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 December 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
Commission File
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: 29,654,474 Shares of Common
Stock, Par Value $.01 Outstanding at February 10, 1998.
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Birmingham Steel Corporation
Consolidated Balance Sheets
(in thousands, except number of shares)
December 31, June 30,
1997 1997
(Unaudited) (Audited)
------------ -------------
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ASSETS
Current assets:
Cash and cash equivalents $ 1,234 $ 959
Accounts receivable, net of allowance
for doubtful accounts of $2,085 at
December 31, 1997 and $1,797 June 30, 1997 116,162 129,476
Inventories 200,861 208,595
Other 23,462 27,834
----------- -----------
Total current assets 341,719 366,864
Property, plant and equipment (including
property and equipment, net, held for
disposition of $8,343 and $19,568 at
December 31, 1997 and June 30, 1997,
respectively):
Land and buildings 204,865 199,363
Machinery and equipment 697,043 572,802
Construction in progress 39,577 162,957
----------- -----------
941,485 935,122
Less accumulated depreciation (196,020) (173,554)
----------- -----------
Net property, plant and equipment 745,465 761,568
Excess of cost over net assets acquired 46,281 50,089
Other assets 55,983 32,468
----------- -----------
Total assets $ 1,189,448 $ 1,210,989
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 10,000 $ -
Accounts payable 90,715 94,273
Accrued interest payable 1,524 2,068
Accrued operating expenses 11,700 7,503
Accrued payroll expenses 6,748 7,387
Income taxes payable 169 170
Other current liabilities 25,306 26,581
----------- -----------
Total current liabilities 146,162 137,982
Deferred income taxes 57,561 54,352
Deferred compensation 6,548 5,933
Deferred rent 304 -
Long-term debt 489,033 526,056
Minority interest in subsidiary 14,305 15,118
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: 29,758,168 at
December 31, 1997 and 29,735,815 at
June 30, 1997 298 297
Additional paid-in capital 331,544 331,139
Treasury stock, 107,035 and 55,342 shares
at December 31, 1997 and June 30, 1997,
respectively, at cost (1,759) (996)
Unearned compensation (1,163) (1,425)
Retained earnings 146,615 142,533
----------- -----------
Total stockholders' equity
475,535 471,548
----------- -----------
Total liabilities and stockholders' equity $ 1,189,448 $ 1,210,989
=========== ===========
See accompanying notes.
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Birmingham Steel Corporation
Consolidated Statements of Operations
(in thousands, except per share data; unaudited)
Three months ended Six months ended
December 31, December 31,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
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Net sales $267,453 $210,140 $555,000 $443,562
Cost of sales:
Other than depreciation and amortization 229,117 178,920 473,114 377,620
Depreciation and amortization 12,825 10,872 25,615 21,588
-------- -------- -------- --------
Gross profit 25,511 20,348 56,271 44,354
Pre-operating/start-up costs 6,603 1,112 9,105 2,534
Selling, general and administrative 10,875 7,912 21,895 16,362
Interest 6,511 4,645 12,580 8,633
-------- -------- -------- --------
1,522 6,679 12,691 16,825
Other income (expense), net 3,038 3,233 3,627 3,847
Minority interest in loss of subsidiary 292 121 813 121
-------- -------- -------- --------
Income before income taxes 4,852 10,033 17,131 20,793
Provision for income taxes 2,075 4,113 7,109 8,525
-------- -------- -------- --------
Net income $ 2,777 $ 5,920 $ 10,022 $ 12,268
======== ======== ======== ========
Weighted average shares outstanding 29,710 28,653 29,698 28,639
======== ======== ======== ========
Basic earnings per share $ 0.09 $ 0.21 $ 0.34 $ 0.43
======== ======== ======== ========
Diluted earnings per share $ 0.09 $ 0.21 $ 0.34 $ 0.43
======== ======== ======== ========
Dividends declared per share $ 0.10 $ 0.10 $ 0.20 $ 0.20
======== ======== ======== ========
See accompanying notes.
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Birmingham Steel Corporation
Consolidated Statement of Cash Flows
(in thousands)
Six Months Ended
December 31,
--------------------------
1997 1996
(Unaudited) (Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,022 $ 12,268
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 25,615 21,588
Provision for doubtful accounts receivable - 15
Deferred income taxes 3,209 (780)
Gain on sale of 50% equity in scrap subsidiary - (1,746)
Minority interest in loss of subsidiary (813) (121)
Loss from equity investments 899 -
Other 398 1,083
Changes in operating assets and liabilities,
net of effects from business acquisitions:
Accounts receivable 13,314 4,370
Inventories 7,734 1,233
Prepaid expenses (564) (535)
Other current assets 4,283 (417)
Accounts payable (2,352) (19,684)
Income taxes payable - (369)
Other accrued liabilities 2,504 (2,184)
Deferred compensation 614 (665)
----------- ---------
Net cash provided by operating activities 64,863 14,056
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment
(including expenditures reimburseable under
lease agreement) (100,490) (101,666)
Proceeds from lease agreement 75,000 -
Payment for business acquisitions - (43,309)
Equity investment in Laclede Steel Company (15,003) -
Proceeds from disposal of property,
plant and equipment 17,345 108
Proceeds from sale of 50% equity in scrap subsidiary - 5,372
Investment in scrap subsidiary - (7,500)
Investment in American Iron Reduction (11,397) -
Additions to other non-current assets (1,425) (15,664)
Reductions in other non-current assets 5,285 2,110
----------- ---------
Net cash used in investing activities (30,685) (160,549)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings and repayments 10,000 121,999
Proceeds from issuance of long-term debt - 26,000
Borrowings under revolving credit facility 1,205,911 -
Payments on revolving credit facility (1,242,934) -
Proceeds from issuance of common stock 113 305
Purchase of treasury stock (1,053) -
Cash dividends paid (5,940) (5,727)
----------- ---------
Net cash provided by (used in) financing activities (33,903) 142,577
----------- ---------
Net increase (decrease) in cash and cash equivalents 275 (3,916)
Cash and cash equivalents at:
Beginning of period 959 6,663
----------- ---------
End of period $ 1,234 $ 2,747
=========== =========
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 13,300 $ 11,912
Income taxes 3,764 7,136
See accompanying notes.
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BIRMINGHAM STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
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 bar, rod and wire. The Company operates in one industry segment and
sells to third parties primarily in the construction and automotive industries
throughout the United States and Canada.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority-owned 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
In the second quarter of fiscal 1998, the Company adopted Financial Accounting
Standards Board Statement No. 128, "Earnings per Share". Basic earnings per
share is computed using the weighted average number of outstanding common shares
for the period. Diluted earnings per share is computed using the weighted
average number of outstanding common shares and any dilutive equivalents. Prior
year earnings per share has been restated to conform with the current year
presentation.
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.
2. Business Acquisitions and Joint Ventures
On September 24, 1997, Midwest Holdings Inc., a wholly owned subsidiary of the
Company, purchased LCL Holdings II, LLC (LCL), a subsidiary of IVACO, Inc. for a
purchase price of approximately $14,953,000. LCL owns 25.4 percent of the
outstanding shares of Laclede Steel Company stock which is accounted for using
the equity method.
On November 15, 1996, the Company entered into a Contribution Agreement with
Atlantic Steel Industries, Inc. (Atlantic) and IVACO, Inc., the parent of
Atlantic, pursuant to which the Company and Atlantic formed Birmingham
Southeast, LLC (Birmingham Southeast), a limited liability company owned 85
percent by Birmingham East Coast Holdings, a wholly owned subsidiary of the
Company, and 15 percent by a subsidiary of IVACO, Inc. On December 2, 1996,
pursuant to the Contribution Agreement the Company contributed the assets of its
Jackson, Mississippi facility to Birmingham Southeast which had no impact on the
accompanying consolidated financial statements. Birmingham Southeast then
purchased the operating assets of Atlantic located in Cartersville, Georgia for
$43,309,000 in cash and assumed liabilities approximating $44,257,000. The
purchase price has been allocated to the assets and liabilities of the Company
as follows (in thousands):
Current assets $ 31,667
Property, plant and equipment 63,400
Other non-current assets, primarily
goodwill 9,964
--------
Total assets acquired 105,031
Fair value of liabilities assumed (44,257)
Minority interest (17,465)
--------
Total purchase price $ 43,309
========
The non-cash financing and investing activities related to the purchase of the
Cartersville, Georgia assets have been excluded from the statement of cash
flows. Pro forma results for fiscal 1997 would not be materially different from
the amounts reported in the Company's consolidated statements of operations if
the acquisition had occurred as of the beginning of the period.
On September 18, 1996, the Company entered into an agreement with Raw Materials
Development Co., Ltd., an affiliate of Mitsui & Co., Ltd. forming Pacific Coast
Recycling, LLC (Pacific Coast), a 50/50 joint venture established to operate in
southern California as a collector, processor and seller of scrap. The Company
made equity investments in Pacific Coast of approximately $7,500,000 on December
27, 1996 and $1,750,000 on January 23, 1997. Pacific Coast is accounted for
using the equity method. On December 27, 1996, Pacific Coast purchased certain
assets from the estate of Hiuka America Corporation and its affiliates with a
minimum annual scrap processing capacity of approximately 600,000 tons. Pacific
Coast is utilizing the facility at the Port of Long Beach to export scrap. At
December 31, 1997, the Company had current and non-current loans outstanding to
Pacific Coast in the amount of $5,200,000 and $10,000,000 respectively.
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 constructing 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. In the second quarter of fiscal 1998, the Company made equity
contributions of approximately $11,397,000 to AIR. 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. The DRI facility began operations in January, 1998.
3. Inventories
Inventories were valued as summarized in the following table (in thousands):
December 31, June 30,
1997 1997
------------ -----------
At lower of cost (first-in,
first-out) or market:
Raw materials and mill supplies $ 53,094 $ 51,832
Work-in-progress 67,597 71,693
Finished goods 80,170 85,070
-------- --------
$200,861 $208,595
======== ========
4. Borrowing Arrangements
The Company has a five year, unsecured revolving credit agreement whereby the
Company may borrow up to $300,000,000 with interest at market rates mutually
agreed upon by the Company and the lender or at other contractual borrowing
rates. Approximately $144,467,000 was available under this credit facility at
December 31, 1997.
Under three line of credit arrangements for short-term borrowings, the Company
may borrow up to $50,000,000 with interest at market rates mutually agreed upon
by the Company and the lender. At December 31, 1997, $40,000,000 was available
under these credit facilities.
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 management and disposal. 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, its financial position, liquidity or
results of operations.
6. Disposition of Idle Facilities
In the second quarter of fiscal 1998, the Company completed the sale of idle
properties located in Norfolk, Virginia and Emeryville, California. The Company
entered into an agreement with a third party whereby the third party assumed
environmental liability for the cleanup and sale of the Norfolk, Virginia
property. Under the terms of the contract, the Company placed an amount into
escrow which approximates the environmental reserve for cleanup of the property.
The Emeryville, California property was sold for approximately $13,608,000.
Disposal of the two properties resulted in a pre-tax gain of approximately
$2,129,000.
On October 15, 1997, the Company sold its idle rolling mill in Cartersville,
Georgia, acquired in December 1996, for $1,600,000 and recognized a pre-tax gain
of approximately $1,239,000.
7. Pre-Operating/Start-up Costs
Pre-operating/start-up costs consist of non-capitalized costs incurred prior to
a facility reaching commercial production levels.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 the Company's expectations, hopes, anticipations, intentions,
plans and 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, expectations concerning the anticipated performance
of new ventures, and expectations regarding the date when facilities, under
construction will be operational and the future performance and capabilities of
those facilities. Moreover, when making forward-looking statements, management
must make certain assumptions that are based on management's collective opinion
concerning future events, and blend these assumptions with information available
to management when such assumptions are made. Whether these assumptions are
valid will depend not only on management's skill, but also on a variety of
volatile and highly unpredictable risk factors. Some, but not all, of these risk
factors are described below under the heading "Risk Factors That May Affect
Future Operating Results". The Company's actual results could differ materially
from those described or implied by any forward-looking statements herein. Any
forward-looking statements contained in this document speak only as of the date
hereof, and the Company disclaims any intent or obligation to update such
forward-looking statements. Comparisons of results for current and prior periods
are not necessarily indicative of future performance, and should not be relied
on for any purpose other than as historical data.
For the second quarter of fiscal 1998, the Company reported net income of
$2,777,000, compared with $5,920,000 in the same period of fiscal 1997. Basic
earnings per share for the quarter were $.09, compared with $.21 for the second
quarter of last year.
For the six months ended December 31, 1997, the Company reported earnings of
$10,022,000, compared with $12,268,000 for the first half of fiscal 1997. Basic
earnings per share were $.34, compared with $.43 last year.
Net Sales
Net sales for the second quarter were $267,453,000, up 27 percent from
$210,140,000 reported for the second quarter last year. Shipments for the second
quarter rose 32 percent to 802,000 tons compared with 609,000 tons in the prior
year quarter. Merchant and rebar shipments increased in the second quarter 52
percent and 24 percent, respectively, from the prior year quarter.
Rebar/merchant average selling prices rose $5 per ton to $316 per ton in the
second quarter from $311 per ton in the same period last year. SBQ shipments
declined 10 percent compared with the second quarter of last year. SBQ average
selling prices declined $19 per ton to $450 per ton in the second quarter.
Net sales amounted to $555,000,000 for the six months ending December 31, 1997,
an increase of 25 percent from $443,562,000 reported for the prior year period.
Shipments for the six month period were 1,639,000 tons, up 28 percent from
1,278,000 tons reported in the same period last year. Average selling prices for
rebar/merchant products were $317 per ton for the six month period, compared
with $311 for the prior year period. Average selling prices for SBQ products
declined to $452 per ton in the first half of fiscal 1998, compared with $462
per ton in the same period last year.
Cost of Sales
As a percentage of net sales, cost of sales (other than depreciation and
amortization) was 85.7% compared with 85.1% in the second quarter last year. The
increase resulted from increased conversion costs at the Company's SBQ facility
as a result of lower volume and increased scrap costs. The increased cost of
sales percentage was partially offset by higher rebar/merchant selling prices
and lower billet costs at the Company's SBQ facility.
For the six months ended December 31, 1997, cost of sales as a percentage of net
sales was essentially unchanged at 85.2% compared with 85.1% last year.
As a result of lower production volume, conversion costs at the Company's SBQ
facility increased to $70 per ton in the second quarter compared with $67 per
ton in the prior year period. Conversion costs at the Company's rebar/merchant
facilities were unchanged at $125 per ton for the second quarter compared with
the prior year.
Billet costs at the Company's SBQ facility declined $12 per ton in the second
quarter of fiscal 1998. The lower billet costs are primarily attributable to
increased purchases of lower priced industrial quality billets from affiliates.
Scrap costs rose $3 per ton to $135 per ton in the second quarter in concert
with general market price increases.
Depreciation and amortization was $12,825,000 in the second quarter compared
with $10,872,000 in the prior year period. For the six month period,
depreciation and amortization totaled $25,615,000, up from $21,588,000 reported
for the same period last year. The increase is primarily attributable to the
recognition of depreciation expense on assets placed into service during fiscal
1997 and the first two quarters of fiscal 1998.
Pre-operating/Start-up Costs
Pre-operating/start-up costs amounted to $6,603,000 for the second quarter of
fiscal 1998, compared with $1,112,000 for the same period of the prior year. The
current quarter charges relate primarily to pre-operating/start-up costs at the
Memphis, Tennessee melt shop which began operations in November, 1997. The prior
period charges relate primarily to pre-operating/start-up costs following the
acquisition of the Cartersville, Georgia facility in December, 1996 and
non-capitalized charges incurred during the construction of the Memphis,
Tennessee melt shop.
For six months ended December 31, 1997, pre-operating/start-up costs amounted to
$9,105,000, compared with $2,534,000 for the previous year. The current year
charges relate primarily to the Memphis melt shop. In addition to the charges
discussed above, the prior year charges include the start-up expenses incurred
at the new bar mill in Cleveland, Ohio which began operations in July, 1996.
Selling, General and Administrative Expenses ("SG&A")
SG&A rose to $10,875,000 in the second quarter from $7,912,000 in the second
quarter last year. The change is primarily attributable to increased salaries
and benefits and various SG&A expenses at the Cartersville, Georgia facility of
Birmingham Southeast, LLC, which was acquired in December, 1996, the Memphis,
Tennessee facility which began operations in November, 1997 and new
administrative personnel hired to support increased sales volumes and systems
support. As a percentage of net sales, SG&A were 4.1 percent, compared with 3.8
percent last year.
For the six months ended December 31, 1997, SG&A amounted to $21,895,000
compared with $16,362,000 in the same period a year ago. The increase in SG&A is
attributable to increased costs as discussed above. As a percentage of net
sales, year-to-date SG&A were 3.9 percent compared with 3.7 percent last year.
Interest Expense
Interest expense increased to $6,511,000 in the second quarter of fiscal 1998,
compared with $4,645,000 in the same period last year. The increase is primarily
due to borrowings on the Company's long-term credit facility completed in March,
1997 and the $26 million industrial revenue bond completed in October, 1996. The
increase in interest expense was partially offset by capitalized interest
related to construction projects amounting to $2,321,000 in the second quarter
of the current year compared with $1,695,000 in the same period a year ago.
For the first six months of fiscal 1998, interest expense increased to
$12,580,000, compared with $8,633,000 for the prior year essentially due to the
reasons stated above. For the six month period, the Company capitalized
$5,032,000 in interest related to construction projects, compared with
$3,535,000 in the same period last year.
Income Taxes
Effective income tax rates for the six months ended December 31, 1997 and 1996
were 41.5% and 41.0%, respectively.
Liquidity and Capital Resources
Operating Activities
For the first six months of fiscal 1998, net cash provided by operating
activities rose to $64.9 million, compared with $14.1 million reported for the
first six months of last year. The favorable increase in cash flow was due to
increased depreciation and amortization and deferred income taxes and changes in
operating assets and liabilities, primarily accounts receivable, inventories,
accounts payable and other accrued liabilities.
Investing Activities
Net cash used in investing activities during the first six months of fiscal 1998
was $30.7 million, compared with $160.5 million in the same period last year. On
November 10, 1997, the Company completed a 15 year operating lease agreement and
received $75 million in cash for equipment located at the Company's Memphis,
Tennessee melt shop which was previously reflected in construction in progress.
In the second quarter of fiscal 1998, the Company completed the sale of
idle properties located in Norfolk, Virginia and Emeryville, California. The
Company entered into an agreement with a third party whereby the third party
assumed environmental liability for the cleanup and sale of the Norfolk,
Virginia property. Under the terms of the contract, the Company placed an amount
into escrow which approximates the environmental reserve for cleanup of the
property. The Emeryville, California property was sold for approximately
$13,608,000. Disposal of the two properties resulted in a pre-tax gain of
approximately $2,129,000.
On October 15, 1997, the Company sold its idle rolling mill in Cartersville,
Georgia, acquired in December 1996, for $1.6 million and recognized a pre-tax
gain of approximately $1.2 million.
On September 26, 1997, Midwest Holdings Inc., a wholly owned subsidiary of the
Company, purchased 24.9% of the outstanding common shares and 44.0% of the
outstanding non-voting convertible preferred shares of Laclede Steel Company
(Laclede), for a purchase price of approximately $15 million. The equity
investment in Laclede, a manufacturer of carbon and alloy steel products
including pipe, hot rolled and wire products and welded chain, may ultimately
provide the Company with an opportunity to participate in new product markets.
The investment in Laclede is accounted for in accordance with the equity method.
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 constructing a direct reduced iron (DRI) facility in
Louisiana. Pursuant to 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. During the second quarter of the current year, the
Company made equity contributions of approximately $11,397,000 to AIR. 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 by the Company will be utilized primarily as
feedstock at the new Memphis melt shop. The DRI facility began start-up
operations in January, 1998.
On November 15, 1996, the Company entered into a Contribution Agreement with
Atlantic Steel Industries, Inc. (Atlantic) and IVACO, Inc., the parent of
Atlantic, pursuant to which the Company and Atlantic formed Birmingham
Southeast, LLC (Birmingham Southeast), a limited liability company owned 85
percent by Birmingham East Coast Holdings, a wholly owned subsidiary of the
Company, and 15 percent by a subsidiary of IVACO, Inc. On December 2, 1996,
pursuant to the Contribution Agreement, the Company contributed the assets of
its Jackson, Mississippi facility to Birmingham Southeast and Birmingham
Southeast purchased the assets of Atlantic located in Cartersville, Georgia for
$43.3 million in cash and assumed approximately $39.9 million in liabilities
(See Note 2 to Consolidated Financial Statements). During the second quarter of
fiscal 1997, the Company made a $7.5 million investment in Pacific Coast
Recycling, LLC, a joint venture owned 50 percent by the Company and 50 percent
by Raw Materials Development Co., Ltd., an affiliate of Mitsui & Co., Ltd. In
January, 1998 the Company made an additional $1.8 million investment in Pacific
Coast. On December 26, 1996, Pacific Coast completed the purchase of certain
assets from the estate of Hiuka America Corporation and its affiliates with a
capacity to collect and process 1 million tons of scrap annually. Pacific Coast
is utilizing the facility at the Port of Long Beach to export scrap (See Note 2
to Consolidated Financial Statements).
On December 20, 1996, Birmingham Recycling Investment Co., a wholly owned
subsidiary of the Company, sold 50 percent of the stock of Richmond Steel
Recycling Limited to SIMSMETAL Canada, Ltd. and recognized a pre-tax gain of
approximately $1.7 million.
Financing Activities
Net cash used in financing activities amounted to $33.9 million in the first six
month of fiscal 1998, compared with net cash provided by financing activities of
$142.6 million last year. The decline is due to decreased borrowings on the
Company's short-term lines of credit for the first six months of fiscal 1998 as
compared with the same period last year, coupled with net payments of
approximately $37 million on the Company's long-term credit facility completed
in March, 1997.
During the first six months of fiscal 1998 the Company purchased 68,700 of its
common shares in the open market for a purchase price of approximately $1.0
million. The shares were purchased pursuant to a previous Board resolution. In
February, 1998, subsequent to the end of the second quarter, the Board extended
the stock buyback program until June 30, 1998. Under the extension, the Company
is authorized to purchase up to 200,000 shares of its common stock in the open
market at a purchase price not to exceed $20 per share.
Working Capital
Working capital at the end of the second quarter declined to $195.6 million,
compared with $228.9 million at the end of fiscal 1997. The decrease in working
capital was essentially due to a decline in accounts receivable and inventories
coupled with increased borrowings on the Company's short-term lines of credit
during the first six months of fiscal 1998.
Other Comments
On January 13, 1998, the Company declared a regular quarterly cash dividend of
$.10 (ten cents) per share which will be paid February 3, 1998 to shareholders
of record on January 23, 1998.
The Company has determined that it will need to modify or replace significant
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and beyond. During the upcoming fiscal
quarter, the company will initiate discussions with its external service
organizations, significant suppliers, large customers and financial institutions
to better understand and evaluate how their respective Year 2000 issues may
affect the Company's operations.
The Company's comprehensive Year 2000 initiative is being managed by a team of
internal staff and outside consultants, with the intention of minimizing any
adverse effects on the Company's business operations. With respect to its core
business operations, the Company is well under way with these efforts, which are
scheduled to be completed in 1999. While the Company believes its planning
efforts are adequate to address its Year 2000 concerns, there can be no
guarantee that these efforts will be successful, or that the systems of other
companies on which the Company's systems and operations rely will be converted
on a timely basis and will not have a material effect on the Company.
Risk Factors That May Affect Operating Results
The Company's actual results could differ materially from those described or
implied in any forward-looking statements contained in this document. Among the
factors that could cause actual results to differ materially are the factors
detailed below. In addition, readers should consider the risk factors described
from time to time in other Company reports filed with the Securities and
Exchange Commission.
The Company operates in the steel industry, an industry that is vulnerable to
unpredictable economic cycles. A downturn in the economy or in the Company's
markets could have an adverse effect on the Company's performance.
The Company has attempted 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 is the largest element in the cost of the Company's finished
rebar and merchant products. The Company purchases most of its scrap on a
short-term basis. Changes in the price of scrap, therefore, can significantly
affect the Company's profitability. Changes in other raw material prices can
also influence the Company's profitability.
Prices for some of the Company's products are positively affected by the
influence of trade sanctions imposed on the Company's foreign competitors.
Changes in these sanctions or their enforcement could adversely affect the
Company's results.
Energy costs are also a significant factor influencing the Company's results.
Current reforms in the electric utility 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.
In the past, the Company's SBQ division purchased 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. With the new
Memphis melt shop, which began start-up operations in November 1997, the SBQ
division will begin supplying substantially all of its billet requirements from
Memphis. Until Memphis replaces third party suppliers, 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.
Start-up production issues associated with the new Memphis melt shop or the DRI
project in Louisiana could materially adversely affect the Company's future
results. These projects, like other start-up projects, can be affected or
delayed by factors such as unusual weather, equipment performance, unforeseen
conditions and untimely performance by vendors.
The Company is constantly engaged in the process of evaluating new opportunities
to strengthen its long-term business and financial prospects. From time to time,
this process may lead the Company to make strategic investments, such as
acquisitions and joint ventures, which have the potential to improve the
Company's position in the markets in which it currently competes, as well as new
markets it may choose to enter. In connection with these investments, the
Company may incur, either directly or indirectly, start-up expenses, losses and
other charges that may have a material affect on the Company's financial
performance. Further, there can be no assurance that these strategic investments
will in fact be profitable, and the Company could incur significant losses as a
result of one or more of these investments.
The Company believes its labor relations are generally good. The Company's work
force is substantially non-union and the Company has never suffered a strike or
other labor related 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.
Increases in interest rates or changes in the Company's ability to borrow funds
could materially affect the Company's performance.
Recent declines in the demand for steel products in the pacific rim region have
caused steel manufacturers in these countries to reduce their production of
steel products. Pacific Coast Recycling, LLC, the venture jointly owned by the
Company and Raw Materials Development Corporation, an affiliate of Mitsui and
Company, Ltd. (see Investing Activities above), is heavily involved in the
export of scrap products to pacific rim markets. Further significant erosion in
the demand for scrap products occasioned by the reduced demand for steel
products in these countries could have a material adverse effect on Pacific
Coast Recycling, LLC, and in turn, on the value of the Company's investment in
the joint venture.
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.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on October 14, 1997,
at which the following matters were brought before and voted upon by the
shareholders:
1. The election of the following to the Board of Directors, each to serve until
the next Annual Meeting of Stockholders:
Voted Voted
Director For Against
Robert A. Garvey 25,204,878 102,059
E. Mandell de Windt 25,203,459 103,478
C. Stephen Clegg 25,193,806 113,130
George A. Stinson 25,184,712 122,224
E. Bradley Jones 25,207,807 99,128
Harry Holiday, Jr. 25,208,432 98,504
Reginald H. Jones 25,186,605 120,332
William J. Cabaniss, Jr. 25,204,505 102,431
T. Evans Wyckoff 25,205,444 101,492
Robert D. Kennedy 25,209,505 97,431
2. Proposal to approve the 1997 Management Incentive Plan.
Voted for: 19,737,728
Voted against: 5,381,736
Abstained: 187,473
3. Proposal to approve and ratify the selection of Ernst & Young LLP as
the independent auditors for the Company and its subsidiaries for the
fiscal year ending June 30, 1998.
