided in Section 2.1. hereof. The price per Metric Tonne of DRI as shown on
such invoice for DRI shall be the Invoice Price for DRI for the month in which
it was produced.
4.2. Determination of Invoice Price.
As used herein, the term "Invoice Price" of a Metric Tonne of DRI shall
have the meaning ascribed to such term in the following subsections, as
applicable.
(a) Prior to Pricing Changeover Date. The Invoice Price for DRI
produced prior to the Pricing Changeover Date shall be Seller's good faith
estimate of the actual price of producing DRI during such month. In determining
the price per Metric Tonne for such month, the Seller shall use the estimate of
Metric Tonnes to be produced during such month as set forth in the Project
Operating Budget. The Seller shall adjust the estimate monthly to reflect (i)
the actual Expenses incurred by Seller during the prior month, (ii) all
Scheduled Payments of Principal (and without duplication of Expenses taken into
account pursuant to (i) above, all interest, fees and other amounts (other than
principal) due under the Credit Agreement which accrued during such month)
regarding Indebtedness of the Seller which will be due and payable during the
next succeeding month, (iii) the amount for such month for capital expenditures
and major maintenance expenses as set forth in the Project Operating Budget, and
(iv) the amount required by the Credit Agreement and the Security Deposit
Agreement for such month for funding the Debt Service Reserve Account
(determined pursuant to Section 9.17 of the Credit Agreement without regard to
any provision thereof relating to the excess of the Cap Price over the Invoice
Price) and the Maintenance Account; provided, however, during any month which
occurs prior to the Term Loan Conversion Date, (x) the Invoice Price per Metric
Tonne of DRI shall, in lieu of the interest component provided for in clause
(ii) above, include a component equal to estimated interest to be accrued during
the next succeeding month divided by 70,000 Metric Tonnes, and (y) the Invoice
Price per Metric Tonne of DRI shall not exceed the DRI Market Price for the
preceding month.
(b) After Pricing Changeover Date. For any month which occurs
after the Pricing Changeover Date, the Invoice Price per Metric Tonne of DRI
shall be the sum of
(i) the quotient which results when the sum of the
following
(A) all Expenses incurred by the Seller during
the 3-months ending on the last day of the
month immediately preceding the month for
which the Invoice Price is being determined
other than interest expense (including all
fees and other amounts (other than
principal) to be due under the Credit
Agreement during such period) for such
period upon Indebtedness of the Seller
("3-Month Trailing Expenses") plus
(B) the amount required by the Project Operating
Budget and the Credit Agreement for such
month and the next two successive months for
funding the Maintenance Account, plus
(C) the amount required by the Credit Agreement
and the Security Deposit Agreement for such
month and the next two successive months for
funding the Debt Service Reserve Account
is divided by the aggregate number of Metric Tonnes of DRI produced by
the Seller which conform to (or exceed) the specifications set forth in
Schedule 1 hereto over the 3-months ending on the last day of the month
immediately preceding the month for which the Invoice Price is being
determined; plus
(ii) the Debt Service Invoice Component (as determined
pursuant to subsection (e) below)
provided, however, during any month which occurs prior to the Principal
Deferral Termination Event, the Invoice Price per Metric Tonne of DRI
shall not exceed the Cap Price for the preceding month if during such
preceding month the Facility operated at 95% of Nameplate Capacity or
better; provided further, however, for each January, February and March
during the Term, Expenses for the months of January, February and
March, as set forth in the Project Operating Budget for the year in
which such months occur, shall be used in lieu of the 3-Month Trailing
Expenses except that following the end of each such month, the actual
Expenses incurred by the Seller in such month shall be used in lieu of
the estimated amount thereof contained in the Project Operating Budget
for such month. (c) Relation of Invoice Price to Cap Price. Subsections
(a) and (b) of
this Section 4.2. to the contrary notwithstanding, for any month which occurs
prior to a Principal Deferral Termination Event and in which the Invoice Price
per Metric Tonne of DRI exceeds the Cap Price for the preceding month, the price
per Metric Tonne of DRI shall be the Cap Price for the preceding month if during
such preceding month the Facility operated at 95% of Nameplate Capacity or
better. If a Principal Deferral is outstanding during such month and if such
month occurs prior to the Principal Deferral Termination Date; the price for DRI
shall be the Cap Price for the month preceding such month unless during the
preceding month the Facility operated at less than 95% of Nameplate Capacity in
which case the price will be the greater of
(i) the Cap Price for the month immediately preceding
such month; or
(ii) the Invoice Price for such month determined pursuant to
subsection (b) above without regard to the first proviso contained
therein.
If a Principal Deferral is outstanding during such month and if such month
occurs after a Principal Deferral Termination Event; the price for DRI shall
be the greater of
(i) the Cap Price for the month immediately preceding
such month; or
(ii) the Invoice Price for such month determined pursuant to
subsection (b) above without regard to the first proviso contained
therein.
(d) Pricing During Standstill Period. The provisions of Subsections (b)
and (c) of this Section to the contrary notwithstanding, during any Standstill
Period, the Invoice Price of DRI for a month shall be the lesser of (i) the
Invoice Price for such month computed pursuant to Subsections (b) and (c) of
this Section; and (ii) the DRI Market Price for the month immediately preceding
such month.
(e) Debt Service Invoice Component. The Debt Service Invoice Component
shall be computed as the quotient that results when the Next Quarters' Debt
Service Amount is divided by the Debt Service Period Shipments. As used herein,
the following terms shall have the meanings set forth below:
"Debt Service Period" shall mean the three months ending on
the next Term Loan Amortization Date in accordance with Section 3.05(b) of the
Credit Agreement.
"Debt Service Period Shipments" shall mean the aggregate
number of Metric Tonnes of DRI to be shipped by the Seller to Buyer and
Co-Buyer pursuant to this Agreement and the Co-Buyer Agreement during
the Shipment Period as set forth in the then current Project Operating
Budget excluding any month for which actual shipments are known.
"Next Quarters' Debt Service Amount" shall mean all Scheduled
Payments of Principal regarding Indebtedness of the Seller and
estimated interest (including all fees and other amounts (other than
principal) to be due under the Credit Agreement during such period) on
such Indebtedness which will be due and payable during the next
succeeding Debt Service Period less (i) any such amounts previously
included in invoices to Buyer and Co-Buyer during the Shipment Period
and (ii) the amount, if any, remaining in the Debt Service Account
available for the payment of Scheduled Payments of Principal at the
beginning of such Debt Service Period.
"Shipment Period" shall mean the three months ending with the
month next preceding the month in which the applicable Term Loan Amortization
Date occurs.
(f) Final Payment upon Failure of Term Loan Conversion Date to Occur.
If the Term Loan Conversion Date does not occur by the Date Certain, the Buyer
shall pay to Seller, as an adjustment to the purchase price for all DRI tendered
for delivery hereunder prior to the Date Certain, the excess (if any) of the
aggregate Invoice Price for all DRI tendered to Buyer over the actual aggregate
price (whether computed using the Invoice Price or the Market Price) charged for
such DRI during such period. Buyer shall pay such amount promptly after receipt
from Seller of a statement showing the computation of such amount in reasonable
detail.
(g) Relation of Invoice Price to Funding the Debt Service Reserve Fund.
Subsections (a) and (b) of this Section 4.2. to the contrary notwithstanding,
for any month which occurs after the withdrawal of funds on deposit in the Debt
Service Reserve Account and prior to the repayment thereof as required by
Section 9.17 of the Credit Agreement, the price per Metric Tonne of DRI shall be
the Cap Price for the month preceding such month unless during the preceding
month the Facility operated at less than 95% of Nameplate Capacity in which case
the price will be the greater of
(i) the Cap Price for the month immediately preceding such
month; or
(ii) the Invoice Price for such month determined pursuant to
subsection (b) above without regard to the first proviso contained therein.
4.3. Quarterly True-Up Invoice
On or before the 10th day of each month in which a Term Loan
Amortization Date occurs, the Seller shall deliver to Buyer a statement (the
"Quarterly True-Up Invoice") for an adjustment to the purchase price for DRI
tendered for delivery to Buyer during the Shipment Period relating to such Term
Loan Amortization Period. The amount of the Quarterly True-Up Invoice shall be
the product of the number of Metric Tonnes of DRI tendered for delivery to Buyer
during such Shipment Period multiplied by the Quarterly Debt Service Invoice
Component; provided, however, the amount of the Quarterly True-Up Invoice shall
be reduced to the extent necessary to prevent the price for DRI in any month
from exceeding the Cap Price if such month occurs prior to a Principal Deferral
Termination Event and during the preceding month the Facility operated at 95% of
Nameplate Capacity or better. In determining whether the Quarterly True-Up
Invoice would cause the price for DRI to exceed the Cap Price, the Quarterly
Debt Service Invoice Component shall be added to the per Metric Tonne price
previously charged pursuant to this Agreement during each such month. Buyer
shall pay the Quarterly True-Up Invoice no later than the 20th day of such
month. As used herein, the term "Quarterly Debt Service Invoice Component" shall
mean the quotient that results when the Next Quarters' Debt Service Amount
(computed as of the last day of the Shipment Period) is divided by the aggregate
number of Metric Tonnes of DRI actually shipped by the Seller to Buyer and
Co-Buyer pursuant to this Agreement and the Co-Buyer Agreement during the
Shipment Period. 4.4. Termination True-Up Invoice
(a) In the event Buyer elects to terminate this Agreement
pursuant to Section 1.3. hereof or otherwise, Seller shall prepare a written
invoice (the "Termination True-Up Invoice") indicating the amount, if any, that
Buyer is required to pay Seller pursuant to subsection (b) below. Seller shall
furnish the Termination True-Up Invoice to Buyer promptly after Buyer's
termination of this Agreement pursuant to Section 1.3. or otherwise becomes
effective. Buyer agrees to pay to Seller, within five (5) Business Days after
receipt of the Termination True-Up Invoice the amount due.
(b) The additional price for DRI to be paid upon
termination of this Agreement shall be an amount equal to the amount by which
(i) below exceeds (ii) below:
(i) (A) the Buyer Percentage times all Expenses
(excluding interest on Indebtedness under the Credit Agreement) incurred by the
Seller during the three-month period ending on the last day of the month
immediately preceding the month in which Buyer's termination of this Agreement
becomes effective (the "Three Months Preceding Termination") plus (B) the
greater of: (X) 125% times the Buyer Percentage times all accrued interest and
Scheduled Payments of Principal payable by Seller pursuant to the Credit
Agreement (including any mandatory redemption of the Bonds) during the Three
Months Preceding Termination or (Y) the Buyer Percentage times the amount
required to fully fund the
Debt Service Reserve Account in accordance with the Credit Agreement
and the Security Deposit Agreement and any unfunded amounts for the
Maintenance Account to the extent required by the Security Deposit
Agreement, in each case as of the last day of the Three Months
Preceding Termination; and
(ii) the aggregate Invoice Price of the DRI purchased by
Buyer during the Three Months Preceding Termination.
(c) As used herein, the term "Buyer Percentage" shall
mean the number of MT of DRI purchased by the Buyer pursuant to this
Agreement during the Three Months Preceding Termination expressed as a
percentage of the total number of MT of DRI produced by Seller during
such period.
4.5. Payment Terms
On or prior to the 30th day after each invoice is rendered during the
term of this Agreement (other than the Quarterly True-Up Invoice, payment of
which is governed by Section 4.3. hereof), Buyer shall pay to the Seller the
aggregate Invoice Price shown thereon. All such payments shall be made in US
Dollars. Interest shall accrue on the amount of any invoice which is not paid
when due at the Base Rate plus 2%.
4.6. Voluntary Payment Terms
Nothing in this Agreement shall prevent Buyer from agreeing to pay for
DRI in advance of its terms or its delivery or from agreeing to pay an amount
greater than the Invoice Price or other applicable price therefor.
4.7. Increased Price Resulting from Third-Party Operator
Buyer acknowledges that under certain circumstances, the Lenders
pursuant to Section 9.22 the Credit Agreement may require the Seller to engage a
Third-Party Operator for the Facility and further acknowledges that as a result
of the compensation arrangement (which may include incentive-based compensation)
for such Third-Party Operator, the price for DRI hereunder may be higher than it
would be in the absence of such Third-Party Operator.
ARTICLE 5. ACCOUNTING AND RECORDS
5.1. Maintaining Records; Access to Facility and Inspections; Audits
The Seller shall maintain all financial records in accordance with GAAP
and shall keep its inventory of raw materials and finished goods by employing
the first-in, first-out method. Seller shall also permit any representatives
designated by the Buyer, upon not less than three (3) Business Days prior
notice, at Buyer's expense, to visit and inspect the Facility and to inspect
Seller's financial and business records, to make extracts therefrom and copies
thereof and to cause a firm of independent accountants of national reputation to
make test audits of Seller's determinations of the Invoice Price, all at
reasonable times and in a manner so as not to unreasonably disrupt the
operations of the Seller and as often as reasonably requested. Seller shall also
permit any representatives designated by the Buyer to discuss the affairs,
finances and condition of the Seller with the officers thereof and independent
accountants therefor. If Buyer's audit shall disclose that the Invoice Price for
any period was overstated, Buyer shall make such information available to
Seller, and Seller shall promptly reimburse Buyer for the amount of such
overstatement. If the amount of such overstatement exceeds the Invoice Price by
more than 5%, Seller shall also reimburse Buyer for the reasonable cost of such
audit. Understatements shall be included as an Expense in the next succeeding
month for inclusion in the Invoice Price. 5.2. Delivery of Seller's Financial
Statements
The Seller shall deliver to the Buyer:
(a) as soon as available and in any event within 90 days after the end
of each fiscal year of the Seller, audited statements of income, retained
earnings and cash flow of the Seller for such fiscal year and the related
audited balance sheets as of the end of such fiscal year (the " Annual Financial
Statements"), setting forth in each case in comparative form the corresponding
figures for the preceding fiscal year, and accompanied by a report of
independent auditors of national reputation selected by Seller, which report
shall state that such financial statements fairly present the financial
condition and results of operations of the Seller in accordance with GAAP
without material qualification;
(b) as soon as available and in any event within 30 days after the end
of each calendar month of each fiscal year of the Seller, statements of income,
and cash flow of the Seller for such month and for the period from the beginning
of the current fiscal year to the end of such month, statements of income, and
cash flow of the Seller for such period, and the related balance sheets as of
the end of such period (the statements of income and cash flow for such month
and the balance sheet as of the end of such period being referred to herein as
the "Monthly Financial Statements"), setting forth in each case in comparative
form the corresponding figures for the corresponding periods in the preceding
fiscal year, and accompanied by a certificate of a financial officer of the
Seller, which certificate shall state that such financial statements fairly
present the financial condition and results of operations of the Seller in
accordance with GAAP (subject to normal year-end adjustments and absence of full
footnote disclosures);
(c) promptly upon the receipt thereof, copies of all "management
letters" received by the Seller or any Subsidiary from its independent
accountants;
5.3. Planning and Budgeting
(a) As soon as practicable prior to the commencement of production of
DRI and thereafter on or before the first Business Day of December of each year
during the Term, Seller shall prepare and deliver to the Buyer a plan (the
"Project Operating Budget") for production of DRI for the next succeeding
calendar year (or the 12-month period commencing with the month in which the
production of DRI is begun). Such Project Operating Budget shall include (i)
schedules of quantities of DRI to be produced, (ii) a schedule for delivery of
such DRI to the Buyer and the Co-Buyer, (iii) a detailed operating financial
budget on a monthly basis, (iv) a detailed capital budget breaking out
separately the proposed capital expenditures and major maintenance items, (v)
projected inventory levels in MT's for iron ore and DRI on a monthly basis, (vi)
the proposed Scheduled Down-Time(s) (if any) during such year, and (vii) a
detailed description of such other activities and information (financial or
otherwise) reasonably necessary in order to inform the Buyer of all matters
relevant to the operation and management of the Seller's business and affairs.
The Buyer and the Seller shall (i) consult with each other and with the Co-Buyer
in the preparation of the Project Operating Budget and shall determine, subject
to the immediately preceding sentence and the other terms and conditions hereof,
the amount of DRI to be produced for the next succeeding calendar year and (ii)
negotiate in good faith to agree upon a delivery schedule for such DRI for the
next succeeding calendar year. Such Project Operating Budget shall provide for
the production of (x) at least 1.2 million MT of DRI during such calendar year,
(y) such greater amount as the Seller, the Buyer and/or the Co-Buyer agree in
writing or (z) such lesser amount as a prudent operator of the Facility would
produce after due consideration of the Rated Capacity of the Facility, the
necessity for Scheduled Down-Time and such other matters as a prudent operator
of the Facility would consider. If the Seller, the Buyer and the Co-Buyer cannot
agree as to the production and delivery schedules, the Seller shall (i)
establish the production schedule so that the Facility will produce at least 1.2
million MT of DRI during such calendar year or such lesser amount as it
determines pursuant to clause (z) of the preceding sentence and (ii) set the
delivery schedule for such DRI in its discretion consistent with the intent
expressed in Section 1.4. hereof. Anything herein to the contrary
notwithstanding, it is the intent of the parties hereto that (i) DRI shall be
produced at the Facility insofar as is practicable evenly over each year or
partial year of the Term subject only to Scheduled Down-Time, Force Majeure and
Section 1.5. hereof, and all delivery schedules shall reflect such even
production, and (ii) in the event the Project Operating Budget for a year (or a
12-month period, as the case may be) provides for the production of less than
1.2 million MT of DRI during any year (or 12-month period, as the case may be),
such Project Operating Budget shall be promptly amended by the Seller (after
consultation with the Buyer and the Co-Buyer but without the necessity of
obtaining the consent of the Buyer or the Co-Buyer) to increase the level of
production to 1.2 million MT of DRI on an annualized basis for the remainder of
such year (or 12-month period), and the other provisions of such Budget shall be
adjusted as may be necessary to reflect such increased production, promptly
after any impediment to the production of DRI at such level (as described in
clause (iii) of subsection (b) of this Section 5.3.) shall have been removed or
shall otherwise have ceased to affect the Facility.
(b) The Project Operating Budget shall be subject to the following
considerations:
(i) Scheduled Down-Time. Each such Project Operating Budget
may provide for Scheduled Down-Time during each calendar year during
which major maintenance shall be performed on the Facility. The Project
Operating Budget shall provide for the required production of DRI
notwithstanding such Scheduled Down-Time. To the extent practicable,
Seller shall schedule the required Scheduled Down-Time at such times as
are convenient to Buyer and Co-Buyer consistent with the reasonably
anticipated need for major maintenance for the Facility, and shall
negotiate in good faith with Buyer and Co-Buyer to reach agreement
regarding the timing of such Scheduled Down-Time. If the Seller, the
Buyer and the Co-Buyer cannot agree as to the timing of such Scheduled
Down-Time, the Seller shall determine the timing thereof consistent
with the reasonably anticipated need for major maintenance of the
Facility.
(ii) Long Lead-Time Commitments. Seller shall exercise its
reasonable judgment in committing to any long lead-time items,
including, but not limited to, ore purchases, ship charters, and gas
deliveries with a view toward assuring its ability to produce and
tender the amounts of DRI set forth in each such Project Operating
Budget at the times provided therein at the lowest cost reasonably
practicable.
(iii) Plans Calling for Less Than 1.2 Million MT of DRI. To
the extent that any Project Operating Budget provides for production of
less than 1.2 million MT of DRI during any calendar year, such Project
Operating Budget shall contain a statement of Seller in reasonable
detail describing the reasons why at least 1.2 million MT of DRI cannot
be produced during such period.
(iv) Amendments to Plans. Subject to the last sentence of
subsection (a) of this Section 5.3., once any such Project Operating
Budget has become effective pursuant to the terms of this Section 5.3.,
Seller may, but shall have no obligation to, amend the same at its
initiative or at the request of Buyer or Co-Buyer, but no such
amendment shall become effective if either Buyer or Co-Buyer does not
consent thereto in writing. (c) At least five (5) days before the first
day of each month after
delivery of the initial Project Operating Budget to Buyer, Seller will consult
with Buyer and the Co-Buyer to update the Project Operating Budget with respect
to the determination of the amount of DRI to be produced in the next three (3)
succeeding months, the production schedule therefor, and the approximate dates
and quantities of deliveries thereof to Buyer and Co-Buyer. Each such update
shall be provided to the Buyer and Co-Buyer by the first day of each month and
such update shall be deemed to be an amendment to the Project Operating Budget
and incorporated therein without any further action on the part of any party.
(d) Subject to the provisions of subsection (b) of this Section 5.3.,
Seller agrees to use commercially reasonable efforts to operate the Facility and
otherwise to conduct its business consistent with the terms of each Project
Operating Budget, and so long as it does so, it shall incur no liability to
Buyer hereunder as a result of its failure to operate the Facility in a manner
consistent with each such Project Operating Budget.
ARTICLE 6. WARRANTIES AND LIMITATION OF LIABILITY
6.1. Specifications Warranty
Seller warrants that each shipment of DRI hereunder shall conform to
specifications referred to in Article 3.