Voted for: 25,218,616
Voted against: 24,675
Abstained: 63,645
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are required to be filed with this report:
10.1 Participation Agreement, dated as of September 30, 1997,
among Birmingham Steel Corporation, as Lessee; PNC Bank
Kentucky, Inc., as Owner Trustee; Nationsbank, National
Association and AmSouth Leasing, Ltd., as Owner Participants;
First Union National Bank, as Indenture Trustee; the Lenders
which are parties hereto, as Lenders, Melt Shop Equipment
10.2 Equipment Lease Agreement, dated as of September 30, 1997, between PNC
Bank, Kentucky, Inc., Lessor, and Birmingham Steel Corporation,
Lessee, Melt Shop Equipment
10.3 Lease Supplement No. 1, dated November 10, 1997, between PNC Bank,
Kentucky, Inc., as Owner Trustee, Lessor and Birmingham Steel
Corporation, Lessee
During the quarter ended December 31, 1997, no reports on Form 8-K were required
to be filed
<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
February 17, 1998 /s/J. Daniel Garrett
--------------------------------------
J. Daniel Garrett
Vice President-Finance
<PAGE>
Exhibit 10.1
================================================================================
PARTICIPATION AGREEMENT
(Birmingham Steel Trust No. 97-1)
Dated as of September 30, 1997
among
BIRMINGHAM STEEL CORPORATION,
as Lessee
PNC BANK, KENTUCKY, INC.,
as Owner Trustee
NATIONSBANK, NATIONAL ASSOCIATION
and
AMSOUTH LEASING, LTD.,
as Owner Participants
FIRST UNION NATIONAL BANK,
as Indenture Trustee
THE LENDERS WHICH ARE PARTIES HERETO,
as Lenders
Melt Shop Equipment
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS; INTERPRETATION OF THIS AGREEMENT.......................2
1.1 Definitions.......................................................2
1.2 Directly or Indirectly............................................2
SECTION 2. SALE AND PURCHASE; PARTICIPATION IN THE EQUIPMENT COST; CLOSING;
TRANSACTION COSTS...................................................3
2.1 Sale and Purchase.................................................3
2.2 Participation in Equipment Cost...................................3
2.3 Closing Date; Procedure for Participation.........................4
2.4 Owner Participants' Instructions to the Owner Trustee; Satisfaction
of Conditions.....................................................5
2.5 Expenses..........................................................5
2.6 Postponement of Closing Date......................................8
SECTION 3. REPRESENTATIONS AND WARRANTIES......................................9
3.1 Representations and Warranties of the Owner Trustee...............9
3.2 Representations and Warranties of the Lessee.....................11
3.3 Representations and Warranties of the Indenture Trustee..........16
3.4 Representations, Warranties and Covenants Regarding Beneficial
Interest and Equipment Notes.....................................17
3.5 Representations, Warranties and Covenants of the Owner
Participants.....................................................18
3.6 Representations, Warranties and Covenants of the Lenders.........19
SECTION 4. CLOSING CONDITIONS.................................................21
4.1 Conditions Precedent to Investment by Each Participant...........21
4.2 Additional Conditions Precedent to Investment by Owner
Participants.....................................................25
4.3 Conditions Precedent to the Obligation of the Lessee.............26
SECTION 5. FINANCIAL AND OTHER REPORTS OF THE LESSEE..........................27
SECTION 6. CERTAIN COVENANTS OF THE PARTICIPANTS, THE TRUSTEES AND THE LESSEE.28
6.1 Restrictions on Transfer of Beneficial Interest..................28
6.2 Lessor's Liens Attributable to the Owner Participants............31
6.3 Lessor's Liens Attributable to the Owner Trustee.................31
6.4 Liens Created by the Indenture Trustee...........................32
6.5 Covenants of Owner Trustee, Owner Participants and Indenture
Trustee..........................................................32
6.6 Amendments to Operative Agreements...............................33
6.7 Merger Covenant..................................................33
6.8 Rent Sufficiency.................................................35
6.9 Environmental Matters............................................35
6.10 Acknowledgment of Relationship of Owner Participants............35
6.11 Agreements Relating to the Lease................................36
6.12 Purchase of Equipment Notes.....................................36
SECTION 7. LESSEE'S INDEMNITIES...............................................36
7.1 General Tax Indemnity............................................36
7.2 General Indemnification and Waiver of Certain Claims.............43
SECTION 8. LESSEE'S RIGHT OF QUIET ENJOYMENT..................................47
SECTION 9. SUCCESSOR INDENTURE TRUSTEE........................................47
SECTION 10. MISCELLANEOUS.....................................................47
10.1 Consents........................................................47
10.2. Amendments and Waivers.........................................47
10.3 Notices.........................................................47
10.4 No Guarantee of Debt............................................49
10.5 Successors and Assigns..........................................49
10.6 Business Day....................................................49
10.7 GOVERNING LAW...................................................49
10.8 Severability....................................................50
10.9 Counterparts....................................................50
10.10 Headings and Table of Contents.................................50
10.11 Limitations of Liability.......................................50
10.12 Confidentiality................................................51
10.13 Survival of Indemnities........................................52
Schedule 1 - Description of Equipment
Schedule 2 - Commitments
Exhibit A - Form of Purchase Agreement Assignment
Exhibit B - Form of Certificate of Acceptance
Exhibit C - Form of Landlord Waiver and Consent
Exhibit D - Form of Mortgagee Waiver and Consent
Appendix A - Definitions
<PAGE>
PARTICIPATION AGREEMENT
This PARTICIPATION AGREEMENT (Birmingham Steel Trust No. 97-1) dated as
of September 30, 1997 (this "Agreement"), among BIRMINGHAM STEEL CORPORATION, a
Delaware corporation (herein, together with its successors and permitted
assigns, called the "Lessee"), (ii) PNC BANK, KENTUCKY, INC., a bank organized
and existing under the laws of the Commonwealth of Kentucky, not in its
individual capacity except as expressly provided herein, but solely as trustee
under the Trust Agreement (as hereinafter defined) (herein in such capacity,
together with its successors and permitted assigns, called the "Owner Trustee"),
(iii) NATIONSBANK, NATIONAL ASSOCIATION, a national banking association, and
AMSOUTH LEASING, LTD., an Alabama limited partnership ("AmSouth") (each herein,
together with its successors and permitted assigns, called an "Owner
Participant" and collectively, the "Owner Participants"), (iv) FIRST UNION
NATIONAL BANK, a national banking association with its main office in Charlotte,
North Carolina, as trustee under the Indenture (as defined below) (herein in
such capacity, together with its successors and permitted assigns, called the
"Indenture Trustee") and (v) the lenders which are parties hereto (each herein,
together with its successors and permitted assigns, called a "Lender" and
collectively, the "Lenders").
W I T N E S S E T H :
WHEREAS, concurrently with the execution and delivery of this
Agreement, the Owner Participants have entered into the Trust Agreement with the
Owner Trustee in its individual capacity pursuant to which the Owner Trustee
agrees, among other things, (i) to hold the Trust Estate for the benefit of the
Owner Participants as co-tenants thereunder on the terms specified in the Trust
Agreement, subject, however, to the Lien created under the Indenture, (ii)
subject to the terms and conditions hereof, to purchase on behalf of the Trust
for the benefit of the Owner Participants as co-tenants thereunder the Equipment
from the Lessee and immediately thereafter to sell such Equipment to The
Industrial Development Board of the City of Memphis and County of Shelby,
Tennessee (the "Head Lessor"), and (iii) subject to the terms and conditions
hereof and for the benefit of the Owner Participants as co-tenants under the
Trust, to lease from the Head Lessor the Equipment and concurrently therewith
sublease such Equipment to the Lessee;
WHEREAS, pursuant to the terms of the Trust Agreement, the Owner
Trustee is authorized and directed by each Owner Participant (i) to execute and
deliver Purchase Agreement Assignments (substantially in the form of Exhibit A
hereto) with the Seller, whereby the Seller assigns to the Owner Trustee all the
Seller's rights and interests (excluding its obligations thereunder) under the
Purchase Agreements to the extent that the same relate to the Equipment and the
purchase and operation thereof (except to the extent reserved therein), and to
accept delivery of the Bill of Sale evidencing the purchase and transfer of each
Unit of Equipment to the Owner Trustee, (ii) to execute and deliver the Head
Lease relating to the Equipment pursuant to which, subject to the terms and
conditions set forth therein, the Owner Trustee agrees to lease from the Head
Lessor each Unit of Equipment to be delivered on the Closing Date, and (iii) to
execute and deliver the Lease relating to the Equipment pursuant to which,
subject to the terms and conditions set forth therein, the Owner Trustee agrees
to lease to the Lessee, and the Lessee agrees to lease from the Owner Trustee,
each Unit of Equipment to be delivered on the Closing Date, such lease of
Equipment to be evidenced by the execution and delivery of a Lease Supplement to
the Lease;
WHEREAS, concurrently with the execution and delivery of this
Agreement, the Owner Trustee has entered into the Indenture with the Indenture
Trustee pursuant to which the Owner Trustee agrees, among other things, to issue
Equipment Notes on behalf of the Trust to the Lenders;
WHEREAS, concurrently with the execution and delivery of this
Agreement, the Lessee and the Owner Participants have entered into the Tax
Indemnity Agreement relating to the Equipment; and
WHEREAS, the proceeds from the loan evidenced by the Equipment Notes
will be applied, together with the equity contribution made by the Owner
Participants pursuant to this Agreement, to effect the purchase of the Equipment
contemplated hereby;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, receipt of which is
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; INTERPRETATION OF THIS AGREEMENT
1.1 Definitions.
The capitalized terms used in this Agreement (including in the
foregoing recitals) and not otherwise defined herein shall have the respective
meanings specified in Appendix A hereto, unless the context hereof shall
otherwise require. All references to Sections, Schedules and Exhibits herein are
to Sections, Schedules and Exhibits of this Agreement unless otherwise
indicated.
1.2 Directly or Indirectly.
Where any provision in this Agreement refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision shall
be applicable whether such action is taken directly or indirectly by such
Person.
SECTION 2. SALE AND PURCHASE; PARTICIPATION IN THE EQUIPMENT COST;
CLOSING; TRANSACTION COSTS
2.1 Sale and Purchase.
Subject to the terms and conditions hereof and on the basis of the
representations and warranties set forth herein, the Owner Trustee agrees to
purchase from the Seller, on the Closing Date, the Units of Equipment referred
to in the notice given pursuant to Section 2.3(a) and more particularly
described in Schedule 1 hereof, and in connection therewith, the Owner Trustee
agrees (i) to pay to the Seller on the Closing Date the cost for each such Unit
as specified in Schedule 1 hereof; provided, however, that the Owner Trustee
shall not be obligated to purchase on the Closing Date any Unit of Equipment
that is destroyed, damaged, defective, in unsuitable condition or otherwise
unacceptable to the Lessee for lease pursuant to the Lease. The Seller shall
deliver the Equipment to the Owner Trustee and the Owner Trustee shall accept
such delivery on a single delivery date as more fully provided herein (the
"Closing Date"); provided that the Closing Date shall occur on or prior to
December 31, 1997.
2.2 Participation in Equipment Cost.
(a) Equity Participation. Subject to the terms and conditions hereof
and on the basis of the representations and warranties set forth herein, on the
Closing Date, each Owner Participant agrees to participate in the payment of the
Equipment Cost for the Units delivered on the Closing Date by making an equity
investment in the Trust as co-tenants in the amount equal to the product of the
aggregate Equipment Cost for the Units delivered on the Closing Date and the
percentage set forth opposite such Owner Participant's name in Schedule 2 (the
"Owner Participants' Commitment"). The aggregate amount of the Owner
Participants' Commitment shall not exceed 25% of the Equipment Cost. The Owner
Participants' Commitment shall be paid on the Closing Date to the Indenture
Trustee to be held and applied by the Indenture Trustee toward the payment of
the Equipment Cost for the Units as provided in Section 2.3.
(b) Debt Participation. Subject to the terms and conditions hereof and
on the basis of the representations and warranties set forth herein, on the
Closing Date, each Lender shall participate in the payment of the Equipment Cost
for the Units delivered on the Closing Date by making a secured loan, to be
evidenced by an Equipment Note, to the Owner Trustee in the amount equal to the
product of the aggregate Equipment Cost for the Units delivered on the Closing
Date and the percentage set forth opposite such Lender's name in Schedule 2 (the
"Lenders' Commitment"). The aggregate amount of the Lenders' Commitment shall
not exceed 80% of the Equipment Cost. The Lender's Commitment shall be paid on
the Closing Date to the Indenture Trustee to be held and applied by the
Indenture Trustee toward the payment of the Equipment Cost for the Units as
provided in Section 2.3. The obligations of the Lenders hereunder shall be
several and not joint and no Lender shall be liable or responsible for the acts
or defaults of any other Lender.
2.3 Closing Date; Procedure for Participation.
(a) Notice of Closing Date. On the third Business Day preceding the
Closing Date, the Lessee shall give each Participant, the Owner Trustee and the
Indenture Trustee notice (a "Notice of Delivery") by facsimile or other form of
telecommunication or telephone (to be promptly confirmed in writing) of the
Closing Date, which Notice of Delivery shall specify in reasonable detail the
number and type of Units to be delivered on such date, the aggregate Equipment
Cost of such Units, and the respective amounts of the Owner Participants'
Commitment and the Lenders' Commitment required to be paid with respect to such
Units, provided if such Units do not constitute all of the Units of Equipment as
described in Schedule 1, there shall be no subsequent or additional closing
without the consent of all the parties hereto. Prior to 10:00 A.M., New York
City time, on the Closing Date, each Owner Participant shall make the amount of
its portion of the Owner Participants' Commitment available to the Indenture
Trustee, and immediately prior to the delivery and acceptance of the Units
specified in Section 2.3(b) each Lender, shall make the amount of its portion of
the Lenders' Commitment available to the Indenture Trustee, in each case, by
transferring or delivering such amounts, in funds immediately available on the
Closing Date, to the Indenture Trustee, either directly to, or for deposit in,
the Indenture Trustee's account at First Union National Bank, 230 South Tryon
Street, 9th Floor, Charlotte, North Carolina, 28288-1179 (ABA No. 053000219),
for credit to account number 465946 (Attention: Corporate Trust Department)
(Reference: Birmingham Steel). The making available by an Owner Participant of
the amount of its portion of the Owner Participants' Commitment shall be deemed
a waiver of the Notice of Delivery by such Owner Participant, and the making
available by all Owner Participants of the aggregate amount of the Owner
Participants' Commitment shall be deemed a waiver of the Notice of Delivery by
the Owner Trustee. The making available by a Lender of the amount of its portion
of the Lenders' Commitment shall be deemed a waiver of the Notice of Delivery by
such Lender, and the making available by all Lenders of the aggregate amount of
the Lenders' Commitment shall be deemed a waiver of the Notice of Delivery by
the Indenture Trustee.
(b) Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place beginning at 10:00 A.M., New York City time, on the
Closing Date at the offices of Moore & Van Allen, PLLC, 100 N. Tryon Street,
Floor 47, Charlotte, North Carolina 28202-4007 or at such other place or time as
the parties hereto shall agree. Upon receipt by the Indenture Trustee on the
Closing Date of the full amount of the Owner Participants' Commitment and the
Lenders' Commitment in respect of the Units delivered on the Closing Date, the
Indenture Trustee on behalf of the Owner Trustee shall, subject to the
conditions set forth in Sections 4.1 and 4.2 having been fulfilled to the
satisfaction of each Owner Participant or waived by each Owner Participant, and
subject to the conditions set forth in Section 4.1 having been fulfilled to the
satisfaction of each Lender or waived by each Lender, pay to the Seller from the
funds then held by the Indenture Trustee, by wire transfer of in immediately
available funds to such account as the Seller may direct by written notice
delivered to the Indenture Trustee before the Closing Date, an amount equal to
the Equipment Cost for the Units delivered on the Closing Date, and
simultaneously therewith, (i) the Lessee, individually and as the authorized
representative of the Owner Trustee (the making available by each Owner
Participant of the portion of its commitment to be paid on such Closing Date
shall constitute an agreement to permit the Lessee to act as the authorized
representative of the Owner Trustee), shall confirm acceptance of such Units of
Equipment from the Seller or any manufacturer or other vendors of the Equipment
for all purposes as among the Owner Trustee, on behalf of the Owner Participants
as co-tenants, the Lessee and the Seller (except that there shall not be any
waiver of claims by any Person as against the Seller as a result thereof), such
confirmation to be conclusively evidenced by the execution and delivery by the
Lessee or its authorized representative of a Certificate of Acceptance in the
form attached hereto as Exhibit B (a "Certificate of Acceptance"), (ii) the
Seller shall deliver to the Owner Trustee, on behalf of the Owner Participants
as co-tenants, the Bill of Sale evidencing the purchase and the transfer of the
right, title and interest of the Seller in the Units of Equipment, (iii) the
Owner Trustee shall, pursuant to the Head Lease, sell to the Head Lessor the
Equipment delivered on the Closing Date in exchange for a secured note equal to
the Equipment Cost and immediately lease back, on behalf of the Owner
Participants as co-tenants, such Equipment from the Head Lessor, (iv) the Owner
Trustee, on behalf of the Owner Participants as co-tenants, shall, pursuant to
the Lease, sublease the Equipment delivered on the Closing Date to the Lessee,
and the Lessee, pursuant to the Lease, shall accept delivery of the Units under
the Lease (such sublease, delivery and acceptance of the Units under the Lease
being conclusively evidenced by the execution and delivery by the Lessee and
Owner Trustee of a Lease Supplement to the Lease concerning such Units of
Equipment so delivered), and (v) the Owner Trustee shall execute and deliver the
Equipment Notes to the Lenders.
2.4 Owner Participants' Instructions to the Owner Trustee;
Satisfaction of Conditions.
(a) Each Owner Participant agrees that the making available to the
Indenture Trustee of the amount of its portion of the Owner Participants'
Commitment for its interest as a co-tenant in the Trust in accordance with the
terms of this Section 2 shall constitute, without further act, authorization and
direction by such Owner Participant to the Owner Trustee, subject, on the
Closing Date, to the conditions set forth in Sections 4.1 and 4.2 having been
fulfilled to the satisfaction of such Owner Participant or waived by such Owner
Participant, to take the actions specified in Section 2.1 of the Trust Agreement
with respect to the Units on the Closing Date.
(b) Each Owner Participant agrees, in the case of any Replacement Unit
substituted pursuant to Section 11 of the Lease, that the Owner Trustee is
authorized and directed to take the actions specified in such Section 11 of the
Lease with respect to such Replacement Unit upon due compliance with the terms
and conditions set forth in Section 11 of the Lease with respect to such
Replacement Unit.
2.5 Expenses.
(a) If each Owner Participant shall have made its investment provided
for in Section 2.2(a) and the transactions contemplated by this Agreement are
consummated, each Owner Participant will promptly pay its share of the following
(the "Transaction Costs") if evidenced by an invoice in form reasonably
satisfactory to the Owner Participant required to make such payment and
delivered to such Owner Participant prior to the Basic Term Commencement Date.
Each Owner Participant's share of such Transaction Costs shall be determined by
the agreement of the Owner Participants; provided the Owner Participants jointly
agree to cause all such Transaction Costs to be paid.
(i) All costs and fees in connection with the initial filing
and recording of the Head Lease, the Lease, the Indenture and any other
document required to be filed or recorded pursuant to the provisions
hereof or of any other Operative Agreement;
(ii) the reasonable fees and expenses of Moore & Van Allen,
PLLC, special counsel for the Owner Participants, and Berkowitz,
Lefkovits, Isom & Kushner, special counsel to AmSouth, for their
services rendered in connection with the Overall Transaction;
(iii) the reasonable fees and expenses of Hebb & Gitlin,
special counsel for the Lenders, for their services rendered in
connection with the Overall Transaction;
(iv) the reasonable fees and expenses of Hunton & Williams,
special counsel for the Indenture Trustee, for their services rendered
in connection with the Overall Transaction;
(v) the reasonable fees and expenses of Wyatt, Tarrant &
Combs, special counsel for the Owner Trustee, for their services
rendered in connection with the Overall Transaction;
(vi) the reasonable fees and expenses of Balch & Bingham LLP,
special counsel to the Lessee, for their services rendered in
connection with the Overall Transaction;
(vii) the initial fees and expenses of the Owner Trustee
incurred in connection with the closing of the Overall Transaction;
(viii) the initial fees and expenses of the Indenture Trustee
incurred in connection with the closing of the Overall Transaction;
(ix) the reasonable fees and expenses of American Appraisal
Associates, for their services rendered in connection with delivering
the Appraisal required by Section 4.2(a); and
(x) the fees, commissions and expenses of NationsBanc Leasing
Corporation.
Notwithstanding the foregoing, Transaction Costs shall not include internal
costs and expenses such as salaries and overhead of whatsoever kind or nature
nor costs incurred by parties to this Participation Agreement pursuant to
arrangements with third parties for services (other than those expressly
referred to above), such as computer time procurement, financial analysis and
consulting, advisory services, and costs of a similar nature.
(b) Upon the consummation of the transactions contemplated by this
Agreement, the Lessee agrees to pay as a direct obligation and not as
Supplemental Rent, to the extent such fees and expenses do not constitute
Transaction Costs as specified in Section 2.5(a), when due: (i) the reasonable
expenses (including without limitation legal fees and expenses) of the Owner
Trustee, the Indenture Trustee and the Participants incurred subsequent to the
delivery of the Equipment on the Closing Date, in connection with any
supplements, amendments, modifications, alterations, waivers or consents under
or in respect of any of the Operative Agreements which are (A) requested by, or
necessitated by action on the part of, the Lessee or entered into in connection
with, or as a result of, a Lease Default or a Lease Event of Default or (B)
required or contemplated by any Operative Agreement (whether or not such
supplement, amendment, modification, alteration, waiver or consent becomes
effective), including, without limitation: (a) the costs and expenses incurred
in enforcing or defending any rights under this Agreement or any other Operative
Agreement, and (b) the costs and expenses, including financial advisors' fees,
incurred in connection with the insolvency or bankruptcy of the Lessee or in
connection with any work-out or restructuring of the Overall Transaction; (ii)
the ongoing fees and expenses (including without limitation legal fees and
expenses) of the Owner Trustee under the Operative Agreements, including fees
and expenses incurred in connection with enforcing the obligations of the Lessee
under the Operative Agreements; (iii) the ongoing fees and expenses (including
without limitation legal fees and expenses) of the Indenture Trustee under the
Operative Agreements, including fees and expenses incurred in connection with
enforcing the obligations of the Lessee under the Operative Agreements; (iv) the
reasonable fees and expenses of any separate trustee or co-trustee appointed
pursuant to the Trust Agreement or the Indenture as a result of any requirement
of Law or if otherwise required by any Operative Agreement or if requested or
consented to by the Lessee; (v) the reasonable fees and expenses of Baker,
Donelson, Bearman & Caldwell, special counsel for the Lessee for their services
rendered in connection with the Overall Transaction; and (vi) all recording and
filing fees, stamp taxes and other recording or filing taxes in connection with
the recordation or filing of any such supplements, amendments, modifications or
alterations and in connection with any continuation statements or other
documents filed to maintain and protect the rights of the parties under the
Operative Agreements. The fees and expenses required to be paid by the Lessee
pursuant to this Section 2.5(b) shall be set forth in an invoice or other
statement therefor, accompanied by reasonable supporting data.
(c) Subject to the next sentence, if the transactions contemplated
hereby are not consummated for any reason, the Lessee shall pay all Transaction
Costs. Notwithstanding anything contained herein to the contrary, if the
transactions contemplated hereby are not consummated solely as a result of (A)
an Owner Participant's default in its obligations to consummate the transactions
hereunder or (B) an Owner Participant's failure to make its equity investment as
required by Section 2.2(a) after the conditions specified in Sections 4.1 and
4.2 have been satisfied or waived by it in writing (other than conditions the
satisfaction of which are solely in the control of such Owner Participant), such
Owner Participant shall pay its own fees and expenses and the fees and expenses
of the Owner Participants' legal counsel set forth in Section 2.5(a)(ii) (in the
proportion that its portion of the Owner Participants' Commitment bears to the
aggregate Owner Participants' Commitment).
2.6 Postponement of Closing Date.
(a) The scheduled Closing Date specified in the Notice of Delivery (or
subsequently specified in a notice of postponement pursuant to this Section 2.6)
may be postponed for any reason (but to no later than December 31, 1997) if the
Lessee gives each Owner Participant, the Indenture Trustee, each Lender and the
Owner Trustee facsimile or telephonic (confirmed in writing) notice of the
postponement and notice of the date to which such Closing Date has been
postponed, the notice of postponement to be received by each party no later than
3:30 P.M., New York City time, on the scheduled Closing Date specified in the
Notice of Delivery (or subsequently specified in a notice of postponement
pursuant to this Section 2.6), and the term "Closing Date" as used in this
Agreement shall mean the postponed "Closing Date".
(b) In the event of any postponement of a scheduled Closing Date
pursuant to this Section 2.6 (any such scheduled Closing Date being referred to
as a "Scheduled Closing Date" for the purposes of this Section 2.6): (i) the
Lessee will reimburse each Owner Participant and each Lender for the loss of the
use of their funds deposited with the Indenture Trustee pursuant to Section
2.3(a) with respect to each such Unit occasioned by such postponement or failure
to accept (unless, in the case of an Owner Participant's funds, such failure to
accept is caused by a default by such Owner Participant hereunder or by the
Owner Trustee (acting pursuant to instructions from such Owner Participant)
under the Trust Agreement, the Lease or the Indenture) by paying to each Owner
Participant and each Lender on demand interest at the Prime Rate, for the period
from and including such Scheduled Closing Date to but excluding the earlier of
the date upon which such funds are returned (unless such funds are returned
after 12:00 Noon, New York City time, in which case such date of return shall be
included) or the actual date of delivery, and (ii) the Indenture Trustee will
return not later than 10:00 A.M. New York City time, on the first Business Day
following such Scheduled Closing Date, any funds which it shall have received
from any Owner Participant and any Lender as its commitment for such Units,
absent instructions from Lessee, the Owner Participants and each Lender to
retain such funds until the specified date of postponement established under
Section 2.6(a).
(c) The Indenture Trustee agrees that, in the event it has received
telephonic notice (to be confirmed promptly in writing) from the Lessee on a
Scheduled Closing Date that such Scheduled Closing Date is to be postponed, it
will if instructed in the aforementioned notice from the Lessee (which notice
shall specify the securities to be purchased) use reasonable best efforts to
invest, at the risk of the Lessee (except as provided below with respect to the
Indenture Trustee's gross negligence or willful misconduct), the funds received
by it from the Participants with respect to their commitments in Permitted
Investments in accordance with Lessee's instructions. Any such Permitted
Investments purchased by the Indenture Trustee upon instructions from the Lessee
shall be held in trust by the Indenture Trustee (but not as part of the
Indenture Estate under the Indenture) for the benefit of the Participants,
respectively, whose funds are invested in Permitted Investments upon
instructions from the Lessee and any net profits on the investment of such funds
(including interest), if any, shall (after giving effect to the payment of
interest on such funds required under subsection (b)) be for the account of and
shall on the Closing Date, or on the date such funds are returned to the
Participants, be paid over to, the Lessee. The Lessee shall pay to the Indenture
Trustee on the Closing Date (if such Unit or Units are delivered and accepted
pursuant hereto) the amount of any net loss on the investment of such funds
invested at the instruction of the Lessee. If the funds furnished by the
Participants with respect to such Unit or Units are required to be returned to
the Participants, the Lessee shall, on the date on which such funds are so
required to be returned, reimburse the Indenture Trustee, for the benefit of the
Participants, for any net losses incurred on such investments regardless of the
cause of, or responsibility for, such loss. The Indenture Trustee shall not be
liable for failure to invest such funds or for any losses incurred on such
investments except for its own willful misconduct or gross negligence. In order
to obtain funds for the payment of Equipment Cost for such Unit or Units or to
return funds furnished by the Participants to the Indenture Trustee for the
benefit of the Participants with respect to such Unit or Units, the Indenture
Trustee is authorized to sell any Permitted Investments purchased as aforesaid
with the funds received by it from the Participants in connection with such Unit
or Units.
SECTION 3. REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Owner Trustee.