6.2. Warranty Limitation
The only warranties made by Seller in respect of DRI to be sold
hereunder are set forth in Section 6.1. of this Agreement. SUCH WARRANTIES AND
THE RIGHTS, REMEDIES, AND OBLIGATIONS OF THE PARTIES IN CONNECTION WITH THE SALE
OF DRI HEREUNDER ARE EXCLUSIVE AND IN LIEU OF ALL OTHER REMEDIES, WARRANTIES,
GUARANTIES OR LIABILITIES, EXPRESS OR IMPLIED, ARISING AT LAW OR OTHERWISE,
INCLUDING WITHOUT LIMITATION ANY WARRANTIES WITH RESPECT TO FITNESS FOR A
PARTICULAR PURPOSE OR MERCHANTABILITY, ALL SUCH OTHER WARRANTIES BEING EXPRESSLY
DISCLAIMED. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY UNDER
ANY THEORY OF TORT (INCLUDING WITHOUT LIMITATION NEGLIGENCE), CONTRACT, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR INDIRECT, CONSEQUENTIAL,
SPECIAL, INCIDENTAL, OR PUNITIVE DAMAGES, HOWEVER CAUSED, ARISING UNDER OR IN
CONNECTION WITH THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGE. 6.3. Claims
If any DRI delivered to the Buyer hereunder is not in accordance with
specifications set forth in Section 3. hereof, then Seller shall have the right,
at its discretion, either to replace such DRI or refund the aggregate Invoice
Price applicable thereto. It is the intent of the parties hereto that the
Invoice Price shall be adjusted so that there will be no net loss of cash to the
Seller. Notwithstanding the foregoing, Seller's liability for damages in respect
of any claims whatsoever hereunder arising with respect to DRI delivered to the
Buyer under this Agreement shall not exceed the aggregate Invoice Price of the
DRI for which such damages are claimed, and in no event shall either party be
liable for prospective profits or special or indirect or consequential damages.
Any claim for damages must be made in writing by the Buyer to Seller within
thirty(30) days of such occurrence, along with supporting evidence as to the
quantity involved in such claim. The quantity involved must be determined in a
mutually acceptable manner. In asserting any claim that the DRI did not conform
the the specifications set forth herein, the Buyer must sustain the burden of
proof that such nonconformity occurred or existed prior to Seller's tender of
such DRI for delivery. ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF BUYER 7.1.
Organization; Power; Qualification
The Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, has the power and authority to
own its properties and to carry on its business as now being and hereafter
proposed to be conducted and is duly qualified and authorized to do business in
each jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization.
7.2. Authorization; Enforceable Obligations; Compliance with Law
The Buyer has the right and power, and has taken all necessary
corporate action to authorize it, to execute, deliver and perform this Agreement
in accordance with its terms. This Agreement has been duly executed and
delivered by the duly authorized officers of the Buyer and is a legal, valid and
binding obligation of the Buyer enforceable in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of creditors
generally and by general principles of equity (regardless of whether enforcement
thereof is sought in a proceeding at law or in equity). The Buyer is in
compliance with all applicable laws binding upon it except to the extent that
the failure to comply therewith (i) would not, in the aggregate, have a material
adverse effect on the properties, business, operations, or financial condition
of the Buyer and (ii) would not materially adversely affect the ability of the
Buyer to perform its obligations under this Agreement. 7.3. Governmental
Approval; No Conflicts
The execution and delivery by the Buyer of this Agreement does not
require any authorizations, consents, approvals, waivers, exemptions, variances,
franchises, permissions, permits and licenses of, or filings and declarations
with, any governmental authority and does not conflict with, and will not result
in a breach of, any material contract, agreement or other document or instrument
to which the Buyer is a party or with the certificate of incorporation or
by-laws of the Buyer.
ARTICLE 8. TERM, DEFAULT AND TERMINATION
8.1. Term
The term of this Agreement, subject to earlier cancellation or
extension as provided for herein (the "Term"), shall be the period beginning on
the Closing Date, and ending on the 12th anniversary of the last day of the
first full month following the occurrence of the Term Loan Conversion Date. (If
the Term Loan Conversion Date shall be the first day of a month, then, subject
to earlier cancellation or extension as provided for herein, the Term shall end
on the 12th anniversary of the last day of the month in which the Term Loan
Conversion Date occurs. If the Term Loan Conversion Date shall not occur, then
subject to earlier cancellation or extension as provided for herein, the Term
shall be the period commencing on the Closing Date, and ending 12 and 1/2 years
after the Date Certain. The "Termination Date" shall be the last day of the
Term. 8.2. Default 8.2.1.Monetary Default
In the event that either party to this Agreement shall fail or refuse to
make timely payments of amounts due hereunder, the other party shall be
entitled, at its option, to give written notice of such breach to the defaulting
party and, if such breach is not corrected within fifteen (15) days after
delivery of such notice to the defaulting party, the notifying party, at its
option and without prejudice to any other available legal remedy which it may
have, shall have the right to cancel this Agreement by giving the defaulting
party at least fifteen (15) days' additional notice of its intention to cancel,
and upon the expiration of the time fixed in such latter notice, if such default
has not been cured or waived, this Agreement shall be canceled.
8.2.2.Non-Monetary Default
In the event that either party to this Agreement shall fail or refuse to
perform any other obligation hereunder, or shall have breached any material
representation or warranty made herein, the other party shall be entitled, at
its option, to give written notice of such breach to the defaulting party and,
if such breach is not corrected within sixty (60) days after delivery of such
notice to the defaulting party, the notifying party, at its option and without
prejudice to any other available legal remedy which it may have, shall have the
right to cancel this Agreement by giving the defaulting party at least thirty
(30) days additional notice of its intention to cancel, and upon the expiration
of the time fixed in such latter notice, if such default has not been cured or
waived, this Agreement shall be canceled. 8.2.3.Rights Upon Cancellation
Upon cancellation of this Agreement under Subsections 8.2.1. or 8.2.2. of
this Article 8. for any reason or cause, each party shall fulfill all
obligations hereunder existing as of the effective date of cancellation,
including, but not limited to, the discharge of all indebtedness hereunder owing
to the other party. The right of a nondefaulting party to cancel this Agreement
shall not be in derogation of or in any way limit such party's legal or
equitable rights and remedies against the defaulting party. Notwithstanding any
such cancellation, the defaulting party shall remain liable to the canceling
party for all provable damages, if any, resulting from loss of ongoing benefits
of this Agreement. This Section 8.2.3. is subject to the provisions of Section
6.2. hereof.
8.3. Bankruptcy, Receivership, etc.
In addition to rights of cancellation otherwise afforded under this
Agreement or under applicable law, Seller shall have the right to terminate this
Agreement, upon thirty (30) days, written notice to Buyer if:
(a) A custodian, receiver, liquidator, or trustee of Buyer, or any
material portion of its properties, is appointed or takes possession and such
appointment or possession remains uncontested or in effect for more than ninety
(90) days; or Buyer generally fails to pay its debts as they become due or
admits in writing its inability to pay its debts as they mature or commits an
act of bankruptcy under any bankruptcy, reorganization, insolvency or similar
law for the relief of debtors having applicability to Buyer; or Buyer is
adjudicated bankrupt or insolvent; or any of the material property of Buyer is
sequestered by court order and the order remains in effect for more than 90 days
or a petition is filed or proceeding commenced against Buyer under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or subsequently
in effect, and is not stayed or dismissed within 90 days after filing; or
(b) Buyer files a petition or otherwise commences a proceeding in
voluntary bankruptcy or seeking relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or subsequently in effect; or
consents to the filing of any petition or the commencement of any proceeding
against it under any such law; or consents to the appointment of or taking
possession by a custodian, receiver, trustee or liquidator of Buyer or its
property.
ARTICLE 9. FORCE MAJEURE
9.1. Force Majeure
9.1.1. Force Majeure Defined
For purposes of this Agreement, the term "Force Majeure" shall mean and
include the following: any failure or delay on the part of either the Seller or
the Buyer in performance of any of the obligations imposed upon it hereunder
(other than the obligation to pay money) which is beyond its control and is the
direct or indirect result of any of the following causes, whether or not
existing at the date hereof and whether or not reasonably within contemplation
of the parties at the date hereof; namely, acts of God, earthquakes, fire,
flood, or the elements, malicious mischief, insurrection, riot, strikes,
lockouts, boycotts, picketing, labor disturbances, public enemy, war (declared
or undeclared), compliance with any federal, state, or municipal law, or with
any regulation, order, or rule (including, but not limited to, priority,
rationing or allocation orders or regulation) of governmental agencies, or
authorities or representatives of any government (foreign or domestic) acting
under claim or color of authority; total or partial failure or loss or shortage
of all or part of transportation facilities ordinarily available to and used by
a party hereto in the performance of the obligations imposed by this Agreement,
whether such facilities are such party's own or those of others; the
commandeering or requisitioning by civil or military authorities of any raw or
component materials, products, or facilities, including, but not limited to,
producing, manufacturing, transportation, and delivery facilities; perils of
navigation, even when occasioned by negligence, malfeasance, defaults, or errors
in judgment of the pilot, master, mariners, or other servants of the ship's
owner; total or partial loss or shortage of raw component material, fuel, power
or products ordinarily required by Seller ; or any cause whatsoever beyond the
control of either party hereto, whether similar to or dissimilar from the causes
herein enumerated; provided, however, that the settlement of strikes or lockouts
shall be entirely within the discretion of the party having the difficulty.
9.1.2. Effect of Force Majeure
If the performance of this Agreement by either party is delayed,
interrupted, or prevented (in whole or in part) by reason of Force Majeure (a)
such party shall be excused from the performance of this Agreement while and to
the extent that such party is delayed, interrupted or prevented from so
performing by such Force Majeure and such party shall not be liable for damages
or otherwise on account thereof, and (b) subject to the last sentence of this
Subsection 9.1.2., the performance of this Agreement shall be resumed as soon as
practicable after such Force Majeure is removed. If any Force Majeure continues
for a period of more than one (1) year, the party prepared to perform may, by
giving at least sixty (60) days' prior written notice to the other party, cancel
this Agreement. 9.2. Notice of Force Majeure
The party affected thereby shall give notice to the other and to the
Agents under the Credit Agreement as soon as practicable after the occurrence of
Force Majeure and specifying the details thereof and, insofar as is known, the
probable extent to which such party will be unable to perform or be delayed in
performing its obligations hereunder. The parties shall exercise due diligence
to eliminate or remedy any Force Majeure delaying or interrupting its
performance hereunder and shall give the other parties prompt written notice
when that has been accomplished, provided that neither party shall be required
to settle any labor dispute except on terms acceptable to it. 9.3. Extension
The Term of this Agreement shall be extended for the period of any
Force Majeure unless either party gives notice of cancellation pursuant to
Subsection 9.1.2., provided the aggregate extension hereunder shall not extend
beyond the date which is 13 years after the Term Loan Conversion Date or 13 and
1/2 years after the Date Certain, as applicable.
ARTICLE 10. SELLER'S REPORTING COVENANT
Seller covenants and agrees that during the Term hereof, it will (a)
Notify Buyer of the occurrence of each Termination Date and
each 70% Event promptly after the occurrence thereof, and will
in connection therewith give Buyer notice of the applicable
Invoice Price as determined in accordance with Section 4.2.
hereof.
(b) Notify Buyer of its receipt of any Termination Notice from
Co-Buyer and of the occurrence of a Standstill Period.
(c) Promptly after receipt of a written
request from Buyer, give the Buyer a computation (together
with such detail of the computation thereof as the Buyer shall
reasonably request) of the Average Production of DRI for any
period.
(d) Within 10 days after the beginning of each month during the
Term, notify Buyer of the portion of the Invoice Price for
such month which is attributable to Expenses, capital
expenditures and major maintenance expenses, funding of the
Debt Service Reserve Account and the Maintenance Account, the
Debt Service Invoice Component, and the excess over the
Invoice Price attributable to Principal Deferral recapture and
attributable to sales to third parties. In the case of the
information regarding the funding of the Debt Service Reserve
Account, the Seller shall separately state (i) the amount
thereof determined pursuant to Section 9.17 of the Credit
Agreement without regard to any provision thereof relating to
the excess of the Cap Price over the Invoice Price and (ii)
the amount thereof determined by reference to the excess of
the Cap Price over the Invoice Price.
ARTICLE 11. DEFINITIONS
Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed to such terms in the Credit Agreement as in effect on
the date hereof notwithstanding the termination thereof for any reason. As used
herein, the following terms shall mean the following:
"Cap Price" of one Metric Tonne of DRI for any month means 110% of the
Market Price for No. 1 Bundles for the month immediately preceding such month
plus the portion of the Invoice Price for such month attributable to amounts
required (i) to fund the Debt Service Reserve Account (determined pursuant to
Section 9.17 of the Credit Agreement without regard to any provision thereof
relating to the excess of the Cap Price over the Invoice Price); (ii) to repay
any portion of the Term Loans derived from the Contingent Loan Amount required
to be paid on any Term Loan Amortization Date; and (iii) any costs related to
replacing a Lender in accordance with Section 6.16 of the Credit Agreement.
"Carrier" means the IC RailMarine Terminal L.L.C.
"Co-Buyer" means GS TECHNOLOGIES OPERATING CO., INC.
"Co-Buyer Agreement" means the DRI Purchase Agreement of even date
herewith between the Seller and the Co-Buyer.
"Credit Agreement" means the Credit and Reimbursement Agreement dated
as of August 30 1996, among the Seller, NationsBank, N.A. as administrative
agent, Canadian Imperial Bank of Commerce as documentation agent, and the other
lenders therein listed. For purposes of this Agreement, the term Credit
Agreement shall refer to the Credit Agreement as it existed on the date hereof
together with any amendments thereto approved in writing by the Buyer and the
Co-Buyer.
"Expenses" means all expenses determined in accordance with GAAP
exclusive of depreciation, amortization, other non-cash charges and material
handling charges by the Carrier relating to the loading of DRI on Buyer's or
Co-Buyer's vessel or train, which charges shall be billed to Buyer or Co-Buyer
separately.
"FOB" shall have the meaning ascribed to such term in the Uniform
Commercial Code as in effect in the State of North Carolina as of the date of
this Agreement.
"GAAP" means generally accepted accounting principles applied in the
United States and practices which are recognized as such by the American
Institute of Certified Public Accountants applied for all periods to the extent
practicable on a basis consistent with that used in the preparation of the
initial audited financial statements delivered by the Seller pursuant to Section
5.2. hereof, so as to present fairly the financial condition and the results of
operations of the Seller. In the event of a change in GAAP that is applicable to
the Seller, compliance with covenants contained herein shall continue to be
determined in accordance with GAAP as in effect prior to such change; provided,
however, that the Seller, the Buyer and the Co-Buyer will thereafter negotiate
in good faith to revise such covenants to the extent necessary to conform such
covenants to GAAP as then in effect.
"Indebtedness" shall have the meaning ascribed to such term in the
Credit Agreement except that Indebtedness of the Seller shall include (i) only
such Indebtedness created pursuant to the Credit Agreement, as such term is
defined herein and (ii) other Indebtedness of the Seller to the extent incurred
in compliance with the terms of the Credit Agreement and with the express prior
written consent of the Buyer.
"Market Price for No. 1 Bundles" for any month means the average
composite price paid at auction for the sale of one Metric Tonne of ferrous
scrap bundles from the Ford Motor Company stamping plants in Chicago, Illinois,
and Maumee, Michigan during such month, as reported in American Metal Market. In
the event such auctions are no longer conducted or the prices from such auctions
are no longer reported, the "Market Price for No. 1 Bundles" shall mean, for any
month, the average composite price of No. 1 factory bundles of ferrous scrap as
listed under the "Scrap Iron & Steel Prices--Consumer Buying Prices" in American
Metal Market, as quoted on the last day of such calendar month or such other
index as shall be agreed to by the Seller, the Buyer, the Co-Buyer. To the
extent such quotations are not stated in Metric Tonnes, such quotations will be
converted to Metric Tonnes.
"Metric Tonne" or "MT" means a unit of metric weight of 1,000 kilograms
or 2,204.62 Pounds.
"Nameplate Capacity" means 1.2 million Metric Tonnes per year.
"Pound" means a unit of weight of sixteen (16) ounces avoirdupois.
"Pricing Changeover Date" means the last day of the third consecutive
month during which the Average Production of DRI was 95% of Nameplate
Capacity or higher.
"Scheduled Down-Time" means up to 30 days per calendar year during
the Term hereof of scheduled maintenance at the Facility during which
no DRI will be produced.
"Scheduled Payments of Principal" shall mean all regularly scheduled
payments of principal of the Term Loans pursuant to Section 3.05(b) of the
Credit Agreement, any mandatory prepayment of the Term Loans pursuant to Section
3.04(b)(iv) of the Credit Agreement, any mandatory redemption of the Bonds
pursuant to the Bond Documents (including without limitation any Bond LC
Reimbursement Obligations resulting therefrom), any Facility LC Obligations not
otherwise paid from proceeds of the Construction Loans or the Working Capital
Loans, as applicable, and with respect to any Indebtedness of the Seller not
governed by the Credit Agreement, any regularly scheduled payments of principal
pursuant to the documents governing the same, including the principal portion of
any rental payment on a Capital Lease; provided, however, that Scheduled
Payments of Principal shall not include any payments of principal which are due
prior to their scheduled due date by reason of acceleration.
ARTICLE 12. MISCELLANEOUS
12.1. Notice
Any notice or other communication permitted or required by this
Agreement shall be properly given if personally delivered, mailed by certified
or registered mail, return receipt requested and postage prepaid, sent via
nationally recognized overnight courier, by cable, telex, facsimile
transmission, or by other electronic means for transmission, with confirmation
by letter given by the close of business on the next business day, or by first
class, registered or certified, postage prepaid mail addressed as follows:
If to Buyer: Birmingham Steel Corp.
1000 Urban Center Drive
Suite 300
Attn: Chief Financial Officer
Facsimile No. 205-970-1352
If to Seller: American Iron Reduction, L.L.C.
7300 Louisiana State Highway
Convent, Louisiana 70723
Attn: David Durnovich
Facsimile No. _________
Any such notice or communication shall be deemed to have been given on
the date of delivery if personally delivered, sent by nationally recognized
overnight courier, or sent by cable, telex, facsimile, or other electronic
means, and five (5) business days after mailing if sent by mail. "Business day"
as used herein shall mean a weekday on which banks are open in Charlotte, North
Carolina and New York, New York.
Either party may, by giving notice as provided herein, change its
address for receiving such notice.
12.2.Rights and Remedies Cumulative
Each right and remedy of the parties provided in this Agreement or now or
hereafter existing at law or in equity or by statute or otherwise, except as
expressly limited by this Agreement, shall be cumulative and concurrent and
shall be in addition to every other right or remedy provided for in this
Agreement or now or hereafter existing at law or in equity. The exercise or
partial exercise by a party of any one or more of such rights or remedies shall
not preclude the simultaneous or later exercise by such party of all such other
rights or remedies, and no failure or delay on the part of a party to exercise
any such right or remedy shall operate as a waiver thereof. 12.3. Taxes
Each party agrees to discharge and to hold the other party harmless on
account of any taxes or governmental charges of any government or governmental
instrumentality with respect to its activities hereunder, including any income
earned or payments received by it hereunder. Buyer shall be responsible for
sales tax, if any, resulting from the sale of DRI to Buyer pursuant to the terms
of this Agreement. 12.4. Successors and Assigns/Assignment
This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto. Neither of the parties may assign
this Agreement or any rights hereunder without prior written consent of the
other party, except that each party hereby consents to the assignment by the
other party of such other party's rights and obligations under this Agreement to
any of such other party's majority owned subsidiaries, parent, majority-owned
subsidiary of such parent or successor to its entire business, but no such
assignment shall relieve the assigning party from its obligations hereunder.
12.5. Waiver
The failure of any party to enforce at any time any of the provisions
of or rights under this Agreement shall in no way be construed to be a waiver of
such provisions or rights nor in any way to affect the validity of this
Agreement or any part thereof, or the right of any party thereafter to enforce
each and every such provision or right. No waiver of any breach of this
Agreement shall be held to be a waiver of any other or subsequent breach.
12.6. Governing Law
This Agreement shall be governed and interpreted in accordance with the
laws applicable to agreements entered into and to be performed entirely in the
State of North Carolina.
12.7. Number
Whenever used in this Agreement, the singular shall include the plural
and the plural shall include the singular.
12.8. Table of Contents and Headings
The Table of Contents and captions of Articles and Sections of this
Agreement are inserted for convenience only and shall not constitute or affect
the meaning of any of the terms of this Agreement.
12.9. Severability
If any provision of this Agreement is held to be unenforceable for any
reason, it shall be adjusted rather than voided, if possible, in order to
achieve the intent of the parties to the extent possible. In any event, all
other provisions of this Agreement shall be deemed valid and enforceable to the
fullest extent.
12.10. Counterparts
This Agreement may be executed in any number of counterparts and each
separate counterpart shall constitute an original instrument, but all such
separate counterparts shall together constitute but one instrument.