The Owner Trustee, both in its individual capacity and as Owner
Trustee, represents and warrants to each Participant, the Indenture Trustee and
the Lessee, notwithstanding the provisions of Section 10.11 or any similar
provision in any other Operative Agreement, that, as of the date hereof:
(a) the Owner Trustee, in its individual capacity, is a bank duly
organized and validly existing in good standing under the Laws of the
Commonwealth of Kentucky, has full power and authority to carry on its business
as now conducted and to enter into and perform its obligations hereunder and
under the Trust Agreement and (assuming due authorization, execution and
delivery of the Trust Agreement by each Owner Participant) has full power and
authority, as Owner Trustee and/or, to the extent expressly provided herein or
therein, in its individual capacity, to enter into and perform its obligations
under each of the Owner Trustee Agreements;
(b) the Owner Trustee, in its individual capacity, has duly authorized,
executed and delivered the Trust Agreement and (assuming the due authorization,
execution and delivery of the Trust Agreement by each Owner Participant) the
Owner Trustee in its trust capacity and, to the extent expressly provided
therein, in its individual capacity, has duly authorized, executed and delivered
each of the other Owner Trustee Agreements and, as of the Closing Date, the
Equipment Notes, the Lease Supplement and the Indenture Supplement to be
delivered on the Closing Date; and the Trust Agreement constitutes a legal,
valid and binding obligation of the Owner Trustee, in its individual capacity,
enforceable against it in its individual capacity in accordance with its terms
except as the same may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar Laws affecting the rights of creditors generally and by
general principles of equity;
(c) assuming the due authorization, execution and delivery of each of
the Owner Trustee Agreements by each of the other parties thereto, each of the
Owner Trustee Agreements to which it is a party constitutes, or when entered
into will constitute, a legal, valid and binding obligation of the Owner Trustee
in its trust capacity and, to the extent provided therein, in its individual
capacity, enforceable against it in its trust capacity and, to the extent
provided therein, in its individual capacity, in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar Laws affecting the rights of
creditors generally and by general principles of equity;
(d) neither the execution and delivery by the Owner Trustee, in its
individual capacity or as Owner Trustee, as the case may be, of the Owner
Trustee Agreements to be delivered on the Closing Date, nor the consummation by
the Owner Trustee, in its individual capacity or as Owner Trustee, as the case
may be, of any of the transactions contemplated hereby or thereby, nor the
compliance by the Owner Trustee, in its individual capacity, or as Owner
Trustee, as the case may be, with any of the terms and provisions hereof and
thereof, (i) requires or will require any approval of its stockholders, or
approval or consent of any trustees or holders of any indebtedness or
obligations of it in its individual capacity, or (ii) violates or will violate
its articles of incorporation or by-laws, or (iii) contravenes or will
contravene any provision of, or constitutes or will constitute a default under,
or results or will result in any breach of, any indenture, mortgage, chattel
mortgage, deed of trust, conditional sale contract, bank loan or credit
agreement, license or other agreement or instrument to which the Owner Trustee
in its individual capacity is a party or by which it is bound, or (iv)
contravenes or will contravene any Law of the Commonwealth of Kentucky or of the
United States of America governing the banking or trust powers of the Owner
Trustee (in its individual capacity), or any judgment or order applicable to or
binding on it;
(e) there are no Taxes payable by the Owner Trustee, either in its
individual capacity or as Owner Trustee, imposed by the Commonwealth of Kentucky
or any political subdivision thereof in connection with the execution and
delivery by the Owner Trustee in its individual capacity of the Trust Agreement,
and, in its individual capacity or as Owner Trustee, as the case may be, of this
Agreement, the other Owner Trustee Agreements to be delivered on the Closing
Date solely because the Owner Trustee in its individual capacity is a
corporation with its principal place of business in Louisville, Kentucky and
performs certain of its duties as Owner Trustee in the Commonwealth of Kentucky;
and there are no Taxes payable by the Owner Trustee, in its individual capacity
or as Owner Trustee, as the case may be, imposed by the Commonwealth of Kentucky
or any political subdivision thereof in connection with the acquisition of its
interest in the Equipment (other than franchise or other Taxes based on or
measured by any fees or compensation received by the Owner Trustee for services
rendered in connection with the transactions contemplated hereby) solely because
the Owner Trustee in its individual capacity is a corporation with its principal
place of business in Louisville, Kentucky and performs certain of its duties as
Owner Trustee in the Commonwealth of Kentucky;
(f) there are no pending or, to its knowledge, threatened actions or
proceedings against the Owner Trustee, either in its individual capacity or as
Owner Trustee, before any Tribunal which individually or in the aggregate, if
determined adversely to it, would materially adversely affect the ability of the
Owner Trustee, in its individual capacity or as Owner Trustee, as the case may
be, to perform its obligations under the Trust Agreement or the other Owner
Trustee Agreements to be delivered on the Closing Date;
(g) both its chief executive office, and the place where its records
concerning the Equipment and all its interest in, to and under all documents
relating to the Trust Estate, are located in Louisville, Kentucky, and the Owner
Trustee, in its individual capacity, agrees to give each Owner Participant, the
Indenture Trustee and the Lessee at least 30 days prior written notice of any
relocation of said chief executive office or said place from its present
location;
(h) no consent, approval, order or authorization of, giving of notice
to, or registration with, or taking of any other action in respect of, any
Kentucky or local governmental authority or agency or any United States federal
governmental authority or agency regulating the banking or trust powers of the
Owner Trustee, in its individual capacity, is required for the execution and
delivery of, or the carrying out by, the Owner Trustee in its individual
capacity or as Owner Trustee, as the case may be, of any of the transactions
contemplated hereby or by the Trust Agreement or of any of the transactions
contemplated by any of the other Owner Trustee Agreements, other than any such
consent, approval, order, authorization, registration, notice or action as has
been duly obtained, given or taken;
(i) on the Closing Date, the Owner Trustee's right, title and interest
in and to the Equipment delivered on the Closing Date shall be free of any
Lessor's Liens attributable to the Owner Trustee in its individual capacity and
will be held by the Owner Trustee under the Trust Agreement for the benefit of
the Owner Participants as co-tenants;
(j) the proceeds received by the Owner Trustee from each Owner
Participant pursuant to the Trust Agreement will be administered by it in
accordance with Section 4 of the Trust Agreement; and
(k) the Owner Trustee shall receive from the Seller such title to the
Units as is conveyed to it by the Seller, subject to the rights of (i) the Head
Lessor and the Owner Trustee under the Head Lease, (ii) the Owner Trustee under
the Security Agreement, (iii) Owner Trustee and the Lessee under the Lease, and
(iv) the security interest created pursuant to the Indenture and the Indenture
Supplement, in respect of the Units delivered on the Closing Date.
3.2 Representations and Warranties of the Lessee.
The Lessee represents and warrants to the Owner Trustee, the Indenture
Trustee and the Participants that, as of the date hereof:
(a) the Lessee is a corporation duly organized, validly
existing, and in good standing under the Laws of the State of Delaware,
has duly qualified and is authorized to do business in, and is in good
standing as a foreign corporation under the laws of the States of
Alabama and Tennessee, has the corporate power and authority to carry
on its business as now conducted, and has the requisite power and
authority to execute, deliver and perform its obligations under the
Lessee Agreements;
(b) the Lessee Agreements have been duly authorized by all
necessary corporate action (no shareholder approval being required),
executed and delivered by the Lessee, and constitute the legal, valid
and binding obligations of the Lessee, enforceable against the Lessee
in accordance with their respective terms except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or
similar Laws affecting the rights of creditors generally and by general
principles of equity;
(c) the execution, delivery and performance by the Lessee of
each Lessee Agreement and compliance by the Lessee with all of the
provisions thereof do not and will not contravene any Law, or any order
of any court or governmental authority or agency applicable to or
binding on the Lessee or any of its properties, or contravene the
provisions of, or constitute a default by the Lessee under, or result
in the creation of any Lien (except for Permitted Liens) upon the
property of the Lessee under, its certificate of incorporation or
by-laws or any indenture, mortgage, contract or other agreement or
instrument to which the Lessee is a party or by which the Lessee or any
of its property is bound or affected;
(d) there are no proceedings pending or, to the knowledge of
the Lessee, threatened against the Lessee in any court or before any
governmental authority or arbitration board or tribunal (i) which, if
determined adversely to it, could reasonably be expected to materially
adversely affect the business, consolidated financial position or
consolidated results of operations and cash flows of the Lessee or (ii)
which in any manner draws into question the validity of, or seeks to
restrain the transactions contemplated by the Lessee Agreements or
(iii) which could reasonably be expected to affect its ability to
perform its obligations under the Lessee Agreements;
(e) the consolidated balance sheet of the Lessee and its
consolidated subsidiaries as of June 30, 1997, and the related
consolidated statements of income, cash flow and changes in common
stockholders' equity for the fiscal year ended on such date reported on
by Ernst & Young, LLP and set forth in the Lessee's 1997 Form 10-K, as
filed with the Securities and Exchange Commission, fairly present, in
all material respects, in conformity with generally accepted accounting
principles, the consolidated financial position of the Lessee and its
consolidated subsidiaries as of such date and the results of operations
of and cash flows for the Lessee and its consolidated subsidiaries for
such period. Since June 30, 1997, there has been no material adverse
change in the financial position or results of operations of the Lessee
and its consolidated subsidiaries taken as a whole;
(f) no consent, approval or authorization of, or filing,
registration or qualification with, or the giving of notice to, any
governmental authority or other Person (including, without limitation,
any holder of indebtedness or obligations of the Lessee) is required on
the part of the Lessee in connection with the execution, delivery and
performance by the Lessee of the Lessee Agreements;
(g) all filings and other actions necessary or reasonably
required to (i) establish and perfect the right, title and interest of
the Owner Trustee under (x) the Lease in and to the Equipment and the
remainder of the Trust Estate and (y) the Security Agreement in and to
the Equipment and the Head Lease, and (ii) perfect the security
interest of the Indenture Trustee under the Indenture in the Indenture
Estate, will have been made on or prior to the Closing Date, and the
Indenture will on the Closing Date create a valid and perfected Lien on
the Indenture Estate, free and clear of all Liens other than Lessor's
Liens and Permitted Liens;
(h) no Supplemental Agreement Event of Default, Lease Default
or Lease Event of Default has occurred and is continuing and to the
knowledge of Lessee (i) no Event of Loss has occurred and (ii) no Head
Lease Default or Head Lease Event of Default has occurred and is
continuing;
(i) the execution and delivery of this Agreement and the other
Operative Agreements and the consummation of the transactions
contemplated hereby and thereby will not involve any non-exempt
prohibited transaction within the meaning of Section 406(a) of ERISA or
Section 4975(c)(1)(A) through (D) of the Code or otherwise result or
will result in the Owner Participants or the Lenders being deemed in
violation of Sections 404 or 406 of ERISA or 4975 of the Code (such
representation being made in reliance on and subject to the accuracy of
the representations of the Owner Participants in Section 3.5(h) and the
Lenders in Section 3.6(c) of this Agreement);
(j) on the Closing Date, the Bill of Sale, to be delivered on
the Closing Date shall convey, to the Owner Trustee good and marketable
title to the Units being delivered on the Closing Date, free and clear
of all Liens except Liens described in clauses (a), (b) and (f) of the
definition of "Permitted Liens";
(k) on the Closing Date all sales, use or transfer Taxes due
and payable upon the purchase of the Equipment by the Lessor and the
Head Lessor and on the lease thereof to the Lessor and the Lessee will
have been paid or the Lessee shall be liable for the payment thereof;
(l) no broker's or finder's or placement fee or commission
will be payable with respect to the transactions contemplated by the
Operative Agreements as a result of any action by Lessee (other than
the fees and commissions specified in Section 2.5(a)(x)) and Lessee
agrees that it will hold each Participant, the Lessor and the Indenture
Trustee harmless from any claim, demand or liability for any other
broker's or finder's or placement fees or commission alleged to have
been incurred as a result of any action by Lessee in connection with
the Overall Transaction;
(m) the proceeds from the sale of the Equipment Notes will be
applied to the payment, or the reimbursement of the Lessee for the
payment, of the cost of the Units delivered on the Closing Date and
none of the proceeds from the issuance of the Equipment Notes or from
the acquisition by each Owner Participant of its beneficial interest in
the Trust Estate will be used directly or indirectly by Lessee so as to
result in a violation of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System;
(n) no governmental approval of any kind is required by the
Owner Participants, the Owner Trustee, the Lenders or the Indenture
Trustee in connection with its execution, delivery and performance of
this Agreement or any Operative Agreement, solely by reason of any fact
or circumstance peculiar to the Lessee or the Lessee's proposed
operations or use of the Units of Equipment, specifically excluding,
however, any consents or approvals required by any Law governing banks,
bank holding companies, insurance companies, subsidiaries thereof and
their operations;
(o) the Units of Equipment are available for use and are fully
equipped to operate in commercial service and comply with all material
governmental requirements governing the service in which such Units are
being, and are anticipated to be, used by Lessee; the Units have been
delivered directly by the Manufacturer to the Lessee as new Units and
have not been used or previously placed in service by any other Person,
and the Lessee is unaware of any structural defects in or damage to the
Units;
(p) the conveyance of the Units of Equipment effected by the
Bill of Sale are not void or voidable under any applicable state or
federal Law;
(q) the Lessee is in compliance with all applicable
Environmental Laws relating to the ownership, use, transport, storage,
condition, maintenance and operation of the Equipment unless the
failure to comply with such Environmental Laws would not materially
adversely affect the operations of the Lessee or rights or interests of
Lessor in or the Lien of the Indenture on the Equipment or otherwise
expose Lessor, the Indenture Trustee or the Participants to criminal
sanctions or material civil liabilities;
(r) there are no writs, injunctions, decrees, orders or
judgments outstanding against the Lessee relating to the ownership,
use, transport, storage, condition, maintenance or operation of the
Equipment or the real property where the Equipment shall be located
resulting from a violation of any applicable Environmental Law, and
there are no lawsuits, proceedings or investigations under any
applicable Environmental Law pending or, to the Lessee's knowledge,
threatened against Lessee relating to the ownership, use, maintenance
or operation of the Equipment or the real property where the Equipment
shall be located;
(s) the chief executive office (as such term is used in
Article 9 of the Uniform Commercial Code) of Lessee within the United
States is located in Birmingham, Alabama. Lessee agrees not to relocate
said office outside the United States and agrees to furnish to Owner
not less than thirty (30) days', prior written notice of any relocation
of said executive office within the United States. Lessee also agrees
to take such reasonable action as may be required in connection with
any such relocation to establish and protect the Owner Trustee's rights
in and to the Equipment and the rights and remedies created or intended
to be created in favor of the Owner Trustee;
(t) Neither the Offering Memorandum nor any other written
statement made by or on behalf of Lessee to any Participant in
connection with the negotiation of the transactions contemplated by
this Agreement, contains any untrue statement of material fact or omits
a material fact necessary to make the statements contained therein,
taken as a whole, in all material respects, not misleading. All
projections and forward-looking statements contained in the Offering
Memorandum are based upon assumptions that the Lessee believes to be
reasonable and were made in good faith, although no assurances can be
given that the results set forth in such projects or forward-looking
statements will be achieved or that actual results will not differ
materially from those described or implied in such projections or
forward-looking statements. Additional information concerning factors
that could cause actual results to differ materially from such
projections or forward-looking statements is contained in the
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of the Lessee's 1997 Form 10-K, and such
additional information is incorporated into this Section 3.2(t) by this
reference. There is no fact actually known to Lessee which is not
disclosed to each Participant in writing which could reasonably be
expected to have a material adverse effect on the business, profits,
properties or condition (financial or otherwise) of the Lessee or the
Lessee's ability to perform the Operative Agreements to which it is a
party;
(u) Lessee has provided the Owner Trustee and the Indenture
Trustee with a copy of all material documents and agreements (including
without limitation each Purchase Agreement, purchase order and the
like) entered into by the Lessee pertaining to or affecting the Units;
(v) to the best of Lessee's knowledge, the Lessee is not in
violation of any Law (including, without limitation, any Environmental
Law) to which it is subject, which violations, in the aggregate, could
reasonably be expected to have a material adverse effect on the
business, profits, properties or condition (financial or otherwise) of
the Lessee or its ability to perform its obligations under the Lessee
Agreements;
(w) the Lessee is not in violation in any respect of any term
in any agreement or other instrument to which it is a party or by which
it or any of its property may be bound, except for violations which, in
the aggregate could not reasonably be expected to have a material
adverse effect on the business, profits, properties or condition
(financial or otherwise) of the Lessee or its ability to perform its
obligations under the Lessee Agreements; and
(x) all material tax returns required to be filed by the
Lessee in any jurisdiction have in fact been filed on a timely basis,
and all Taxes upon the Lessee and upon any of its properties, income or
franchises, that are due and payable have been paid other than Taxes
which are being contested in good faith by appropriate actions or
proceedings and in respect of which the Lessee has set aside on its
books, in accordance with generally accepted accounting principles,
reserves deemed by it to be adequate with respect thereto.
3.3 Representations and Warranties of the Indenture Trustee.
The Indenture Trustee represents and warrants to the Participants, the
Owner Trustee and the Lessee that, as of the date hereof:
(a) the Indenture Trustee is a national banking association,
duly organized and validly existing and in good standing under the Laws
of the United States of America and has the full corporate power,
authority and legal right under the Laws of the United States of
America pertaining to its banking, trust and fiduciary powers to
execute, deliver and carry out the terms of each of the Indenture
Trustee Agreements;
(b) the execution, delivery and performance by the Indenture
Trustee of each of the Indenture Trustee Agreements have been duly
authorized by the Indenture Trustee and will not violate its articles
of association or by-laws, or the provisions of any indenture,
mortgage, contract or other agreement to which it is a party or by
which it is bound or any Law of the State of North Carolina or of the
United States of America applicable to it, or any judgment or order
applicable to or binding on it;
(c) assuming the due authorization, execution and delivery of
each of the Indenture Trustee Agreements by each of the other parties
thereto, each of the Indenture Trustee Agreements, when executed and
delivered, will constitute its legal, valid and binding obligation
enforceable against it in accordance with its terms except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar Laws affecting the rights
of creditors generally and by general principles of equity;
(d) there are no proceedings pending or, to the knowledge of
the Indenture Trustee, threatened against or affecting the Indenture
Trustee in or before any court or before any governmental authority or
arbitration board or tribunal which, individually or in the aggregate,
if adversely determined, would reasonably be expected to impair the
ability of the Indenture Trustee to perform its obligations under the
Indenture Trustee Agreements;
(e) no authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
of the United States of America, the State of North Carolina, or the
State of Tennessee, governing the Indenture Trustee in its trust
capacity, is required for the due execution, delivery and performance
by the Indenture Trustee of the Indenture Trustee Agreements, except as
have been previously obtained, given or taken;
(f) the Indenture Trustee is not in default under any of the
Indenture Trustee Agreements;
(g) neither the Indenture Trustee, nor any Person authorized
to act on behalf of the Indenture Trustee, has directly or indirectly
offered any interest in the Trust Estate or the Equipment Notes or any
security similar to either thereof for sale to, or solicited offers to
buy any of the same from, or otherwise approached or negotiated with
respect to any of the same with, any Person; and
(h) there are no Taxes which may be imposed on or asserted
against the Indenture Estate or any part thereof or any interest
therein, the Owner Trustee, both in its individual capacity and as
Owner Trustee, or the Owner Participants by any state or local
government or taxing authority (except Taxes imposed on the fees
payable to the Indenture Trustee) required to be paid under the Laws of
the State of North Carolina or the State of Tennessee in connection
with the execution, delivery or performance by the Indenture Trustee of
the Indenture Trustee Agreements or the authentication of the Equipment
Notes, which Taxes result solely from the participation therein by a
national banking association located in the State of North Carolina or
the State of Tennessee as Indenture Trustee.
3.4 Representations, Warranties and Covenants Regarding Beneficial
Interest and Equipment Notes.
(a) The Owner Trustee represents and warrants to the Lessee,
the Indenture Trustee and the Participants that, as of the date hereof
and as of the Closing Date, neither the Owner Trustee nor any Person
authorized or employed by the Owner Trustee as agent or otherwise in
connection with the placement of the Beneficial Interest or any similar
interest or the Equipment Notes has offered any of the Beneficial
Interest or any similar interest or the Equipment Notes for sale to, or
solicited offers to buy any thereof from, or otherwise approached or
negotiated with respect thereto with, any prospective purchaser.
(b) The Lessee represents and warrants to the Trustees and the
Participants that, as of the date hereof and as of the Closing Date,
neither the Lessee nor any Person authorized or employed by the Lessee
as agent or otherwise in connection with the placement of the
Beneficial Interest or any similar interest or the Equipment Notes has
offered any of the Beneficial Interest or similar interest or the
Equipment Notes for sale to, or solicited offers to buy any thereof
from, or otherwise approached or negotiated with respect thereto with,
any Person other than the Owner Participants, the Lenders and not more
than 40 other institutional investors.
(c) Each of the Owner Trustee, each Owner Participant and the
Lessee agree severally but not jointly and with respect to itself only
that neither the Owner Trustee, such Owner Participant nor the Lessee
nor anyone acting on behalf of the Owner Trustee, such Owner
Participant or the Lessee will offer the Beneficial Interest, or any
part thereof or any similar interest, or the Equipment Notes, or any
part thereof, for issue or sale to any prospective purchaser, or
solicit any offer to acquire any of the Beneficial Interest, or any
part thereof, or the Equipment Notes, or any part thereof, so as to
bring the issuance and sale of the Beneficial Interest or the Equipment
Notes within the provisions of Section 5 of the Securities Act of 1933,
as amended.
3.5 Representations, Warranties and Covenants of the Owner
Participants.
Each Owner Participant represents and warrants severally but not
jointly to the Trustees, the Lessee, the other Owner Participant and the Lenders
that, as of the date hereof:
(a) it is an entity duly organized, validly existing and in
good standing under the Laws of the state or country of its formation,
as the case may be, and has the power and authority to carry on its
business as now conducted;
(b) it has the power and authority to enter into the Owner
Participant Agreements and to perform its obligations thereunder, and
such execution, delivery and performance do not and will not contravene
any Law or any order of any court or governmental authority or agency
applicable to or binding on it, or contravene the provisions of, or
constitute a default under, or result in the creation of any Lessor's
Lien attributable to it upon the Equipment under, its organization
document or by-laws or any indenture, mortgage, contract or other
agreement or instrument to which the it is a party or by which it or
any of its property is bound;
(c) the Owner Participant Agreements have been duly authorized
by all necessary action on its part, do not require any approval not
already obtained of its stockholders or partners, as the case may be,
or any approval or consent not already obtained of any trustee or
holders of indebtedness or obligations of it, have been duly executed
and delivered by it and (assuming the due authorization, execution and
delivery by each other party thereto) constitute the legal, valid and
binding obligations of it, enforceable against it in accordance with
their respective terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar Laws affecting the
rights of creditors generally and by general principles of equity;
(d) no authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery or performance by it of the
Owner Participant Agreements;
(e) the Trust Estate is free of any Lessor's Liens
attributable to it;
(f) there are no pending or, to its knowledge, threatened
actions or proceedings against it before any court or administrative
agency which would materially adversely affect its financial condition
or its ability to perform its obligations under the Owner Participant
Agreements;
(g) as of the Closing Date it is purchasing the Beneficial
Interest to be acquired by it as a co-tenant with the other Owner
Participant for its account with no present intention of distributing
such Beneficial Interest or any part thereof in any manner which would
violate the Securities Act of 1933, as amended, but without prejudice,
however, to its right at all times to sell or otherwise dispose of all
or any part of such Beneficial Interest in compliance with the
Securities Act of 1933, as amended; provided, however, that subject to
the provisions of Section 6.1, the disposition of the Beneficial
Interest shall at all times be within its control. Each Owner
Participant acknowledges that its Beneficial Interest has not been
registered under the Securities Act of 1933, as amended, and that
neither the Owner Trustee nor the Lessee contemplates filing, or is
legally required to file, any such registration;
(h) with respect to the source of an amount to be advanced by
it pursuant to Section 2.1, no part of such amount constitutes or could
be deemed to constitute the assets of any employee benefit plan under
29 CFR ss. 2510.3-101 (other than a government plan exempt from the
coverage of ERISA); and
(i) no broker's or finder's or placement fee or commission
will be payable with respect to the transactions contemplated by the
Operative Agreements as a result of any action by it, and agrees that
it will hold Lessee, the Indenture Trustee and Lessor harmless from any
claim, demand or liability for broker's or finder's or placement fees
or commission alleged to have been incurred as a result of any action
by it in connection with this transaction.
3.6 Representations, Warranties and Covenants of the Lenders.
Each Lender severally but not jointly, represents and warrants to each
Owner Participant, each of the Trustees, the other Lenders and the Lessee, that,
as of the date hereof:
(a) as of the Closing Date it is purchasing the Equipment
Notes to be acquired by it for its account with no present intention
for distribution or resale of such Equipment Note or any part thereof
in any manner which would violate the Securities Act of 1933, as
amended; provided that subject to the provisions of Section 3.6(b) the
disposition of its property shall at all times be and remain in its
control;
(b) each Lender acknowledges that the Equipment Notes have not
been registered under the Securities Act of 1933, as amended, and that
neither the Owner Trustee nor the Lessee contemplates filing, or is
legally required to file, any such registration. Each holder of an
Equipment Note agrees that it will not transfer its interest in any
Equipment Note (i) in violation of the Securities Act of 1933, as
amended and the rules and regulations promulgated thereunder or (ii) to
a non-U.S. Person (as defined in Section 7701(a)(30) of the Code)
except in accordance with the provisions of Section 7.1(d) hereof. Each
Lender acknowledges that the Equipment Notes may only be sold to a
Person who in connection with such purchase makes the representations
contained in this Section 3.6(b) and Section 3.6(c) in writing, to each
of the Lessee, Indenture Trustee, Owner Trustee and each Owner
Participant on the date of such purchase. Each transferee of any
Equipment Note agrees that it shall be deemed to have agreed to be
bound by the terms of this Participation Agreement; and
(c) At least one of the following statements is an accurate
representation as to each source of funds (a "Source") to be used by it
to pay the purchase price of the Equipment Notes to be purchased by it
hereunder:
(i) If Lender is an insurance company, either (x) the
Source is a separate account that is maintained solely in
connection with such Lender's fixed contractual obligations
under which the amounts payable, or credited, to any employee
benefit plan and to any participant or beneficiary of such
plan (including any annuitant) are not affected in any manner
by the investment performance of the separate account, or (y)
the Source is an "insurance company general account" within
the meaning of Department of Labor Prohibited Transaction
Exemption ("PTE") 95-60, and the amount of reserves and
liabilities for the contract(s) held by or on behalf of each
employee benefit plan which has an interest in such Lender's
general account as a contract holder, together with the amount
of reserves and liabilities for the general account contracts
held by or on behalf of any other such plan maintained by the
same employer (or an affiliate thereof) or by the same
employee organization, does not exceed 10% of the total
reserves and liabilities of such Lender's general account plus
surplus as determined pursuant to the provisions of Section
I(a) of PTE 95-60; or
(ii) the Source is either (x) an insurance company
pooled separate account, within the meaning of PTE 90-1, or
(y) a bank collective investment fund, within the meaning of
the PTE 91-38 and, except as such Lender has disclosed to the
Lessee, the Owner Trustee and the Owner Participants in
writing pursuant to this paragraph (ii), no employee benefit
plan or group of plans maintained by the same employer or
employee organization beneficially owns more than 10% of all
assets allocated to such pooled separate account or collective
investment fund; or
(iii) the Source constitutes assets of an "investment
fund" (within the meaning of Part V of PTE 84-14 (the "QPAM
Exemption")) managed by a "qualified professional asset
manager" or "QPAM" (within the meaning of Part V of the QPAM
Exemption), no employee benefit plan's assets that are
included in such investment fund, when combined with the
assets of all other employee benefit plans established or
maintained by the same employer or by an affiliate (within the
meaning of Section V(c)(1) of the QPAM Exemption) of such
employer or by the same employee organization and managed by
such QPAM, exceed 20% of total client assets managed by such
QPAM, the conditions of Part I(c) and (g) of the QPAM
Exemption are satisfied, neither the QPAM nor a Person
controlling or controlled by the QPAM (applying the definition
of "control" in Section V(e) of the QPAM Exemption) owns a 5%
or more interest in the Lessee, the Owner Trustee or the Owner
Participants and (x) the identity of such QPAM and (y) the
names of all employee benefit plans whose assets are included
in such investment fund have been disclosed to the Lessee, the
Owner Trustee or the Owner Participants in writing pursuant to
this paragraph (iii); or
(iv) the Source is one or more employee benefit
plans, or a separate account or trust fund comprised of one or
more employee benefit plans, each of which has been identified
to the Lessee, the Owner Trustee and the Owner Participants in
writing pursuant to this paragraph (iv).
As used in this Section 3.6, the terms "employee benefit plan", "government
plan" and "separate account" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.