12.11. Entire Agreement
This Agreement constitutes and contains the entire agreement and
understanding of the parties with respect to the subject matter hereof, and
supersedes all prior agreements and understandings between the parties
respecting the subject matter of this Agreement. No amendment, modification, or
alteration of the terms and conditions of this Agreement or any schedule thereto
shall be binding unless the same shall be set forth in an instrument in writing,
dated subsequent to the date hereof, and duly executed by an authorized officer
of each of the parties hereto. 12.12. No Third Party Beneficiaries
Except for any collateral assignment contemplated by Section 12.4.,
neither the Co-Buyer nor any other person, shall be a third party beneficiary of
this Agreement or the rights and obligations of the parties hereto; provided,
however, that, by executing this Agreement, each of the Buyer and Seller agree
that they shall not amend, modify or deviate from the terms of, this Agreement
without the written consent of the Co-Buyer.
<PAGE>
THUS DONE AND PASSED in Charlotte, NC on
the 30th day of August, 1996, effective as of the effective date set forth
above, in the presence of the undersigned competent witnesses who hereunto sign
their names with the undersigned party and me, Notary, after due reading of the
whole.
WITNESSES: AMERICAN IRON REDUCTION L.L.C.,
Rick Blumen as Seller
Charles Simmons
By: David M. Yarborough
Name: David M. Yarborough
Title: Authorized Representative
Betty A. Robinson
Notary Public
Printed Name: Betty A. Robinson
My Commission Expires: 4-28-98
<PAGE>
THUS DONE AND PASSED in Charlotte, NC on
the 30th day of August, 1996, effective as of the effective date set forth
above, in the presence of the undersigned competent witnesses who hereunto sign
their names with the undersigned party and me, Notary, after due reading of the
whole.
WITNESSES: BIRMINGHAM STEEL CORPORATION
Rick Blumen as Buyer
Charles Simmons
By: James F. Tierney
Name: James F. Tierney
Title: Vice President
Betty A. Robinson
Notary Public
Printed Name: Betty A. Robinson
My Commission Expires: 4-28-98
<PAGE>
10.5
OPERATING AGREEMENT
for
M&B STEEL COMPANY, LLC
A DELAWARE LIMITED LIABILITY COMPANY
Dated as of September 18, 1996
TABLE OF CONTENTS
Page
SECTION 1 DEFINITIONS................................................ 1
SECTION 2 GENERAL PROVISIONS........................................ 11
2.1 Formation................................................. 11
2.2 Name...................................................... 11
2.3 Filings; Registered Office; Statutory Agent............... 11
2.4 Principal Executive Office................................ 12
2.5 Purpose................................................... 12
2.6 Company Powers............................................ 12
2.7 Term...................................................... 13
2.8 Qualification in Other Jurisdictions...................... 13
2.9 Limited Liability Agreement............................... 13
SECTION 3 MEMBERS................................................... 13
3.1 Members................................................... 13
3.2 Access to Books of Account................................ 13
3.3 Confidential Information.................................. 14
3.4 Duty of Members to Cooperate.............................. 15
SECTION 4 MEMBER MANAGEMENT......................................... 15
4.1 Management................................................ 15
4.2 Representatives........................................... 15
4.3 Member Actions............................................ 16
4.4 Members Meetings.......................................... 18
4.5 Voting.................................................... 19
4.6 Deadlock; Deadlock Resolution............................. 20
SECTION 5 OFFICERS AND EMPLOYEES.................................... 21
5.1 Officers.................................................. 21
5.2 President................................................. 22
5.3 Chief Financial Officer................................... 22
5.4 Secretary................................................. 22
5.5 Controller................................................ 23
5.6 General Manager of Sales Division......................... 23
5.7 General Manager of Operations Division.................... 23
SECTION 6 NON-COMPETE............................................... 23
6.1 Non-Compete Covenant...................................... 23
6.2 Other Exceptions.......................................... 24
6.3 Reasonableness of Restrictions............................ 24
6.4 Enforcement............................................... 24
SECTION 7 DISPUTE RESOLUTION........................................ 25
7.1 Dispute Resolution........................................ 25
SECTION 8 BUY-SELL RIGHT............................................ 27
8.1 Buy-Sell.................................................. 27
8.2 Certain Agreements........................................ 29
SECTION 9 CAPITAL AND OTHER CONTRIBUTIONS........................... 30
9.1 Capital Accounts.......................................... 30
9.2 Initial Contributions of Capital.......................... 31
9.3 Transaction Expenses; Reimbursement of Deposit............ 32
9.4 Debt Financing and Credit Support......................... 32
9.5 Additional Contributions by Members....................... 33
9.6 Member Obligations........................................ 34
9.7 Withdrawals of Capital Accounts........................... 34
9.8 Interest on Capital Accounts.............................. 34
9.9 Revaluation of Company Assets............................. 34
9.10 Redetermination of Percentage Interests................... 35
9.11 Determination of Fair Market Value........................ 35
SECTION 10 ALLOCATION OF PROFITS AND LOSSES; DISTRIBUTIONS.................. 37
10.1 Allocation of Profits and Losses.......................... 37
10.2 Allocation of Taxable Income and Loss..................... 39
10.3 Distribution of Assets by the Company..................... 40
SECTION 11 TAX MATTERS AND REPORTS; ACCOUNTING.............................. 41
11.1. Tax Matters Partner....................................... 41
11.2 Accounting Records. Independent Audit..................... 43
11.3 Fiscal Year............................................... 43
11.4 Tax Accounting Method..................................... 43
11.5 Withholding............................................... 44
11.6 Tax Elections............................................. 44
11.7 Prior Tax Information..................................... 44
SECTION 12 TRANSFER AND ASSIGNMENT OF INTERESTS............................. 44
12.1 Transfer and Assignment of Interests...................... 44
12.2 Permitted Transfers....................................... 45
12.3 Assignment of Right to Appoint Representatives............ 45
12.4 Right of First Refusal Procedures......................... 45
12.5 Assignees and Substituted Members......................... 46
12.6 Buy-Out of Member's Interest.............................. 47
SECTION 13 DISSOLUTION AND LIQUIDATION...................................... 47
13.1 Events of Dissolution..................................... 47
13.2 Voluntary Dissolution..................................... 48
13.3 Buy-Sell Procedure Rights................................. 48
13.4 Liquidation and Order of Dissolution...................... 48
13.5 Liquidator................................................ 49
13.6 Termination of Company.................................... 50
13.7 Orderly Winding Up........................................ 50
SECTION 14 INDEMNIFICATION AND EXCULPATION; CERTAIN
AGREEMENTS......................................................... 50
14.1 Indemnification of the Members............................ 50
14.2 Reimbursement and Indemnity............................... 51
14.3 Exculpation............................................... 51
14.4 Indemnification Relating To Initial Contributions......... 51
SECTION 15 MISCELLANEOUS.................................................... 52
15.1 Notices................................................... 52
15.2 Governing Law............................................. 53
15.3 Amendments................................................ 53
15.4 Entire Agreement.......................................... 53
15.5 Waiver of Partition....................................... 53
15.6 Consents.................................................. 53
15.7 Successors................................................ 53
15.8 Counterparts.............................................. 53
15.9 Severability.............................................. 53
15.10 Survival.................................................. 54
15.11 No Third Party Beneficiaries.............................. 54
15.12 Default................................................... 54
15.13 Representations and Warranties............................ 54
EXHIBITS ................................................................... 56
SCHEDULE I PERCENTAGE INTEREST OF MEMBERS......................... 57
This Operating Agreement for M&B Steel Company, LLC (the "Company") is
made as of September 18, 1996, by and between Raw Material Development Co.,
Ltd., a Delaware corporation (together with Permitted Transferees hereunder,
"RMD"), and Birmingham West Coast Corporation, a Delaware corporation (together
with Permitted Transferees hereunder, "Birmingham").
WHEREAS, RMD and Birmingham have determined that it is in their best
interests to form a limited liability company for the purpose of acquiring,
owning and operating the Business hereinafter described and, in furtherance
thereof, RMD and Birmingham desire to become Members (as defined below) in the
Company;
NOW, THEREFORE, in consideration of the promises, mutual covenants and
agreements herein contained and in order to set forth the respective rights,
obligations and interests of the Members to one another and to the Company, the
Members hereby agree as follows:
SECTION 1
DEFINITIONS
For purposes of this Agreement the following terms have the following
meanings unless indicated otherwise, all Section references are to Sections in
this Agreement, and all Schedule references are to Schedules to this Agreement:
"Acceptance" shall mean a written acceptance by a Member of any Offer
made pursuant to Section 8.1.
"Act" means Title 6 Chapter 18 of the Delaware Code (the Delaware
Limited Liability Company Act), as from time to time in effect in the State of
Delaware, or any corresponding provision or provisions of any succeeding or
successor law of such State; provided, however, that in the event that any
amendment to the Act, or any succeeding or successor law, is applicable to the
Company only if the Company has elected to be governed by the Act as so amended
or by such succeeding or successor law, as the case may be, the term "Act" shall
refer to the Act as so amended or to such succeeding or successor law only after
the appropriate election by the Company, if made, has become effective.
"Additional Member" means any additional Person admitted as a Member to
the Company pursuant to Section 12.
"Affiliate" means a Person that directly, or indirectly through one or
more intermediaries, controls, is controlled by or is under common control with
the Person specified. For purposes of this definition, the term "control"
(including the terms "controlling," "controlled by" and "under common control
with") of a Person means the possession, direct or indirect, of the power to (i)
vote in excess of 50% of the Voting Stock of such Person, or (ii) direct or
cause the direction of the management and policies of such Person, whether by
contract or otherwise. Anything hereinabove to the contrary notwithstanding,
under no circumstances shall the Company be deemed to be an Affiliate of RMD or
Birmingham, or any of their respective Affiliates.
"Affiliate Transferee" means, with respect to a Member, a Wholly Owned
Affiliate of such Member to which an ownership interest of all or any part of
its Membership Interest has been transferred in accordance with Section 12
hereof.
"Agent" means any officer, director, representative, employee, partner,
shareholder or agent of any Person.
"Agreement" means this Operating Agreement, as it may be amended,
supplemented or restated from time to time.
"Alternate" shall have the meaning set forth in Section 4.2(a) of this
Agreement.
"Allways" means All-Ways Recycling Company, a California corporation,
and with respect to all periods following commencement of a bankruptcy case with
respect to All-Ways Recycling Company, the bankruptcy estate of All-Ways
Recycling Company.
"Appraiser" means any of the First Appraiser, the Second Appraiser and
the Third Appraiser as defined in Section 9.11 of this Agreement.
"Appraiser's Certificate" means a certificate prepared by an Appraiser,
executed on behalf of an Appraiser by a duly authorized officer thereof, and
setting forth such Appraiser's opinion as to the Fair Market Value of an asset.
"Asset Member" shall have the meaning set forth in Section 9.11(a) of
this Agreement.
"Asset Purchase Agreement" means the Asset Purchase Agreement by and
among Mitsui, the Trustee and the Subsidiaries.
"Asset Value" with respect to any Company asset means:
(a) The Fair Market Value on the date of contribution of
such asset contributed to the Company by any Member;
(b) The Fair Market Value on the date of distribution of
such asset distributed by the Company to any Member as consideration
for its Membership Interest;
(c) The Fair Market Value of such asset upon a
revaluation pursuant to Section 9.9 of this Agreement; or
(d) The Basis of the asset in all other circumstances.
"Assignee" means the Person to whom a transfer of a Membership Interest
is made; an Assignee is not a Substituted Member unless and until the Assignee
complies with Section 12.5 of this Agreement.
"B&D" means B&D Auto & Truck Salvage, a California corporation, and
with respect to all periods following commencement of a bankruptcy case with
respect to B&D Auto & Truck Salvage, the bankruptcy estate of B&D Auto & Truck
Salvage.
"Basis" with respect to an asset means the adjusted basis from time to
time of such asset for United States federal income tax purposes.
"Bid" means that certain Offer to Purchase Certain Assets of Hiuka
America Corporation and Its Affiliated Corporations, submitted by Mitsui to the
Trustee on May 10, 1996, as clarified at the request of the Trustee on May 20,
1996, as amended.
"Birmingham" means Birmingham West Coast Corporation, a Delaware
corporation, and its Permitted Transferees hereunder.
"BSC" means Birmingham Steel Corporation, a Delaware corporation.
"Budget" means a one-year revenue, expense and capital expenditure
budget for the Company, as it may be amended from time to time in accordance
with the terms of this Agreement. Each such annual Budget shall include, in
respect of the Company for the next fiscal year, an income statement, balance
sheet and capital budget (with line item detail showing revenues and expenses
projected for the Business) prepared on an accrual basis for the Company for the
forthcoming fiscal year; a cash flow statement which shall show in reasonable
detail the receipts and disbursements (including without limitation, the
anticipated distributions) projected for the Company for the forthcoming fiscal
year and the amount of any corresponding cash deficiency or surplus, and the
amount and due dates of all anticipated capital contributions, if any; a
calculation of the Forecast Cash Requirements; and any information reasonably
available which could assist the Members in evaluating such Budget. Each such
Budget shall be prepared on a basis consistent with the Company's financial
statements and the Business Plan approved by the Members.
"Business" shall have the meaning set forth in Section 2.5.
"Business Plan" means a rolling three-year business plan for the
Company, as it may be amended from time to time in accordance with the terms of
this Agreement, which shall include (i) an annual operating budget for each year
contemplated in the Business Plan; (ii) a three-year financial plan (including
financial view and financial commitment, such as capital contributions) for the
Company; and (iii) a detailed description of the key underlying assumptions and
key strategies. The Business Plan shall also include, for each year thereof, the
following details: information on the objectives and funding requirements
(including any proposed borrowings); methods and sources of financing,
including, with respect to compensation plans, monthly projected profit and loss
statements, monthly balance sheets, monthly projected cash flow statements,
capital expenditure budgets, departmental budgets, projected detailed personnel
requirements, annual key performance milestones for the business and any
proposed capital improvements or expansions; and detailed management plans.
"Buy-Sell Procedures" shall have the meaning set forth in Section 8 of
this Agreement.
"Capital Account" means the capital account maintained by the Company
for each Member as described in Section 9.1 of this Agreement.
"Certificate" means the certificate of formation filed with the
Secretary of State of the State of Delaware pursuant to the Act to form the
Company as originally executed and amended, modified or restated from time to
time.
"Change of Control" means (i) any direct or indirect Transfer of 50% or
more of the equity ownership interests of a Member or its immediate, indirect or
ultimate parent company to any Person that is not an Affiliate of the transferor
Member, or (ii) the occurrence of any event whereby any Person or any two or
more Persons acting in concert (which such Person is not an Affiliate of the
transferor Member) shall have acquired beneficial ownership (within the meaning
of Rule 13d-3 of the Securities and Exchange Commission under the Exchange Act),
directly or indirectly, of securities of a Member or its immediate, indirect or
ultimate parent company representing 50% or more of the combined voting power of
all securities entitled to vote in the election of directors, other than
securities having such power only by reason of the happening of a contingency.
"Chief Financial Officer" means the Chief Financial Officer of the
Company duly appointed in accordance with this Agreement and having the duties
and responsibilities set forth herein.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the limited liability company formed pursuant to this
Agreement and the Certificate.
"Confidential Information" means all documents and information
(including, without limitation, confidential and proprietary information with
respect to customers, sales, marketing, production, costs and the design and
development of new products or services) of each of the Company, the Members and
their respective Affiliates, except to the extent that such information can be
shown to have been (a) generally available to the public other than as a result
of a breach of the provisions of Section 3.3 of this Agreement; (b) already in
the possession of the receiving Person or its Agents without restriction and
prior to any disclosure in connection with the Company or pursuant to any of the
terms of this Agreement; (c) lawfully disclosed to the receiving Person or its
Agents by a third party who is free lawfully to disclose the same; or (d)
independently developed by the receiving Person without use of any Confidential
Information obtained in connection with the transactions leading up to and
contemplated by this Agreement and the operation of the Company or its
businesses.
"Controller" means the Controller of the Company, duly appointed in
accordance with this Agreement and having the duties and responsibilities set
forth herein.
"Default Amount" shall have the meaning set forth in Section 9.5(b) of
this Agreement.
"Defaulting Member" shall have the meaning set forth in Section 9.5(b)
of this Agreement.
"Deposit" means $1,500,000, which Mitsui deposited in cash with the
Trustee, to be held by the Trustee in trust in an unencumbered interest bearing
account subject to refunds and draw-downs, as referred to in the Asset Purchase
Agreement or in Section C(1)(u) of the "Motion of Trustee and Committee for
Order: (1) Approving Bidding Procedures, etc.," filed with the Bankruptcy Court
on or about April 26, 1996.
"Depreciation" for any fiscal year or other period means the cost
recovery or amortization deduction with respect to an asset for such year or
other period as determined for federal income tax purposes, provided that if the
Asset Value of such asset differs from its Basis at the beginning of such year
or other period, depreciation shall be determined by applying tax recovery
periods and methods to the Asset Value of the asset as provided in Income Tax
Regulation Section 1.704-1(b)(2)(iv)(g)(3), subject to the provisions of Income
Tax Regulation Section 1.704-3(d).
"Dispute" shall have the meaning set forth in Section 7.1 of this
Agreement.
"Due Date" shall have the meaning set forth in Section 9.5 of this
Agreement.
"Effective Date" means the date upon which the acquisition by the
Company of the Business shall be consummated, in accordance with the Asset
Purchase Agreement.
"Effective Date Contribution" shall have the meaning set forth in
Section 9.2 hereof.
"Environmental Indemnity Agreement" means one or more environmental
indemnity agreements and releases and covenants, conditions and restrictions
between Mitsui and Trustee (in recordable form, where applicable), substantially
in the form attached as Exhibit B to the Asset Purchase Agreement.
"Fair Market Value" means, with respect to any asset or Membership
Interest, as of the date of determination, the cash price at which a willing
seller would sell, and a willing buyer would buy, each being apprised of all
relevant facts and neither acting under compulsion, such asset or Membership
Interest in an arms-length negotiated transaction with an unaffiliated third
party without time constraints, determined, for purposes of Section 8.1, after
giving appropriate weight to any discount attributable to a purchasing Member's
compliance with the ultimate sentence of Section 8.1(f).
"Forecast Cash Requirements" means, for the twelve-month period
following the date of determination, the excess, if any, of (a) forecast capital
expenditures, capital contributions to other entities and other investments,
acquisitions, cash income tax payments and debt service (including principal and
interest) requirements and other non-cash credits to income, plus forecast cash
reserves for future operations or other requirements, over (b) forecast net
income of the Company, plus the sum of forecast depreciation, amortization,
interest expenses, income tax expenses and other non-cash charges to income, in
each case to the extent deducted in determining such net income, plus or minus
forecast changes in working capital, plus the forecast cash proceeds of
dispositions of assets (net of expenses), plus an amount equal to the forecast
net proceeds of debt financings.
"Formation Contribution" shall have the meaning set forth in Section 9.2
hereof.
"GAAP" means generally accepted accounting principles in effect from
time to time in the United States, consistently applied with prior periods.
"Hiuka" means Hiuka America Corporation, a California corporation, and
with respect to all periods following commencement of the bankruptcy case with
respect to Hiuka America Corporation, the bankruptcy estate of Hiuka America
Corporation.
"Income Tax Regulations" means the United States federal income tax
regulations, including temporary (but not proposed) regulations, promulgated
under the Code.
"Initial Capital Contributions" shall have the meaning set forth in
Section 9.2 hereof.
"Initial Offer" shall have the meaning set forth in Section 8.1(a) of
this Agreement.
"Initiating Member" shall have the meaning set forth in Section 8.1(a)
of this Agreement.
"Lease" means the Lease between Hiuka and the City of Long Beach, as
assumed by the Company following the Effective Date, relating to the Pier T,
Berth 118 facility located at the Port of Long Beach.
"Lien" means, as to any Membership Interest, liens, encumbrances,
security interests and other rights, interests or claims of others therein
(including, without limitation, warrants, options, rights of first refusal,
rights of first offer, co-sale and similar rights).
"Liquidator" has the meaning set forth in Section 13.5.
"Member" means each of RMD and Birmingham, and includes any Person
admitted as an Additional Member or Substituted Member of the Company pursuant
to Section 12 of this Agreement. RMD and Birmingham shall be admitted as Members
of the Company on the date hereof. A Person who is not admitted on the date
hereof as a Member of the Company shall be deemed admitted as a Member upon
satisfaction of the requirements of Section 12.
"Membership Interest" means the interest and ownership of a Member in
the Company, including the Capital Account of such Member, its participation in
the profits and losses of the Company in accordance with its Percentage
Interest, and all of its other rights and obligations under this Agreement and
the Act, relating to the Company.
"Mini-Mill" shall mean an electric arc-furnace, semi-finished steel
and/or finished steel product manufacturing facility.
"Mitsui" means Mitsui & Co., Ltd., a corporation organized under the
laws of Japan, and its successors and assigns.
"Net Operating Available Cash" means at the time of determination, (a)
all cash and cash equivalents on hand in the Company, less (b) the Forecast Cash
Requirements, if any, of the Company, as determined by the Members in accordance
with the terms hereof.
"Non-Defaulting Members" shall have the meaning set forth in Section
9.5(b) of this Agreement.
"Offer" means the Initial Offer and any subsequent offer made pursuant
to Section 8.1 of this Agreement to the Initiating Member or the Other Member,
as the case may be, each of which offers shall comply with the following
requirements:
(a) Such offer shall be in writing, duly authorized, executed
and delivered, irrevocable and remain available for acceptance for a
period following receipt thereof by the Member to whom it was delivered
for a period of at least 90 days;
(b) Such offer shall be for cash only;
(c) Such offer shall be to purchase all, but not less
than all, of the Membership Interest held by the Member to whom it is
addressed; and
(d) Such offer shall stipulate the Price of the Membership
Interest, the Fair Market Value from which such Price was derived, and
the Percentage Interest of the Member to whom the offer is addressed.
"Offeree Members" has the meaning set forth in Section 12.4 of this
Agreement.
"Other Member" shall have the meaning set forth in Section 8.1(a) of
this Agreement.
"Parent Entity" means, as to any Person, an Affiliate of which such
Person is a Wholly Owned Subsidiary.
"Percentage Interest" means, for each Member, the Percentage Interest
of the Member as set forth on Schedule I, as such Percentage Interest may be
modified in accordance with this Agreement.
"Permitted Transferees" shall have the meaning given such term in
Section 12.2(b) hereof.
"Person" means any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint-stock company, trust,
estate, unincorporated organization, governmental or regulatory body or other
entity.
"Pre-Effective Date Contribution" shall have the meaning set forth in
Section 9.2 hereof.
"President" means the President of the Company, duly appointed in
accordance with this Agreement and having the duties and responsibilities set
forth herein.
"Price" means a dollar amount stipulated in an Offer.
"Profits" and "Losses" means, as appropriate, for any fiscal year or
other period an amount equal to the Company's taxable income for United States
federal income tax purposes for such year or period determined in accordance
with Code Section 703(a) and the Income Tax Regulations thereunder with the
following adjustments:
(a) All items of income, gain, loss, and deduction of the
Company required to be stated separately shall be included in taxable
income or loss;
(b) Income of the Company exempt from United States
federal income tax shall be treated as taxable income;
(c) Expenditures of the Company described in Code Section
705(a)(2)(B) or treated as such expenditures under Income Tax
Regulation Section 1.704-1(b)(2)(iv)(i) shall be subtracted from
taxable income;
(d) Revaluation Gain and Revaluation Loss shall be included;
(e) Gain or loss resulting from the disposition of property
from which gain or loss is recognized for United States federal income
tax purposes shall be determined with reference to the Asset Value, net
of Depreciation, of such property;
(f) Depreciation, amortization and other cost recovery
deductions shall be determined based upon Asset Value instead of as
determined for United States federal income tax purposes; and
(g) All items of income, gain, loss or deduction specially
allocated pursuant to Sections 10.1(c), (d), (e) and (g) shall not be
included in taxable income or loss.
"Representative" shall have the meaning set forth in Section 4.2(a) of
this Agreement.
"Revaluation Gain" means the amount of gain which would have been
realized had there been a taxable disposition of any Company asset being
revalued under Section 9.9 of this Agreement for an amount of cash equal to such
asset's then Fair Market Value, determined in accordance with the provisions of
Section 9.11 of this Agreement, determined as if the asset's basis were equal to
its Asset Value net of Depreciation with respect to such asset.
"Revaluation Loss" means the amount of loss which would have been
realized had there been a taxable disposition of any Company asset being
revalued under Section 9.9 of this Agreement for an amount of cash equal to such
asset's then Fair Market Value, determined in accordance with the provisions of
Section 9.11 of this Agreement, determined as if the asset's basis were equal to
its Asset Value net of Depreciation with respect to such asset.
"RMD" means Raw Material Development Co., Ltd., a Delaware corporation,
and its Permitted Transferees hereunder.
"Scrap" means ferrous and non-ferrous scrap metal.
"Secretary" means the Secretary of the Company, duly appointed in
accordance with this Agreement and having the duties and responsibilities set
forth herein.
"Selling Member" has the meaning set forth in Section 12.4 of this
Agreement.
"Subsidiaries" means Allways, B&D and Weiner.
"Substituted Member" shall have the meaning set forth in Section 12.5
of this Agreement.
"Tax Matters Partner" means the Tax Matters Partner of the Company as
referred to in Section 11.1 of this Agreement.
"Taxes" means all taxes, charges, fees, levies or other assessments
imposed by any taxing authority, including, but not limited to, income, gross
receipts, excise, property, sales, use, transfer, payroll, license, ad valorem,
value added, withholding, social security, national insurance (or other similar
contributions or payments), franchise, estimated, severance and stamp taxes
(including any interest, fines, penalties or additions attributable to, or
imposed on or with respect to, any such taxes, charges, fees, levies or other
assessments) and "Tax Return" means any return, report, information return or
other document (including any related or supporting information) with respect to
Taxes.
"Transaction" means the purchase of certain assets of Hiuka and the
Subsidiaries and the assumption of certain associated obligations under certain
executory contracts and leases, on the terms and conditions set forth in the
Asset Purchase Agreement.
"Transaction Expenses" shall have the meaning set forth in Section
9.3(a) of this Agreement.
"Transfer" means as a verb to transfer, sell, assign, exchange, pledge,
give, hypothecate or otherwise convey or encumber all or any portion of a
Membership Interest, and, as a noun, any transfer, sale, assignment, exchange,
pledge, gift, hypothecation or other conveyance or encumbrance of all or any
portion of a Membership Interest.
"Transfer Closing" shall have the meaning set forth in Section 8.1(f)
of this Agreement.
"Trustee" means R. Todd Neilson, in his capacity as Chapter 11 Trustee
for the bankruptcy estate of Hiuka.
"Weiner" means Weiner Steel Corporation, a California corporation, and
with respect to all periods following commencement of a bankruptcy case with
respect to Weiner Steel Corporation (in the event that such a bankruptcy
proceeding is commenced with regard to Weiner Steel Corporation pursuant to
Section 8.8 of the Asset Purchase Agreement), the bankruptcy estate of Weiner
Steel Corporation.
"Wholly Owned Affiliate" means, as to any Person, a Parent Entity or
any Affiliate that is a Wholly Owned Subsidiary of such Parent Entity.
"Wholly Owned Subsidiary" means, as to any Person, a corporation or
other entity all of the capital stock or other equity interests of which
corporation or entity is at the time owned, directly or indirectly, through one
or more intermediaries, or both, by such Person.
SECTION 2
GENERAL PROVISIONS
2.1 Formation. Contemporaneously herewith RMD and Birmingham are
forming the Company as a limited liability company under and pursuant to the
Act, and this Agreement. Except as otherwise provided in this Agreement, the
rights, duties, liabilities and obligations of the Members and the
administration, dissolution, winding up and termination of the Company shall be
governed by the Act.
2.2 Name.The name of the Company shall be "M&B Steel Company, LLC". The
name of the Company may be changed with the unanimous approval of the Members.
2.3 Filings; Registered Office; Statutory Agent.
(a) The Members shall cause the Certificate to be filed with
the Secretary of State of the State of Delaware and any other office in
accordance with the Act. The Members shall cause additional amendments
to the Certificate to be filed from time to time, as required by the
Act. The Members shall take any and all other actions as may be
reasonably necessary to perfect and maintain the status of the Company
as a limited liability company under the Act.
(b) The registered office of the Company in the State of
Delaware required by the Act shall be as set forth in the Certificate,
until such time as the registered office is changed with the unanimous
approval of the Members and the filing of an amendment to the
Certificate, all in accordance with the Act.
(c) The statutory agent of the Company in the State of
Delaware required by the Act shall be CorpAmerica, Inc., until such
time as the statutory agent is changed with the unanimous approval of
the Members and the filing of an amendment to the Certificate, all in
accordance with the Act.
2.4 Principal Executive Office. The principal executive office for the
transaction of the business of the Company shall be the Pier T, Berth 118
facility located at the Port of Long Beach, California until such principal
executive office is changed with the unanimous approval of the Members within or
without the State of Delaware.
2.5 Purpose. The purpose of the Company shall be to acquire, own and
operate certain assets (real and personal, tangible and intangible), businesses
and operations of the bankruptcy estate of Hiuka and the Subsidiaries to engage
primarily in the collection, processing and sale (mainly for export) of Scrap
(collectively the "Business"), and to conduct such other business activities as
may be permitted by the Act. The terms and conditions of the acquisition of the
Business shall be more fully described in the Asset Purchase Agreement.
2.6 Company Powers.
(a) The Company shall have the power: (i) to acquire and
operate the Business; (ii) to acquire or lease all equipment, supplies
and services and to make improvements necessary for the ownership,
operation, management and maintenance of the Business; (iii) to borrow
or raise money necessary for the acquisition, ownership, operation,
management and maintenance of the Business; (iv) to use any
contributions from the Members for such purposes; (v) to execute any
documents required in connection with the foregoing; (vi) to do any and
all acts and things which may be necessary, appropriate, proper,
advisable, incidental or convenient to or for the furtherance of the
Business as contemplated by this Agreement; and (vii) to take any other
action permissible under the Act in connection with the Business; and
(b) The Company may enter into, deliver and perform all
contracts, agreements and other undertakings and engage in all
activities and transactions as may be necessary or appropriate to carry
out the foregoing purposes. Without limiting the foregoing, the Company
may:
(i) acquire, sell, lease, exchange, transfer, assign,
encumber, pledge or mortgage assets of the Business or
otherwise exercise all rights, powers, privileges and other
incidents of ownership or possession with respect to such
assets;
(ii) borrow or raise money and secure the payment
of any obligations of the Company by mortgage upon, or pledge
or hypothecation of, all or any part of the assets of the
Company;
(iii) engage personnel, whether part-time or
full-time, to do such acts as are necessary or advisable in
connection with the maintenance, operation and administration
of the Company and its investments; and
(iv) engage attorneys, independent accountants,
investment bankers, consultants or such other Persons.
2.7 Term. The term of the Company shall commence on the date that the
Certificate is executed and filed in the Office of the Secretary of State of the
State of Delaware pursuant to Section 18-201 of the Act. The duration of the
Company shall continue until September 30, 2026, unless extended or earlier
dissolved as provided in Section 13, or by applicable law.
2.8 Qualification in Other Jurisdictions. The Members shall cause the
Company to be qualified, formed, or registered under assumed or fictitious name
statutes or similar laws in any jurisdiction in which the Company owns property
or engages in activities if such qualification, formation or registration is
necessary to permit the Company lawfully to own property and engage in the
Business. The Members shall execute, file and publish all such certificates,
notices, statements or other instruments necessary to permit the Company to
engage in the Business as a limited liability company in all jurisdictions where
the Company elects to engage in or do business.
2.9 Limited Liability Agreement. This Agreement shall be the
Company's "limited liability company agreement" for all purposes under the Act.
SECTION 3
MEMBERS
3.1 Members. Each of the parties to this Agreement, and each Person
admitted as a Member of the Company pursuant to the Act and Section 12 of this
Agreement, shall be Members of the Company until they cease to be Members in
accordance with the provisions of the Act, the Certificate, or this Agreement.
The names of the Members shall be set forth in Schedule I hereto, as such
Schedule I may be amended from time to time.
3.2 Access to Books of Account. Each Member shall have the right at all
reasonable times during usual business hours to audit, examine, and make copies
or extracts of or from the complete books of account of the Company, including
but not limited to the books and records maintained in accordance with Section
11.2 and all other books and records of the Company. Such right may be exercised
through any Agent of such Member designated by it or by independent certified
public accountants or counsel designated by such Member. Each Member shall bear
all expenses incurred in any examination made for such Member's account.
3.3 Confidential Information.
(a) The Company and each Member shall not use or disclose to
others any Confidential Information received from the Company or any
other Member for any purpose other than provided for in this Agreement,
and shall take or cause to be taken such precautions as are reasonably
necessary to prevent disclosure or use of Confidential Information to
others, except to or by (i) any lender to the Company, or (ii) any
Member or any of their respective Affiliates or Agents in connection
with the transactions leading up to and contemplated by this Agreement,
including with respect to any agreements or contracts between the
Member and the Company, and the operation of the Company and its
Business; any Member disclosing Confidential Information pursuant to
Section 3.3 shall use, and shall cause its Affiliates and Agents to
use, such Confidential Information only for the benefit of the Company
in conducting the Business or for any other specific purposes for which
it was disclosed to such party; provided that the disclosure of
financial statements of, or other information relating to, the Company
shall not be deemed to be the disclosure of Confidential Information
(i) to the extent that any Member is required by law or GAAP to
disclose such financial statements or other information or (ii) to the
extent that in order to sustain a position taken for tax purposes, any
Member deems it necessary and appropriate to disclose such financial
statements or other information. All Confidential Information disclosed
in connection with the Company or pursuant to this Agreement shall
remain the property of the Person whose property it was prior to such
disclosure.
(b) No Confidential Information regarding the plans or
operations of any Member or any Affiliate thereof received or acquired
by or disclosed to any other Member or Affiliate thereof in the course
of the conduct of the Business, or otherwise as a result of the
existence of the Company, may be used by such other Member or Affiliate
thereof for any purpose other than for the benefit of the Company in
conducting the Business.
(c) In the event that a Member or anyone to whom a Member
transmits any Confidential Information becomes legally compelled (by
oral questions, interrogatories, requests for information or documents,
subpoena, investigative demand or similar process) to disclose any of
the Confidential Information, such Member will provide the other
Members and the Company with prompt written notice prior to disclosure
so that the other Members and the Company may seek a protective order
or other appropriate remedy and/or waive compliance with the provisions
of this Agreement. In the event that such protective order or other
remedy is not obtained, or that the Company and the other Members waive
compliance with the provisions of Section 3.3, the Member or Person who
is compelled to disclose such Confidential Information will take
reasonable measures to minimize any required disclosure.
(d) Each Member who ceases to be a Member will, and will cause
its Affiliates, Representatives and Agents to, maintain the
confidentiality required by Section 3.3. The obligations under Section
3.3 shall survive the dissolution of the Company for a period of five
years.
(e) To the fullest extent permitted by law, if a Member or any
of its Affiliates or Agents breaches, or threatens to commit a breach
of, Section 3.3, the other Members and the Company shall have the right
and remedy to have Section 3.3 specifically enforced by and pursuant to
the arbitration provisions in Section 7.1, and to obtain injunctive
relief as authorized by Section 7.1, it being acknowledged and agreed
that money damages will not provide an adequate remedy to such other
Members or the Company. Nothing in Section 3.3 shall be construed to
limit the right of any Member or the Company to collect money damages
in the event of breach of Section 3.3.
3.4 Duty of Members to Cooperate. Each Member will, to the extent
permitted by applicable law and consistent with this Agreement, furnish such
information, execute such applications and similar documents as are required by
governmental authorities, and take such other action reasonably requested by the
other Members or the Representatives as may be necessary or reasonably desirable
in connection with the Business of the Company.
SECTION 4
MEMBER MANAGEMENT
4.1 Management. The Business of the Company shall be managed by the
Members in accordance with this Section 4. All decisions concerning the
management of the Company's Business shall be made by the Members acting through
their Representatives and the officers of Company, in each case as further
described in Sections 4.2 and 4.3. Any Person not a party to this Agreement
which deals with the Company shall be entitled to rely conclusively upon the
power and authority of the Members and Representatives. Except upon the express
authorization or designation by the Members in accordance with this Agreement,
no Member shall have any unilateral right or authority to take any action on
behalf of the Company with respect to third parties. None of the officers of the
Company or the Representatives shall be a "Manager" (within the meaning of the
Act) of the Company.
4.2 Representatives
(a) Each of Birmingham and RMD shall designate three
representatives (collectively the "Representatives" and each
individually a "Representative") and three alternate representatives
(collectively the "Alternates" and individually an "Alternate") who may
be officers or employees of the Company, and each of whom shall be an
officer, director or employee of the appointing Member or an Affiliate
of the Member. The foregoing restriction on qualifications of
Representatives shall be subject to waiver and exceptions if approved
by all Members. The Representatives shall serve without compensation.
These Representatives shall represent RMD, Birmingham and Substitute
Members at the Members Meetings, as further described in Section 4.4.
(b) Each Member shall designate its initial Representatives
and Alternates by written notice to the other Member within 30 days
from the date hereof. Prior to the designation of its initial
Representatives, any actions or decisions of a Member to be taken
through its Representatives may be taken by the Member acting directly
through its authorized officers. Effective upon the giving of written
notice thereof to the other Members, any Member may, at any time, in
its sole discretion and with or without cause, replace any or all of
its appointed Representatives and Alternates with other individuals and
may designate one or more Alternates for any or all of its
Representatives; provided that such replacement Representatives or
Alternates meet the requirements provided in Section 4.2(a) above. Each
Representative or Alternate shall serve until his or her successor is
appointed, or until his or her earlier death, resignation or removal.
In the event that a Representative or an Alternate ceases to serve for
any reason, the Member that appointed such person shall promptly
designate a successor. Effective upon a Member ceasing to be a member
of the Company, the Representatives and Alternates representing such
Member shall cease to be Representatives and Alternates.
4.3 Member Actions. Any action that may be taken by the Members or the
Company shall require the affirmative vote of Members maintaining 70% or more of
the Percentage Interests; provided, however, that with respect to the actions
set forth below, such action shall also require the affirmative vote of RMD, so
long as RMD maintains a Percentage Interest of 35% or more, and Birmingham, so
long as Birmingham maintains a Percentage Interest of 35% or more, each acting
through its Representatives:
(i) to amend the Certificate;
(ii) to amend this Agreement;
(iii) to change the scope of the Business or the purpose
of the Company in accordance with Section 2.5, or to
engage in a business other than the Business;
(iv) to adopt or amend the annual Budget and Business
Plan for the Company;
(v) to approve the admission of a new Member of the
Company, except for the admission of new Members as
a result of transfers, which admissions shall be
governed by Section 12.2 below;
(vi) to agree to continue the Business of the Company
after an event of dissolution of the Company;
(vii) except as otherwise provided in this Agreement, to
approve the dissolution or liquidation of the
Company;
(viii) to approve a merger, conversion or consolidation of
the Company with or into any other Person;
(ix) to approve the sale of all or substantially all of
the Company's assets;
(x) to establish or dissolve any subsidiary of the
Company;
(xi) except as otherwise provided in this Agreement, to
require any additional capital contributions and to
determine the form of such contributions;
(xii) to form or dissolve a joint venture, partnership or
any other similar arrangement between the Company
and any other Person;
(xiii) except to the extent authority is delegated to
others by the Members, to approve any acquisition or
disposition of shares or bonds or any other equity
or other interest in any other Person or business
enterprise;
(xiv) except to the extent authority is delegated to
others by the Members, to authorize any acquisition
of assets of any other Person, or any disposition of
assets of the Company, except in the ordinary course
of business;
(xv) except to the extent authority is delegated to
others by the Members, to borrow money;
(xvi) to appoint or change the independent auditor of the
Company;
(xvii) except as otherwise provided in this Agreement, to
make any distribution to the Members of the Company;
(xviii) to establish, amend or abolish internal rules of the
Company with respect to the authority of the
President and other designated officers and to
create, reorganize or abolish departments and
offices of the Company;
(xix) to approve any assignment, transfer, sublease,
modification, extension or early termination of the
Lease;
(xx) such other actions as may be prescribed in this
Agreement and provided to be subject to the approval
of the Members;
(xxi) to approve the terms of and any amendment to or
modification of the Loan Agreement, or the extension
or refinancing of indebtedness incurred thereunder;
and
(xxii) any amendment to or modification of the Asset
Purchase Agreement and any decisions regarding
satisfaction of material conditions to closing of
the Transactions contemplated thereby.
Notwithstanding the foregoing, RMD's vote alone shall determine whether the
Company shall assume the Asset Purchase Agreement, unless, when compared with
the assets and obligations included in the Notice to the Trustee dated September
18, 1996, the combination of any decrease in the assets to be acquired and any
increase in the obligations to be assumed pursuant to the final Asset Purchase
Agreement is of such magnitude that economic projections, as calculated in the
financial model used by Birmingham, based on assumptions disclosed by Birmingham
to Mitsui, result in a cumulative EBITDA (earnings before interest, taxes,
depreciation and amortization) payback of approximately five years or greater.
In such case, Birmingham shall vote alone whether the Company shall assume the
Asset Purchase Agreement. The determination that Birmingham has this voting
right, and the vote by Birmingham, shall be made prior to execution of the Asset
Purchase Agreement, and before that determination Birmingham shall review and
discuss the assumptions and calculations used in reaching that conclusion with
RMD. As used herein, "EBITDA payback" means an aggregate amount of EBITDA equal
to the cash purchase price in the Asset Purchase Agreement.
4.4 Members Meetings.
(a) The Members shall hold regular meetings (at least
quarterly) at such time and place as shall be determined by the
Members. Special meetings of the Members may be called at any time by
any Member by delivering a notice of meeting in accordance with Section
4.4(g) hereof. The President and senior management of the Company, as
the Members determine, may be invited by any Member to attend and
express their respective opinions at any such meeting.