SECTION 4. CLOSING CONDITIONS
4.1 Conditions Precedent to Investment by Each Participant.
The obligation of each Participant to make its investment or loan, as
applicable, specified with respect to such Participant in Section 2 on the
Closing Date shall be subject to the following conditions (except that (i) the
obligation of any such party shall not be subject to such party's own
performance or compliance and (ii) the conditions specified below as being only
for the benefit of a specified party or parties need be fulfilled only to the
satisfaction of, or waived by, such other party or parties):
(a) Execution of Operative Agreements. On or before the
Closing Date, this Agreement, the Trust Agreement, the Lease, the Lease
Supplement covering the Units delivered on the Closing Date, the
Purchase Agreements, the Purchase Agreement Assignments, the Indenture,
the Indenture Supplement, the Tax Indemnity Agreement, the Landlord
Waiver and Consent, the Mortgagee Waiver and Consent, the Certificate
of Acceptance, the Bill of Sale, the Owner Trustee Bill of Sale, the
Equipment Notes and the Head Lease Documents shall each be satisfactory
in form and substance to such Participant, shall have been duly
authorized, executed and delivered by the parties thereto (except that
the authorization, execution and delivery of this Agreement and the
other documents referred to above by a party hereto or thereto shall
not be a condition precedent to such party's obligations hereunder),
shall each be in full force and effect and executed counterparts of
each shall have been delivered to such Participant or its counsel on or
before the Closing Date; and no event shall have occurred and be
continuing that constitutes a Supplemental Agreement Event of Default,
a Head Lease Default, a Head Lease Event of Default, a Lease Default, a
Lease Event of Default, an Indenture Default or an Indenture Event of
Default.
(b) Recordation, Filing, Registration and Certification. On or
before the Closing Date (i) the Lessee shall have caused the Lease, the
Lease Supplement covering the Units of Equipment delivered on the
Closing Date, the Indenture and the Indenture Supplement in respect of
the Units delivered on the Closing Date or appropriate other evidence,
to be duly filed, recorded and deposited in such places within the
United States as the Owner Trustee, the Indenture Trustee and any
Participant may reasonably request for the protection of the Owner
Trustee's title to the Equipment and interest in the Lease, or the
perfection of a security interest of the Indenture Trustee in the
Indenture Estate and (ii) Uniform Commercial Code financing statements
and fixture filings appropriately completed and executed shall have
been filed in such places within the United States as the Owner
Trustee, the Indenture Trustee and any Participant may reasonably
request for the protection of the Owner Trustee's title to the
Equipment and interest in the Lease, or the perfection of a security
interest of the Indenture Trustee in the Indenture Estate.
(c) Closing Certificate of Lessee. On the Closing Date, the
Owner Trustee, the Indenture Trustee, and each Participant shall have
received an Officer's Certificate dated such date from the Lessee, to
the effect that the representations and warranties of the Lessee
contained in Section 3.2 and Section 3.4(b) are true and correct in all
respects on the Closing Date with the same effect as though made on and
as of said date, except to the extent that such representations and
warranties relate solely to an earlier date (in which case such
representations and warranties were true and correct on and as of such
earlier date), and that the Lessee has performed and complied with all
agreements and conditions herein contained which are required to be
performed or complied with by the Lessee on or before said date.
(d) Closing Certificate of Owner Trustee. On the Closing Date,
the Lessee, the Indenture Trustee, and each Participant shall have
received an Officer's Certificate dated such date from the Owner
Trustee, to the effect that the representations and warranties of the
Owner Trustee contained in Section 3.1 and Section 3.4(a) are true and
correct in all respects on the Closing Date with the same effect as
though made on and as of said date, except to the extent that such
representations and warranties relate solely to an earlier date (in
which case such representations and warranties were true and correct on
and as of such earlier date), and that the Owner Trustee has performed
and complied with all agreements and conditions herein contained which
are required to be performed or complied with by the Owner Trustee on
or before said date.
(e) Opinions of Counsel. On the Closing Date, the Owner
Trustee, the Indenture Trustee and each Participant shall have received
the favorable written opinion of each of (i) the Lessee's special
counsel and counsel for the Lessee, (ii) counsel to the Owner Trustee,
(iii) counsel to each Owner Participant, (iv) counsel to the Indenture
Trustee and (v) counsel to the Head Lessor.
(f) Title. On the Closing Date, after giving effect to the
transactions contemplated hereby, the Owner Trustee shall have legal
ownership of each Unit of Equipment to be delivered on the Closing
Date, free and clear of all Liens, except Liens described in clauses
(a), (b) and (f) of the definition of "Permitted Liens".
(g) Bill of Sale. On the Closing Date the Owner Trustee shall
have received (with copies to the Indenture Trustee and each
Participant) the Bill of Sale from the Seller (and if the Seller is not
the Manufacturer, together with the bill of sale from the Manufacturer
to the Seller or such other evidence of title transfer to the Seller,
in form and substance satisfactory to the Participants) dated such date
covering the Units to be settled for on such date, transferring to the
Owner Trustee on behalf of the Owner Participants as co-tenants legal
and beneficial title to such Units free of all Liens arising from,
through or under the Seller, and warranting to the Owner Trustee that
at the time of delivery of each such Unit, the Seller had legal and
beneficial title thereto and good and lawful right to sell the same,
and title thereto was free of all Liens.
(h) Insurance Certificate. On or before the Closing Date, the
Indenture Trustee and each Participant shall have received a
certificate in form acceptable to each Participant in its reasonable
discretion signed by the insurer or by an independent insurance broker
evidencing insurance coverages required pursuant to Section 12 of the
Lease.
(i) Corporate Documents. Each of the Participants shall have
received such documents and evidence with respect to the Head Lessor,
the Lessee, each Owner Participant, the Owner Trustee and the Indenture
Trustee as the Participants may reasonably request in order to
establish the consummation of the transactions contemplated by this
Agreement, the taking of all corporate and other proceedings in
connection therewith and compliance with the conditions herein or
therein set forth.
(j) No Threatened Proceedings. No action or proceeding shall
have been instituted nor shall governmental action be threatened before
any court or governmental agency, nor shall any order, judgment or
decree have been issued or proposed to be issued by any court or
governmental agency at the time of the Closing Date, to set aside,
restrain, enjoin or prevent the completion and consummation of this
Agreement, any of the other Operative Agreements or the Overall
Transaction.
(k) Closing Certificate of Owner Participants. On the Closing
Date, the Lessee, the Indenture Trustee and the Participants shall have
received an Officer's Certificate dated such date from each Owner
Participant, to the effect that the representations and warranties of
such Owner Participant contained in Section 3.5 are true and correct in
all respects on the Closing Date with the same effect as though made on
and as of said date, except to the extent that such representations and
warranties relate solely to an earlier date (in which case such
representations and warranties were true and correct on and as of such
earlier date), and that such Owner Participant has performed and
complied with all agreements and conditions herein contained which are
required to be performed or complied with by such Owner Participant on
or before said date.
(l) Closing Notice. The Indenture Trustee and the Participants
shall have received the Notice of Delivery required pursuant to Section
2.3.
(m) Closing Certificate of Indenture Trustee. On the Closing
Date, the Lessee, the Owner Trustee and each Participant shall have
received an Officer's Certificate dated such date from the Indenture
Trustee, to the effect that the representations and warranties of the
Indenture Trustee contained in Section 3.3 are true and correct in all
respects on the Closing Date with the same effect as though made on and
as of said date, except to the extent that such representations and
warranties relate solely to an earlier date (in which case such
representations and warranties were true and correct on and as of such
earlier date), and that the Indenture Trustee has performed and
complied with all agreements and conditions herein contained which are
required to be performed or complied with by the Indenture Trustee on
or before said date.
(n) [Intentionally Omitted].
(o) No Illegality. No change shall have occurred after the
date of the execution and delivery of this Agreement in applicable Law
or regulations thereunder or interpretations thereof by regulatory
authorities that, in the opinion of such Participant or its counsel,
would make it illegal for such Participant to enter into any
transaction contemplated by the Operative Agreements.
(p) Participants, Investments. (i) Each Owner Participant
shall have made available its commitment in the amount specified in,
and otherwise in accordance with, Sections 2.2(a) and 2.3 and (ii) each
Lender shall have made available its commitment in the amount specified
in, and otherwise in accordance with, Sections 2.2(b) and 2.3.
(q) Consents. All approvals and consents of any trustees or
holders of any indebtedness or obligations of Lessee which are required
in connection with the transactions contemplated by this Agreement,
shall have been duly obtained and be in full force and effect.
(r) Governmental Actions. All actions, if any, required to
have been taken on or prior to the Closing Date in connection with the
transactions contemplated by this Agreement on the Closing Date shall
have been taken by any governmental or political agency, subdivision or
instrumentality of the United States or any state thereof and all
orders, permits, waivers, exemptions, authorizations and approvals of
such entities required to be in effect on the Closing Date in
connection with the transactions contemplated by this Agreement and the
other Operative Agreements on the Closing Date shall have been issued,
and all such orders, permits, waivers, exemptions, authorizations and
approvals shall be in full force and effect, on the Closing Date.
(s) Certificate of Acceptance. On or before the Closing Date a
Certificate of Acceptance with respect to the Units delivered by the
Seller to the Lessor on the Closing Date shall have been duly executed
and delivered by the Lessee, as the authorized representative of the
Lessor.
(t) Tax Indemnity Agreement. On or before the Closing Date,
the Tax Indemnity Agreement shall be satisfactory in form and substance
to each Owner Participant, shall have been duly executed and delivered
by the Lessee and, assuming due authorization, execution and delivery
by each Owner Participant, shall be in full force and effect.
(u) Environmental Disclosures and Assessments. Each
Participant shall have received, in sufficient time for its review
prior to the Closing Date, copies of any Phase I site assessment and
any other environmental site assessment, investigation, report,
analysis or disclosure statement or filing relating to the real or
personal property subject to any of the Operative Agreements and
prepared, directly or indirectly, by or for any party in connection
with the Overall Transaction.
(v) Other Documents. The Participants shall have received such
other documents, certificates, financing statements and other items, in
form and substance satisfactory to such Participant, as such
Participant may reasonably require, including without limitation lien
searches.
(w) Each Lender shall have received excerpts from the
Appraisal concluding that the fair market value of the Equipment being
delivered on the Closing Date is equal to the Equipment Cost and that
the expected economic useful life of the Equipment will be at least
120% of the length of the Basic Term.
4.2 Additional Conditions Precedent to Investment by Owner
Participants.
The obligation of each Owner Participant to provide the funds specified
with respect to it in Sections 2.2(a) and 2.3 on the Closing Date with respect
to any Unit to be delivered on the Closing Date shall be subject to the
following additional conditions:
(a) Appraisal. On or before the Closing Date, the Owner
Participants shall have received an opinion (the "Appraisal") of
America Appraisal Associates, satisfactory in form and substance to the
Owner Participants.
(b) Opinion with Respect to Certain Aspects. On the Closing
Date, Owner Participants shall have received (i) the opinion of Moore &
Van Allen addressed to the Owner Participants, in form and substance
reasonably satisfactory to the Owner Participants, containing such
counsel's favorable opinion with respect to such Tax matters as the
Owner Participants may reasonably request and (ii) the opinion of Balch
& Bingham, LLP addressed to the Owner Participants, in form and
substance reasonably satisfactory to such Owner Participants,
containing such counsel's favorable opinion with respect to certain Tax
aspects of the transaction as the Owner Participants may reasonably
request.
(c) No Tax Law Change. No Change in Tax Law shall have
occurred nor shall a judicial opinion on a Tax issue have been rendered
prior to the acceptance and delivery of the Equipment on the Closing
Date which, if enacted, adopted or made effective, in the same or
substantially similar form, would, in the reasonable opinion of each
Owner Participant, render it disadvantageous or inadvisable for such
Owner Participant to enter into the transactions contemplated by the
Operative Agreements.
4.3 Conditions Precedent to the Obligation of the Lessee.
The obligation of the Lessee with respect to the sale of the
Units to the Owner Trustee and acceptance of the Units under the Lease is
subject to the following conditions as of the Closing Date:
(a) Corporate Documents. On or before the Closing Date, the
Lessee shall have received such documents and evidence with respect to
the Owner Participants, the Owner Trustee and the Indenture Trustee as
the Lessee may reasonably request in order to establish the
consummation of the transactions contemplated by this Agreement, the
taking of all corporate and other proceedings in connection therewith
and compliance with the conditions herein or therein set forth.
(b) Operative Agreements. On or before the Closing Date, the
Operative Agreements shall have been duly authorized, executed and
delivered by the respective party or parties thereto (other than the
Lessee), shall each be in full force and effect and an executed
counterpart of each thereof shall have been delivered to the Lessee or
its special counsel.
(c) Representations and Warranties True. On the Closing Date,
the representations and warranties of the Owner Trustee and the
Indenture Trustee and the Participants contained in Section 3 hereof
shall be true and correct in all respects as of the Closing Date as
though made on and as of such date, and the Lessee shall have received
an Officer's Certificate dated such date from each of the Owner Trustee
as described in Section 4.1(d), the Owner Participants as described in
Section 4.1(k), the Indenture Trustee as described in Section 4.1(m)
addressed to the Lessee and certifying as to the foregoing matters
insofar as they relate to the Owner Trustee, the Owner Participants and
the Indenture Trustee, as the case may be.
(d) Opinions of Counsel. On the Closing Date, the Lessee shall
have received the opinions of counsel referred to in Section 4.1(e)
(other than that set forth in clause (i) and (v) therein), addressed to
the Lessee.
(e) No Threatened Proceedings. No action or proceeding shall
have been instituted nor shall governmental action be threatened before
any court or governmental agency, nor shall any order, judgment or
decree have been issued or proposed to be issued by any court or
governmental agency at the time of the Closing Date, to set aside,
restrain, enjoin or prevent the completion and consummation of this
Agreement and the other Operative Agreements or the transactions
contemplated hereby or thereby.
(f) Participants, Investments.
(i) There shall have been duly issued and delivered
by the Owner Trustee to the Lenders, against payment therefor,
Equipment Notes dated the Closing Date.
(ii) Each Owner Participant shall have made available
its commitment in the amount specified in, and otherwise in
accordance with, Sections 2.2(a) and 2.3.
(iii) Each Lender shall have made available its
commitment in the amount specified in, and otherwise in
accordance with, Sections 2.2(b) and 2.3.
SECTION 5. FINANCIAL AND OTHER REPORTS OF THE LESSEE
The Lessee agrees that it will furnish directly to each Participant the
following:
(a) as soon as available and in any event within 120 days
after the end of each fiscal year of the Lessee, an audited
consolidated balance sheet of the Lessee and its consolidated
subsidiaries as of the end of such fiscal year and the related audited
consolidated statements of income, cash flows and changes in common
stockholders' equity for such fiscal year, setting forth in each case
in comparative form the figures for the previous fiscal year and
accompanied by an auditor's report of a firm of independent certified
public accounts of recognized national standing;
(b) as soon as available and in any event within 60 days after
the end of each of the first three quarters of each fiscal year of the
Lessee, a consolidated balance sheet of the Lessee and its consolidated
subsidiaries, as of the end of such quarter and the related (i)
consolidated statement of income for such quarter and for the portion
of the Lessee's fiscal year ended at the end of such quarter, and (ii)
consolidated statement of cash flows for the portion of the Lessee's
fiscal year ended at the end of such quarter, setting forth in each
case in comparative form (A) for the consolidated balance sheet, the
figures as of the end of the Lessee's previous fiscal year, (B) for the
consolidated statement of income, the figures for the corresponding
quarter and the corresponding portion of the Lessee's previous fiscal
year and (C) for the consolidated statement of cash flows, the figures
for the corresponding portion of the Lessee's previous fiscal year, all
prepared in accordance with generally accepted accounting principles
(except for the absence of footnotes and subject to normal year-end
adjustments);
(c) promptly upon the mailing thereof, each registration
statement and report (in the form in which it becomes effective, but
without exhibits) filed by the Lessee with the Securities and Exchange
Commission;
(d) promptly upon any officer of the Lessee obtaining
knowledge of any condition or event which constitutes a Supplemental
Agreement Event of Default, Head Lease Default, Head Lease Event of
Default, Lease Default or Lease Event of Default, and upon the request
of the Indenture Trustee if the Indenture Trustee or any Lender has a
reasonable belief that a Lease Default or Lease Event of Default has
occurred and is continuing, an Officer's Certificate specifying the
nature and period of existence thereof and, with respect to a
Supplemental Agreement Event of Default, Lease Default and Lease Event
of Default, what action the Lessee has taken or is taking or proposes
to take with respect thereto;
(e) within the time period prescribed in subparagraph (a)
above, an Officer's Certificate, to the effect that the signer has
reviewed the relevant terms of the Operative Agreements to which the
Lessee is a party and that such officer is not aware of any Lease
Default or Lease Event of Default or, if a Lease Default or Lease Event
of Default shall exist, specifying such Lease Default or Lease Event of
Default and what action the Lessee has taken or is taking or proposes
to take with respect thereto; and
(f) such additional information with respect to the financial
condition or the business of the Lessee or the Equipment as any
Participant may reasonably request. In addition to the foregoing, upon
the occurrence and continuation of a Lease Event of Default, the Lessee
will permit the representatives of each Participant, at such reasonable
time as may be requested by such Participant, to examine all of its
books of account, records, reports and other papers, to make copies and
extracts therefrom, and to discuss its affairs, finances and accounts
with its officers, employees and independent public accountants (and by
this provision the Lessee authorizes such accountants to discuss the
finances and affairs of the Lessee).
SECTION 6. CERTAIN COVENANTS OF THE PARTICIPANTS, THE TRUSTEES AND THE LESSEE
6.1 Restrictions on Transfer of Beneficial Interest.
Each Owner Participant severally but not jointly agrees that it shall
not, directly or indirectly, sell, convey, assign, pledge, mortgage or otherwise
transfer any of its Beneficial Interest (whether by merger, consolidation, sale
of assets or otherwise) prior to the expiration or earlier termination of the
Lease Term, without the prior written consent of the Lessee, the other Owner
Participant and (so long as any Equipment Notes are outstanding) the Indenture
Trustee, not to be unreasonably withheld, provided that subject to the
satisfaction of the conditions specified in clauses (a), (d), (f), (h), (i), (j)
and (k) specified below an Owner Participant may transfer its individual
interest in the Beneficial Interest to an Affiliate or the other Owner
Participant or an Affiliate thereof without the consent of the Lessee, the other
Owner Participant (except in the case of a transfer to such other Owner
Participant or Affiliate thereof) and the Indenture Trustee, provided, further
that except as otherwise expressly provided in the Operative Agreements,
including without, limitation Section 10, 11, 15 and 22 of the Lease, no Owner
Participant may transfer its individual interest in the Beneficial Interest to
the Lessee without the prior written consent of the Indenture Trustee, provided,
further, subject to the satisfaction of all the conditions specified below, that
each Owner Participant may transfer (whether by merger, consolidation, sale of
assets or otherwise) its individual interest in the Beneficial Interest without
the consent of the Lessee, the other Owner Participant and the Indenture
Trustee:
(a) the Person to whom such transfer is to be made (a
"Transferee") is organized and existing under the laws of the United
States of America or any state thereof and is (i) an institutional or
corporate investor with tangible net worth or, in the case of a bank or
lending institution, combined capital and surplus, at the time of such
transfer of at least $75,000,000, all of the foregoing determined in
accordance with generally accepted accounting principles or (ii) any
subsidiary or Affiliate of any such institutional or corporate investor
if such investor guarantees the obligations so assumed by such
subsidiary or Affiliate pursuant to a guarantee in form and substance
reasonably satisfactory to Lessee and the Indenture Trustee;
(b) the Indenture Trustee, the other Owner Participant and the
Lessee shall have received 15 days', prior written notice of such
transfer specifying the name and address of any proposed Transferee and
such additional information as shall be necessary to determine whether
the proposed transfer satisfies the requirements of this Section 6.1;
(c) such Transferee enters into an assumption agreement in
form and substance reasonably satisfactory to Lessee and Indenture
Trustee;
(d) such transfer complies with and does not violate any
applicable Federal securities Law or the securities Law of any
applicable state;
(e) the Lessee, the other Owner Participant and the Indenture
Trustee shall have received an opinion of counsel of the Transferee
(which counsel may be Transferee's in-house counsel) in form and
substance reasonably satisfactory to Lessee, the other Owner
Participant and the Indenture Trustee, and, if a guarantee is delivered
pursuant to Section 6.1(a), an opinion of counsel of the guarantor of
the Transferee (which may be the guarantor's in-house counsel) in form
and substance reasonably satisfactory to Lessee, the other Owner
Participant and the Indenture Trustee;
(f) except as specifically consented to in writing by the
Lessee, the other Owner Participant and the Indenture Trustee, the
terms of the Operative Agreements shall not be altered;
(g) such transfer shall transfer all of such Owner
Participant's Beneficial Interest;
(h) all fees, expenses and charges of the parties hereto
(including, without limitation, reasonable legal fees and expenses of
special counsel) incurred in connection with each transfer of such
Beneficial Interest shall be paid by the transferring Owner Participant
or Transferee;
(i) the Transferee delivers to the Lessee, the Owner Trustee,
the other Owner Participant and the Indenture Trustee an Officer's
Certificate of the Transferee to the effect that such transfer (i) does
not involve the use of any assets that are or could be deemed to be
plan assets under 29 C.F.R. ss.2510.3-101 of an employee benefit plan
(other than a government plan exempt from the coverage of ERISA) or
(ii) if the assets of an employee benefit plan are so used, will not
constitute a prohibited transaction which is not subject to an
exemption contained in ERISA or the Code or adopted thereunder;
(j) as a result of such transfer, no Indenture Default or
Indenture Event of Default attributable to such Owner Participant or
the Owner Trustee, shall have occurred and be continuing; and
(k) such Owner Participant and/or the Transferee shall deliver
an Officer's Certificate certifying as to compliance with the transfer
requirements contained herein.
Upon any such transfer, (i) except as the context otherwise requires, such
Transferee shall be deemed an "Owner Participant" for all purposes, and shall
enjoy the rights and privileges and perform the obligations of an Owner
Participant to the extent of the interest transferred hereunder and under each
other Operative Agreement to which such transferring Owner Participant was a
party, and, except as the context otherwise requires, each reference in this
Agreement and each other Operative Agreement to an "Owner Participant" shall
thereafter be deemed to include such Transferee for all purposes to the extent
of the interest transferred, (ii) the transferor shall continue to be entitled
to all the benefits and rights, including the right to indemnification,
hereunder and under each other Operative Agreement to which such transferor was
a party or by which it was bound except to the extent otherwise agreed in
writing and (iii) the transferor shall be released from all obligations
hereunder and under each other Operative Agreement to which such transferor is a
party or by which such transferor is bound to the extent such obligations are
expressly assumed by a Transferee; and provided, further, that in no event shall
any such transfer or assignment waive or release the transferor from any
liability on account of any breach existing immediately prior to such transfer
of any of its representations, warranties, covenants or obligations set forth in
the Operative Agreements or for any fraudulent or willful misconduct. Any
transfer or assignment of the Beneficial Interest in violation of this Section
6.1 shall be voidable at the direction of the Lessee, the other Owner
Participant or the Indenture Trustee, provided that the Lessee, the other Owner
Participant and the Indenture Trustee agree to respond promptly and in any event
within 30 days to a written request of an Owner Participant to proceed with a
transfer which fails to meet all of the requirements of this Section 6.1. Any
party's failure to respond within such 30-day period shall be deemed to be
consent by such party to the transaction pursuant to which such transfer
occurred. The restrictions set forth in this Section 6.1 shall not apply to a
contract between an Owner Participant and third parties with respect to the sale
or other transfer of the Equipment which is to be consummated on or after the
expiration or termination of the Lease when the Equipment is owned by the Owner
Trustee free and clear of any rights of the Lessee therein and the lien of the
Indenture, provided that the rights and interests granted thereunder shall be
expressly stated to be in all respects subject and subordinate to the rights of
the parties under the Operative Agreements. Notwithstanding anything herein to
the contrary, this Section 6.1 shall not be construed to prohibit, limit or
require that any consent be obtained in connection with the sale of all or any
portion of the capital stock of an Owner Participant or the merger,
consolidation, corporate restructuring or sale of stock or assets by the parent
company of an Owner Participant or any other Affiliate of an Owner Participant.
6.2 Lessor's Liens Attributable to the Owner Participants.
(a) Each Owner Participant hereby covenants and agrees
severally but not jointly with and for the benefit of the other parties
to this Agreement that it will not directly or indirectly create,
incur, assume or suffer to exist any Lessor's Liens on or against any
part of the Trust Estate or the Equipment attributable to it (whether
or not through its act or failure to act) or Lessor's Liens arising as
a result of Taxes described in clause (c) of the definition of Lessor's
Liens which are imposed against the Owner Trustee (not in its
individual capacity but solely as Owner Trustee), and agrees that it
will, at its own cost and expense, take such action as may be necessary
to duly discharge and satisfy in full any such Lessor's Lien
attributable to it described above (by bonding or otherwise, so long as
Lessee's operation and use of the Equipment and the Lien of the
Indenture are not impaired); provided that it may contest any such
Lessor's Lien in good faith by appropriate proceedings so long as such
proceedings do not involve any material danger of the sale, forfeiture
or loss of the Equipment or any interest therein and do not interfere
with the use, operation, or possession of the Equipment by the Lessee
under the Lease or the rights of the Indenture Trustee under the
Indenture, or in any manner interfere with or impair the payments made
by the Lessee to the Indenture Trustee under the Operative Agreements.
(b) Each Owner Participant agrees severally but not jointly to
indemnify and hold harmless the Lessee, the Indenture Trustee and the
other Owner Participant from time to time from and against any loss,
cost, expense or damage which may be suffered by such party as a result
of the failure by it to discharge and satisfy in full any Lessor's Lien
of the type identified in and when required to be discharged and
satisfied by it under Section 6.2(a).
6.3 Lessor's Liens Attributable to the Owner Trustee.
(a) The Owner Trustee, in its individual capacity and trust
capacity, hereby unconditionally agrees with and for the benefit of the
other parties to this Agreement that the Owner Trustee in its
individual capacity will not directly or indirectly create, incur,
assume or suffer to exist any Lessor's Liens on or against any part of
the Trust Estate or the Equipment arising out of any act or omission of
or claim against the Owner Trustee in its individual capacity, and the
Owner Trustee in its individual capacity agrees that it will, at its
own cost and expense, take such action as may be necessary to duly
discharge and satisfy in full any such Lessor's Lien attributable to
the Owner Trustee in its individual capacity (by bonding or otherwise,
so long as Lessee's operation and use of the Equipment and the Lien of
the Indenture are not impaired); provided that the Owner Trustee may
contest any such Lessor's Lien in good faith by appropriate proceedings
so long as such proceedings do not involve any material danger of the
sale, forfeiture or loss of the Equipment or any interest therein and
do not interfere with the use, operation, or possession of the
Equipment by the Lessee under the Lease or the rights of the Indenture
Trustee under the Indenture, or in any manner interfere with or impair
the payments made by the Lessee to the Indenture Trustee under the
Operative Agreements.
(b) The Owner Trustee, in its individual capacity, agrees to
indemnify and hold harmless the Lessee, the Indenture Trustee, the
Owner Participants, the Owner Trustee and the Lenders from and against
any loss, cost, expense or damage which may be suffered by such party
as a result of the failure of the Owner Trustee to discharge and
satisfy any Lessor's Liens attributable to it in its individual
capacity, as described in Section 6.3(a).
6.4 Liens Created by the Indenture Trustee.
(a) The Indenture Trustee, in its individual capacity,
covenants and agrees with the Lessee, the Owner Trustee and the
Participants that it shall not cause or permit to exist any Lien on the
Equipment or all or any portion of the Trust Estate or the Indenture
Estate arising as a result of (i) claims against the Indenture Trustee
in its individual capacity not related to its interest in the Equipment
and the Trust Estate or to the administration of the Indenture Estate
pursuant to the Indenture, (ii) acts of the Indenture Trustee in its
individual capacity not contemplated by, or failure of the Indenture
Trustee to take any action it is expressly required to perform by, the
Operative Agreements, (iii) claims against the Indenture Trustee in its
individual capacity relating to Taxes or expenses that are not
indemnified against by the Lessee pursuant to Section 7 attributable to
the actions of the Indenture Trustee, solely in its individual
capacity, or (iv) claims against the Indenture Trustee arising out of
the transfer by the Indenture Trustee of all or any portion of its
interest in the Equipment, the Indenture Estate or the Operative
Agreements, other than a transfer permitted by the Operative
Agreements, and that the Indenture Trustee will, at its own cost and
expense (and without any right of reimbursement from any other party
hereto), promptly take such action as may be necessary duly to
discharge any such Lien.