(b) The chairman of the meeting of the Members shall establish
the agendas for, and regulate the proceedings of, meetings of the
Members, but must include on such agendas matters requested by any
Member in writing received at least two business days in advance of any
meeting. RMD and Birmingham, so long as each of RMD and Birmingham
maintains a Percentage Interest of 35% or more, alternating year by
year, shall have the right to appoint the chairman from among its
representatives to serve for a term of one (1) year. In the event that
either RMD or Birmingham fails to maintain a Percentage Interest of 35%
or more, a majority of the Members shall appoint such chairman from
among the representatives. The initial chairman shall be appointed by
RMD.
(c) Representatives may participate in a meeting of the
Members by conference telephone or similar communications equipment by
means of which all Persons participating in the meeting can hear each
other, and such participation shall constitute presence in person of
such Representatives at such meeting.
(d) Any action required or permitted to be taken at any
meeting of the Members may be taken without a meeting upon the
unanimous written consent of all of the Representatives.
(e) The Representatives shall cause to be kept with the books
and records of the Company complete written minutes of all Member
meetings. A duplicate copy of such written minutes shall be provided to
each Representative. The Secretary shall cause to be kept with the
books and records all such written minutes, notices, waivers of notice
and written consents in lieu of meetings in accordance with Section 5.4
of this Agreement.
(f) A Representative shall have the right by written notice to
the chairman to designate an Alternate to attend meetings of the
Members, instead and in place of such Representative, and to exercise
all of the functions of such Representative. Any such Alternate shall
be deemed to be a Representative for all purposes hereunder until such
designation is revoked. A Representative shall also have the right to
give a written proxy to any other Representative for a specific meeting
to exercise all voting rights of the Representative at such meeting.
(g) Notice of each regular meeting and each special meeting of
the Members shall be given in writing to each Member and the Company at
least fourteen (14) business days before such meeting. Notices of
special meetings shall contain a description, in reasonable detail, of
the items of business to be conducted at such meeting and no business
other than those items (unless expressly and unanimously agreed to by
all of the Representatives) may be conducted at such special meeting.
The notice provisions of Section 4.4(g) shall be waived upon either the
signing of a written waiver thereof or attendance at a meeting by all
of the Representatives appointed by each Member.
4.5 Voting. The vote of any Member, with respect to any action that is
to be voted on by such Member, including without limitation in exercise of the
powers set forth in Section 4.3, shall mean the affirmative vote of such Member
acting through its Representatives present (in person or by Alternate) at the
meeting; provided that in the event that a Member shall abstain from the vote on
any matter (because of a conflict of interest or for any other reason), the
outcome of such vote shall be determined by the affirmative vote of the other
Members entitled to vote on such matter, and such vote shall constitute the act
of the Members with respect to such matter. A quorum of any meeting of the
Members shall require the presence (in person or by Alternate) of at least four
(4) Representatives, two (2) of whom shall be Representatives of each Member.
With respect to any matter that is to be voted on by a Member, such Member shall
be entitled to consider only such interests and factors as it desires, including
its own interests, and shall have no duty or obligation to give any
consideration to any interests of or factors affecting the Company or any other
Member.
4.6 Deadlock; Deadlock Resolution.
(a) In the event that the Members fail to adopt, by the
requisite affirmative vote, the annual Budget and Business Plan for the
Company prior to the first day of any fiscal year of the Company, the
Company shall be operated in accordance with the annual Budget and
Business Plan for the immediately previous fiscal year of the Company
until the Members adopt the annual Budget and Business Plan for the
relevant fiscal year.
(b) In the event that the Members fail to resolve, by the
requisite affirmative vote (which failure includes blocking of action
by RMD or Birmingham in accordance with Section 4.3 hereof), any matter
referred to in Section 4.3(iv) or (xi) hereof:
(i) in the case of Section 4.3(iv), ninety (90)
days following the end of the preceding fiscal year, or
(ii) in the case of Section 4.3(xi), ninety (90) days
after a matter referred to in clause (xi) is first referred to
the Members,
then RMD and Birmingham shall, so long as each of RMD and Birmingham
maintains a Percentage Interest of 35% or more, each appoint a delegate
in order to resolve such disagreement. In such event, the delegates
shall be the Chief Executive Officer (or a successor officer having
substantially similar responsibility) of Birmingham and either the
Chief Operating Officer of the Iron and Steel Raw Materials Group (or a
successor officer having substantially similar responsibility) of
Mitsui or the General Manager of the Ferrous Raw Materials Division (or
a successor officer having substantially similar responsibility) of
Mitsui. In the event that either RMD or Birmingham fails to maintain a
Percentage Interest of 35% or more, each Member shall appoint a
delegate in order to resolve such disagreement.
Such delegates shall then meet as necessary to
resolve such disagreement and attempt to resolve such disagreement by
mutual agreement. If such delegates fail to resolve the disagreement
within ninety (90) days of their appointment, except as set forth in
paragraph (c) below, no action shall be taken by the Company.
(c) In case of a failure to resolve a disagreement as
described in the preceding paragraph (b), then each of RMD and
Birmingham may exercise buy-sell rights pursuant to Section 8 of this
Agreement.
SECTION 5
OFFICERS AND EMPLOYEES
5.1 Officers.
(a) The Company shall initially have three (3) divisions,
comprised of the (i) Sales Division, (ii) Operation Division, and (iii)
Financing and Accounting Division. Thereafter, the Company shall have
such organization as shall be unanimously approved by RMD and
Birmingham (so long as each of RMD and Birmingham maintains a
Percentage Interest of 35% or more).
(b) The officers of the Company shall include a President, a
Chief Financial Officer, a Controller, a Secretary, a General Manager
for each division, and such other officers as RMD and Birmingham (so
long as each of RMD and Birmingham maintains a Percentage Interest of
35% or more) may deem appropriate. The powers, rights, duties,
responsibilities and selection of the officers shall be as provided in
this Agreement or determined by RMD and Birmingham (so long as each of
RMD and Birmingham maintains a Percentage Interest of 35% or more).
(c) So long as each of RMD and Birmingham maintains a
Percentage Interest of 35% or more, (i) RMD shall have the right to
appoint the (1) President, (2) General Manager of the Sales Division,
(3) Controller (who shall report to the Chief Financial Officer) and
(4) General Manager of the Administrative Department (which is part of
the Operation Division); and (ii) Birmingham shall have the right to
appoint (1) the Chief Financial Officer (who is the General Manager of
the Financing and Accounting Division), (2) the General Manager of the
Purchasing Department (which shall be part of the Operation Division)
and (3) the General Manager of the Operation Division. In addition, so
long as each of RMD and Birmingham maintains a Percentage Interest of
35% or more, each of RMD and Birmingham may appoint an officer to work
as an assistant to each officer appointed by the other Member, and each
of RMD and Birmingham shall have the right to approve the selection of
each officer appointed by the other; provided, that such approval shall
not be unreasonably withheld.
5.2 President. The President shall have the responsibility for the
general active day-to-day management of the business of the Company. The
President shall see that all orders and resolutions of the Members are carried
into effect. The President shall, subject to the direction, policies and orders
of the Members, have the general powers and duties usually vested in the office
of the President of a Delaware corporation and shall have such other powers and
perform such other duties as may from time to time be prescribed by RMD and
Birmingham (so long as each of RMD and Birmingham maintains a Percentage
Interest of 35% or more).
5.3 Chief Financial Officer. The Chief Financial Officer shall have the
care and custody of the Company's funds and securities and shall disburse the
funds of the Company as may be ordered from time to time by RMD and Birmingham
(so long as each of RMD and Birmingham maintains a Percentage Interest of 35% or
more) or the President, subject to the direction, policies and orders of the
Members. The Chief Financial Officer shall keep or cause to be kept full and
accurate accounts of receipts and disbursements in books belonging to the
Company and shall deposit all moneys and other valuable effects and all
securities of the Company in the name and to the credit of the Company in such
depositories as may be designated from time to time by RMD and Birmingham (so
long as each of RMD and Birmingham maintains a Percentage Interest of 35% or
more). Except to the extent that some other person or persons may be
specifically authorized by the Members to so do, the Chief Financial Officer
shall make, execute and endorse all checks and other commercial paper on behalf
of the Company. The Chief Financial Officer shall report the financial condition
of the Company when requested to do so by RMD and Birmingham (so long as each of
RMD and Birmingham maintains a Membership Interest of 35% or more) or the
President and shall perform such other duties as may from time to time be
prescribed by RMD and Birmingham (so long as each of RMD and Birmingham
maintains a Percentage Interest of 35% or more).
5.4 Secretary. The Secretary shall keep or cause to be kept at the
principal executive office of the Company with the books and records of the
Company, or such other place as RMD and Birmingham may order (so long as each of
RMD and Birmingham maintains a Percentage Interest of 35% or more), a complete
book of written minutes of all proceedings of the Members, with the time and
place of holding, whether regular or special, and if special how authorized, the
notice thereof given, the names of those present and the number of votes present
or represented at Members meetings, and all written consents in lieu of
meetings. The Secretary or an assistant secretary, or, if they are absent or
unable or refuse to act, any other officer of the Company, shall give or cause
to be given notice of all the meetings of the Members required by this Agreement
or by law to be given, and shall have such other powers and perform such other
duties as may be prescribed by the President or by this Agreement or by RMD and
Birmingham (so long as each of RMD and Birmingham maintains a Percentage
Interest of 35% or more). The Secretary shall be appointed by RMD and Birmingham
(so long as each of RMD and Birmingham maintains a Percentage Interest of 35% or
more).
5.5 Controller. The Controller shall report to the Chief Financial
Officer and have those duties and responsibilities relating to the fiscal
affairs of the Company as shall be delegated to the Controller by RMD and
Birmingham (so long as each of RMD and Birmingham maintains a Percentage
Interest of 35% or more). Such duties and responsibilities shall include,
without limitation, the examination and auditing of the Company's books and
accounts, the keeping of the Company's financial records and the reporting of
the Company's financial affairs to the Chief Financial Officer.
5.6 General Manager of Sales Division. The General Manager of Sales
shall have the responsibility for (i) the sales, both domestically and for
export, of all products and materials acquired by the Company, (ii) chartering
all vessels required for the movement of the sold products and materials, (iii)
the collection of accounts receivable from the Company's customers, and (iv) any
other matters or duties as may from time to time be prescribed by RMD and
Birmingham (so long as each of RMD and Birmingham maintains a Percentage
Interest of 35% or more).
5.7 General Manager of Operations Division. The General Manager of
Operations shall have the responsibility for (i) the day-to-day operations of
Berth-118, and the Subsidiaries, including intake, processing, shiploading and
maintenance, (ii) personnel and labor matters, (iii) the purchase of scrap, (iv)
the purchase of commodities and equipment, (v) the dispatching of trucks, the
arrangement of railroad transport and other domestic transportation matters,
(vi) subcontracting issues, (vii) leasing issues, including matters relating to
the Lease, (viii) the management and handling of hazardous materials, and (ix)
any other matters or duties as may from time to time be prescribed by RMD and
Birmingham (so long as each of RMD and Birmingham maintains a Percentage
Interest of 35% or more).
SECTION 6
NON-COMPETE
6.1 Non-Compete Covenant.
(a) Each of RMD and Birmingham agrees that it shall not, and shall
cause its Affiliates not to, during all times that RMD and Birmingham maintain,
either directly or through any Affiliate, a Percentage Interest of 20% or more,
directly or indirectly, as a partner, joint venturer, employer, employee,
contractor, consultant, shareholder, director, officer, trustee, principal or
agent, engage in or receive any economic benefit from any business or operations
that competes with the Business in the following counties within the State of
California: (i) Los Angeles; (ii) Orange; (iii) Riverside; (iv) San Diego; (v)
Ventura; (vi) Kern; (vii) Imperial; (viii) San Bernardino; (ix) Santa Barbara;
and (x) San Luis Obispo (the "Territory"), or control, advise with respect to,
act as a consultant to or manage any Person regarding any business or operations
that competes with the Business in the Territory. Either RMD or Birmingham and
their respective Affiliates may, however, without violating this covenant (i)
own as an investment not in excess of five percent (5%) of the securities of a
corporation or other entity which engages in such competition if such securities
are traded on a national securities exchange or traded publicly in the
over-the-counter market, or (ii) invest the assets of any employee benefit plan
in any corporation or other entity which engages in such competition, if the
assets of such plan are managed by an independent investment advisor.
(b) Each of RMD and Birmingham agrees that it shall not, and shall
cause its Affiliates not to, for a period of 5 years from the date hereof,
construct any Mini-Mill within the Territory. The parties agree that in the
event RMD, Birmingham or any Affiliate proposes, following the expiration of
such 5 year period, to construct any such facility, RMD and Birmingham shall
consult in good faith to determine whether the construction and operation of the
proposed facility would have an adverse economic impact on the results of
operations of the Company and, if no such adverse impact is expected, the
proposing party may proceed with the proposed construction without violating
this Section 6. This paragraph (b) will be effective only if Mitsui shall have
notified Birmingham of the effectiveness of this paragraph on or before October
9, 1996. If that notice is not given, any party may construct a Mini-Mill in the
Territory.
6.2 Other Exceptions. Nothing in Section 6.1, however, shall preclude
(a) RMD or any of its Affiliates from (i) continuing to conduct business and
operations substantially similar to those existing at the Closing; (ii) owning
or transferring any interest in, or transacting business with, Ferromet or
Tamco; or (iii) purchasing Scrap within the Territory if the Company is unable
to respond timely to an inquiry from RMD or any of its Affiliates, or purchasing
Scrap elsewhere, for export to any destination or (b) Birmingham or any of its
Affiliates from (i) owning or transferring any interest in any existing
Mini-Mill facility wherever located; or (ii) purchasing Scrap from any seller
within the Territory or elsewhere for use in a facility owned or operated by
Birmingham or any of its Affiliates, provided that in the case of a proposed
purchase within the Territory for use at the facility of BSC or its Affiliate in
Seattle, Washington, the Company shall have a right of first refusal to sell the
same volume of Scrap to Birmingham or its Affiliate at the proposed price.
6.3 Reasonableness of Restrictions. Each of RMD and Birmingham
acknowledges that the foregoing territorial and time limitations are reasonable
and properly required for the adequate protection of the Company and that in the
event that any such territorial or time limitation is deemed to be unreasonable
and is then reduced by an arbitrator or subject to Section 7 a court or
competent jurisdiction, then, as reduced, the territorial and time limitations
shall be enforced.
6.4 Enforcement. For purposes of this covenant, each of RMD and
Birmingham shall be a fiduciary of each other, having the highest duties of
loyalty, good faith and fair dealing. Each of RMD and Birmingham acknowledges
that the remedy at law for any breach or threatened breach by it of the
agreements contained in Section 6.1 will be inadequate and agrees that the
Company in the event of such breach or threatened breach, subject to and
consistent with Section 7, in addition to all other remedies available for such
breach or threatened breach (including a recovery of damages), will be entitled
to obtain preliminary or permanent injunctive relief without being required to
prove actual damages and, to the extent permitted by applicable statutes and
rules of procedure, a temporary restraining order (or similar procedural device)
upon the commencement of such action. Section 6.1 constitutes an independent and
severable covenant and if any or all of the provisions of Section 6.1 are held
to be unenforceable for any reason whatsoever, it will not in any way invalidate
or affect the remainder of this Agreement which will remain in full force and
effect. The parties intend for the covenants of Section 6.1 to be enforceable to
the maximum extent permitted by law, and if any reviewing court deems any of
such covenants to be unenforceable or invalid, the Members and the Company
authorize such court to reform (i) the unenforceable or invalid provisions and
to impose such restrictions as reformed and (ii) the remaining provisions as it
deems reasonable.
SECTION 7
DISPUTE RESOLUTION
7.1 Dispute Resolution. The Members hereto desire to avoid all forms of
traditional litigation, subject to the provision for preliminary injunctive
relief described in Section 7.1(c) below. Except as otherwise provided in this
Agreement, any dispute, controversy or claim of any nature whatsoever between
the Members arising out of or relating to this Agreement or the breach,
termination or invalidity of this Agreement, whether in contract, tort or
equity, or under any statute or regulation arising out of or relating to this
Agreement, the relationship between or among the Members or any circumstances
pertaining to the creation or termination thereof, including without limitation,
claims of discrimination, breach of fiduciary duty, bad faith, or interference
with other business opportunities and including determining in the first
instance the interpretation or scope of this dispute resolution agreement and
other preliminary jurisdictional questions (a "Dispute"), shall be resolved in
accordance with Section 7. All other remedies to which the Members (including
their respective Affiliates) may otherwise have been entitled, whether at law or
in equity, are hereby waived to the fullest extent allowed by law. The
obligations under Section 7 shall survive the dissolution of the Company or the
failure of a person to remain a Member.
The preceding provision notwithstanding, if a Dispute arises out of
third-party litigation against any Member, these procedures shall not be
mandatory, and such Member shall have the right to engage in such litigation
with the third-party claimant and with each other concerning such Dispute. For
purposes of this exception pertaining to Disputes arising out of third-party
litigation, a third-party means a party which is not an Affiliate of a Member.
(a) Informal Dispute Resolution. The Members shall initially
attempt in good faith to resolve any Dispute promptly by confidential
negotiations between representatives of the Members with authority to
settle the matter. All such negotiations shall be treated as compromise
and settlement negotiations for purposes of the relevant rules of
evidence. Any Member making a claim shall give the other Members
written notice that the Member is invoking the dispute resolution
procedures of Section 7 with respect to a specified Dispute. Within
twenty (20) days after delivery of the written notice, the receiving
Members shall submit to the other Members a written response. The
notice and the response shall include (a) a statement of each Member's
position and a summary of arguments supporting that position, and (b)
the name of the Person(s) who will represent that Member and the name
of any other Person who will accompany the representative(s) to the
meeting. Within twenty (20) days after delivery of the written
response, the representatives of the Members shall meet at a mutually
acceptable time and place (or failing such agreement at the Company's
principal executive office), or confer by telephone and thereafter as
often as they reasonably deem necessary, to attempt to resolve the
Dispute.
(b) Formal Dispute Resolution.
(i) Any Dispute which remains unresolved fifty (50)
days after delivery of the initial written notice shall be
promptly resolved by final and binding arbitration. Such
arbitration shall be conducted pursuant to the Commercial
Arbitration Rules ("CAR") of the AAA. The place of arbitration
shall be Los Angeles, California unless all Members which are
parties to the arbitration agree to a different locale. Each
party shall select one arbitrator and the two arbitrators
shall select a third arbitrator; the three arbitrators shall
be the arbitration panel. The arbitrators shall follow the
laws of the State of Delaware (without regard to conflict of
law provisions) in resolving any Dispute, provided that any
question concerning arbitrability shall be governed
exclusively by the United States Arbitration Act as then in
force. Each Member hereby waives any right to and the
arbitrators shall not have the power to award punitive,
exemplary, double or treble damages. The award of the
arbitrators shall be final and binding, and judgment on it may
be entered in any court having jurisdiction. The Members agree
that any decision or award resulting from proceedings in
accordance with this dispute resolution provision shall have
no preclusive or other effect in any other matter between the
Members or involving a third-party.
(ii) The arbitrators may consolidate an arbitration
under this Agreement with any other arbitration between the
Members if the subject of the Dispute arises out of or relates
essentially to the same facts or transaction(s). No other
person may be included in the arbitration of a Dispute,
whether by consolidation, joinder or in any other manner,
except by written consent of the Members which are parties to
the Dispute.
(iii) The expenses of an arbitration proceeding
pursuant to this Section 7 shall be borne by the losing party,
except that each party shall bear the costs of its own
attorneys' fees and expenses.
(c) Injunctive Relief. The Members agree that notwithstanding
anything to the contrary contained herein, any Member may seek a
temporary restraining order or a preliminary injunction from any court
of competent jurisdiction in order to prevent immediate and irreparable
injury, loss or damage; provided such Member has commenced in good
faith an informal dispute resolution proceeding pursuant to Section 7.
To the maximum extent permitted by law, the arbitrators once appointed
shall have the power to modify or vacate such temporary restraining
order or preliminary injunction or to issue a restraining order or
injunction.
(d) Confidentiality. The dispute resolution proceedings
contemplated by Section 7 shall be as confidential and private as
permitted by law. To that end, the Members shall not disclose the
existence, content or results of any proceedings conducted in
accordance with this provision, and materials submitted in connection
with such proceedings shall not be admissible in any other proceeding
unless provided by law. However, this confidentiality provision shall
not prevent a petition to vacate or enforce an arbitral award, and
shall not bar disclosures required by law.
(e) Limitations Period. The statutes of limitation of the
State of Delaware shall be applicable to the arbitration of any Dispute
hereunder just as if such arbitration were a lawsuit between the
Members, except that all applicable statutes of limitation and defenses
based upon the passage of time shall be tolled during the pendency of
any informal dispute resolution or arbitration under Section 7.1(a) and
(b).
SECTION 8
BUY-SELL RIGHT
8.1 Buy-Sell.
(a) If RMD or Birmingham (the "Initiating Member") shall have
the right to initiate the buy-sell procedures described in this Section
8 (the "Buy-Sell Procedure") pursuant to Section 4.6(c) of this
Agreement, such right shall be exercisable by written notice (the
"Initial Offer") to the other Member (the "Other Member"), to offer to
buy all, and not less than all, of the Other Member's Membership
Interest in the Company at a Price and upon the other terms specified
in the Initial Offer. The Price shall be the Fair Market Value of the
Other Member's Interest, and the Initial Offer shall be accompanied by
a written opinion of a recognized investment banker as to the Fair
Market Value. In the event of a dispute as to whether the Price is at
Fair Market Value, the issue shall be decided within 90 days following
the Initial Offer by an investment banker selected by two investment
bankers, one selected by each of RMD and Birmingham, with costs to be
borne equally by RMD and Birmingham.
(b) Upon receipt of an Initial Offer pursuant to Section
8.1(a), the Other Member shall be obligated, within the later of 90
days after such receipt, or 60 days following resolution of a dispute
over Fair Market Value, to do one of the following:
(i) Deliver to the Initiating Member its
Acceptance of such Offer; or
(ii) Deliver to the Initiating Member an Offer to
purchase the Membership Interest in the Company held by the
Initiating Member at a price equal to or in excess of the
Price specified in the Initial Offer to the Other Member; or
(iii) Deliver to the Initiating Member a notice of a
bona fide offer from an unrelated third party (reasonably
acceptable to the Initiating Member) to purchase the Other
Member's Membership Interest for a cash price in excess of the
Price in the Initial Offer.
(c) In the event a Member receiving an Offer fails, in the
case of the Other Member within the later of ninety (90) days after
receipt thereof, or sixty (60) days following resolution of a dispute
over Fair Market Value, to take any action under Section 8.1(b) above,
then such Member shall be conclusively deemed to have accepted the
Offer to purchase its Membership Interest and to have delivered its
Acceptance of such Offer to the Initiating Member.
(d) If the Other Member elects to act under Section 8.1(b)(ii)
above, the Initiating Member shall, immediately upon receipt thereof,
be conclusively deemed to have accepted the Offer to purchase the
Membership Interest held by the Initiating Member at the price
specified by the Other Member.
(e) If the Other Member elects to act under Section
8.1(b)(iii) above, the election shall be treated as a notice under
Section 12.4 hereof, and the Initiating Member shall have the right to
exercise the right of first refusal described in that section.
(f) Upon the delivery by a Member of an Acceptance of any
Offer delivered hereunder, the closing of the purchase to be made
pursuant thereto (the "Transfer Closing") shall take place on the date
established by the purchasing party (not less than 10 days nor more
than 120 days after delivery of such Acceptance), or, if federal or
applicable state agencies' approval for such assignment is required,
not more than thirty days after such approval has been obtained. At the
Transfer Closing, the purchasing Member and the selling Member shall
deliver such certificates and such assignment documents in customary
form as may be reasonably requested in order to consummate the
transaction, and the purchasing Member shall deliver the purchase price
in immediately available funds to such bank account as shall have been
specified by the selling Member at least three days prior to the
closing (or, if no such notice has been given, by delivery of a
certified or bank check). At the Transfer Closing, the selling Member
shall sell and transfer its Membership Interest to the purchaser free
and clear of Liens other than Liens arising out of Company financing
and shall so warrant to the purchasing Member. The selling Member shall
also represent and warrant to the purchasing Member that the selling
Member has good and marketable title to the Membership Interest being
sold and transferred. In addition, each of the selling Member and the
purchasing Member shall make customary representations and warranties
to the other including representations and warranties with respect to
organization, valid existence, authorization, and non-contravention.
With respect to obligations arising out of Company financing, the
purchasing Member shall, in addition to paying the Price as provided
above, either (i) satisfy or otherwise obtain release from all
liability on the part of the selling Member and its Affiliates with
respect to all obligations of the Company, including debt and lease
obligations (including, without limitation, obligations arising under
the Environmental Indemnity Agreement and the Lease), which such
selling Member and/or its Affiliates shall have guaranteed, or (ii)
indemnify and hold harmless the selling Member and its Affiliates
against such liability and secure the obligations of the selling Member
in a manner reasonably satisfactory to such selling Member, including a
letter of credit or payment bond.
(g) In the event that any Person other than RMD or Birmingham
acquires a Membership Interest, this Section 8 shall be amended by the
parties hereto to provide for the application of the Buy-Sell Procedure
set forth herein to such additional Member.
8.2 Certain Agreements.
(a) In the event a Member accepts an Offer to sell its
Membership Interest and either the buyer or the seller fails timely to
consummate such purchase, then, notwithstanding Section 7 hereof, the
non-defaulting party may seek judicial redress in the courts of the
State of Delaware against the defaulting party, where such relief may
include, but need not necessarily be limited to, an award of damages,
specific performance, and/or an injunction.
(b) Notwithstanding the foregoing, a Member shall not be
entitled to make an Initial Offer pursuant to Section 8 if (i) such
Member shall have ceased to be a member of the Company by reason of its
withdrawal, dissolution or the transfer of its Percentage Interest (ii)
such Member shall have filed a petition in bankruptcy, or a petition in
bankruptcy shall have been filed against it and remain pending for 60
days, (iii) such Member shall be in default with respect to any of its
material obligations under this Agreement, (iv) the Member to whom such
Initial Offer is to be addressed has previously itself issued or
received an Initial Offer from another Member and the Transfer Closing,
pursuant to such prior Initial Offer or another Offer in response
thereto, has not occurred, or (v) except for dissolutions under
Sections 13.2(b) and 13.2(c), the Company shall have been dissolved or
be in the process of dissolution and liquidation under the provisions
of Section 13.
(c) Without limiting any of the foregoing, the Members shall
not, and shall cause each of their respective Affiliates not to, (i)
take any action the effect of which would prevent or frustrate the
carrying out of the Buy-Sell Procedures contemplated by Section 8 or
(ii) at any time (whether before or after any termination of this
Agreement) make any assertion, claim or defense that Section 8 or any
of the provisions hereof violate or are inconsistent with the terms of
this Agreement or any laws or public policies.
SECTION 9
CAPITAL AND OTHER CONTRIBUTIONS
9.1 Capital Accounts.
(a) A single capital account shall be maintained for each
Member (regardless of the class of interests owned by such Member and
regardless of the time or manner in which such interests were acquired)
in accordance with the capital accounting rules of section 704(b) of
the Code, and the Income Tax Regulations thereunder (including
particularly section 1.704-l(b)(2)(iv) of the Income Tax Regulations)
(a "Capital Account").
(b) In general, under such rules, a Member's Capital
Account shall be:
(i) Increased by (w) the amount of money contributed
by the Member to the Company (including the amount of any
make-up contributions made by such Member pursuant to Section
9.5(b) and the amount of any Company liabilities that are
assumed by such Member other than in connection with
distribution of Company property); (x) the Fair Market Value
(determined in accordance with Section 9.11 hereof) of
property contributed by the Member to the Company (net of
liabilities secured by such contributed property that the
Company is considered to assume or take subject to under
section 752 of the Code); (y) allocations to the Member of
Company Profits; and (z) special allocations to the Member of
income or gain pursuant to Sections 10.1(c), (d) or (e); and
(ii) Decreased by (v) the amount of money distributed
to the Member by the Company (including the amount of such
Member's individual liabilities that are assumed by the
Company other than in connection with contribution of property
to the Company); (w) the Fair Market Value (determined in
accordance with Section 9.11 hereof) of property distributed
to the Member by the Company (net of liabilities secured by
such distributed property that such Member is considered to
assume or take subject to under section 752 of the Code); (x)
allocations to the Member of expenditures of the Company not
deductible in computing its taxable income and not properly
capitalized; (y) allocations to the Member of Company Losses;
and (z) special allocations to the Member of any loss or
deduction pursuant to Section 10.1(e) or (g).
9.2 Initial Contributions of Capital.
(a) On the date hereof, RMD and Birmingham shall make
contributions to the capital of the Company (the "Formation
Contributions"), in cash, as follows:
RMD US $1,000
Birmingham US $1,000
(b) On or before the third day prior to Effective Date, RMD
and Birmingham shall make contributions to the capital of the Company
(the "Pre-Effective Date Contributions"), in cash, as follows:
RMD US $5,999,000
Birmingham US $7,499,000
(c) At or before the consummation of the Transaction on the
Effective Date, RMD shall make contributions to the capital of the
Company (the "Effective Date Contributions" and, together with the
Pre-Effective Date Contributions and the Formation Contribution, the
"Initial Capital Contributions") as follows:
All of RMD's and Mitsui's rights under and interests
in the Asset Purchase Agreement and the Deposit.
Concurrently with RMD's contribution pursuant to this Section 9.2(c),
and subject to the final paragraph of Section 4.3, the Company shall
assume all obligations of RMD and Mitsui under the Asset Purchase
Agreement.
9.3 Transaction Expenses; Reimbursement of Deposit.
(a) Without regard to whether the Asset Purchase Agreement is
executed and delivered or the Transaction is consummated, each of RMD
and Birmingham shall pay, reimburse or bear 50% of the aggregate
third-party, out-of-pocket costs and expenses incurred by RMD, Mitsui,
Birmingham or any or their Affiliates, in connection with the
Transaction, including without limitation fees and expenses of
attorneys, consultants and advisors (including the fees and expenses of
O'Melveny & Myers LLP, Balch & Bingham, Pillsbury Madison & Sutro LLP,
Victor Marmon, Bryan Herrmann, GeoMatrix Consulting, Inc., Psomas and
Associates and Hart Crowser), and costs of environmental reports and
title reports related to the Transaction, but excluding the Deposit
("Transaction Expenses"), to the extent such Transaction Expenses were
incurred on or before the earlier of the date Birmingham is entitled to
determine and does determine that the Company will not assume the Asset
Purchase Agreement pursuant to Section 4.3 hereof and the Effective
Date, in connection with the due diligence review of the Transaction,
the preparation, negotiation and submission of the Bid, preparation for
and participation in the bankruptcy court proceedings relating to the
Bid, and the formation and organization of the Company, excluding
Transaction Expenses related to the preparation and negotiation of
filings and approvals under the Hart-Scott-Rodino Antitrust Improvement
Act of 1976.
(b) In the event the Transaction is consummated, the Company
shall reimburse RMD and Birmingham and all of their Affiliates for all
of their respective Transaction Expenses of any kind.
9.4 Debt Financing and Credit Support.
(a) On the Effective Date, both Members shall cause the
Company to borrow up to $37,000,000 pursuant to a loan agreement (or
loan agreements) (the "Loan Agreement") with a lender (or lenders).
Proceeds of the loan will be used (i) to finance the purchase of assets
from the bankruptcy estate of Hiuka and the Subsidiaries and (ii) to
provide up to US$15,000,000 as working capital to the Company.
(b) Unless otherwise agreed by RMD and Birmingham, RMD and
Birmingham will severally guaranty repayment obligations of the Company
under the Loan Agreement, to the extent of 50% of the amount of such
payment obligation by each of RMD and Birmingham, or with the approval
of RMD and Birmingham provide equal loans to the Company. RMD and
Birmingham will provide additional credit support only to the extent
they so agree in writing. Mitsui will guaranty all obligations to pay
the purchase price in the Asset Purchase Agreement and under the Lease
and the Environmental Indemnity Agreement and BSC will indemnify Mitsui
with respect to such guaranties to the extent of 50% of Mitsui's
exposure under such guaranties. The 50% proportions in this paragraph
(b) shall change for each Member if its Percentage Interest changes,
and the proportion shall equal such Member's Percentage Interest as to
each new guaranty or indemnity entered into after the change.
9.5 Additional Contributions by Members.
(a) In the event that RMD and Birmingham (so long as each of
RMD and Birmingham maintains a Percentage Interest of 35% or more) or
the Members (in the event that either RMD or Birmingham fails to
maintain a Percentage Interest of 35% or more) determine that an
additional capital contribution, payable in cash or other property (or
a combination thereof) payable as of a designated date (the "Due
Date"), is necessary or advisable, each Member will be notified in
writing by any Member, at least 60 days prior to the Due Date, of the
amount of the capital contribution required from each of them, on a pro
rata basis, determined in accordance with such Member's Percentage
Interest, and the Due Date for such capital contribution. Each such
capital contribution shall be payable in cash unless otherwise
determined by the Members. Such contributions, when made by a Member,
shall be credited to such Member's Capital Account.
(b) In the event that a Member fails to make a required
capital contribution on or prior to the Due Date thereof (a "Defaulting
Member"), the other Members, who have made their respective capital
contribution and are not Affiliate Transferees of the Defaulting Member
(the "Non-Defaulting Members"), within thirty (30) days following the
mailing of notice from the Company that payment from the Defaulting
Member has not been made, may (but shall not be obligated to) by a vote
of the Non-Defaulting Members representing a majority of the Percentage
Interests of the Non-Defaulting Members exercise one of the following
remedies with respect to the contribution which the Defaulting Member
failed to make to the capital of the Company (a "Default Amount"):
(i) Withdraw the required capital contributions
contributed by the Non-Defaulting Members from the Company;
(ii) Pay to the Company the Default Amount; in the
event that more than one Non-Defaulting Member elects to
contribute a Default Amount so that the aggregate amount to be
contributed by Non-Defaulting Members would exceed the full
Default Amount, each of such Non-Defaulting Members shall be
entitled to contribute a portion of the Default Amount that is
equal to such Non-Defaulting Member's Percentage Interest
divided by the Percentage Interests of all Non-Defaulting
Member electing to contribute such Default Amount. To the
extent that a Default Amount shall be paid in whole or in part
by one or more Non-Defaulting Members, the Capital Accounts of
the Non-Defaulting Members who make such payment shall be
appropriately increased;
(iii) Initiate and maintain an action, under the sole
control of the Non-Defaulting Members, against the Defaulting
Member for the Default Amount and to pursue any available
remedy, including but not limited to seeking payment by the
Defaulting Member of such Default Amount or the unpaid portion
thereof and damages incurred by the Company in connection
therewith. The costs of any action commenced by the Company
pursuant to Section 9.5(b)(iii) shall be paid by the Company
and shall be reimbursed by the Defaulting Member to the
Company and to the extent not so reimbursed shall be deducted
from such Defaulting Member's Capital Account; or
(iv) Purchase the Membership Interest of the
Defaulting Member as provided in Section 15.12.
9.6 Member Obligations. No Member shall have any obligation to restore
any portion of any deficit balance in such Member's Capital Account, whether
upon liquidation of its interest in the Company, liquidation of the Company or
otherwise.
9.7 Withdrawals of Capital Accounts. Except as provided in this
Agreement, no Member shall be entitled to withdraw any amount from its Capital
Account prior to dissolution of the Company.
9.8 Interest on Capital Accounts. No interest or compensation
shall be paid on or with respect to the Capital Account or capital contributions
of any of the Member, except as otherwise expressly provided herein.
9.9 Revaluation of Company Assets.
(a) The assets of the Company shall be revalued in accordance
with Section 9.11 hereof to their then Fair Market Values as of the
date of and immediately prior to (i) the acquisition of an additional
interest in the Company (including adjustments to Percentage Interests
arising as a result of a failure of any Member to make a required
capital contribution pursuant to Section 9.5 hereof) by any new or
existing Member in exchange for more than a de minimis capital
contribution to the Company, (ii) the distribution by the Company of
more than a de minimis amount of property as consideration for the
redemption of a portion (but not all) of a Member's interest in the
Company and (iii) the liquidation of a Member's entire interest in the
Company, or immediately prior to the distribution of Company assets in
liquidation of the Company within the meaning of Income Tax Regulations
section 1.704-l(b)(2)(ii)(g); provided, however, that no revaluation
shall occur if the Members reasonably determine that a revaluation
would not materially affect the Capital Accounts of the Members or that
the cost of such revaluation would be disproportionate to any benefit
to be derived by the Members from such revaluation.
(b) Immediately prior to the distribution of any asset by the
Company, the Members shall revalue such asset to its then Fair Market
Value.
(c) Any Revaluation Gain or Revaluation Loss arising from a
revaluation of any Company asset pursuant to this Section 9.9 shall
respectively be credited to or debited from the Members' Capital
Accounts in accordance with their respective Percentage Interests
immediately prior to the event giving rise to such revaluation.
9.10 Redetermination of Percentage Interests. The respective Percentage
Interests of each of the Members shall be redetermined immediately after (a) the
election of the Non-Defaulting Members to contribute the Default Amount pursuant
to Section 9.5(b)(ii), so that their Percentage Interests are in proportion to
their then Capital Account balances, or (b) the admission of an Additional
Member pursuant to Section 12.
9.11 Determination of Fair Market Value. The Fair Market Value, as of
the date of determination, of any asset shall be determined (a) by mutual
agreement of the Members or (b) if no such agreement is reached within ten days
of the relevant date of determination, as follows:
(a) Selection of Appraisers. Each of (A) the Member who is
either contributing an asset to the Company, receiving an asset as a
distribution from the Company or transferring an asset which is being
valued hereunder (or, if there is no such Member, the Member most
recently appointing the chairman of the meeting of the Members pursuant
to Section 4.4(b) hereof) (the "Asset Member") and (B) the other
Members shall designate by written notice to the Company and each
Member a firm of recognized national standing familiar with appraisal
techniques applicable to assets of the type being evaluated to serve as
an Appraiser pursuant to this Section 9.11 (the firms designated by the
Asset Member and the other Members being referred to herein as the
"First Appraiser" and the "Second Appraiser," respectively) within five
business days after the expiration of the ten day period referred to
above. In the event that either the Asset Member or the other Members
fail to designate its or their Appraiser within the foregoing time
period, the other(s) shall have the right to designate such Appraiser
by notifying the failing party or parties in writing of such
designation (and the Appraiser so designated shall be the First
Appraiser or the Second Appraiser, as the case may be).
(b) Evaluation Procedures. Each Appraiser shall be directed to
determine the Fair Market Value of the asset. Each Appraiser will also
be directed to deliver an Appraiser's Certificate to each Member on or
before the 30th day after their respective designation (the
"Certificate Date"), upon the conclusion of its evaluation, and each
Appraiser's Certificate once delivered may not be retracted or modified
in any respect. Each Appraiser shall keep confidential all information
disclosed by the Company in the course of conducting its evaluation,
and, to that end, will execute such customary documentation as the
Company may reasonably request with respect to such confidentiality
obligation. The Members shall cooperate in causing the Company to
provide each Appraiser with such information within the Company's
possession which may be reasonably requested in writing by the
Appraiser for purposes of its evaluation hereunder. The Appraisers
shall consult with each other in the course of conducting their
respective evaluations. Each Member shall have full access to each
Appraiser's work papers. Each Appraiser shall be directed to comply
with the provisions of this Section 9.11, and to that end each Member
shall provide to its respective Appraiser a complete and correct copy
of Section 9.11 (and the definitions of capitalized terms used in
Section 9.11 that are defined elsewhere in this Agreement).
(c) Fair Market Determination. The Fair Market Value of any
asset shall be determined on the basis of the Appraisers' Certificates
in accordance with the provisions of this paragraph (c), each of which
shall be simultaneously delivered to each Member. The higher of the
values set forth in the Appraisers' Certificates is hereinafter
referred to as the "Higher Value" and the lower of such values is
hereinafter referred to as the "Lower Value". If the Higher Value is
not more than 110% of the Lower Value, the Fair Market Value will be
the arithmetic average of such two Values. If the Higher Value is more
than 110% of the Lower Value, a third appraiser shall be selected in
accordance with the provisions of paragraph (d) below, and the Fair
Market Value shall be determined in accordance with the provisions of
paragraph (e) below.
(d) Selection of and Procedure for Third Appraiser. If the
Higher Value is more than 110% of the Lower Value, then within seven
days after delivery to the Members of the Appraiser's Certificates, the
First Appraiser and the Second Appraiser shall agree upon and jointly
designate a third firm of recognized national standing familiar with
appraisal techniques applicable to assets of the type being evaluated
to serve as an appraiser pursuant to this Section 9.11 (the "Third
Appraiser"), by written notice to each Member. If, within ten days
after delivery of the Appraiser's Certificates, as provided in
paragraph (c) above, the First Appraiser and the Second Appraiser shall
have failed to so designate the Third Appraiser, then any Member may
apply to the American Arbitration Association to appoint the Third
Appraiser which shall be a firm of recognized national standing
familiar with appraisal techniques applicable to assets of the type
being evaluated. The Members shall direct the Third Appraiser to
determine the Fair Market Value of the asset (the "Third Value") in
accordance with the provisions of paragraph (b) above, and to deliver
to the Members an Appraiser's Certificate on or before the 30th day
after the designation of such Appraiser hereunder. The Third Appraiser
shall be directed to comply with the provisions of Section 9.11, and to
that end the parties shall provide to the Third Appraiser a complete
and correct copy of Section 9.11 (and the definitions of capitalized
terms used in Section 9.11 that are defined elsewhere in this
Agreement).