(b) The Indenture Trustee agrees to indemnify and hold
harmless the Lessee, the Owner Trustee and the Participants from time
to time from and against any loss, cost, expense or damage which may be
suffered by such party as a result of the failure of the Indenture
Trustee to discharge and satisfy in full any Lien as required under
Section 6.4(a).
6.5 Covenants of Owner Trustee, Owner Participants
and Indenture Trustee.
(a) Each Owner Participant and the Owner Trustee in its
individual and trust capacity, hereby agree with the Lessee (provided
no Lease Event of Default shall have occurred and be continuing), the
Lenders and the Indenture Trustee (i) not to amend, supplement, or
otherwise modify any provision of the Trust Agreement in such a manner
as to adversely affect the rights of the Lessee, the Lenders or the
Indenture Trustee without the prior written consent of such party and
(ii) not to terminate or revoke the Trust Agreement, or the trusts
created by the Trust Agreement and such trusts shall not be subject to
revocation or termination by the Owner Participants prior to the
payment in full and discharge of the Equipment Notes and all other
indebtedness secured by the Indenture and the final discharge thereof
pursuant to Section 10.01 thereof or prior to the expiration or early
termination of the Lease; provided, however, that notwithstanding any
language to the contrary contained in this Section 6.5(a), the Owner
Participants shall at all times retain the right to replace the Owner
Trustee in accordance with the terms of the Trust Agreement. Each of
the Owner Trustee and the Indenture Trustee agrees, for the benefit of
the Lessee (only with respect to those Articles and Sections of the
Indenture specified in Section 10.11 of the Indenture as being for the
benefit of the Lessee) and the Participants, to comply with the
provisions of the Indenture and not to amend, supplement, or otherwise
modify any provision of the Indenture in such a manner as to adversely
affect the rights of any such party without the prior written consent
of such party. Notwithstanding any provision herein or in any of the
Operative Agreements to the contrary, the Indenture Trustee's
obligation to take or refrain from taking any actions, or to use its
discretion (including, but not limited to, the giving or withholding of
consent or approval and the exercise of any rights or remedies under
such Operative Agreements), and any liability therefor, shall, in
addition to any other limitations provided herein or in the other
Operative Agreements, be limited by the provisions of the Indenture.
(b) So long as the Indenture is in effect, (i) the Owner
Trustee, not in its individual capacity, but solely as trustee under
the Trust Agreement shall not, (x) incur any indebtedness for borrowed
money or any other liability or obligation except as expressly
contemplated herein or in any other Operative Agreement or, (y) engage
in any business or other activity other than the transactions
contemplated herein or in any other Operative Agreement and all
necessary or appropriate activity related thereto, and (ii) the Owner
Participants shall not consent or direct the Owner Trustee and the
Trust Company shall not cause, suffer or permit the Owner Trustee, to
enter into any agreement or other arrangement in violation of clause
(i) above.
6.6 Amendments to Operative Agreements.
The Trustees and Participants will not terminate the Operative
Agreements to which the Lessee is not or will not be a party, except in
accordance with the Operative Agreements in effect on the Closing Date (as
amended, modified or supplemented from time to time in accordance with the terms
hereof and of the Operative Agreements), or amend, supplement, waive or modify
such Operative Agreements in any manner that increases the obligations or
liabilities, or decreases the rights, of, or is adverse to, the Lessee under the
Operative Agreements, without, in each such case, the prior written consent of
the Lessee.
6.7 Merger Covenant.
Notwithstanding anything in any Operative Agreement to the contrary,
the Lessee shall not consolidate with or merge into any other Person, or permit
any other Person to merge into it, or, directly or indirectly, sell, convey,
transfer or lease all or a substantial part of its assets as an entirety to any
Person unless (i) the Person formed by such consolidation or surviving such
merger (if other than the Lessee) or the Person which acquires by sale,
conveyance, transfer or lease all or a substantial part of the assets of the
Lessee shall execute and deliver to the Owner Trustee, each Participant and the
Indenture Trustee an agreement in form reasonably acceptable to such parties
containing the assumption by such successor corporation of the due and punctual
performance and observance of each covenant and condition of this Agreement and
each of the other Lessee Agreements to be performed or observed by the Lessee
(and in the case of any such sale, conveyance or lease, the Lessee shall not be
released from its obligations under the Lessee Agreements), and if such
successor corporation is not a U.S. corporation, Lessee agrees (x) to provide,
if such an opinion is capable of being provided, the Participants, Owner Trustee
and Indenture Trustee with an opinion of independent counsel in form and
substance satisfactory to such Participants, Owner Trustee and Indenture Trustee
to the effect that the payments of Rent under the Lease will not be subject to
any additional Taxes (including without limitation, withholding Taxes)
("Additional Taxes") as a result of such successor corporation being a non-U.S.
corporation, and (y) in any event if payments of Rent under the Lease are
subject to any Additional Taxes, to gross up the payments of Rent in an amount
necessary to make the after-tax payments of Rent under the Lease equal to what
such payments would have been had there been no such Additional Taxes, and (ii)
immediately after giving effect to such transaction the tangible net worth of
such successor corporation shall not be less than 70% of the tangible net worth
of the Lessee immediately prior to giving effect to such transaction and no
Lease Default or Lease Event of Default shall have occurred and be continuing,
whether as a result of such consolidation or merger or such sale, conveyance,
transfer or lease or otherwise. Upon such consolidation or merger, or any sale,
conveyance, transfer or lease of all or a substantial part of the assets of the
Lessee as an entirety in accordance with this Section 6.7, the successor
corporation formed by such consolidation or into which the Lessee is merged or
to which such sale, conveyance, transfer or lease is made shall succeed to, and
be substituted for (except as limited above), and may exercise every right and
power of, the Lessee under this Agreement and the other Operative Agreements
with the same effect as if such successor corporation had been named as the
Lessee herein. If the Lessee shall have consolidated with or merged into any
other Person or sold, conveyed, transferred or leased all or a substantial part
of its assets, such assets to include the Lessee's leasehold interest in the
Lease, the Person owning such leasehold interest after such event shall deliver
to each Participant and the Indenture Trustee (a) an Officer's Certificate
certifying as to the compliance with the requirements of this Section 6.7 and
(b) an opinion of counsel (which counsel may be such Person's in-house counsel)
confirming that the assumption agreement pursuant to which such Person assumed
the obligations of the Lessee shall have been duly authorized, executed and
delivered by such Person and that such agreement is the legal, valid and binding
obligation of such Person, enforceable against such Person in accordance with
its terms and that such assumption does not violate securities Laws and does not
cause any Owner Participant to suffer any unindemnified Tax risk arising from
assumption. In connection with such assumption, the Lessee shall, at the
direction of Lessor, take such action as is reasonably necessary to protect the
Lessor's interest in the Equipment. All reasonable fees, expenses and charges of
the parties hereto (including the costs of such parties in ensuring the
compliance by the Lessee with this Section 6.7) incurred in connection with such
sale, conveyance, transfer or lease shall be paid by the Lessee. Except as
specifically consented to in writing by the Owner Trustee and the Indenture
Trustee, the terms of the Operative Agreements shall not be amended in
connection with a sale, conveyance, transfer or lease permitted by this Section
6.7. The Lessee shall provide the Lessor, the Indenture Trustee and each
Participant with 30 days' prior written notice of a transaction subject to the
provisions of this Section 6.7.
6.8 Rent Sufficiency.
Anything contained herein, in the Lease or in any other Operative
Agreement or other agreement to the contrary notwithstanding, the aggregate
amount of Basic Rent payable on any Payment Date under the Lease and amounts
paid by the Lessee pursuant to Section 3.3 of the Lease, shall be, under any
circumstances and in any event, at least equal to the aggregate amount of the
scheduled installments of principal of and interest on the Equipment Notes due
on such Payment Date. Anything contained herein, the Lease or any other
Operative Agreement or other agreement to the contrary notwithstanding, the
amount of the Stipulated Loss Value and Early Buy-Out Price payable on any date
on account of any Unit, together with any other amounts payable pursuant to
Section 10.2, 11.2, 22.2 or 22.6 of the Lease, as the case may be, shall be,
under any circumstance and in any event, at least equal to the amount of any
payments then required to be made on account of the outstanding principal of and
Make-Whole Amount, if any, and interest on the Equipment Notes pursuant to
Section 2.10 of the Indenture.
6.9 Environmental Matters.
Lessee covenants, at its own cost and expense, to remove or take
remedial action with respect to any Hazardous Material released into the
environment from the Equipment after the Closing Date to the extent that such
removal or remedial action is required by any applicable Environmental Law;
provided that (i) Lessee shall notify Lessor of such removal or remedial action
as soon as practicable and (ii) such removal or remedial action shall be
undertaken in a manner consistent with Environmental Laws and with Lessee's
customary policies and practices; provided, further, that Lessee may, in good
faith and by appropriate proceedings diligently conducted, contest the validity
or application of any such Environmental Law in any reasonable manner which does
not materially adversely affect the rights or interests of Lessor in the
Equipment or impair the Lien of the Indenture or otherwise expose Lessor, the
Indenture Trustee or any Participant to criminal sanctions or release Lessee
from its obligation with respect to returning the Equipment as described herein.
6.10 Acknowledgment of Relationship of Owner Participants.
The parties hereto acknowledge that (i) the Trust has been created for
the convenience of the parties to the transaction to facilitate the lease of the
Equipment to the Lessee and to secure the Loans made by Lenders for the benefit
of the Owner Participants and (ii) the relationship created by the Trust
Agreement between the Owner Participants is intended to be that of a co-tenancy
and not a partnership and that any interest of the Owner Participants in the
Trust Estate or the Equipment be interests of co-tenants. The parties hereto
further acknowledge that neither the Owner Trustee nor the Owner Participants
shall be required to perform any services or conduct any activities in respect
of the Equipment except as otherwise expressly provided herein or the other
Operative Agreements. Finally, the parties acknowledge the Owner Participants'
right of partition set forth in Section 5.2 of the Trust Agreement; provided
that such rights of partition shall be subject to the terms of the Operative
Agreements.
6.11 Agreements Relating to the Lease.
Without limiting the nature and extent of Lessee's obligations in any
one or more of the Operative Agreements, Lessee acknowledges that Section 18 and
Section 24.6 have been included in the Lease for the benefit of the Indenture
Trustee and agrees to comply with the provisions thereof.
6.12 Purchase of Equipment Notes.
Each of the Owner Participants and the Lessee will not, and will not
permit any of their Affiliates to purchase or otherwise acquire, directly or
indirectly, any of the outstanding Equipment Notes, except (a) in accordance
with the terms of this Agreement, the Indenture and the Equipment Notes or any
other applicable Operative Agreement or (b) pursuant to an offer to purchase
made by such Person pro rata to the holders of all Equipment Notes at the time
outstanding upon the same terms and conditions.
SECTION 7. LESSEE'S INDEMNITIES
7.1 General Tax Indemnity.
(a) Tax Indemnitee Defined. For purposes of this Section 7.1,
"Tax Indemnitee" means each Owner Participant (and in the case of
AmSouth, its partners), the Owner Trustee both in its individual
capacity and as trustee, the Trust Estate, the Indenture Trustee both
in its individual capacity and as trustee, the Lenders, the respective
Affiliates of each of the foregoing and each of their respective
successors or assigns permitted under the terms of the Operative
Agreements.
(b) Taxes Indemnified. Subject to the exclusions stated in
subsection (c) below, the Lessee agrees to indemnify and hold harmless
each Tax Indemnitee, taking into account the income tax consequences to
the Tax Indemnitee of the accrual or receipt of an indemnity payment,
against all fees, taxes (including, without limitation, sales, use,
excise, stamp and property), levies, assessments, duties, imposts,
charges or withholdings, together with any and all penalties, additions
to tax, fines or interest thereon (whether such items are imposed on a
Tax Indemnitee or otherwise, herein referred to as "Taxes") imposed
upon any Tax Indemnitee, the Lessee or its Affiliates or all or any
part of the Equipment or any interest therein by any federal, state or
local government, political subdivision, or taxing authority in the
United States, or in a foreign country or of or in a territory or
possession of the United States (in each case, a "Tax Authority") upon,
with respect to or in connection with:
(i) the Equipment or any part of any of the
Equipment or interest therein;
(ii) the purchase, acquisition, acceptance,
rejection, insuring, ownership, delivery, non-delivery,
transport, location, leasing, subleasing, possession,
registration, use, operation, condition, maintenance, repair,
return, abandonment, storage, sale, substitution, manufacture,
replacement, modification, financing, refinancing,
importation, exportation or other application or disposition
of or with respect to the Equipment or any part thereof or
interest therein;
(iii) the rental payments, receipts of earnings or
other amounts arising from any Unit of Equipment or any part
thereof or interest therein or payable pursuant to the Lease
or any other Operative Agreement or amendments or supplements
thereto or with respect to the transactions contemplated
hereby and thereby; and
(iv) the Operative Agreements or amendments or
supplements thereto, the execution, delivery and performance
thereof and the transactions contemplated thereby.
(c) Taxes Excluded. The indemnity provided for in subsection
(b) above shall not apply to any of the following:
(i) As to any Tax Indemnitee, Taxes on, based on or
measured by the net income of such Tax Indemnitee (including
any capital gains, excess profits or alternative minimum
Taxes, and any Taxes on or measured by any items of Tax
preference), and any accumulated earnings, personal holding
company, succession, estate, capital, net worth, franchise, or
conduct of or doing business Taxes imposed upon such Tax
Indemnitee; provided, however, any Tax in lieu or in place of
sales, use, license, excise or property Taxes shall not be
excluded under this subsection;
(ii) Taxes imposed or accrued on any Equipment with
respect to any period after the earliest of (x) the return of
possession of the Equipment to the Lessor or the placement of
the Equipment in storage at the request of the Lessor, in
either case pursuant to and in accordance with Section 6 of
the Lease, (y) the termination of the Lease Term with respect
to such Equipment pursuant to Section 10.1 of the Lease, or
(z) the discharge in full of the Lessee's obligation to pay
the Termination Value, Early Buy-Out Price or the Stipulated
Loss Value and all other amounts due, if any, under Section
10, 11.2 or 22.6 of the Lease, as the case may be, with
respect to the Equipment in each case except in connection
with a Lease Event of Default;
(iii) As to any Tax Indemnitee, (y) Taxes which arise
out of or are directly caused by any breach by such Tax
Indemnitee of any of its representations, warranties or
covenants in any of the Operative Agreements, or the gross
negligence or willful misconduct of such Tax Indemnitee, or
(z) Taxes arising from a Lessor Lien with respect to such Tax
Indemnitee;
(iv) As to any Tax Indemnitee, Taxes which become
payable as a result of a sale, assignment, transfer or other
disposition (whether voluntary or involuntary) by such Tax
Indemnitee of all or any portion of its interest in the
Equipment or any part thereof, the Trust Estate or any of the
Operative Agreements or rights created thereunder or any
transfer of any interest in such Tax Indemnitee other than a
disposition in connection with the Head Lease Documents or
which occurs as the result of the exercise of remedies upon
the occurrence of a Lease Event of Default;
(v) As to any Tax Indemnitee, Taxes (other than
withholdings) imposed by a Tax Authority in a jurisdiction to
the extent that such Taxes would in any event have been
imposed on such Tax Indemnitee if no Units of Equipment had
been located, operated, used, leased or rented to or in such
jurisdiction or the Lessee or any Affiliate thereof had not
been located in such jurisdiction;
(vi) As to any Tax Indemnitee, Taxes imposed on any
Tax Indemnitee or any other Person who, together with such Tax
Indemnitee, is treated as one employer for employee benefit
plan purposes, as a result of, or in connection with, any
"prohibited transaction," within the meaning or the provisions
of the Code or regulations thereunder or as set forth in
Section 406 of ERISA or the regulations implementing ERISA,
engaged in by any Tax Indemnitee other than Taxes for such
prohibited transaction that results from any misrepresentation
made, or other breach committed, by Lessee under any documents
delivered in connection with the transactions contemplated
hereunder;
(vii) As to any Tax Indemnitee, Taxes for so long as
such Taxes are being contested in accordance with the
provisions of Section 7.1(g) hereof provided the Lessee is in
compliance with its obligations under Section 7.1(g) hereof;
and
(viii) Any withholdings with respect to any Lender
that is not a U.S. Person (as defined in Section 7701(a)(30)
of the Code) and that fails to comply with the provisions of
Section 7.1(d) below, except to the extent such failure to
comply arises from a change of Law after the date such Lender
became subject to the terms hereof or any withholdings with
respect to any other Tax Indemnitee arising with respect to
amounts accruing after such Tax Indemnitee ceases to be a U.S.
Person (as defined in Section 7701 (a) (30) of the Code) and
such Tax Indemnitee shall have complied with the provisions of
Section 7.1(d) below.
(d) Foreign Lenders. Each Lender that is not a U.S. Person (as defined
in Section 7701(a)(30) of the Code) shall (i) deliver to the Owner
Trustee or other withholding agent (I) duly completed copies of IRS
Form 1001 or 4224, or successor applicable form as the case may be, and
(II) such other forms or certifications as may be reasonably requested
by the Lessee; and (ii) deliver to the Owner Trustee or other
withholding agent further copies of any such form or certification on
or before the date that any such form or certification expires or
becomes obsolete and after the occurrence of any event requiring a
change in the most recent form previously delivered by it to the Owner
Trustee or other withholding agent. Each Lender must be a U.S. Person
(as defined in Section 7701(a)(30) of the Code), unless otherwise
consented to in writing by the Lessee, which consent shall not be
unreasonably withheld or delayed.
(e) Payments to Lessee.
(i) If any Tax Indemnitee shall realize a tax benefit
as a result of any Taxes paid or indemnified against by the
Lessee under this Section 7.1 (whether by way of deduction,
credit, allocation or apportionment or otherwise), such Tax
Indemnitee shall pay to the Lessee, an amount equal to the
amount of such Tax benefit, increased by the Tax Indemnitee's
additional saved Taxes attributable to the payment being made
to the Lessee hereunder; provided, however, that if a Lease
Event of Default exists and is continuing, such payment shall
be held by the Tax Indemnitee until such Lease Event of
Default is cured, provided, further, that when such Lease
Event of Default is cured payment shall be made to the Lessee.
(ii) Upon receipt by a Tax Indemnitee of a refund or
credit of all or part of any Taxes paid or indemnified against
by the Lessee, such Tax Indemnitee shall pay to the Lessee an
amount equal to the amount of such refund plus any interest
received by or credited to such Tax Indemnitee with respect to
such refund, increased or decreased, as the case may be, by
the Tax Indemnitee's net additional or saved Taxes
attributable to the receipt of such amounts from the Tax
Authority and the payment being made to the Lessee hereunder;
provided, however, that if a Lease Event of Default exists and
is continuing, such payment shall be held by Tax Indemnitee
until such Lease Event of Default is cured, provided, further,
that when such Lease Event of Default is cured payment shall
be made to the Lessee.
(iii) Payments made to the Lessee under subparagraphs
(i) or (ii) of this subsection 7.1(e) shall be subject to the
limitation that the amount paid to the Lessee by any Tax
Indemnitee shall not exceed the amount of the indemnity
payment previously made by the Lessee. Any such excess shall
not be paid but shall instead be carried forward and shall
reduce the Lessee's obligations to make subsequent payments
under subsection (b) to the Tax Indemnitee.
The foregoing notwithstanding, nothing in this subsection (e) shall (A)
restrict the right of any Tax Indemnitee to arrange its tax affairs as
it shall think fit or (B) require any Tax Indemnitee to disclose any
information regarding its tax affairs which, in its reasonable and good
faith judgment, constitutes confidential or proprietary information.
(f) Procedures and Verification. Any amount payable to a Tax
Indemnitee pursuant to subsection (b) shall be paid to such Tax
Indemnitee within 30 days after receipt of a written demand therefor
from such Tax Indemnitee accompanied by a written statement describing
in reasonable detail the basis for such indemnity and the computation
of the amount so payable, provided that such amount need not be paid
prior to the later of (i) the five (5) days prior to the date on which
such Taxes are paid or (ii) in the case of amounts which are being
contested pursuant to subsection (g) hereof, the time such contest
(including all appeals) is finally resolved. Each Tax Indemnitee shall
promptly forward to the Lessee any notice, bill or advice received by
it from the relevant Tax Authority concerning any Tax against which the
Lessee may be required to indemnify hereunder; provided, however, that
the failure of the Tax Indemnitee to so forward such information to the
Lessee shall not preclude any indemnity hereunder except to the extent
such failure materially adversely affects the Lessee's ability to
require such Tax Indemnitee to contest the Tax or to contest the Tax
itself. Any amount payable to the Lessee pursuant to subsection (e)
shall be paid within 30 days after the Tax Indemnitee realizes a Tax
benefit or receives a refund giving rise to a payment under subsection
(e), and shall be accompanied by a written statement by the Tax
Indemnitee setting forth in reasonable detail the basis for computing
the amount of such payment. Within 30 days following the Lessee's
receipt of any computation from the Tax Indemnitee, the Lessee may
request that an independent, nationally recognized, accounting firm
selected by Lessee and reasonably acceptable to the Tax Indemnitee
determine whether such computations of the Tax Indemnitee are correct.
Such accounting firm shall be requested to make the determination
contemplated by this subsection (f) within 30 days of its selection. In
the event such accounting firm shall determine that such computations
are incorrect, such firm then shall notify the parties of the incorrect
computations and discuss with them the manner in which the computations
should be recomputed. The Tax Indemnitee shall cooperate with such
accounting firm and supply it with all information necessary to permit
it to accomplish such determination; provided that such accounting firm
shall have agreed pursuant to a confidentiality agreement acceptable to
the Tax Indemnitee to keep all information supplied by the Tax
Indemnitee confidential. In the absence of manifest error the
computations of such accounting firm shall be final, binding and
conclusive upon the parties. All fees and expenses of the accounting
firm payable under this Section 7.1(f) shall be borne by the Lessee
unless such verification shall disclose an error in such Tax
Indemnitee's favor of the greater of 5% of the amount of such payment
determined by such Tax Indemnitee, or $5,000, in which case such cost
shall be borne by such Tax Indemnitee.
(g) Contest. If a written claim is made against any Tax
Indemnitee for any such Tax referred to in this Section 7.1, the Tax
Indemnitee shall promptly (and in no event later than 30 days after the
Tax Indemnitee's receipt of such claim) notify Lessee of such claim;
provided, however, that the failure of the Tax Indemnitee to so notify
Lessee shall not preclude any indemnity hereunder except to the extent
such failure materially adversely affects the Lessee's ability to
require such Tax Indemnitee to contest the Tax or to contest the Tax
itself.
If (i) a written claim shall be made for any Taxes for which Lessee is
obligated pursuant to this Section 7.1, and (ii) either (y) under
applicable Law of the Tax Authority Lessee is allowed to directly
contest such Taxes in its own name and such contest does not involve
unindemnified Taxes of the Tax Indemnitee, or (z) the contest involves
solely a claim for indemnified Taxes or, in a contest involving
indemnified and unindemnified Taxes the claim for indemnified Taxes can
be severed, then Lessee shall be permitted to contest the imposition of
such Taxes (including in its own name in the case of Taxes described in
clause (y) of this paragraph) ("Lessee Controlled Contest"); provided,
however, that Lessee shall be permitted to contest the imposition of
such Taxes only if Lessee has acknowledged in writing its obligations
for such Taxes and agrees to pay, and shall timely pay, all reasonable
costs and expenses (including without limitation, all reasonable costs,
expenses, losses, legal and accountant's fees and disbursements,
penalties and interest) incurred in contesting such claim. Lessee shall
control the contest of Taxes governed by this paragraph and shall
consult in good faith with the Tax Indemnitee regarding such contest;
provided, further, that any contest involving a Tax under Section
40-23-1 et seq., Code of Ala. (1975) or any successor thereto shall be
excluded from the definition of "Lessee Controlled Contest" and shall
be deemed an "Indemnitee Controlled Contest" as defined below. The Tax
Indemnitee shall further be permitted to participate in any such
contest at its cost and expense.
In the case of Taxes not governed by the previous paragraph
("Indemnitee Controlled Contest"), such Tax Indemnitee will contest
such claim in good faith provided that (i) Lessee requests in writing
that the Tax Indemnitee contest such claim within the earlier of (i) 30
days after the Tax Indemnitee has notified Lessee of the existence of
the claim or (ii) seven days prior to the date that any written
submission must be made or other action taken in connection with such
contest to preserve the right to contest, (iii) prior to the first to
occur of (x) any administrative proceedings beyond the audit stage of
the contest, or (y) any court proceedings, Lessee has furnished the Tax
Indemnitee, at Lessee's expense, with a written opinion of independent
counsel selected by Lessee and reasonably acceptable to such Tax
Indemnitee, that there is a reasonable basis to contest such claim,
(iv) Lessee has acknowledged in writing its obligation for such Taxes
and agrees to pay, and shall timely pay, all reasonable costs and
expenses (including, without limitation, all reasonable costs,
expenses, losses, legal and accountant's fees and disbursements,
penalties and interest) which such Tax Indemnitee may incur in
contesting such claim, (v) no Lease Event of Default shall have
occurred and be continuing, unless Lessee shall have posted a
satisfactory bond or other security with respect to the costs of such
contest and the loss, and (vi) the amount of the required indemnity
payments with respect to such Taxes (together with any recurring or
related actual or potential claims in other taxable periods relating to
the same Taxes) would be $25,000.
At its sole discretion, the Tax Indemnitee may elect to conduct the
contest or authorize Lessee to conduct the contest of any Taxes under
an Indemnitee Controlled Contest. The Tax Indemnitee shall consult in
good faith with Lessee concerning the method of any contest controlled
by the Tax Indemnitee hereunder; provided final discretion of all
matters relating to the Indemnitee Controlled Contest shall remain with
the Tax Indemnitee. If a Tax Indemnitee (or Lessee, in the case of a
Lessee Controlled Contest) contests a Tax by making a payment thereof,
then Lessee (on an after-tax basis) shall advance to (or on behalf of,
in the case of a Lessee Controlled Contest) such Tax Indemnitee, an
amount equal to the Taxes and any penalties, additions to Tax, fines
and interest thereon that are paid or payable by such Tax Indemnitee in
connection with such contest. Unless a Lease Event of Default has
occurred and is continuing or Lessee has failed to satisfy the
requirements for contesting, or continuing to contest, any indemnified
Taxes, no Tax Indemnitee shall settle the contest of such Tax without
the consent of Lessee, which consent shall not be unreasonably withheld
or delayed given all the facts and circumstances, unless such Tax
Indemnitee elects to release Lessee with respect to the Taxes the
subject of the contest from its indemnity obligations hereunder. All
costs and expenses of any contest by Lessee or by any Tax Indemnitee
shall be borne by Lessee which costs and expenses shall be paid
promptly after receipt of notice (and in no event later than 30 days).
Notwithstanding anything contained in this Section 7.1, a Tax
Indemnitee will not be required to contest, or to continue to contest
and Lessee shall not be permitted to contest or continue to contest,
the validity, applicability or amount of any Tax (or portion thereof)
(i) if such Tax Indemnitee waives its right to indemnity hereunder with
respect to such Tax (or such portion thereof); (ii) if such contest
would result in risk of an imposition of criminal penalties, any
material danger of sale, forfeiture or loss (or loss of use) of the
Equipment or any interest therein; and (iii) in the case of a
Indemnitee Controlled Contest, if a Lease Event of Default has occurred
and is continuing, unless Lessee provides such Tax Indemnitee with
security in a manner reasonably satisfactory to such Tax Indemnitee.