(e) Alternative Determination of Fair Market. Upon the
delivery of the Appraiser's Certificate of the Third Appraiser, the
Fair Market Value shall be determined as provided in this paragraph
(e). The Fair Market Value shall be (w) the Lower Value, if the Third
Value is less than the Lower Value, (x) the Higher Value, if the Third
Value is greater than the Higher Value, (y) the arithmetic average of
the Third Value and the other Value (Lower or Higher) that is closer to
the Third Value if the Third Value falls within the range between (and
including) the Lower Value and the Higher Value, and (z) the Third
Value, if the Lower Value and the Higher Value are equally close to the
Third Value.
(f) Costs. Each of the Asset Member and the other Members
shall bear the cost of the Appraiser designated by it or on its behalf.
The cost of the Third Appraiser, if any, shall be paid by Members in
accordance with their respective Percentage Interests. The Members
agree to pay when due the fees and expenses of the Appraisers in
accordance with the foregoing provisions.
(g) Conclusive Determination. To the fullest extent provided
by law, the determination of the Fair Market Value made pursuant to
this Section 9.11 shall be final and binding on the Company and the
Members and such determination shall not be appealable to or reviewable
by any court or arbitrator; provided that the foregoing shall not limit
a Member's rights to seek arbitration of the obligations of the other
Members and the Company hereunder.
SECTION 10
ALLOCATION OF PROFITS AND LOSSES; DISTRIBUTIONS
10.1 Allocation of Profits and Losses.
(a) Company Profits and Losses, and items of income, gain,
loss and deduction included in determining Profits and Losses, shall be
allocated among the Members as provided in Section 10. As set forth in
the definition of Profits and Losses, the amounts allocated under
Section 10 are determined by using Asset Value, which may be based on
Fair Market Value at the time of contribution or revaluation pursuant
to Section 9.9. The allocation of taxable income and loss is governed
by Section 10.2.
(b) Following the application of clauses (c)-(h) of this
Section 10.1, Company Profits, Losses and items of income, gain, loss
and deduction included in determining Profits and Losses shall be
allocated among the Members proportionately in accordance with their
respective Percentage Interests as set forth on Schedule I and, if
applicable, as redetermined under Section 9.10.
(c) Minimum Gain Chargeback. Notwithstanding anything to the
contrary in Section 10, if there is a net decrease in "Partnership
Minimum Gain" or "Partner Nonrecourse Debt Minimum Gain" (as such terms
are defined in sections 1.704-2(b) and 1.704-2(i)(2), respectively, of
the Income Tax Regulations) during a Company taxable year, then each
Member shall be allocated items of Company income and gain for such
year (and, if necessary, for subsequent years), to the extent required
by, and in the manner provided in, section 1.704-2 of the Income Tax
Regulations. This provision is intended to be a "minimum gain
chargeback" within the meaning of sections 1.704-2(f) and 1.704-2(i)(4)
of the Income Tax Regulations and shall be interpreted and implemented
as therein provided.
(d) Qualified Income Offset. Subject to the provisions of
Section 10.1(c), but otherwise notwithstanding anything to the contrary
in Section 10, if any Member's Capital Account has a deficit balance in
excess of such Member's obligation to restore its Capital Account
balance, computed in accordance with the rules of section
1.704-1(b)(2)(ii)(d) of the Income Tax Regulations (including such
Member's share of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain as provided in sections 1.704-2(g) and 1.704-2(i)(5) of
the Income Tax Regulations), then sufficient amounts of income and gain
(consisting of a pro rata portion of each item of Company income,
including gross income, and gain for such year) shall be allocated to
such Member in an amount and manner sufficient to eliminate such
deficit as quickly as possible. This provision is intended to be a
"qualified income offset" within the meaning of section
1.704-l(b)(2)(ii)(d) of the Income Tax Regulations and shall be
interpreted and implemented as therein provided.
(e) Loans. Except as otherwise provided in Section 10.l(g), if
and to the extent any Member is deemed to recognize income as a result
of any loans described herein pursuant to the rules of sections 1272,
1273, 1274, 1274A, 7872, 482 or 483 of the Code, or any similar
provision now or hereafter in effect, any corresponding resulting
deduction of the Company shall be allocated to the Member who is
charged with the income. Subject to the provisions of section 704(c) of
the Code and Sections 10.1(c), (d), and (g) hereof, if and to the
extent the Company is deemed to recognize income as a result of any
loans described herein pursuant to the rules of sections 1272, 1273,
1274, 1274A, 7872, 482 or 483 of the Code, or any similar provision now
or hereafter in effect, such income shall be allocated to the Member
who is entitled to any corresponding resulting deduction.
(f) Change in Percentage Interests. If the Percentage
Interests of the Members are changed herein during any taxable year for
any reason, the allocation of items to the Members shall be determined
by application of the interim-closing-of-the-books method described in
Section 1.706-1(c)(2)(ii) of the Income Tax Regulations.
(g) Losses.
(i) Items of deduction and loss attributable to
recourse liabilities of the Company (within the meaning of
section 1.752-l(a)(1) of the Income Tax Regulations, but
excluding "partner nonrecourse debt" within the meaning of
section 1.704-2(b)(4) of the Income Tax Regulations) shall be
allocated among the Members in accordance with the ratio in
which the Members share the economic risk of loss (within the
meaning of section 1.752-2 of the Income Tax Regulations) for
such liabilities.
(ii) Items of deduction and loss attributable to
"Partner Nonrecourse Debt" within the meaning of section
1.704-2(b)(4) of the Income Tax Regulations shall be allocated
to the Members bearing the economic risk of loss with respect
to such debt in accordance with section 1.704-2(i) of the
Income Tax Regulations.
(iii) Items of deduction and loss attributable to the
Company's "Nonrecourse Liabilities" within the meaning of
section 1.704-2(b)(3) of the Income Tax Regulations shall be
allocated among the Members proportionately in accordance with
their Percentage Interests.
(h) Purpose and Application. The purpose and the intent of the
special allocations provided for in Sections 10.1(c), (d), and (g) are
to comply with the provisions of sections 1.704-l(b) and 1.704-2 of the
Income Tax Regulations, and such special allocations are to be made so
as to accomplish that result. However, to the extent possible, the
Members in allocating items of income, gain, loss, or deduction among
the Members shall take into account the special allocations in such a
manner that the net amount of allocations to each Member shall be the
same as such Member's distributive share of Profits and Losses would
have been had the events requiring the special allocations not taken
place. The Members shall apply the provisions of Section 10.1 in
whatever order they reasonably believe will minimize any economic
distortion that otherwise might result from the application of the
special allocations.
10.2 Allocation of Taxable Income and Loss.
(a) General. Items of income, gain, loss, and deduction
reported for federal income tax purposes shall be allocated in the same
manner as the corresponding items included in Profits and Losses and
allocated under Section 10.1, except as provided in Section 10.2.
(b) Section 704(c) Allocations. A Member's distributive share
of income, gain, loss, or deduction with respect to any property with
Asset Value that differs from Basis shall be determined in accordance
with the principles of the "traditional allocation method" set forth in
section 1.704-3(b) of the Income Tax Regulations.
(c) Recapture. Subject to the provisions of section 704(c) of
the Code and Sections 10.1 and 10.2(b) hereof, gain recognized (or
deemed recognized under the provisions hereof) upon the sale or other
disposition of Company property, which is treated as depreciation
recapture, shall be allocated to the Member who was entitled to deduct
such depreciation.
(d) Credits. Except as otherwise required by law, tax credits
shall be allocated among the Members pro rata in accordance with the
manner in which Company profits are allocated to the Members under
Section 10, as of the time the credit property is placed in service or
if no property is involved, as of the time the credit is earned.
Recapture of any tax credit required by the Code shall be allocated to
the Members in the same proportion in which such tax credit was
allocated.
(e) Conformity of Reporting. The Members hereby agree to be
bound by the provisions of Section 10 in reporting their shares of
Company income, loss, credits and other items for income tax purposes.
10.3 Distribution of Assets by the Company.
(a) Subject to any restrictions under applicable law, as
promptly as practical after the end of each quarter, but in any event
within forty-five (45) days after the end of each quarter, the
President and Chief Financial Officer shall estimate the Company's
Profits for the fiscal year to date and Net Operating Available Cash as
of the end of the quarter and shall distribute to the Members the
lesser of (i) 50% of the Company's estimated Profits; and (ii) all of
the Company's estimated Net Operating Available Cash, in each case
reduced by any amounts distributed with respect to the fiscal year to
date. Subject to any restrictions under applicable law, as promptly as
practical after the end of the fiscal year but in any event within
sixty (60) days after the end of the fiscal year, the Company shall
distribute to the Members the lesser of (i) 50% of the Company's
Profits; and (ii) all Net Operating Available Cash of the Company (as
determined based on the Company's financial statements for the relevant
fiscal year), reduced by any amounts distributed to date to the Members
with respect to such fiscal year. Other distributions, whether in cash
or in kind, shall be made to the Members at such times and in such
amounts as shall be determined by the Members. The amount of any
in-kind distribution shall be distributed on the basis of the
property's then Fair Market Value (determined in accordance with
Section 9.11 hereof).
(b) Distributions shall be made among the Members in
accordance with their respective Percentage Interests at the time of
such distribution.
(c) If and to the extent the Company makes an in-kind
distribution in lieu of cash to Members, the value of such in-kind
distribution shall be apportioned in substantially equal amounts among
Members and no Member shall be compelled to receive any in-kind
distribution in lieu of cash if or to the extent any other Member
receives no in-kind distribution, or an in-kind distribution of
substantially lesser value.
(d) Upon liquidation of the Company, within the meaning of
Income Tax Regulations section 1.704-l(b)(2)(ii)(g), distributions
shall be made among the Members as provided in Section 13.4.
(e) All matters not expressly provided for by the terms of
Section 10 or elsewhere in this Agreement concerning the valuation of
any assets of the Company, the allocation of profits and losses and
items thereof (including credits) among the Members and accounting
procedures shall be agreed by the Members or referred to arbitration
under Section 7.
SECTION 11
TAX MATTERS AND REPORTS; ACCOUNTING
11.1. Tax Matters Partner. Birmingham shall act as the "Tax Matters
Partner" (within the meaning of Section 6231 of the Internal Revenue Code) for
the Company and, subject to the provisions of this Section 11.1, is authorized
and required to file or cause the Company to file any Tax Returns (at Company's
expense) and to represent the Company (at Company's expense) in connection with
all examination of the Company's affairs by tax authorities, including resulting
administrative and judicial proceedings, and to reasonably expend Company funds
for professional services and costs associated therewith.
(a) Filing of Tax Returns. The Tax Matters Partner shall file,
or cause to be filed, on a timely basis all federal, state and local
Tax Returns which are required to be filed by the Company and to
provide the Members with information relating to the Company which will
allow such Members to file on a timely basis their individual federal,
state and local Tax Returns. Within sixty (60) days after the close of
the Company's taxable year and in no event later than thirty (30) days
prior to the filing due date, including extensions, of the Company's
federal, state and local Tax Returns, the Tax Matters Partner shall
deliver to RMD for its approval draft copies of such Tax Returns. On or
before the fifteenth (15th) day after such delivery, RMD shall either
approve the draft Tax Returns or state in writing any objections it has
in respect of any items. Any unagreed items shall then be resolved in
good faith by the mutual agreement of the Members; provided that if
such disagreed items cannot be resolved within a reasonable time by the
Members, then the Members shall jointly select a third party
arbitrator, such as an accounting firm, to resolve the impasse and such
arbitrator's decision shall be final and binding on the Members.
Thereafter, the Tax Returns shall be filed consistent with such
resolution. No Member shall treat in its individual federal, state or
local Tax Return, an item of income, gain, loss or deduction in a
manner inconsistent with the Company's treatment of such item on its
approved Tax Return, without the prior written consent of the other
Members.
(b) Examination and Audits. In addition to any other
rights conferred on RMD by the Internal Revenue Code or the regulation
thereunder:
(1) The Tax Matters Partner shall furnish promptly to
the Internal Revenue Service and state and local tax authorities a written
statement, in accordance with Treasury Regulations Section 301.6223(b)-1T (or
any successor thereto), and comparable provisions of state and local income tax
laws, which causes the Internal Revenue Service and state and local tax
authorities to mail to RMD all notices described in Section 6223(a) of the
Internal Revenue Code (or any successor thereto) and comparable provisions of
state and local income tax laws;
(2)The Tax Matters Partner shall deliver to RMD a copy
of any notice, letter, request for information, request for inspection of
documents, subpoena and any other item of correspondence or other communication
or document, including notice of any matter described in Sections 6223(a) or
6223(g) of the Internal Revenue Code or the Treasury Regulations promulgated
thereunder (or any successor thereto) (and comparable provisions of state and
local income tax laws), received by the Tax Matters Partner (in its capacity as
Tax Matters Partner) from the Internal Revenue Service or any state or local
taxing authority which is directly related to an administrative proceeding (as
defined in Section 6223(a) or the Internal Revenue Code (or any successor
thereto) (and comparable provisions of state and local income tax laws) (an
"Administrative Proceeding") with respect to the Company;
(3)The Tax Matters Partner shall inform promptly RMD
of any oral request for information received by the Tax Matters Partner (in its
capacity as Tax Matters Partner) from, or conference with, the Internal Revenue
Service or any state or local taxing authority which is directly related to an
Administrative Proceeding with respect to the Company;
(4)The Tax Matters Partner shall confer with RMD and
its counsel before responding to any notice, letter, request for information,
request for inspection of documents, subpoena or other correspondence or item of
communication or document received by the Tax Matters Partner (in its capacity
as Tax Matters Partner) from or oral request made by the Internal Revenue
Service or any state or local taxing authority which is directly related to an
Administrative Proceeding with respect to the Company; and
(5)The Members shall jointly make all decisions for
the Company and the Company shall take such actions as the Members mutually deem
appropriate with respect to (i) any federal, state or local contest of any
partnership item (as defined in Section 6231(a)(3) of the Internal Revenue Code
(for any successor thereto) (and comparable provisions of state and local income
tax laws)) of the Company (a "Company Level Income Tax Matter"); (ii) any audit
of any federal, state or local Tax Return filed by or on behalf of the Company;
(iii) any conference concerning any 30-day letter or similar document issued to
the Company by the Internal Revenue Service or any state or local taxing
authority; (iv) the decision whether or not to (A) pursue litigation, and the
selection of the litigation forum, if any, of any final partnership
administrative adjustment of partnership items; (v) the negotiation of a
settlement of any protest filed in the United States Tax Court; (vi) the
negotiation of a settlement of any refund suit in any United States District
Court or the United States Claims Court; (vii) the decision whether or not to
pursue an appeal of a decision of the United States Tax Court, a United States
District Court or the United States Claims Court and the negotiation of a
settlement of such appeal; and (viii) the negotiation of a settlement of any
litigation concerning a state or local income tax matter of the Company.
(c) Income Tax. For purposes of this Section 11.1, the term
"income tax" shall include, without limitation, (i) state franchise taxes which
are based upon or measured by net income, and (ii) interest and penalties
associated with such franchise or income taxes.
11.2 Accounting Records. Independent Audit. Complete books and records
accurately reflecting the accounts, business, transactions and Members of the
Company shall be maintained and kept by the Company at the Company's principal
executive office. The accounting records of the Company shall be maintained to
assure preparation of the financial statements in accordance with GAAP. The
accounting records of the Company shall be audited by a firm of independent
certified public accountants selected by the Members.
11.3 Fiscal Year. Except as may otherwise be required by the
United States federal tax laws, the fiscal year of the Company for both
financial and tax reporting purposes shall end on December 31.
11.4 Tax Accounting Method. The books and accounts of the Company
shall be maintained using the accrual method of accounting for tax purposes.
11.5 Withholding. Notwithstanding any other provision of this
Agreement, the Representatives are authorized to take any action that they
determine to be necessary or appropriate to cause the Company to comply with any
federal, state and local withholding requirement with respect to any allocation,
payment or distribution by the Company to any Member or other Person. All
amounts withheld to satisfy any federal, state or local withholding requirement
with respect to a Member shall be treated as distributions to such Member. If
any such withholding requirement with respect to any Member exceeds the amount
distributable to such Member under this Agreement, or if any such withholding
requirement was not satisfied with respect to any amount previously allocated or
distributed to such Member, such Member and any successor or assignee with
respect to such Member's interest in the Company hereby, to the fullest extent
permitted by law, indemnifies and agrees to hold harmless the Members and the
Company for such excess amount or such withholding requirement, as the case may
be.
11.6 Tax Elections. Upon the request of a transferee of a Membership
Interest in the Company or a distributee of a Company distribution, the Company
will make the election under section 754 of the Code in accordance with
applicable Income Tax Regulations thereunder for the first fiscal year in which
such election could apply, provided that the requesting party agrees to pay all
reasonable costs and expenses related thereto. The Company may seek to revoke
such election (if made) if agreed to by the Members. In addition to the
foregoing, the Members shall determine whether to make any other available tax
elections and select any other appropriate tax accounting methods and
conventions for any purpose under this Agreement.
11.7 Prior Tax Information. Each Member agrees to deliver to the
Company all relevant information regarding Taxes that the Company will require
in order to comply with its own tax accounting and reporting requirements,
including without limitation schedules setting forth the fair market value and
tax basis of each asset that may from time to time be contributed by a Member to
the Company; provided, however, that no Member shall be required to disclose the
Tax Returns of itself or any of its Affiliates.
SECTION 12
TRANSFER AND ASSIGNMENT OF INTERESTS
12.1 Transfer and Assignment of Interests. Except as provided in
Section 12.2, no Member shall be entitled to Transfer all or any part of its
Membership Interest, including any economic interest therein except with the
prior written approval of each other Member, which approval may be given or
withheld as the other Members may determine in their sole discretion. Any
Transfer of a Membership Interest in contravention of Section 12 shall be null
and void and of no force whatsoever. No Member, without the prior written
consent of all of the other Members, shall retire or withdraw from the Company.
12.2 Permitted Transfers. Notwithstanding Section 12.1, the Members may
Transfer their respective Membership Interests as follows:
(a) Commencing with the third anniversary of the Effective
Date, subject to (except in the case of Transfers permitted under
Sections 12.2(b) and (c)) the procedures set forth in Section 12.4, any
Member who receives a bona fide written offer to purchase for cash all
and not less than all of its Membership Interest may Transfer all and
not less than all of its Membership Interest in the Company.
(b) Any Member may Transfer all of its Member's Interest in
the Company free and clear of the restrictions and rights of first
refusal set forth in Sections 12.1 and 12.4 above to a Wholly Owned
Subsidiary of itself or the ultimate parent of such Member (a
"Permitted Transferee"), provided, that (i) such Permitted Transferee
executes this Agreement and agrees to be bound by the provisions hereof
including this Section 12, and (ii) the transferor Member agrees to
remain liable for its obligations as a Member to the Company, other
Members and all third parties.
(c) RMD may transfer up to three percent (3%) of the total
Membership Interests in the Company to Nippon Steel Corporation, and in
the event of such a transfer, Birmingham shall transfer to Nippon Steel
Corporation the same Membership Interests in the Company on the same
terms and conditions as RMD's transfer, which shall be reasonable. In
such event, Nippon Steel Corporation shall become a party to this
Agreement and appropriate revisions will be made to the Operating
Agreement to reflect its status as a Member.
12.3 Assignment of Right to Appoint Representatives.In the event of any
Transfer pursuant to Section 12.2(b) above, the transferor Member may, in its
discretion, assign to the transferee the right to appoint all of its
Representatives.
12.4 Right of First Refusal Procedures. If any Member (hereinafter
"Selling Member") should receive a bona fide written offer for the purchase of
all and not less than all of its Interests in the Company for cash, then the
Selling Member shall give written notice of said offer to the remaining Members
("Offeree Members"). The Membership Interests being offered for sale shall be
first offered for sale to the Offeree Members at the same price and upon the
same terms as that offered by the offeror to the Selling Member. Each Offeree
Members shall have the right to purchase such percentage of the Membership
Interest being offered for such as the Percentage Interest owned by it to the
total Percentage Interests owned by all Offeree Members desiring to exercise
their right of first refusal. The purchasing Offeree Members shall exercise
their right to purchase all of said Membership Interest offered for sale by
giving written notice of acceptance of the offer to sell all of the Selling
Member's Interests the Selling Member within ninety (90) days from receipt of
written notice of the offer as provided in Section 12.
If the Offeree Members do not exercise their right to purchase all of
the Membership Interest offered for sale within the prescribed ninety (90) day
period, said Membership Interest may then be sold by the Selling Member to the
offeror upon the terms and conditions no more favorable to the offeror than that
set forth in the bona fide written offer. Such offeror shall be reasonably
acceptable to the other Offeree Members and said Membership Interest purchased
by the offeror shall remain subject to this Agreement. Such sale shall be
completed within ninety (90) days after the failure of the Offeree Members to
exercise their right to purchase all of such Membership Interests, in which case
any sale of such Membership Interest shall again be subject to the terms of this
right of first refusal.