(h) Reports. In the event any reports with respect to Taxes
are required to be made, the Lessee will either prepare and file such
reports (and in the case of reports which are required to be filed on
the basis of individual items of Equipment, such reports shall be
prepared and filed in such manner as to show as required the interests
of each Tax Indemnitee in such item of Equipment) or, if it shall not
be permitted to file the same, it will notify each Tax Indemnitee of
such reporting requirements, prepare such reports in such manner as
shall be satisfactory to each Tax Indemnitee and deliver the same to
each Tax Indemnitee within a reasonable period prior to the date the
same is to be filed. The Lessee shall provide such information as any
Tax Indemnitee may reasonably require from the Lessee to enable such
Tax Indemnitee to fulfill its tax filing, tax audit, and tax litigation
obligations.
(i) Non-disclosure. Notwithstanding any other provision under
this Section 7.1, no Tax Indemnitee shall be required to disclose to
the Lessee or to permit the Lessee to examine any Federal, state or
local income tax returns of such Tax Indemnitee for any taxable year.
7.2 General Indemnification and Waiver of Certain Claims.
(a) Claims Defined. For the purposes of this Section 7.2,
"Claims" shall mean any and all costs, expenses, liabilities,
obligations, losses, damages, penalties, actions or suits or claims of
whatsoever kind or nature (whether or not on the basis of negligence,
strict or absolute liability or liability in tort or otherwise) which
may be imposed on, incurred by, suffered by, or asserted against an
Indemnified Person, as defined herein, or any Unit and, except as
otherwise expressly provided in this Section 7.2, shall include, but
not be limited to, all reasonable out-of-pocket costs, disbursements
and expenses (including legal fees and expenses) imposed on, paid or
incurred by an Indemnified Person in connection therewith or related
thereto.
(b) Indemnified Person Defined. For the purposes of this
Section 7.2, "Indemnified Person" means each Participant and its
Affiliates, the Owner Trustee (both in its individual capacity and as
Owner Trustee), the Indenture Trustee, and each of their respective
directors, trustees, officers, employees, successors and permitted
assigns, agents and servants, the Trust Estate and Indenture Estate
(the respective directors, trustees, officers, employees, successors
and permitted assigns, agents and servants of each Participant and its
Affiliates, the Owner Trustee and the Indenture Trustee, as applicable,
together with such Participant, the Owner Trustee and the Indenture
Trustee, as the case may be, being referred to herein collectively as
the "Related Indemnitee Group" of such Participant, the Indenture
Trustee and the Owner Trustee, respectively).
(c) Claims Indemnified. Whether or not any Unit is accepted
under the Lease, or a closing occurs with respect thereto, and subject
to the exclusions stated in subsection (d) below, Lessee agrees to
indemnify, protect, defend and hold harmless each Indemnified Person on
an after-tax basis against Claims (whether or not such Indemnified
Person shall be indemnified as to such Claim by any other Person)
resulting from or arising out of:
(i) this Agreement or any other Operative Agreement
or any of the transactions contemplated hereby and thereby or
the sale, ownership, lease, sublease, operation, possession,
modification, improvement, abandonment, use, non-use,
maintenance, sublease, substitution, control, repair, storage,
transport, condition, titling, alteration, transfer or other
application or disposition, return, replacement, overhaul,
testing or registration of any Unit (including, without
limitation, injury, death or property damage of passengers,
shippers or others, Environmental Laws and all Claims arising
out of the release of Hazardous Materials to the environment
(including, without limitation, clean-up costs, response
costs, costs of corrective actions and natural resource
damages)) whether or not in compliance with the terms of the
Lease;
(ii) the construction, manufacture, financing,
refinancing, design, purchase, acceptance, rejection,
installation, ownership, delivery, non-delivery or condition
of any Unit (including, without limitation, latent and other
defects, whether or not discoverable, and any claim for
patent, trademark or copyright infringement);
(iii) the initial offer, sale or delivery of (x) the Equipment
Notes and (y) the Beneficial Interest;
(iv) any failure on the part of the Lessee to perform
or comply with any of the terms of the Operative Agreements to
which it is a party, or any document, instrument agreement or
contract entered into in relation hereto or otherwise in
relation to the Equipment; and
(v) any Claims regarding such Indemnified Person's
title to or interest in the Equipment or in any way relating
to the Equipment.
(d) Claims Excluded. The Lessee shall not be required to
indemnify any Indemnified Person pursuant to this Section 7.2 for :
(i) Claims with respect to any Unit to the extent
attributable to acts or omissions or events occurring entirely
after the last to occur of (w) the earlier to occur of the
termination of the Lease with respect to such Unit or the
expiration of the Lease Term, (x) the return of such Unit to
the Lessor (it being understood that, so long as any Unit is
in storage under Section 6.3 after the exercise of remedies
pursuant to Section 15.4 of the Lease, the date of return
thereof for the purpose of this clause (i) shall be the last
day of the Storage Period, as the case may be), (y) the
payment in full to the Lessor of all amounts owing under
Section 22.6 of the Lease and (z) the release of the Lien of
the Indenture on such Unit (except to the extent the failure
of release is attributable to an Indenture Event of Default
not arising from a Lease Event of Default); and it being
further understood that during any such storage period the
Lessee takes responsibility only for its own acts, omissions,
gross negligence or willful misconduct);
(ii) Claims which are Taxes, whether or not the
Lessee is required to indemnify therefor under Section 7.1
hereof or the Tax Indemnity Agreement, it being understood
that the Lessee's entire obligation with respect to Taxes and
losses of tax benefits are fully set out in such Section 7.1
and the Tax Indemnity Agreement;
(iii) with respect to any particular Indemnified
Person, Claims to the extent attributable to the gross
negligence or willful misconduct (other than gross negligence
or willful misconduct imputed as a matter of Law to such
Indemnified Person solely by reason of its interest in the
Equipment) of such Indemnified Person;
(iv) with respect to any particular Indemnified
Person, Claims to the extent attributable to the incorrectness
of any representation or warranty by such Indemnified Person
in the Operative Agreements or any document or certificate
executed in connection therewith;
(v) with respect to any particular Indemnified
Person, Claims to the extent attributable to the failure by
such Indemnified Person to perform or observe any agreement,
covenant or condition required to be performed or observed by
such Indemnified Person in any of the Operative Agreements
including, without limitation, the covenant of the Indenture
Trustee under Section 6.4; or
(vi) Claims to the extent attributable to any offer,
sale or other disposition (voluntary or involuntary) by or on
behalf of or for the account of (x) the Lessor of all or any
part of its interest in the Equipment or (y) any other
Indemnified Person of all or any part of such Indemnified
Person's interest in the Equipment, the Trust Estate, the
Indenture Estate, or in the Operative Agreements except, in
the case of both clauses (x) or (y), (i) in connection with
the exercise of remedies as a result, and during the
continuance, of a Lease Event of Default under the Lease or
(ii) pursuant to the exercise by the Lessee of its purchase
options or other rights under the Lease.
(e) Claims Procedure. An Indemnified Person shall, after
obtaining knowledge thereof, promptly notify the Lessee of any Claim as
to which indemnification is sought; provided, however, that the failure
to give such notice shall not release the Lessee from any of its
obligations under this Section 7.2 except to the extent such failure
materially adversely affects the Lessee's ability to defend such
claims. Subject to the provisions of the following paragraph, the
Lessee shall at its sole cost and expense be entitled to control, and
shall assume full responsibility for, the defense of such claim or
liability; provided that the Lessee shall keep the Indemnified Person
which is the subject of such proceeding fully apprised of the status of
such proceeding and shall provide such Indemnified Person with all
information with respect to such proceeding as such Indemnified Person
shall reasonably request. Such Indemnified Person shall use reasonable
efforts, to the extent practicable in connection with any investigation
or defense which may be undertaken by the Lessee, not to interfere with
any investigation or defense by the Lessee, and each Indemnified Person
shall supply the Lessee with such information as is reasonably
requested and shall cooperate with all reasonable requests of the
Lessee in connection with such investigation or defense by the Lessee.
Notwithstanding any of the foregoing to the contrary,
the Lessee shall not be entitled to control and assume responsibility
for the defense of such claim or liability if (1) a Lease Event of
Default shall have occurred and be continuing, (2) such proceeding will
involve any material danger of the sale, forfeiture or loss of, or the
creation of any Lien (other than any lien permitted under the Operative
Agreements or a Lien which is adequately bonded to the satisfaction of
such Indemnified Person) on, any Unit of Equipment, or any part of the
Trust Estate or impairment of the Lien of the Indenture thereon, or in
any manner interfere with or impair the payments made by the Lessee to
the Indenture Trustee under the Operative Agreements, (3) in the good
faith opinion of such Indemnified Person, there exists an actual or
potential conflict of interest such that it is advisable for such
Indemnified Person to retain control of such proceeding (including,
without limitation, the failure of the Lessee to acknowledge its
obligation to indemnify such Indemnified Person for the claims or
liabilities which are the subject of such contest), or (4) such claim
or liability involves the possibility of criminal sanctions or material
civil liability to such Indemnified Person. In the circumstances
described in clauses (1) through (4) of the preceding sentence, the
Indemnified Person shall be entitled to control and assume
responsibility for the defense of such claim or liability at the
expense of the Lessee. In addition, any Indemnified Person may
participate in any proceeding controlled by the Lessee pursuant to this
Section 7.2, at such Indemnified Person's own expense in respect of any
such proceeding as to which the Lessee shall have acknowledged in
writing its obligation to indemnify the Indemnified Person pursuant to
this Section 7.2, and at the expense of Lessee in respect of any such
proceeding as to which the Lessee shall not have so acknowledged its
obligation to the Indemnified Person pursuant to this Section 7.2.
Lessee may in any event participate in all such proceedings at its own
cost.
(f) Subrogation. If a Claim indemnified by the Lessee under
this Section 7.2 is paid in full by the Lessee, the Lessee shall be
subrogated to the extent of such payment to the rights and remedies of
the Indemnified Person on whose behalf such Claim was paid with respect
to the transaction or event giving rise to such Claim. So long as no
Lease Event of Default shall have occurred and be continuing, should an
Indemnified Person receive or at such time be retaining any refund, in
whole or in part, with respect to any Claim paid by the Lessee
hereunder, it shall promptly pay over the amount refunded (but not in
excess of the amount the Lessee has paid in respect of such Claim paid
or payable by such Indemnified Person on account of such refund) to the
Lessee; provided, however, that if a Lease Event of Default exists and
is continuing, such refund shall be held by such Indemnified Person
until such Lease Event of Default is cured; provided, further, that
when such Lease Event of Default is cured such refund will be paid to
Lessee in accordance with the provisions of this subsection (f).
(g) Waiver of Certain Claims. The Lessee hereby waives and
releases any Claim now or hereafter existing against any Indemnified
Person arising out of death or personal injury to personnel of the
Lessee, loss or damage to property of the Lessee, or the loss of use of
any property of the Lessee, which may result from or arise out of the
condition, use or operation by the Lessee of the Equipment during the
Lease Term, including without limitation any latent or patent defect
whether or not discoverable.
(h) No Guaranty. The general indemnification provisions of
this Section 7.2 do not constitute a guaranty by the Lessee that the
principal of, interest on or any amounts payable with respect to the
Equipment Notes will be paid.
SECTION 8. LESSEE'S RIGHT OF QUIET ENJOYMENT
Each party to this Agreement acknowledges notice of, and consents in
all respects to, the terms of the Lease, and expressly agrees that with respect
to the Lease, so long as no Lease Event of Default has occurred and is
continuing thereunder, it or any Person acting on its authority, shall not,
through its or any such Person's actions or inactions, interfere with Lessee's
rights under the Lease, including, without limitation, the right to possession,
use and quiet enjoyment by Lessee or any permitted sublessee of the Equipment
leased thereunder.
SECTION 9. SUCCESSOR INDENTURE TRUSTEE
(a) In the event that the Indenture Trustee gives notice of
its resignation pursuant to Section 8.02 of the Trust Indenture, a
successor Indenture Trustee shall be appointed pursuant to said Section
8.02.
(b) In the event that either the Owner Trustee or the Lessee
obtains actual knowledge of the existence of any of the grounds for
removal of the Indenture Trustee set forth in Section 8.02 of the
Indenture, the Owner Trustee or the Lessee, as the case may be, shall
promptly notify the other by telephone, confirmed in writing and the
parties entitled to act promptly thereafter may remove the Indenture
Trustee and appoint a successor Indenture Trustee.
SECTION 10. MISCELLANEOUS
10.1 Consents.
Each Owner Participant covenants and agrees that it shall not
unreasonably withhold its consent to any consent requested of the Owner Trustee
under the terms of the Operative Agreements that by its terms is not to be
unreasonably withheld by the Owner Trustee.
10.2 Amendments and Waivers.
Except as otherwise provided in the Indenture, no term, covenant,
agreement or condition of this Agreement may be terminated, amended or
compliance therewith waived (either generally or in a particular instance,
retroactively or prospectively) except by an instrument or instruments in
writing executed by each party against which enforcement of the termination,
amendment or waiver is sought. Each of the Lenders agrees that the provisions of
Section 6.7 may be amended or waived on behalf of each Lender by a vote of
Majority in Interest.
10.3 Notices.
Unless otherwise expressly specified or permitted by the terms hereof,
all communications and notices provided for herein shall be in writing or by a
telecommunications device capable of creating a written record, and any such
notice shall become effective (a) upon personal delivery thereof, including,
without limitation, by express mail or courier service, (b) in the case of
notice by United States mail, certified or registered, postage prepaid, return
receipt requested, upon receipt thereof, or (c) in the case of notice by such a
telecommunications device, upon transmission thereof, provided such transmission
is promptly confirmed by any of the methods set forth in clauses (a) or (b)
above or this clause (c), in each case addressed to each party hereto at its
address set forth below or, in the case of any such party hereto, at such other
address as such party may from time to time designate by written notice to the
other parties hereto:
If to the Lessee: Birmingham Steel Corporation
1000 Urban Center Drive, Suite 300
Birmingham, Alabama 35242-2516
Attention: Vice President and Treasurer
Telephone: (205) 970-1200
Facsimile: (205) 970-1353
If to the Owner
Trustee: PNC Bank, Kentucky, Inc.
Citizen Plaza
Louisville, Kentucky 40296
Attention: Corporate Trust Department
Telephone: (502) 581-3200
Facsimile: (502) 581-2705
with a copy to: the Owner Participants at the addresses set forth
below
If to the Owner
Participants: NationsBank, National Association
c/o NationsBanc Leasing Corporation
NationsBank Plaza
101 South Tryon Street
NC1-002-38-20
Charlotte, North Carolina 28255
Attention: Manager of Corporate Lease
Administration
Telephone: (704) 386-8234
Facsimile: (704) 386-0892
AmSouth Leasing, Ltd.
c/o AmSouth Leasing Corporation
AmSouth Sonat Tower
1900 Fifth Avenue North, 8th Floor
Birmingham, Alabama 35203
Attention: President
Telephone: (205) 326-5780
Facsimile: (205) 307-4124
If to the Indenture
Trustee: First Union National Bank
230 South Tryon Street, 9th Floor
Charlotte, North Carolina 28288-1179
Attention: Corporate Trust Department
Telephone: (704) 383-5272
Facsimile: (704) 383-7316
If to any Lender, at the address of such Lender set forth on Schedule 2 of this
Agreement hereto.
10.4 No Guarantee of Debt.
Nothing contained herein or in the Lease, the Indenture, the Trust
Agreement, Tax Indemnity Agreement or the other Operative Agreements or in any
certificate or other statement delivered by the Lessee in connection with the
transactions contemplated hereby shall be deemed to be (a) a guarantee by the
Lessee to the Owner Trustee, the Owner Participants, the Indenture Trustee or
the Lenders that the Equipment will have any residual value or useful life, or
(b) a guarantee by the Indenture Trustee or the Lessee of payment of the
principal of, Make-Whole Amount, if any, or interest on, or any other amounts
payable with respect to, the Equipment Notes.
10.5 Successors and Assigns.
This Agreement shall be binding upon and shall inure to the benefit of,
and shall be enforceable by, the parties hereto and their respective successors
and permitted assigns including each successive holder of the Beneficial
Interest permitted under Section 6.1 hereof and, subject to Section 7.1(d)
hereof, each successive holder of any Equipment Note issued and delivered
pursuant to this Agreement or the Indenture. Except as expressly provided herein
or in the other Operative Agreements, no party hereto may assign its interests
herein without the consent of the other parties hereto.
10.6 Business Day.
Notwithstanding anything herein or in any other Operative Agreement to
the contrary, if the date on which any payment is to be made pursuant to this
Agreement or any other Operative Agreement is not a Business Day, the payment
otherwise payable on such date shall be payable on the next succeeding Business
Day with the same force and effect as if made on such succeeding Business Day
and (provided such payment is made on such succeeding Business Day) no interest
shall accrue on the amount of such payment from and after such scheduled date to
the time of such payment on such next succeeding Business Day.
10.7 GOVERNING LAW.
THIS AGREEMENT SHALL BE IN ALL RESPECTS GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE; PROVIDED, HOWEVER, THAT THE PARTIES
HERETO SHALL BE ENTITLED TO ALL RIGHTS CONFERRED BY ANY APPLICABLE FEDERAL
STATUTE, RULE OR REGULATION.
10.8 Severability.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable Law,
but if any provision of this Agreement shall be prohibited by or invalid under
the Laws of any applicable jurisdiction, such provision, as to such
jurisdiction, shall be, to the extent permitted by Law, ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement in such
jurisdiction or in any other jurisdiction.
10.9 Counterparts.
This Agreement may be executed in any number of counterparts, each
executed counterpart constituting an original but all together only one
Agreement.
10.10 Headings and Table of Contents.
The headings of the Sections of this Agreement and the Table of
Contents are inserted for purposes of convenience only and shall not be
construed to affect the meaning or construction of any of the provisions hereof.
10.11 Limitations of Liability.
(a) Liabilities of Trustees and Participants. Neither the
Indenture Trustee, the Owner Trustee nor any Participant shall have any
obligation or duty to the Lessee, to any other Participant or to others
with respect to the transactions contemplated hereby, and neither the
Indenture Trustee, the Owner Trustee nor any Participant shall be
liable for performance by any other party hereto of such other party's
obligations or duties hereunder, except those obligations or duties of
such Participant, the Owner Trustee or the Indenture Trustee expressly
set forth in this Agreement and the other Operative Agreements. Without
limitation of the generality of the foregoing, under no circumstances
whatsoever shall the Indenture Trustee or any Participant be liable to
the Lessee for any action or inaction on the part of the Owner Trustee
or the Indenture Trustee in connection with the transactions
contemplated herein, whether or not such action or inaction is caused
by willful misconduct or gross negligence of the Owner Trustee or the
Indenture Trustee unless such action or inaction is at the direction of
the Indenture Trustee or any Participant, as the case may be, and such
direction is expressly permitted hereby or by any other Operative
Agreement.
(b) No Recourse to the Owner Trustee. It is expressly
understood and agreed by and between the Owner Trustee, the Lessee, the
Owner Participants, the Indenture Trustee and the Lenders, and their
respective successors and permitted assigns that, subject to the
proviso contained in this Section 10.11(b), all representations,
warranties and undertakings of the Owner Trustee hereunder shall be
binding upon the Owner Trustee, only in its capacity as Owner Trustee
under the Trust Agreement, and (except as expressly provided herein)
the Owner Trustee shall not be liable in its individual capacity for
any breach thereof, except for its gross negligence or willful
misconduct, or for breach of its covenants, representations and
warranties contained herein, except to the extent covenanted or made in
its individual capacity; provided, however, that nothing in this
Section 10.11(b) shall be construed to limit in scope or substance
those representations and warranties of the Owner Trustee made
expressly in its individual capacity set forth herein. The term "Owner
Trustee" as used in this Agreement shall include any successor trustee
under the Trust Agreement, or the Owner Participants if the trust
created thereby is revoked.
10.12 Confidentiality.
Each Owner Participant, the Owner Trustee, the Indenture Trustee and
each Lender shall use reasonable efforts to maintain in confidence and not
disclose to any Person any non-public information furnished to it by or on
behalf of the Lessee pursuant to any of the Operative Agreements that is
proprietary in nature and that was clearly marked or labeled or otherwise
adequately identified when received by such Person as being confidential
information of the Lessee ("Confidential Information") without the prior consent
of the Lessee, except (a) as required by Law or any Tribunal, (b) to the extent
that such Confidential Information is publicly available, (c) where such
Confidential Information was previously known to such Owner Participant, the
Owner Trustee, the Indenture Trustee or such Lender, as the case may be, free of
any obligation to keep such information confidential, or such Confidential
Information is or becomes available to such Owner Participant, the Owner
Trustee, the Indenture Trustee or such Lender, as the case may be, on a
non-confidential basis from a source other than the Lessee or its agents or
advisors, (d) as disclosure to third parties (including courts of competent
jurisdiction) in connection with any litigation or in response to any order,
decree, judgment, subpoena, notice of discovery or similar ruling or pleading,
(e) as part of its normal reporting or review procedure to its auditors,
regulators, parent company or affiliates, provided that such auditor, parent
company, or affiliate agree to treat the Confidential Information in accordance
with the provisions of this Section 10.12, (f) to the extent necessary to obtain
appropriate insurance, to its insurance agent, provided, that prior to such
disclosure, such agent shall sign a confidentiality agreement binding the agent
to provisions substantially the same as the provisions of this Section 10.12,
(g) in the case of the Indenture Trustee and such Lender to the extent required
to avoid subjecting either the Indenture Trustee or such Lender to the risk of
civil liability or breach of fiduciary duty as evidenced by an opinion of
counsel to such Person to such effect (a copy of which opinion, addressed only
to the Indenture Trustee and/or such Lender, as applicable shall be delivered to
the Lessee), (h) such Person's directors, trustees, officers, employees, agents
and attorneys (to the extent such disclosure reasonably relates to the
administration of its investment or other role in the Overall Transaction), (i)
any other party to this Agreement, (j) any institutional investor to which the
holder of a Beneficial Interest or the holder of an Equipment Note sells or
offers to sell such Beneficial Interest or Equipment Note or any part thereof or
any participation therein (if such Person has agreed in writing prior to its
receipt of such Confidential Information to be bound by the provisions of this
Section 10.12), (k) any Person from which the holder of a Beneficial Interest or
the holder of an Equipment Note offers to purchase any security of the Lessee
(if such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 10.12), (l) the
National Association of Insurance Commissioners or any similar organization, or
any nationally recognized rating agency that requires access to information
about any Lender's investment portfolio, or (m) in order to enforce such
Person's rights and perform its obligations pursuant to the Operative
Agreements. The obligations of the Owner Participant, the Owner Trustee, the
Indenture Trustee or such Lender under this Section 10.12 shall survive the
termination of the Operative Agreements and the payment of the Equipment Notes
and all other amounts payable hereunder.
10.13 Survival of Indemnities.
Notwithstanding anything in this Agreement or in any other document or
agreement to the contrary, any indemnity provided by any Person hereunder or in
any other Operative Agreement shall survive the termination of this Agreement,
the Lease and any other Operative Agreement on the terms and conditions, and
subject to the exclusions, provided therein.
[The remainder of this page has been left blank intentionally.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed and delivered, all as of the date first above written.
Lessee: BIRMINGHAM STEEL CORPORATION
By:/s/James F. Tierney
Name: James F. Tierney
Title: Treasurer
Owner Trustee: PNC BANK, KENTUCKY, INC.,
not in its individual capacity
except as otherwise expressly
provided herein but solely as Owner
Trustee
By:/s/W. Michael Hanks
Name: W. Michael Hanks
Title:Vice President
Owner Participants: NATIONSBANK, NATIONAL ASSOCIATION
By:/s/M. Randall Ross
Name: M. Randall Ross
Title:Senior Vice President
AMSOUTH LEASING, LTD.
By: AmSouth Leasing Corporation,
General Partner
By:/s/Charles F. Kiser
Name: Charles F. Kiser
Title:President
Indenture Trustee: FIRST UNION NATIONAL BANK
By:/s/Robert Ashbaugh
Name: Robert Ashbaugh
Title:Vice President
<PAGE>
Lenders: THE MINNESOTA MUTUAL LIFE INSURANCE
COMPANY
By: MIMLIC Asset Management Company
By:/s/Lynne M. Mills
Name: Lynne M. Mills
Title: Vice President
FARM BUREAU LIFE INSURANCE COMPANY
OF MICHIGAN
By: MIMLIC Asset Management Company
By:/s/Lynne M. Mills
Name: Lynne M. Mills
Title: Vice President
COLUMBIAN MUTUAL LIFE INSURANCE
COMPANY
By: MIMLIC Asset Management Company
By:/s/Lynne M. Mills
Name: Lynne M. Mills
Title: Vice President
THE CATHOLIC AID ASSOCIATION
By: MIMLIC Asset Management Company
By:/s/Lynne M. Mills
Name: Lynne M. Mills
Title: Vice President
PIONEER MUTUAL LIFE INSURANCE COMPANY
By: MIMLIC Asset Management Company
By:/s/Steven Laude
Name: Steven Laude
Title: Vice President
COLORADO BANKERS LIFE INSURANCE
COMPANY
By: MIMLIC Asset Management Company
By:/s/Steven M. Laude
Name: Steven M. Laude
Title: Vice President
PROTECTED HOME MUTUAL LIFE
INSURANCE COMPANY
By: MIMLIC Asset Management Company
By: /s/Steven M. Laude
Name: Steen Laude
Title: Vice President
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: Mary Elizabeth Brennan
By:/s/ Mary Elizabeth Brennan
Name: Mary Elizabeth Brennan
Title: Director-Private Placements
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
By: Laurence P. Fleming
By:/s/Laurence P. Fleming
Name: Laurence P. Fleming
Title: Vice President
ALEXANDER HAMILTON LIFE INSURANCE
COMPANY OF AMERICA
By:Robert E. Whalen, II
By:/s/Robert E. Whalen, II
Name: Robert E. Whalen, II
Title:Second Vice President
CHUBB COLONIAL LIFE INSURANCE COMPANY
By: John C. Ingram
By:/s/John C. Ingram
Name: John C. Ingram
Title: Senior Vice President
<PAGE>
Exhibit 10.2
- --------------------------------------------------------------------------------
EQUIPMENT LEASE AGREEMENT
(Birmingham Steel Trust No. 97-1)
Dated as of September 30, 1997
Between
PNC BANK, KENTUCKY, INC.,
not in its individual capacity except
as expressly provided herein but
solely as Owner Trustee,
Lessor
and
BIRMINGHAM STEEL CORPORATION,
Lessee
Melt Shop Equipment
- --------------------------------------------------------------------------------
CERTAIN OF THE RIGHT, TITLE AND INTEREST OF LESSOR IN AND TO THIS
LEASE, THE EQUIPMENT COVERED HEREBY AND THE RENT DUE AND TO BECOME DUE HEREUNDER
HAVE BEEN ASSIGNED AS COLLATERAL SECURITY TO, AND ARE SUBJECT TO A SECURITY
INTEREST IN FAVOR OF FIRST UNION NATIONAL BANK, NOT IN ITS INDIVIDUAL CAPACITY
BUT SOLELY AS INDENTURE TRUSTEE UNDER A TRUST INDENTURE AND SECURITY AGREEMENT
(BIRMINGHAM STEEL TRUST NO. 97-1), DATED AS OF SEPTEMBER 30, 1997 BETWEEN SAID
INDENTURE TRUSTEE, AS SECURED PARTY, AND LESSOR, AS DEBTOR. INFORMATION
CONCERNING SUCH SECURITY INTEREST MAY BE OBTAINED FROM THE INDENTURE TRUSTEE AT
ITS ADDRESS SET FORTH IN SECTION 20 OF THIS LEASE. SEE SECTION 24.2 FOR
INFORMATION CONCERNING THE RIGHTS OF THE HOLDER OF THE CHATTEL PAPER ORIGINAL
COPY HEREOF AND THE HOLDERS OF THE VARIOUS OTHER COUNTERPARTS HEREOF.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Definitions.........................................................1
Section 2. Acceptance and Leasing of Equipment.................................1
Section 3. Term and Rent.......................................................1
3.1 Lease Term........................................................1
3.2 Basic Rent........................................................2
3.3 Supplemental Rent.................................................2
3.4 Manner of Payments................................................2
3.5 Minimum Rent......................................................3
Section 4. Retention of Title; Equipment Identification; Certain Designations..3
4.1 Retention of Title................................................3
4.2 Equipment Identification..........................................3
4.3 Certain Designations..............................................3
Section 5. Disclaimer of Warranties............................................3
Section 6. Return of Equipment; Condition of Equipment; Storage; Delivery to
Third Party Purchasers..............................................4
6.1 Return............................................................4
6.2 Condition of Equipment............................................5
6.3 Storage...........................................................5
Section 7. Liens...............................................................5
Section 8. Maintenance and Operation; Possession and Use.......................6
8.1 Maintenance and Operation.........................................6
8.2 Possession and Use................................................6
Section 9. Modifications.......................................................7
9.1 Required Modifications............................................7
9.2 Optional Modifications............................................7
9.3 Replacement of Parts..............................................7
Section 10. Right of Termination...............................................8
10.1 Termination Process..............................................8
10.2 Bid Solicitation Process.........................................9
Section 11. Loss, Destruction, Requisition, Etc................................9
11.1 Event of Loss....................................................9
11.2 Replacement or Payment upon Event of Loss........................9
11.3 Basic Rent Termination..........................................10
11.4 Disposition of Equipment; Replacement of Equipment..............11
11.5 Eminent Domain..................................................12
11.6 Lease Event of Default..........................................12
Section 12. Insurance.........................................................12
12.1 Property Damage and Public Liability Insurance..................12
12.2 Proceeds of Property Insurance..................................13
12.3 Additional Insurance............................................14
Section 13. Lessor's Inspection Rights........................................14
Section 14. Lease Events of Default...........................................14
Section 15. Remedies..........................................................15
15.1 Remedies........................................................15
15.2 Cumulative Remedies.............................................17
15.3 No Waiver.......................................................18
15.4 Lessee's Duty to Return Equipment Upon a Lease Event of Default.18
Section 16. Further Assurances................................................18
16.1 Further Assurances..............................................18
16.2 Expenses........................................................18
Section 17. Lessor's Right to Perform.........................................19
Section 18. Assignment by Lessor..............................................19
Section 19. Net Lease, Etc....................................................19
Section 20. Notices...........................................................20
Section 21. Assignment; Sublease..............................................22
Section 22. Purchase Option; Renewal Option; Return Option....................23
22.1 Election by Lessee..............................................23
22.2 Purchase Option.................................................23
22.3 Renewal Options.................................................24
22.4 Appraisal.......................................................24
22.5 Stipulated Loss Value During Renewal Term.......................25
22.6 Early Buy-Out Purchase Option...................................25
Section 23. Limitation of Lessor's Liability..................................26
Section 24. Miscellaneous.....................................................27
24.1 Governing Law; Severability.....................................27
24.2 Execution in Counterparts.......................................27
24.3 Headings and Table of Contents: Section References.............27
24.4 Successors and Assigns..........................................27
24.5 True Lease......................................................27
24.6 Amendments and Waivers..........................................28
24.7 Business Days...................................................28
24.8 Directly or Indirectly..........................................28
24.9 Incorporation by Reference......................................28
24.10 Uniform Commercial Code........................................28
24.11 Determination of Fair Market Sales Value.......................28
<PAGE>
EQUIPMENT LEASE AGREEMENT
(Birmingham Steel Trust No. 97-1)
This EQUIPMENT LEASE AGREEMENT (Birmingham Steel Trust No. 97-1), dated
as of September 30, 1997 (as amended, modified, supplemented, restated and/or
replaced from time to time, the "Lease"), between PNC BANK, KENTUCKY, INC., a
bank organized and existing under the laws of the Commonwealth of Kentucky, not
in its individual capacity except as expressly provided herein, but solely as
Owner Trustee (together with its successors and permitted assigns hereunder, the
"Lessor") and BIRMINGHAM STEEL CORPORATION, a Delaware corporation (together
with its successors and permitted assigns hereunder, the "Lessee").