12.5 Assignees and Substituted Members.
(a) In the event of a Transfer of part or all of any
Membership Interest permitted pursuant to the provisions of Section 12,
the Assignee of such Membership Interest shall become a Member
hereunder (a "Substituted Member") upon and subject to compliance with
Section 12.5(b). If Section 12.5(b) is not complied with, the Person to
whom such Transfer is made shall not become a Member hereunder and
shall be considered only an Assignee of the Membership Interest and, as
such, shall only be entitled to share in those distributions, if any,
in which its assignor would be eligible. An Assignee which does not
comply with Section 12.5(b) shall have no right to require any
information or accounting of any transactions of the Company or inspect
the Company books and records.
(b) An Assignee of a Membership Interest pursuant to a
Transfer permitted under the provisions of Section 12 may become a
Substituted Member with all the rights and liabilities of its assignor
under this Agreement (except as limited by this Section 12) if and only
if (i) a majority in interest of the non-transferring Members shall
have approved in writing the admission of such Person as a Substituted
Member, which consent can be granted or withheld in their sole and
absolute discretion, (ii) the Assignee expressly assumes and agrees to
be bound by this Agreement, (iii) the appropriate instruments,
documents, or statements, if any, are prepared, executed, acknowledged,
filed, recorded, published and delivered as required by the law, (iv)
the Assignee pays or obligates itself to pay any and all reasonable
expenses of the Company connected with such substitution, and (v) the
Assignee causes to be delivered to the Company, at its sole cost and
expense, a favorable opinion of legal counsel reasonably acceptable to
the other Members, to the effect that (1) the contemplated Transfer of
such Membership Interest to the Assignee does not violate any
applicable federal or state laws, including securities law, (2) the
Assignee has the legal right, power and capacity to own the Membership
Interest, (3) the contemplated Transfer shall not cause the Company to
cease to be classified as a partnership for federal tax purposes, and
(4) the contemplated Transfer shall not cause any of the Members any
material adverse tax consequence. Upon compliance with all provisions
hereof applicable to such Person becoming a Member, all other Members
agree to execute and deliver such amendments hereto as are necessary to
constitute such Person a Member of the Company.
(c) Upon a Transfer by a Member of all or part of its
Membership Interest and substitution of a Substituted Member with
respect to all or such portion of its Membership Interest, the
transferring Member shall cease to be a Member to the extent of the
Membership Interest so Transferred.
(d) The admission of a Substituted Member shall not result in
the release of the Member who assigned the Membership Interest from any
liability that such Member may have to the Company.
12.6 Buy-Out of Member's Interest. Upon the occurrence of: (i) a Change
of Control, or (ii) the bankruptcy of a Member (followed by the necessary
approval of the remaining Member or Members to continue the existence of the
Company in accordance with Section 13.1(c) hereof), the remaining Member or
Members that elect to participate therein will be entitled to purchase, pro rata
according to the ratio of their respective Percentage Interests, all but not
less than all of such Member's Interest at a price equal to the Fair Market
Value of the affected Member's Interest. If the parties are unable to agree on
the Fair Market Value, the issue shall be decided within 90 days by an
investment banker selected by two investment bankers, one selected by each of
RMD and Birmingham, with costs to be borne equally by RMD and Birmingham.
SECTION 13
DISSOLUTION AND LIQUIDATION
13.1 Events of Dissolution. The Company shall be dissolved upon (a) the
date that is 15 days following the date on which the Asset Purchase Agreement
definitively terminates, if the Effective Date shall not have occurred, (b) an
election to dissolve the Company pursuant to Section 13.2, (c) the resignation,
expulsion, withdrawal, bankruptcy or dissolution of any Member, or the
occurrence of any other event that results in a Member ceasing to be a Member of
the Company under the Act; provided, the Company shall not be dissolved and
required to be wound up in connection with any of the events specified in this
clause (c) if within ninety (90) days after the occurrence of such event, at
least a "majority in interest" (as defined in Revenue Procedure 94-46) of the
remaining Members vote in writing to continue the business of the Company and to
the appointment, if necessary or desired, effective as of the date of such
event, of one or more additional Members of the Company, (d) the entry of a
decree of judicial dissolution pursuant to Section 18-802 of the Act, (e) the
unanimous written consent of the Members, (f) a termination of the Business of
the Company (including a sale of substantially all of its assets), and (g) on
September 30, 2026, unless extended by mutual agreement, as provided herein.
13.2 Voluntary Dissolution. Each of RMD and Birmingham (so long as each
of RMD and Birmingham maintains a Percentage Interest of 35% or more) or the
Members holding a majority of the Membership Interests (in the event that either
RMD or Birmingham fails to maintain a Percentage Interest of 35% or more) may
elect, upon the occurrence of any or the following events, by written notice to
the Company and the other Members, to require the Company to dissolve and wind
up in accordance with the terms of Section 13:
(a) If the Member other than the Member electing to dissolve
the Company pursuant to this Section 13.2 shall, for any reason, fail
to make all of the Initial Capital Contributions required to be made by
such other Member under Section 9.2.
(b) If at the end of any fiscal quarter the net worth of the
Company, determined in accordance with GAAP, is negative or accumulated
Losses exceed the total capital contributions of the Members; or
(c) If the Company is unable to discharge its liabilities as
they become due.
13.3 Buy-Sell Procedure Rights. Upon the occurrence of any event
described in 13.2(b) or 13.2(c) above, either RMD or Birmingham may elect to
deliver to the other Members a notice of its intent to withdraw, and the
non-withdrawing Member may initiate the Buy-Sell Procedures described in Section
8, or cause the Company to purchase all, and not less than all, of the
withdrawing Member's Membership Interest pursuant to Section 8. If the Buy-Sell
Procedures have been or are initiated by a Member, then the Company shall not be
dissolved notwithstanding a request therefor under Section 13.2. Any initiation
of the Buy-Sell Procedures by a Member after a request for dissolution has been
made must take place on or before sixty (60) days following receipt by such
Member of the written notice requesting dissolution of the Company.
13.4 Liquidation and Order of Dissolution. In all cases of dissolution
of the Company, the Business of the Company shall be continued to the extent
necessary to allow an orderly winding up of its affairs, including the
liquidation and termination of the Company pursuant to the provisions of Section
13, as promptly as practicable thereafter, and each of the following shall be
accomplished:
(a) The Liquidator shall cause to be prepared a statement
setting forth the assets and liabilities of the Company as of the date
of dissolution, a copy of which statement shall be furnished to each
Member.
(b) The Property and assets of the Company shall be liquidated
by the Liquidator as promptly as possible, but in an orderly and
businesslike manner. The Liquidator may, in the exercise of its
business judgment, determine not to sell all or any portion of the
remaining assets of the Company, in which event such remaining assets
shall be distributed in kind pursuant to Section 13.4(d).
(c) Any gain or loss realized by the Company upon the sale of
its assets shall be deemed recognized and allocated to the Members in
the manner set forth in Section 10, provided that to the extent that
the Members' Capital Accounts are not in proportion to their Percentage
Interests, gain or loss from such sale shall be allocated among the
Members until their Capital Accounts are in proportion to their
Percentage Interests. To the extent that an asset is to be distributed
in kind, such asset shall be deemed to have been sold at its Fair
Market Value on the date of distribution, the gain or loss deemed
recognized upon such deemed sale shall be allocated in accordance with
Section 10 and the amount of the distribution shall be considered to be
such Fair Market Value of the asset.
(d) The proceeds of sale and all other assets of the Company,
including Net Operating Available Cash of the Company, shall be applied
and distributed as follows and in the following order of priority:
(i) To pay (or make reasonable provision for the
payment of) all creditors of the Company, including to the
extent permitted by law, Members or their Affiliates who are
creditors, in satisfaction of liabilities of the Company in
the order of priority provided by law, including expenses
relating to the dissolution and winding up of the affairs of
the Company (including, without limitation, expenses of
selling assets of the Company, discharging the liabilities of
the Company, distributing the assets of the Company and
terminating the Company as a limited liability company in
accordance with this Agreement and the Act); and
(ii) To the Members in proportion to their respective
positive Capital Account balances, as those balances are
determined after all adjustments to such Capital Accounts as
required by this Agreement for all periods immediately prior
to such distribution.
13.5 Liquidator. The President and Chief Financial Officer are hereby
designated as the Liquidators and are irrevocably appointed as the true and
lawful attorney in the name, place and stead of each of the Members, such
appointment being coupled with an interest, to make, execute, sign, acknowledge
and file with respect to the Company all papers which shall be necessary or
desirable to effect the dissolution, liquidation and termination of the Company
in accordance with the provisions of Section 13 (the President and Chief
Financial Officer, acting in such capacity, the "Liquidator"). Notwithstanding
the foregoing, if either RMD or Birmingham objects to the President and Chief
Financial Officer acting as the Liquidator, then the Members will cooperate in
naming a third party to act as Liquidator, or if the Members are unable to agree
within ten (10) days after the event of dissolution, either Member may seek a
court appointed Liquidator. Without limiting the foregoing, the Liquidator
shall, upon the final dissolution of the Company, file an appropriate
certificate to such effect in the proper governmental office or offices under
the Act as then in effect. Notwithstanding the foregoing, each Member, upon the
request of the Liquidator, shall promptly execute, acknowledge and deliver all
such documents, certificates and other instruments as the Liquidator shall
reasonably request to effectuate the proper dissolution, liquidation and
termination of the Company, including the winding up of the Business of the
Company.
13.6 Termination of Company. The Company shall be terminated upon (a)
completion of any dissolution and liquidation thereof pursuant to the provisions
of Section 13, and (b) preparation, execution, acknowledgment, filing,
recordation, publication, delivery and/or cancellation of any instruments,
documents or statements if and as required by the Act, the Code or any other
applicable laws.
13.7 Orderly Winding Up. Notwithstanding anything to the contrary in
Section 13 upon winding up and liquidation, if required to maximize the proceeds
of liquidation, the Members may, upon unanimous approval, transfer the assets of
the Company to a liquidating trustee or trustees.
SECTION 14
INDEMNIFICATION AND EXCULPATION; CERTAIN AGREEMENTS
14.1 Indemnification of the Members. The Company shall indemnify and
hold harmless the Members, the Representatives, and their Affiliates, and their
respective Agents and/or the legal representatives of any of them, and each
other Person who may incur liability as a Member or otherwise in connection with
the management or ownership of the Company (each, an "Indemnified Party"),
against all liabilities and expenses (including amounts paid in satisfaction of
judgments, in compromise, as fines and penalties, and as counsel fees)
reasonably incurred by him, her or it in connection with the investigation,
defense or disposition of any action, suit or other proceeding, whether civil or
criminal, in which any Indemnified Party may be involved or with which he, she
or it may be threatened, while a Member or serving in such other capacity or
thereafter, by reason of its being or having been a Member, or by serving in
such other capacity, except with respect to any matter which constitutes willful
misconduct, bad faith, gross negligence or reckless disregard of the duties of
his office, or criminal intent. The Company shall have the right to approve any
counsel selected by any Indemnified Party and to approve the terms of any
proposed settlement. The rights accruing to a Member and each other Indemnified
Party under Section 14.1 shall not exclude any other right to which it or they
may be lawfully entitled; provided that any right of indemnity or reimbursement
granted in Section 14.1 or to which any Indemnified Party may be otherwise
entitled may only be satisfied out of the assets of the Company, and no Member
and no withdrawn Member shall be personally liable with respect to any such
claim for indemnity or reimbursement. Notwithstanding any of the foregoing to
the contrary, the provisions of Section 14.1 shall not be construed so as to
provide for the indemnification of a Member or any other Indemnified Party for
any liability to the extent (but only to the extent) that such indemnification
would be in violation of applicable law or such liability may not be waived,
modified or limited under applicable law, but shall be construed so as to
effectuate the provisions of Section 14.1 to the fullest extent permitted by
law. Under no circumstances shall anything contained in this Section 14.1 or
elsewhere in this Agreement be deemed to create any fiduciary responsibility or
duty of one Member to another.
14.2 Reimbursement and Indemnity. If a Member shall, pursuant to
authorization of or approval by the Representatives of the other Members or a
final judgment of a court of competent jurisdiction or in compliance with law or
order of any governmental agency, pay any amount on behalf of or for the account
of the Company with respect to any liability, obligation, undertaking, damage,
or claim for which the Company shall or may, pursuant to contract or applicable
law, be liable or responsible, or with respect to making good any loss or damage
sustained by, or paying any duty, cost, claim, or damage incurred by, the
Company, then the Company shall reimburse such Member for such amount as shall
have been so paid by such Member.
14.3 Exculpation. No Company officer, Representative, Company employee,
Member or Affiliate thereof or their respective Agents and/or the legal
representatives of any of them shall be liable to any Member or the Company for
mistakes of judgment or for action or inaction which such Company officer,
Representative, Member, Affiliate, Agent or legal representative reasonably
believed to be in or not opposed to the best interests of Company unless such
action or inaction constitutes willful misconduct, bad faith, gross negligence
or reckless disregard of his or its duties and, with respect to any criminal
action, such party reasonably believes his conduct was lawful. Each Member may
(on its own behalf or on the behalf of any Representative or Company officer
designated by such Member, any Affiliates of such Member or their respective
Agents and/or legal representatives of any of them), consult with counsel,
accountants and other experts in respect of the Company's affairs and such
Person shall be fully protected and justified in any action or inaction which is
taken in accordance with the advice or opinion of such counsel, accountants or
other experts; provided that they shall have been selected with reasonable care.
Notwithstanding any of the foregoing to the contrary, the provisions of Section
14.3 shall not be construed so as to relieve (or attempt to relieve) a Member or
any other Person of any liability, to the extent (but only to the extent) that
such liability may not be waived, modified or limited under applicable law, but
shall be construed so as to effectuate the provisions of Section 14.3 to the
fullest extent permitted by law.
14.4 Indemnification Relating To Initial Contributions. RMD and
Birmingham each hereby agree to indemnify and hold harmless each other from and
against any and all liability, loss or damage which shall result from its
failure, for any reason, to timely make the Initial Capital Contributions
required by Section 9.2 or to timely take such actions or provide such credit
support or guarantees as may be required by Section 9.4. Such indemnity shall
include, but shall not be limited to, the reimbursement by the defaulting party
of the non-defaulting party for 100% of all organizational expenses incurred by
the non-defaulting party in connection with this Agreement and the transactions
contemplated hereby.
With respect to capital contributions, the indemnification provided for
in Section 14.4 shall apply only in the case of the failure of either RMD or
Birmingham to timely make the Initial Capital Contributions required by this
Agreement and shall not apply to their respective obligations to contribute
additional capital to the Company or to any other of their respective
obligations under this Agreement, preserving unto each of RMD and Birmingham,
however, such rights as may be afforded them under applicable law in the case of
a breach of any of such other obligations.
SECTION 15
MISCELLANEOUS
15.1 Notices. All notices, requests, demands or other communications
required by or otherwise with respect to this Agreement shall be in writing and
shall be deemed to have been duly given to any party (i) where delivered
personally (by courier service or otherwise), (ii) when delivered by facsimile
and confirmed by return facsimile, (iii) on the business day after the date sent
by a nationally recognized overnight courier service, or (iv) seven days after
being mailed by first-class, registered or certified mail, postage prepaid and
return receipt requested, in each case to the applicable addresses set forth
below:
If to RMD: Mamoru Ishida
c/o Mitsui & Co. (U.S.A.), Inc.
601 S. Figueroa St., Suite 1800
Los Angeles, CA 90017
Facsimile: (213) 688-7935
With copies to: Shun Hirashima
Mitsui & Co., Ltd.
2-1, Ohtemachi 1-chome
Chiyoda-ku, Tokyo, Japan
Facsimile: (03) 3285-9963
If to Birmingham: Birmingham Steel Corporation
1000 Urban Center Drive, Suite 300
Birmingham, Alabama 35245-2516
Attn: Frederick J. Rocchio, Jr.
Facsimile:
With copies to: Birmingham Steel Corporation
1000 Urban Center Drive, Suite 300
Birmingham, Alabama 35245-2516
Attn: William R. Lucas, Jr.
Facsimile:
or to such other address or facsimile number as any party may have furnished to
the other parties in writing in accordance with Section 15.1.
15.2 Governing Law. This Agreement shall be governed by, interpreted,
and construed in accordance with the laws of the State of Delaware, without
regard to Delaware choice of law provisions.
15.3 Amendments.
(a) This Agreement may be modified or amended only by an
instrument in writing signed by each Member, and, as so modified and
amended, shall inure to the benefit of all of the Members.
(b) RMD and Birmingham acknowledge that in the event of the
admission of one or more new Members or Substituted Members of the
Company, appropriate revision of portions of this Agreement will be
necessary, to be mutually agreed by RMD and Birmingham as a condition
of the admission of such new Member or Substituted Member.
15.4 Entire Agreement. Except to the extent other agreements are
specifically referred to herein, this Agreement constitutes the entire agreement
between the Members with respect to the matters covered hereby and thereby and
supersedes all prior agreements, understandings, offers and negotiations, oral
or written.
15.5 Waiver of Partition. Each Member hereby irrevocably waives any and
all rights that it may have to maintain an action for partition of any of the
Company's property.
15.6 Consents. All consents, agreements and approvals required or
permitted by this Agreement shall be in writing and a signed copy thereof shall
be filed and kept with the books of the Company.
15.7 Successors. Subject to Section 12, all rights and duties of the
Members hereunder shall inure to the benefit of and be binding upon their
respective successors and assigns.
15.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
15.9 Severability. Each provision of this Agreement shall be considered
severable and if for any reason any provision which is not essential to the
effectuation of the basic purposes of this Agreement is determined by a court of
competent jurisdiction to be invalid or unenforceable and contrary to existing
or future applicable law, such invalidity shall not impair the operation of or
affect those provisions of this Agreement which are valid. In that case, this
Agreement shall be construed so as to limit any term or provision so as to make
it enforceable or valid within the requirements of any applicable law, and in
the event such term or provision cannot be so limited, this Agreement shall be
construed to omit such invalid or unenforceable provisions.
15.10 Survival. All indemnities and reimbursement obligations made
pursuant to this Agreement shall survive dissolution and liquidation of the
Company until expiration of the longest applicable statute of limitations
(including extensions and waivers) with respect to the matter for which a party
would be entitled to be indemnified or reimbursed, as the case may be.
15.11 No Third Party Beneficiaries. Nothing contained in this Agreement
is intended to, or shall, confer upon any Person other than the parties hereto
any rights or remedies hereunder.
15.12 Default. In the event of a material default by any Member under
this Agreement, then without limiting the availability of any other remedy under
this Agreement or applicable law, (i) such Member shall be considered ineligible
to vote in meetings of the Members, and (ii) if such material default persists,
then subject to notice and a 30 day period within which to cure such default (or
such longer period during which reasonable attempts to cure are continuing),
such Member may be required to sell all, and not less than all, of its
Membership Interest to the other Member or Members at the lesser of (x) Fair
Market Value and (y) the balance credited to such Member in the capital of the
Company, less twenty percent (20%), all upon prior written notice as set forth
herein. If the parties are unable to agree on the Fair Market Value, the issue
shall be decided within 90 days by an investment banker selected by two
investment bankers, one selected by each of RMD and Birmingham, with costs to be
borne by the defaulting party.
15.13 Representations and Warranties. In order to induce RMD and
Birmingham to enter into this Agreement, each Member represents and warrants to
the other Member, on the date hereof, that the Board of Directors or other
appropriate persons or bodies of RMD and Birmingham have approved of the
formation of the Company.
IN WITNESS WHEREOF, the Members have executed this Operating Agreement
as of the date first hereinabove written.
RAW MATERIAL DEVELOPMENT CO., LTD.
By: Mamoru Ishida
Name: Mamoru Ishida
Title: Senior Vice President
BIRMINGHAM WEST COAST CORPORATION
By: Frederick J. Rocchio Jr.
Name: Frederick J. Rocchio Jr.
Title: President
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Birmingham Steel Corporation
November 13, 1996
Robert A. Garvey
-----------------------
Robert A. Garvey
Chairman, Chief
Executive Officer
November 13, 1996
John M. Casey
-----------------------
John M. Casey
Vice President,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1996 Consolidated Balance Sheets and Consolidated Statements of
Operations of Birmingham Steel Corporation and is qualified in its entirety
by reference to such.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-END> Sep-30-1996
<CASH> 7,397
<SECURITIES> 0
<RECEIVABLES> 113,719
<ALLOWANCES> 1,579
<INVENTORY> 191,445
<CURRENT-ASSETS> 320,816
<PP&E> 731,569
<DEPRECIATION> 143,722
<TOTAL-ASSETS> 962,658
<CURRENT-LIABILITIES> 147,488
<BONDS> 307,500
0
0
<COMMON> 297
<OTHER-SE> 452,013
<TOTAL-LIABILITY-AND-EQUITY> 962,658
<SALES> 233,422
<TOTAL-REVENUES> 233,422
<CGS> 209,416
<TOTAL-COSTS> 209,416
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,422
<INTEREST-EXPENSE> 3,988
<INCOME-PRETAX> 10,760
<INCOME-TAX> 4,412
<INCOME-CONTINUING> 6,348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,348
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