W I T N E S S E T H :
Section 1. Definitions.
Unless the context otherwise requires, all capitalized terms used
herein without definition shall have the respective meanings set forth in
Appendix A hereto for all purposes of this Lease.
Section 2. Acceptance and Leasing of Equipment.
Lessor hereby agrees (subject to satisfaction or waiver of the
conditions set forth in Sections 4.1 and 4.2 of the Participation Agreement),
simultaneously with the delivery of each Unit to Lessor and acceptance thereof
by Lessor, to accept delivery of such Unit, as evidenced by the execution and
delivery by Lessor of a Certificate of Acceptance with respect to such Unit and
thereafter to lease such Unit to Lessee hereunder, and Lessee hereby agrees
(subject to satisfaction or waiver of the conditions set forth in Section 4.3 of
the Participation Agreement) to lease such Unit hereunder from Lessor, as
evidenced by the execution and delivery by Lessee and Lessor of a Lease
Supplement covering such Unit. Lessor hereby authorizes one or more employees of
Lessee to act on behalf of Lessor as its authorized representative or
representatives to accept delivery of each Unit, to execute and deliver such
Certificate of Acceptance, all in accordance with Section 2.3(b) of the
Participation Agreement. Lessee hereby agrees that such acceptance of delivery
by such representative or representatives on behalf of Lessor shall, without
further act, irrevocably constitute acceptance by Lessee of such Unit for all
purposes of this Lease.
Section 3. Term and Rent.
3.1 Lease Term.
The basic term of this Lease (the "Basic Term") for all Units shall
commence on the Basic Term Commencement Date and, subject to earlier termination
pursuant to Sections 10, 11, 15 and 22.6 shall expire at 11:59 P.M. (New York
City time) on the Basic Term Expiration Date. Subject and pursuant to Section
22.3, Lessee may elect one or more Renewal Terms for all, but not less than all,
the Equipment.
3.2 Basic Rent.
Lessee hereby agrees to pay Lessor as Basic Rent for each Unit
throughout the Basic Term Basic Rent in consecutive installments payable in
arrears on each Payment Date during the Basic Term. Each such payment of Basic
Rent shall be in an amount equal to the product of the Equipment Cost for such
Unit multiplied by the Basic Rent percentage for such Unit set forth opposite
such Payment Date on Schedule 2 to the Lease Supplement. Such Schedule 2 is
incorporated herein by reference.
3.3 Supplemental Rent.
Lessee hereby agrees for the duration of the Lease Term to pay to
Lessor, or to whomsoever shall be entitled thereto, any and all Supplemental
Rent, promptly as the same shall become due and owing, or where no due date is
specified, promptly after demand by the Person entitled thereto, and in the
event of any failure on the part of Lessee to pay any Supplemental Rent, Lessor
shall have all rights, powers and remedies provided for herein or by Law or
equity or otherwise as in the case of nonpayment of Basic Rent. Lessee will also
pay, as Supplemental Rent, (a) on demand, to the extent permitted by applicable
Law, an amount equal to interest at the applicable Late Rate on any part of any
installment of Basic Rent not paid when due for any period for which the same
shall be overdue and on any payment of Supplemental Rent not paid when due or
demanded, as the case may be, for the period from such due date or demand until
the same shall be paid, (b) in the case of a prepayment or acceleration of the
Equipment Notes as a result of the termination of this Lease with respect to any
Unit pursuant to Section 10 or otherwise, on the date of such prepayment or
acceleration, an amount equal to the Make-Whole Amount, if any, payable in
respect of the principal amount of each Equipment Note being prepaid or
accelerated and (c) in the case of a prepayment of the Equipment Notes as a
result of the exercise of the early buyout option pursuant to Section 22.6, on
the date of such prepayment, an amount equal to the Make-Whole Amount, if any,
payable in respect of the principal amount of each Equipment Note being prepaid
as a result of such exercise.
3.4 Manner of Payments.
All Rent (other than Supplemental Rent payable to Persons other than
Lessor, which shall be payable to such other Persons in accordance with written
instructions furnished to Lessee by such Persons, as otherwise provided in any
of the Operative Agreements or as required by Law) shall be paid by Lessee to
Lessor at its office at Citizens Plaza, Louisville, Kentucky 40296, Attention:
Corporate Trust Administration (Birmingham Steel Trust No. 97-1), or at such
other location in the United States of America as Lessor may otherwise direct
from time to time. All Rent shall be paid by Lessee in funds consisting of
lawful currency of the United States of America, which shall be immediately
available to the recipient not later than 12:00 noon (New York City time) on the
date of such payment. Notwithstanding the foregoing, so long as the Indenture
shall not have been discharged pursuant to the terms thereof, Lessor hereby
directs, and Lessee agrees, that all Rent (excluding Excepted Property) payable
to Lessor and assigned to the Indenture Trustee shall be paid directly to the
Indenture Trustee at the times and in funds of the type specified in this
Section 3.4 at the office of the Indenture Trustee at First Union National Bank,
230 South Tryon Street, 9th Floor, Charlotte, North Carolina 28288-1179 ABA#:
053000219, Acct. #:465946, Ref: Birmingham Steel (1076000704), Attn: Corporate
Trust Department, or at such other location in the United States of America as
the Indenture Trustee may otherwise direct from time to time.
3.5 Minimum Rent.
Section 6.8 of the Participation Agreement is incorporated herein by
reference.
Section 4. Retention of Title; Equipment Identification; Certain Designations.
4.1 Retention of Title.
Lessor shall and hereby does retain full legal title to and beneficial
ownership of the Equipment notwithstanding the delivery to and possession and
use of the Equipment by Lessee hereunder or any sublessee under any sublease
permitted hereby.
4.2 Equipment Identification.
Lessee (at its cost and expense) will upon the request of the Lessor at
any time during the Lease Term cause any or all of the Equipment to be labeled
for the remainder of the Lease Term as "The property of PNC BANK, KENTUCKY,
INC., as Owner Trustee, and subject to a lien and security interest in favor of
FIRST UNION NATIONAL BANK, as Indenture Trustee" and upon completion of such
labeling, provide Lessor with a certificate of an authorized representative of
the Lessee certifying that such request has been satisfied; provided, however,
that Lessor shall supply Lessee with all labels to be placed on the Equipment.
All other costs associated with such labeling shall be the responsibility of the
Lessee.
4.3 Certain Designations.
Lessee may cause the Units of Equipment to be lettered with the names
or initials or other insignia customarily used by Lessee or any permitted
sublessee or any of their respective Affiliates for convenience of
identification of the right of any such Person to use the Units of Equipment.
Section 5. Disclaimer of Warranties.
Without waiving any claim Lessee may have against any seller, supplier,
manufacturer, dealer or prior owner, LESSEE ACKNOWLEDGES AND AGREES THAT, (A)
EACH UNIT OF EQUIPMENT IS OF A SIZE, DESIGN, CAPACITY AND MANUFACTURE SELECTED
BY AND ACCEPTABLE TO LESSEE, (B) LESSEE IS SATISFIED THAT EACH UNIT OF EQUIPMENT
IS SUITABLE FOR ITS PURPOSES, (C) NEITHER LESSOR NOR ANY OWNER PARTICIPANT IS A
SELLER, SUPPLIER, MANUFACTURER OR DEALER IN PROPERTY OF SUCH KIND, (D) EACH UNIT
OF EQUIPMENT IS LEASED HEREUNDER SUBJECT TO ALL APPLICABLE LAWS AND GOVERNMENTAL
REGULATIONS NOW IN EFFECT OR HEREAFTER ADOPTED, AND (E) LESSOR LEASES AND LESSEE
TAKES EACH UNIT OF EQUIPMENT "AS-IS", "WHERE-IS" AND "WITH ALL FAULTS", IN
WHATEVER CONDITION IT MAY BE, AND LESSEE ACKNOWLEDGES THAT NEITHER LESSOR, AS
LESSOR OR IN ITS INDIVIDUAL CAPACITY, NOR ANY OWNER PARTICIPANT MAKES NOR SHALL
BE DEEMED TO HAVE MADE, AND EACH EXPRESSLY DISCLAIMS, ANY AND ALL RIGHTS OR
CLAIMS AGAINST SUCH ENTITY, WARRANTIES OR REPRESENTATIONS EITHER EXPRESS OR
IMPLIED, AS TO THE VALUE, CONDITION, FITNESS FOR ANY PARTICULAR PURPOSE, DESIGN,
DURABILITY, OPERATION, MERCHANTABILITY THEREOF OR AS TO THE TITLE OF ANY UNIT OF
EQUIPMENT, THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREOF OR CONFORMITY
THEREOF TO SPECIFICATIONS, FREEDOM FROM PATENT, COPYRIGHT OR TRADEMARK
INFRINGEMENT, THE ABSENCE OF ANY LATENT OR OTHER DEFECT, WHETHER OR NOT
DISCOVERABLE, OR AS TO THE ABSENCE OF ANY OBLIGATIONS BASED ON STRICT LIABILITY
IN TORT OR ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WHATSOEVER
WITH RESPECT THERETO, except that Lessor, in its individual capacity, represents
and warrants that on the Closing Date, Lessor shall have received whatever title
to the Equipment as was conveyed to Lessor by the applicable Seller and each
Unit of Equipment will be free of Lessor's Liens attributable to Lessor in its
individual capacity. Lessor hereby appoints and constitutes Lessee as agent for
Lessor and attorney-in-fact during the Lease Term to assert and enforce, from
time to time, in the name and for the account of Lessor and Lessee, as their
interests may appear, but in all cases at the sole cost and expense of Lessee,
whatever claims and rights Lessor may have as owner of the Equipment against any
seller, supplier, manufacturer, dealer or prior owner thereof; provided,
however, that if at any time a Lease Event of Default shall have occurred and be
continuing, at Lessor's option, such power of attorney shall terminate, and
Lessor may assert and enforce, at Lessee's sole cost and expense, such claims
and rights. Any proceeds obtained by Lessee from the enforcement of such claims
against any seller, supplier, or manufacturer shall be held by Lessee, and
applied from time to time to the repair and maintenance of the Equipment, and
any balance remaining held by Lessee and not supplied shall, at the expiration
of the Lease Term, be paid over to Lessor or as it may otherwise direct;
provided, however, that so long as a Lease Event of Default shall have occurred
and be continuing, any such proceeds shall be paid to Lessor, subject to the
provisions of Section 11.6. Lessee's delivery of a Lease Supplement shall be
conclusive evidence as between Lessee and Lessor that all Units described
therein are in all the foregoing respects satisfactory to Lessee.
Section 6. Return of Equipment; Condition of Equipment; Storage; Delivery
to Third Party Purchasers.
6.1 Return.
On the Basic Term Expiration Date, the date of expiration of any
applicable Renewal Term elected in accordance with Section 22.3 or the date
specified for the delivery of the Equipment in connection with any exercise by
Lessor of remedies under this Lease upon the occurrence of any Lease Event of
Default and assuming Lessee has not purchased the Equipment for the account of
Lessee in accordance with the terms of this Lease, Lessee shall, at its sole
cost and expense, deliver possession of all the Equipment at a location mutually
agreed to between the Lessee and the Lessor. Lessor may act on behalf of itself
or through designated parties for purposes of Sections 6.1 through 6.3.
6.2 Condition of Equipment.
Each Unit on the Basic Term Expiration Date and immediately prior to
its disassembly and delivery to Lessor pursuant to Section 6.1 shall be (a) in
the condition specified in Sections 8.1 and 9.1, (b) capable of being
immediately operated by any Person experienced in the operation of equipment
similar to the Equipment without further repair, replacement, alteration or
improvement and (c) free and clear of all Liens except Lessor's Liens. One copy
of all logs, records, books and other materials relating to the maintenance of
each Unit shall be made available to Lessor upon the delivery of such Unit.
Prior to the end of the Lease Term, Lessor shall have the right to inspect (at
its sole cost and expense) any Unit that is to be disassembled and delivered
pursuant to Section 6.1 to ensure that such Unit is in compliance with the
conditions set forth in this Section 6.2. Such inspections shall be during
Lessee's normal business hours and upon reasonable prior notice to Lessee;
provided, upon the occurrence and continuation of any Lease Default or Lease
Event of Default, such right of inspection shall be unconditionally available to
Lessor at any time and at the sole cost and expense of Lessee. Any such
inspections shall be subject to Lessee's reasonable safety requirements.
6.3 Storage.
Lessee shall permit Lessor to store its respective Units intact, free
of charge, at the facility of Lessee where such Units were last agreed to be
located during the Lease Term for a period (the "Storage Period") beginning on
the expiration date of the Lease Term and ending not more than 120 days
thereafter. During the Storage Period, Lessee shall be responsible for such
storage in respect of the stored Units, and at Lessee's sole cost and expense,
Lessee shall maintain insurance in respect thereof in accordance with Section
12. During the Storage Period, Lessee will permit Lessor and any representative
or representatives of any prospective purchaser or user of any Unit to inspect
the same during Lessee's normal business hours; provided, that such inspection
shall be subject to Lessee's reasonable safety requirements and arranged at a
mutually convenient time (not unduly delayed from the time so requested) so as
not to materially interfere with the normal conduct of Lessee's business. During
the Storage Period Lessee will not relocate or disassemble the Equipment without
the prior written consent of Lessor. Lessee shall not be required to store the
Equipment after the Storage Period.
Section 7. Liens.
Lessee will not directly or indirectly create, incur, assume, permit or
suffer to exist any Lien on or with respect to any Units or Lessee's leasehold
interest therein under this Lease, except Permitted Liens, Lessor's Liens and
Liens described in Section 6.4(a) of the Participation Agreement, and Lessee
shall promptly, at its own expense, take such action or cause such action to be
taken as may be necessary to duly discharge (by bonding or otherwise) any such
Lien not excepted above if the same shall arise at any time.
Section 8. Maintenance and Operation; Possession and Use.
8.1 Maintenance and Operation.
Lessee, at its own cost and expense, shall maintain, repair and keep
each Unit, and shall operate each Unit (a) in good working order, repair and
operating condition, in the repair and condition as when originally delivered to
Lessor, ordinary wear and tear excepted, and in a manner consistent with
maintenance practices used by Lessee in respect of equipment owned or leased by
Lessee similar in type to such Unit, (b) in accordance with all insurance
policies required to be maintained pursuant to Section 12, (c) in compliance
with all Laws Lessee shall have expressly agreed to comply with herein and all
other Laws the noncompliance with which (i) would interfere with or affect the
payment of any Rent, the Lien of the Indenture, or the rights of the Owner
Trustee hereunder or (ii) would involve any material danger of the sale,
forfeiture or loss of the Equipment or expose the Owner Trustee, Owner
Participants, Indenture Trustee, or Lenders to criminal prosecution or penalties
or risk of material civil liability, (d) in a manner consistent with the
manufacturer's requirements set forth in the manufacturer's manuals pertaining
to such Unit and as otherwise may be required to enforce warranty claims, and
(e) in a manner consistent with prudent industry standards in respect of
equipment similar in type to such Unit. In no event shall Lessee discriminate as
to the use or maintenance of any Unit (including without limitation the
periodicity of maintenance or record keeping in respect of such Unit) as
compared to equipment of a similar nature which Lessee owns or leases. Lessee
will maintain all records, logs and other materials required by relevant
industry standards or any Governmental Authority having jurisdiction over the
Units required to be maintained in respect of any Unit, all as if Lessee were
the owner of such Units, regardless of whether any such requirements, by their
terms, are nominally imposed on Lessee, Lessor or any Owner Participant.
8.2 Possession and Use.
Lessee shall be entitled to use of the Equipment only in the manner for
which the Equipment was designed and intended and so as to subject the Equipment
only to ordinary wear and tear. In no event shall Lessee make use of any
Equipment (a) in any jurisdiction not included in the insurance coverage
required by Section 12, (b) in any manner which invalidates any warranty
coverage respecting any Equipment, (c) in any manner which violates any Laws
Lessee shall have expressly agreed to comply with herein and all other Laws the
noncompliance with which (i) would interfere with or affect the payment of any
Rent, the Lien of the Indenture, or the rights of the Owner Trustee hereunder,
or (ii) would involve any material danger of the sale, forfeiture or loss of the
Equipment or expose the Owner Trustee, Owner Participants, Indenture Trustee, or
Lenders to criminal prosecution or penalties or risk of material civil
liability, or (d) in any manner which results at any time in an Environmental
Violation. Upon Lessee obtaining knowledge or notice of any such Environmental
Violation, Lessee shall provide Lessor with prompt written notice thereof and
promptly take all reasonable actions to cure or eliminate such Environmental
Violation.
Section 9. Modifications.
9.1 Required Modifications.
In the event any Law or Governmental Authority having jurisdiction over
any Unit requires that such Unit be altered, replaced or modified (a "Required
Modification"), Lessee agrees to promptly (but in any event within the time
period by which the Required Modification is required to be made) make such
Required Modification at its own expense. Title to any Required Modification
(upon completion thereof) shall immediately vest in Lessor without further act
or payment.
9.2 Optional Modifications.
In addition to making Required Modifications, Lessee at any time may
otherwise modify, alter or improve any Unit (an "Optional Modification");
provided, that no Optional Modification shall materially diminish the fair
market value, utility, or remaining economic useful life of such Unit below the
value, utility, or remaining economic useful life of such Unit immediately prior
to such Optional Modification, assuming such Unit was then in the condition
required to be maintained by the terms of this Lease. Title to any Optional
Modification which is not readily removable without causing material damage to a
Unit shall immediately vest in Lessor, and title to any other Optional
Modification (a "Severable Modification") shall remain with Lessee. Lessee may
remove (and, at Lessor's direction, will remove) any Severable Modification at
Lessee's sole cost and expense. Lessee, at its sole cost and expense, shall
repair any damage to any Unit caused by the installation and/or removal of any
Severable Modification. If Lessor does not direct Lessee to remove a Severable
Modification and Lessee does not elect to remove such Severable Modification,
then Lessee shall return the Unit with such Severable Modification intact, in
which case such Severable Modification shall be deemed to be a part of such Unit
and title thereto shall immediately vest in Lessor without further act or
payment.
9.3 Replacement of Parts.
Lessee will replace or cause to be replaced as promptly as practicable,
and at its sole cost and expense, all Parts of any Unit which may from time to
time become worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use for any reason whatsoever
except as otherwise provided herein. All replacement parts shall be free and
clear of all Liens (except Permitted Liens), shall be in at least as good
operating condition and have at least the same value, utility and remaining
economic useful life as the Part being replaced and shall satisfy the
requirements of Section 8.1. Title to all such replacement parts shall
immediately vest in the Lessor without further act or payment, shall constitute
Parts hereunder and shall immediately become subject to this Lease and shall be
deemed part of the Unit to which such Part is attached for all purposes hereof
to the same extent as the Parts originally comprising, or installed on, such
Unit. The Parts replaced thereby shall become property of Lessee or its designee
without further act or payment.
Section 10. Right of Termination.
10.1 Termination Process.
To the extent no Lease Default or Lease Event of Default shall have
occurred and be continuing and Lessee has determined that the Equipment is
obsolete or surplus to its needs (as such determination shall be evidenced by a
certificate executed by a Responsible Officer of Lessee), unless Lessee is
terminating this Lease or purchasing the Equipment pursuant to Section 22 on the
Basic Term Expiration Date or the expiration date of any Renewal Term (but only
to the extent such expiration date shall occur on an annual anniversary of the
Basic Term Commencement Date), Lessee may terminate this Lease respecting all,
but not less than all, of the Equipment on any Payment Date occurring on or
after the fifth annual anniversary of the Basic Term Commencement Date (any such
Payment Date may be referred to herein as the "Termination Date") upon
irrevocable written notice to Lessor given at least 120 days (but not more than
180 days) prior to the Payment Date designated for such early termination.
Lessee may not exercise such early termination option respecting any Unit unless
Lessee exercises such option respecting all Units at the same time. Lessee may
exercise such early termination option to the extent the following conditions
are met on the Termination Date: (a) Lessee arranges for the sale of all
Equipment to one or more Third Party Purchasers, (b) each Third Party Purchaser
pays Lessor the previously agreed purchase amount for such Equipment in good,
immediately available funds consisting of lawful currency of the United States
of America, (c) in the event that the aggregate Proceeds of Sale are less than
the aggregate Stipulated Loss Value for such Equipment for such date, Lessee
shall pay Lessor the difference between such aggregate Proceeds of Sale and the
aggregate Stipulated Loss Value for such date, (d) Lessee shall pay all Basic
Rent then due and owing, all Supplemental Rent then due and owing or accrued
(including without limitation any Make-Whole Amount in respect of the principal
amount of the Equipment Notes to be prepaid in accordance with Section 2.10(a)
of the Indenture), (e) Lessee shall pay, or cause to be paid, all Sales Expenses
associated with the sale of such Equipment and (f) Lessee shall deliver such
Equipment to the applicable Third Party Purchaser in the condition required by
Section 6.2. Upon receipt of all funds then due and owing to Lessor hereunder,
(x) Lessor shall convey all right, title and interest of Lessor in and to such
Equipment (including, without limitation, Lessor's rights in and to the Head
Lease Documents, if applicable) to the applicable Third Party Purchaser on an
"AS-IS", "WHERE-IS" and "WITH ALL FAULTS" basis without recourse to or
representation or warranty by Lessor (except as to the absence of Lessor's
Liens) and deliver a bill of sale reasonably necessary to transfer to the
applicable Third Party Purchaser all of Lessor's right, title and interest in
and to such Equipment and (y) to the extent the aggregate Proceeds of Sale
exceed the aggregate Stipulated Loss Value for such Equipment for the
Termination Date, Lessor shall retain such excess. At such time, Lessor will
also request in writing that the Indenture Trustee execute and deliver to the
applicable Third Party Purchaser an appropriate instrument releasing such
Equipment from the Lien of the Indenture. Except as expressly provided in this
Section 10.1, Lessee may not early terminate this Lease.
10.2 Bid Solicitation Process.
During the period from the date of certification (referenced in the
first parenthetical phrase to the first sentence of Section 10.1) to the
Termination Date, Lessee, as agent for Lessor and at Lessee's sole cost and
expense, shall use its reasonable best efforts to obtain bids from prospective
Third Party Purchasers for the cash purchase of all of the Equipment, and Lessee
shall promptly, and in any event at least five Business Days prior to the
proposed date of sale, certify to Lessor in writing the amount and terms of each
such bid and the name and address of the party submitting such bid. Lessor shall
have the right (but not the obligation) to obtain bids for the purchase of all
such Equipment, either directly or through agents other than Lessee, but shall
be under no duty to solicit bids, inquire into the efforts of Lessee to obtain
bids or otherwise take any action in connection with arranging such sale.
Section 11. Loss, Destruction, Requisition, Etc.
11.1 Event of Loss.
In the event that any Unit (a) shall suffer damage, contamination,
destruction or rendition of such Unit permanently unfit for normal use for any
reason whatsoever, (b) shall suffer an actual or constructive total loss, (c)
shall be permanently returned to the manufacturer or the vendor, (d) shall be
prohibited from being used in the normal course of business by any Governmental
Authority, (e) shall suffer theft or disappearance, (f) shall suffer any damage
which results in an insurance settlement respecting such Unit on the basis of a
total loss, (g) shall have title thereto taken or appropriated by any
Governmental Authority under the power of eminent domain or otherwise, or (h)
shall be taken, requisitioned, condemned, confiscated or seized for use by any
Governmental Authority under the power of eminent domain or otherwise (any such
occurrence being hereinafter called an "Event of Loss"), Lessee, in accordance
with the terms of Section 11.2, shall give notice to Lessor of such Event of
Loss.
11.2 Replacement or Payment upon Event of Loss.
Upon the occurrence of an Event of Loss with respect to any Unit,
Lessee shall within 30 days of such occurrence give Lessor notice of such
occurrence and of its election to perform one of the following options and the
contemplated date of performance of such option (it being agreed that if Lessee
shall not have given notice of such election within 30 days after such
occurrence, Lessee shall be deemed to have elected to perform the option set
forth in the following paragraph (b)); provided, however that Lessee shall not
have the option set forth in clause (b) below and shall comply with the
requirements set forth in clause (a) below if (i) the failure to replace such
Unit would reduce the aggregate Fair Market Sales Value of the Equipment not
subject to such Event of Loss below the Fair Market Sales Value of such
Equipment immediately prior to such Event of Loss (assuming such Equipment and
the Unit suffering such Event of Loss was then in the condition required to be
maintained by the terms of this Lease) and (ii) the exercise of such option
would cause any of the remaining Units to be "limited use property" within the
meaning of Rev. Proc. 76-30, 1976-2, C.B. 647; provided, further that
notwithstanding any language to the contrary contained herein if (1) a Lease
Event of Default or a Section 14(a), (b), (d) or (e) Lease Default shall have
occurred and be continuing at any time from and including the date of occurrence
of such Event of Loss to and including the date as of which Lessee has conveyed
a Replacement Unit in accordance with 11.2(a), or (2) the insurance underwriter
providing the coverages required by the terms of Section 12 of this Lease
determines that all of the Equipment then subject to this Lease shall have
suffered a total or constructive loss, Lessee shall perform the option set forth
in the following paragraph (b):
(a) Lessee shall comply with Section 11.4(b) and shall convey or cause
to be conveyed to Lessor a Replacement Unit to be leased to Lessee hereunder,
such Replacement Unit to be free and clear of all Liens (other than Permitted
Liens) and to have a value, utility and remaining economic useful life at least
equal to the Unit so replaced (assuming such Unit was then in the condition
required to be maintained by the terms of this Lease); or
(b) on the Payment Date next occurring after the notice given pursuant
to the first sentence of this Section 11.2, Lessee shall pay or cause to be paid
(i) to Lessor (A) an amount equal to the Stipulated Loss Value of each such Unit
suffering such occurrence determined as of such Payment Date and (B) all Basic
Rent payable on such date and (ii) to the Persons (including without limitation
Lessor) entitled thereto all other unpaid Supplemental Rent due on or before
such Payment Date; it being understood that until all such amounts referenced in
this Section 11.2(b) are paid in full, there shall be no abatement or reduction
of Basic Rent.
11.3 Basic Rent Termination.
Upon the replacement of any Unit in compliance with Section 11.2 (a) or
upon the payment of all sums required to be paid pursuant to Section 11.2 (b) in
respect of any Unit for which Lessee has elected to pay (or is deemed to have
elected to pay) the amounts specified in Section 11.2(b), the Lease Term with
respect to such replaced or terminated Unit and the obligation to pay Basic Rent
for such replaced or terminated Unit accruing subsequent to the date of
conveyance of such Replacement Unit pursuant to Section 11.2(a) or the date of
payment of all amounts due pursuant to Section 11.2(b), as the case may be,
shall terminate; provided, that Lessee shall be obligated to pay all Rent in
respect of such replaced or terminated Unit which has accrued up to and
including the date of conveyance of such Replacement Unit pursuant to Section
11.2 (a) or the date of payment of all amounts due pursuant to Section 11.2 (b),
as the case may be; provided, further, Lessee shall be obligated to pay Basic
Rent regarding all Units remaining under the Lease (including without limitation
each Replacement Unit) and such termination of the obligation to pay Basic Rent
in respect of such replaced or terminated Unit shall not invalidate Lessee's
continuing indemnity obligation with respect thereto. For the avoidance of
doubt, it is agreed and understood that (A) if a Unit is replaced pursuant to
Section 11.2(a), all Basic Rent payments will continue to be made in the amounts
and on the dates as were payable prior to such Unit having been replaced and (B)
if Lessee shall have elected to pay the amounts specified in Section 11.2(b) in
respect of any Unit or Units which are the subject of an Event of Loss, the
reduction of the aggregate amount of Basic Rent for all Units due on each
Payment Date caused by such payment shall be in an amount equal to the product
of (x) the aggregate amount of Basic Rent for all Units due on each Payment Date
immediately prior to such Event of Loss times (y) a fraction, the numerator of
which is the Equipment Cost of such Unit or Units being terminated and the
denominator of which is the aggregate Equipment Cost of all Units immediately
prior to such Event of Loss and termination.
11.4 Disposition of Equipment; Replacement of Equipment.
(a) Upon the payment of all sums required to be paid pursuant to
Section 11.2(b) in respect of any Unit, Lessor shall convey to Lessee or its
designee all right, title and interest of Lessor in and to such Unit (including,
without limitation, Lessor's rights in and to the Head Lease Documents with
respect to such Unit), "AS-IS", "WHERE-IS" and "WITH ALL FAULTS", without
recourse to or representation or warranty by Lessor, except for a warranty
against Lessor's Liens, and shall execute and deliver to Lessee or its designee
bills of sale to evidence such conveyance. As to each separate Unit so disposed
of, Lessee or its designee shall be entitled to any amounts arising from such
disposition, plus any awards, insurance or other proceeds and damages received
by Lessee, Lessor or the Indenture Trustee by reason of such Event of Loss after
having paid the Stipulated Loss Value attributable thereto and all other amounts
of Rent then due and payable in respect thereof, provided, that if a Lease Event
of Default or a Section 14(a), (b), (d) or (e) Lease Default shall have occurred
and be continuing, the amounts referred to in this sentence which are payable to
Lessee shall be paid to Lessor, and Lessor shall hold such amounts received as
security for Lessee's obligations hereunder subject to the provisions of Section
11.6.
(b) At the time of or prior to any replacement of any Unit, Lessee, at
its sole cost and expense, will (i) furnish Lessor (or its designee) with a bill
of sale with respect to the Replacement Unit pursuant to which Lessor shall
receive good and marketable legal title with respect to such Replacement Unit,
(ii) cause a Lease Supplement substantially in the form of Exhibit A hereto,
subjecting such Replacement Unit to this Lease, and duly executed by Lessee, to
be delivered to Lessor for execution, (iii) so long as the Indenture shall not
have been satisfied and discharged, cause an Indenture Supplement substantially
in the form of Exhibit A to the Indenture for such Replacement Unit to be
delivered to Lessor and to the Indenture Trustee for execution, (iv) furnish
Lessor and the Indenture Trustee with an opinion of Lessee's counsel, to the
effect that (x) the bill of sale referred to in clause (i) above constitutes an
effective instrument for the conveyance of title to the Replacement Unit to
Lessor (or such designee) and (y) all filings, recordings and other action
necessary or appropriate to perfect and protect Lessor's interests in and
Indenture Trustee's Lien on the Replacement Unit have been accomplished, (v)
furnish to each Owner Participant an acknowledgment by Lessee, in form and
substance satisfactory to each Owner Participant, that Lessee will indemnify
each Owner Participant for any adverse tax consequences resulting from such
replacement consistent with the provisions of the Tax Indemnity Agreement, and
(vi) furnish such other documents and evidence as any Owner Participant, Lessor
or Indenture Trustee, or their respective counsel, may reasonably request in
order to establish the consummation of the transactions contemplated by this
Section 11.4. For all purposes hereof, upon passage of title thereto to Lessor
the Replacement Unit shall be deemed part of the property leased hereunder and
the Replacement Unit shall be deemed a "Unit" of Equipment as defined herein
with the same Equipment Cost as the Unit replaced thereby. Upon such passage of
title, Lessor will (i) transfer to Lessee, without recourse or warranty (except
as to Lessor's Liens), all Lessor's right, title and interest in and to the
replaced Unit (and Lessor's rights in and to the Head Lease Documents with
respect to such Unit, as applicable), and upon such transfer, Lessor will
request in writing that the Indenture Trustee execute and deliver to Lessee an
appropriate instrument releasing such replaced Unit from the Lien of the
Indenture and (ii) so long as no Lease Event of Default or Section 14(a), (b),
(d) or (e) Lease Default shall have occurred and be continuing use reasonable
efforts to sell and lease back such Replacement Unit to and from the Head Lessor
in accordance with the terms and conditions of the Head Lease Documents and
otherwise in a manner reasonably satisfactory to it.
11.5 Eminent Domain.
In the event that during the Lease Term the use of any Unit is
requisitioned or taken by any Governmental Authority under the power of eminent
domain or otherwise, Lessee's obligation to pay Basic Rent shall continue unless
and until such requisition or taking constitutes an Event of Loss and such
obligation shall be terminated in accordance with Section 11.3. Subject to the
last sentence of this Section 11.5, Lessee shall be entitled to receive and
retain for its own account all sums payable for any such period by such
Governmental Authority as compensation for requisition or taking of possession.
Subject to the last sentence of this Section 11.5, Lessor and/or the Indenture
Trustee will pay to Lessee any amounts received by them in respect of any such
requisition or taking of possession (other than amounts received from Lessee).
If a Lease Event of Default shall have occurred and be continuing, any amounts
payable to Lessee pursuant to this Section 11.5 shall be paid to or retained by
Lessor, as the case may be, (or, so long as the Lien of the Indenture has not
been discharged, the Indenture Trustee) and Lessor shall hold such amounts as
security for Lessee's obligations hereunder subject to the provisions of Section
11.6.
11.6 Lease Event of Default.
Any amount referred to in Sections 5, 11.4(a), 11.5 or 12.2 which is to
be held by Lessor subject to the provisions of this Section 11.6 shall be held
by Lessor (or, so long as the Lien of the Indenture has not been discharged, the
Indenture Trustee) as security for the obligations of Lessee under this Lease,
and at such time as there shall not be continuing any such Lease Event of
Default or Lease Default, as the case may be, such amount (unless theretofore
otherwise applied to the obligations of Lessee hereunder) shall be paid over to
Lessee.
Section 12. Insurance.
12.1 Property Damage and Public Liability Insurance.
(a) Lessee will, at all times prior to the return of the Units to
Lessor and, if applicable, during the Initial Storage Period, at its sole cost
and expense, cause to be carried and maintained with Approved Insurers (i)
physical damage insurance in respect of each Unit in an amount at any time not
less than the Stipulated Loss Value for each such Unit at such time and (ii)
public liability insurance for such Units with respect to third-party personal
injury and property damage, and Lessee will continue to carry such insurance in
such amounts and for such risks not less comprehensive in amounts and against
risks customarily insured against by Lessee in respect of equipment owned or
leased by it similar in type to the Equipment and in any event in an amount not
less than $5,000,000 per occurrence. Any policies of insurance carried in
accordance with this Section 12.1 and any policies taken out in substitution or
replacement for any of such policies (A) shall provide that, if any such
insurance is canceled, materially modified or terminated for any reason
whatsoever, Lessor, the Indenture Trustee and each Owner Participant shall
receive 30 days' prior notice of such cancellation, material modification or
termination, and no such cancellation, material modification or termination
shall be effective against such party until receipt of such notice, (B) shall
name Lessor, as lessor of the Equipment, and the Indenture Trustee as loss
payees and shall name each of the Additional Insured Parties as additional
insureds, in each case as their interests may appear, (C) shall provide that no
Additional Insured Party shall have any responsibility for any insurance
premiums, whether for coverage before or after cancellation or termination of
any such policies as to Lessee, (D) as to the public liability insurance
referred to in this paragraph 12.1(a) shall provide that in as much as such
policies cover more than one insured, all terms, conditions, insuring agreements
and endorsements, with the exceptions of limits of liability and liability for
premiums, commissions, assessments or calls (which shall be solely a liability
of Lessee), shall operate in the same manner as if there were a separate policy
or policies covering each insured, (E) shall waive any rights of subrogation of
the insurers against all Additional Insured Parties, (F) shall provide that the
coverage of such policies shall not be invalidated because of any action or
inaction of Lessee or any other Person and (G) shall be primary without the
right of contribution. Lessee shall, at its own expense, be entitled to make all
proofs of loss and take all other steps necessary to collect the proceeds of the
insurance required hereunder.
(b) Lessee shall, prior to the Closing Date and not less than annually
thereafter, furnish each Additional Insured Party with a certificate signed by
the insurer or an independent insurance broker evidencing each policy of
insurance carried in accordance with this Section 12.1.
(c) The aggregate amount of the deductible limits of the insurance
policies carried by Lessee pursuant to clauses (i) and (ii) of Section 12.1(a)
at any time shall not exceed $500,000.
12.2 Proceeds of Property Insurance.
So long as no Lease Event of Default or Section 14(a), (b), (d) or (e)
Lease Default shall have occurred and be continuing, the entire proceeds of any
property insurance or third party payments for damages to any Unit received by
Lessor or the Indenture Trustee shall be paid over to Lessee, provided, if the
aggregate amount of such proceeds received at any one time exceeds
$5,000,000.00, the Lessor or the Indenture Trustee may hold such proceeds as
security for Lessee's obligations hereunder subject to the provisions of Section
11.6 (except such proceeds may only be released pursuant to Section 11.2(a) if
Lessee certifies to Lessor or the Indenture Trustee, as the case may be, that
such proceeds, together with other resources of the Lessee, are sufficient to
repair or replace such Unit); provided, further, that if such damages constitute
an Event of Loss with respect to such Unit, such proceeds shall be released in
full to Lessee upon Lessee's replacement of such Unit (or to the manufacturer,
vendor or supplier prior to such replacement, in accordance with the terms of
any purchase contract between Lessee and such manufacturer or supplier, if
progress payments are required to be made towards the acquisition of a
Replacement Unit for such Unit) pursuant to Section 11.2(a) or, if such Unit is
not replaced pursuant to Section 11.2(a), shall be applied towards the
satisfaction of Lessee's payment obligations pursuant to Section 11.2(b).
Anything to the contrary in the preceding sentence notwithstanding, if a Lease
Event of Default or Section 14(a), (b), (d) or (e) Lease Default shall have
occurred and be continuing such proceeds shall be paid to Lessor, and Lessor
shall hold such proceeds as security for Lessee's obligations hereunder subject
to the provisions of Section 11.6.
12.3 Additional Insurance.
At any time Lessor (either directly or in the name of the Owner
Participants) may at its own expense carry insurance with respect to its
interest in the Units, provided, that such insurance does not interfere with
Lessee's ability to insure the Equipment as required by this Section 12 or
adversely affect Lessee's insurance or the cost thereof, it being understood
that all salvage rights to each Unit shall remain with Lessee's insurers at all
times. Any insurance payments received from policies maintained by Lessor
pursuant to the previous sentence shall be retained by Lessor without reducing
or otherwise affecting Lessee's obligations hereunder.
Section 13. Lessor's Inspection Rights.
Lessor shall have the right, but not the obligation, at its sole cost
and expense, by its authorized representatives, to inspect the Equipment and
Lessee's records with respect thereto during Lessee's normal business hours and
upon reasonable prior notice to Lessee; provided, upon the occurrence of any
Lease Event of Default such right of inspection shall be unconditionally
available to Lessor and/or any potential Third Party Purchaser at any time and
at the sole cost and expense of Lessee; provided further, that any such
inspection shall be subject to Lessee's reasonable safety requirements.
Section 14. Lease Events of Default.
The following events shall constitute "Lease Events of Default"
(whether any such event shall be voluntary or involuntary or come about or be
effected by operation of Law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any
Governmental authority):
(a) Lessee shall fail to make any payment of Basic Rent or Stipulated
Loss Value within five days after the same shall have become due, whether at
stated maturity, by acceleration or otherwise; or
(b) Lessee shall fail to make any payment of Supplemental Rent,
including without limitation indemnity or tax indemnity payments (but excluding
Stipulated Loss Value which shall be subject to clause (a) above) or any payment
required to be made by it pursuant to Section 2.5(b) of the Participation
Agreement after the same shall have become due and such failure shall continue
unremedied for ten days after receipt by Lessee of written notice of such
failure from any Owner Participant, Lessor or the Indenture Trustee; or
(c) any representation or warranty made by Lessee in any Operative
Agreement (other than the Tax Indemnity Agreement) to which Lessee is a party or
any certificate or document delivered in connection with the transactions
contemplated by the Operative Agreements shall prove to be untrue or incorrect
in any material respect when made; or
(d) Lessee shall commence a voluntary case in the United States seeking
liquidation, reorganization, or other relief under any applicable bankruptcy,
insolvency or other similar Law now or hereafter in effect, shall consent to the
entry of an order for relief in an involuntary case under any such Law, or shall
consent to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official) of Lessee
or of any substantial part of its property, or shall make any general assignment
for the benefit of creditors, or shall fail generally to pay its debts as they
become due; or
(e) a court having jurisdiction in the premises shall enter a decree or
order for relief in respect of Lessee in an involuntary case in the United
States under any applicable bankruptcy, insolvency or other similar Law now or
hereafter in effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of Lessee or for any substantial
part of its property, or ordering the winding-up or liquidation of its affairs
and such decree or order shall remain unstayed and in effect for a period of
ninety (90) consecutive days; or
(f) Lessee shall fail to observe or perform any other of the covenants
or agreements to be observed or performed by Lessee under any Operative
Agreement to which Lessee is a party (other than the Tax Indemnity Agreement)
and such failure shall continue unremedied for thirty (30) days after notice
from Lessor, any Owner Participant or the Indenture Trustee to Lessee,
specifying the failure and demanding the same to be remedied; provided, that if
such failure is capable of being remedied, no such failure shall constitute a
Lease Event of Default hereunder for a period of sixty (60) days after receipt
of such notice so long as Lessee is diligently proceeding to remedy such
failure; or
(g) Lessee shall fail to carry and maintain insurance required to be
maintained in accordance with the provisions of Section 12 hereof or shall
contest the validity or enforceability of any Operative Agreement to which it is
a party.
Section 15. Remedies.
15.1 Remedies.
Upon the occurrence of any Lease Event of Default and at any time thereafter so
long as the same shall be continuing, Lessor may exercise one or more of the
following remedies as Lessor in its sole discretion shall elect (provided, once
the exercise of remedies is commenced, Lessee may not cure any Lease Event of
Default unless such cure is acceptable to Lessor in its sole discretion):
(a) proceed by appropriate court action or actions, either at Law or in
equity, to enforce performance by Lessee of the applicable covenants of this
Lease or to recover damages for the breach thereof;
(b) Lessor may demand that Lessee, and Lessee shall, upon demand of
Lessor and at Lessee's sole cost and expense, forthwith return any or all of the
Equipment to Lessor or its order in the manner and condition required by, and
otherwise in accordance with all of the provisions of, Sections 6.1, 6.2 and
15.4; or Lessor may, at its option, enter upon the premises of Lessee or other
premises where any of the Equipment may be located and take possession of and
remove any or all of the Equipment and thenceforth hold, use, operate, sublease,
possess and enjoy the same free from any right of Lessee or its sublessees and
successors or assigns, to use such Equipment for any purpose whatever and
without any duty to account to Lessee with respect to the proceeds thereof all
without liability to Lessor for such entry or taking possession;
(c) with or without taking possession, sell any or all of the Equipment
at public or private sale, as Lessor may determine, with not less than ten days
prior notice to Lessee but free and clear of any rights of Lessee and without
any duty to account to Lessee with respect to such sale or for the proceeds
thereof (except to the extent required by Section 15.1(e)), in which event
Lessee's obligation to pay Basic Rent with respect to such Equipment hereunder
due for any periods subsequent to the date of such sale shall terminate (except
to the extent that Basic Rent is to be included in computations under Sections
15.1(d) or (e) if Lessor elects to exercise its rights under either of said
Sections);
(d) whether or not Lessor shall have exercised, or shall thereafter at
any time exercise, any of its rights under Sections 15.1(a), (b) or (c) with
respect to any or all of the Equipment, Lessor, by written notice to Lessee
specifying a payment date not earlier than 30 days after such notice, may demand
that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date
specified in such notice, as liquidated damages for loss of a bargain and not as
a penalty (in lieu of the Basic Rent for such Equipment due after the payment
date specified in such notice), (i) all Rent due and payable or accrued for such
Equipment as of the payment date specified in such notice, plus (ii) an amount
equal to the excess, if any, of the Stipulated Loss Value for such Equipment
computed as of the Payment Date next preceding the payment date specified in
such notice (or if such payment date occurs on a Payment Date, then computed as
of such Payment Date) over the Fair Market Sales Value (as determined by an
appraiser selected by Lessor) of such Equipment as of the payment date specified
in such notice;
(e) if Lessor shall have sold any or all of the Equipment pursuant to
Section 15.1(c), Lessor, by written notice to Lessee specifying a payment date
not earlier than 30 days after such notice, may demand that Lessee pay to
Lessor, and Lessee shall pay to Lessor, as liquidated damages for loss of a
bargain and not as a penalty (in lieu of the Basic Rent for such Equipment due
after the payment date specified in such notice) (i) all Rent and all Sales
Expenses due and payable or accrued for such Equipment as of the payment date
specified in such notice, plus (ii) the amount, if any, by which the Stipulated
Loss Value of such Equipment computed as of the Payment Date next preceding the
date of such sale (or if such sale occurs on a Payment Date, then computed as of
such Payment Date) exceeds the proceeds of such sale;
(f) in lieu of exercising its rights pursuant to Sections 15.1(d) or
(e) with respect to any or all of the Equipment and provided such Lease Event of
Default has not been cured within the time period expressly set forth therefor
in this Lease or waived, Lessor by written notice to Lessee specifying a payment
date not earlier than five days after such notice, may demand that Lessee pay
Lessor, and Lessee shall pay Lessor, on the payment date specified in such
notice as liquidated damages for loss of a bargain and not as a penalty in lieu
of the Basic Rent for the Equipment due after the payment date specified in such
notice (provided, such demand for payment shall be deemed to occur automatically
without further notice upon the occurrence of a Lease Event of Default as
specified in Sections 14(d) or (e) and in such event the payment date referenced
herein shall be deemed to be the date such Lease Event of Default occurs), the
sum of (i) all Rent due and payable or accrued for such Equipment as of the
payment date specified in such notice, plus (ii) an amount equal to the
Stipulated Loss Value for such Equipment computed as of the Payment Date next
preceding the payment date specified in such notice (or if such payment date
occurs on a Payment Date, then computed as of such Payment Date); and upon
payment by Lessee of all such damage amounts referenced in this Section 15.1(f)
and all Sales Expenses and other costs and expenses of transfer otherwise
payable by Lessor, Lessor will transfer to Lessee, without recourse to or
representation or warranty by Lessor (except as to the absence of Lessor's
Liens), all Lessor's right, title and interest in and to such Equipment
(including, without limitation, Lessor's rights in and to the Head Lease
Documents with respect to such Equipment, as applicable) and Lessor will request
in writing that the Indenture Trustee execute and deliver to Lessee an
appropriate instrument releasing such Equipment from the Lien of the Indenture;
and/or
(h) Lessor may rescind or terminate this Lease or may exercise any
other right or remedy that may be available to it under applicable Law.
In addition, Lessee shall be liable, except as otherwise provided
above, for any and all unpaid Supplemental Rent due hereunder before or during
the exercise of any of the foregoing remedies, and for reasonable legal fees and
other reasonable costs and expenses of Lessor, any Owner Participant, Indenture
Trustee or any Lender incurred by reason of the occurrence of any Lease Event of
Default or the exercise of Lessor's remedies with respect thereto, including
without limitation the repayment in full of any costs and expenses necessary to
be expended in repairing any Unit in order to cause it to be in compliance with
all maintenance and regulatory standards imposed by this Lease and expenses,
including without limitation reasonable legal fees, involved in any appearance
by Lessor, any Owner Participant or the Indenture Trustee, or any Lender in any
bankruptcy or insolvency proceeding (or any other proceeding) with respect to
Lessee.
15.2 Cumulative Remedies.
The remedies in this Lease provided in favor of Lessor shall not be
deemed exclusive, but shall be cumulative and shall be in addition to all other
remedies in its favor existing at Law or in equity. Lessee hereby waives any
mandatory requirements of Law, now or hereafter in effect, which might limit or
modify any of the remedies herein provided, to the extent that such waiver is
permitted by Law.
15.3 No Waiver.
No delay or omission to exercise any right, power or remedy accruing to
Lessor upon any breach or default by Lessee under this Lease shall impair any
such right, power or remedy of Lessor, nor shall any such delay or omission be
construed as a waiver of any breach or default, or of any similar breach or
default hereafter occurring; nor shall any waiver of a single breach or default
be deemed a waiver of any subsequent breach or default.
15.4 Lessee's Duty to Return Equipment Upon a Lease Event of Default.
If Lessor or any assignee of Lessor shall terminate this Lease pursuant
to this Section 15, unless Lessee shall purchase the Equipment pursuant to this
Section 15, Lessee shall forthwith deliver possession of the Equipment to Lessor
or its designees pursuant to Sections 6.1 through 6.3 and any other applicable
Operative Agreement.
Section 16. Further Assurances.
16.1 Further Assurances.
Lessee will duly execute and deliver to Lessor, each Owner Participant
and the Indenture Trustee such further documents and assurances and take such
further action as may be required by applicable Law in order to effectively
establish and protect the rights and remedies created in favor of Lessor, each
Owner Participant and the Indenture Trustee hereunder and under the Indenture,
including without limitation the execution and delivery of supplements or
amendments hereto and to the Indenture, in recordable form, subjecting to this
Lease and to the Indenture any Replacement Unit and the recording or filing of
counterparts hereof or thereof in accordance with the Laws of such jurisdiction
within the United States and such Uniform Commercial Code financing statements
as are required to maintain the right, title and interest of Lessor in and to
the Equipment and the remainder of the Trust Estate and to maintain the validity
and perfection of the Lien of the Indenture on the Indenture Estate or as
Lessor, any Owner Participant or the Indenture Trustee may from time to time
deem advisable; provided, that in connection with the foregoing Lessee shall
also take such further action (not specifically referred to above) as is
reasonably requested by Lessor.
16.2 Expenses.
Lessee will pay all costs, charges and expenses (including without
limitation reasonable attorneys fees and expenses) incident to any filing,
refiling, recording and rerecording or depositing and redepositing of any such
instruments, Uniform Commercial Code filings or incident to the taking of
action, all as referenced in Section 16.1.
Section 17. Lessor's Right to Perform.
If Lessee fails to make any payment required to be made by it hereunder
or fails to perform or comply with any of its other agreements contained herein
which requires the payment of money, Lessor may itself make such payment or
perform or comply with such agreement which requires the payment of money, after
giving prior written notice thereof to Lessee, but shall not be obligated
hereunder to do so, and the amount of such payment, together with interest
thereon at the Late Rate, to the extent permitted by applicable Law, shall be
deemed to be Supplemental Rent, payable by Lessee to Lessor on demand.
Section 18. Assignment by Lessor.
Lessee and Lessor hereby confirm that concurrently with the execution
and delivery of this Lease, Lessor has executed and delivered to the Indenture
Trustee the Indenture, which is intended to assign as collateral security and
grants a Lien in favor of the Indenture Trustee in, to and under the Equipment,
this Lease and the Rent payable hereunder (excluding Excepted Property), all as
more explicitly set forth in the Indenture. Lessor agrees that it shall not
otherwise assign or convey its right, title and interest in and to this Lease,
the Equipment or any Unit, except (a) as expressly permitted by and subject to
the provisions of the Participation Agreement, the Trust Agreement and the
Indenture or (b) following completion of foreclosure or similar proceedings
pursuant to the Indenture or deed in lieu thereof. Lessee hereby consents to
such assignment and to the creation of such Lien and consents to the terms and
provisions thereof. In all cases, Lessee (x) acknowledges that the Indenture
provides for the exercise by the Indenture Trustee of all rights of Lessor
hereunder (other than with respect to the Excepted Property) to give any
consents, approvals, waivers, notices or the like, to make any elections,
demands or the like, or to take any other discretionary action hereunder, except
as specifically set forth in the Indenture, (y) acknowledges receipt of an
executed counterpart of the Indenture as in effect on the date hereof and
consents to all of the provisions thereof and (z) agrees that, to the extent
provided in the Indenture, the Indenture Trustee shall have all the rights of
Lessor hereunder (other than with respect to the Excepted Property) as if the
Indenture Trustee had originally been named as Lessor herein, to the extent
provided in the Indenture. Notwithstanding any provision of this Lease or any
other Operative Agreement but without prejudice to Lessor's and any Owner
Participant's rights expressly provided for in the Indenture, so long as
Lessor's interest in this Lease or the Equipment is subject to the Lien of the
Indenture, Lessee shall make all payments of Rent, and all other amounts payable
hereunder to Lessor, other than Excepted Property, to the Indenture Trustee as
provided in Section 3.4, and the obligation of Lessee to make all such payments
shall not be subject to any defense, counterclaim, setoff or other right or
claim of any kind which Lessee may be able to assert against Lessor or any Owner
Participant in an action brought by either thereof on this Lease.
Section 19. Net Lease, Etc.
This Lease is a "net" lease. All costs, expenses and obligations of
every kind and nature whatsoever relating to the Equipment and the appurtenances
thereto and the use thereof by Lessee or anyone claiming by, through or under
Lessee which may arise or become due during or with respect to the Lease Term
shall be paid by Lessee. Lessee's obligation to pay all Rent payable hereunder
and to operate, insure and maintain the Equipment shall be absolute,
unconditional and irrevocable and shall not be affected by any circumstance of
any character including without limitation (a) any set-off, abatement,
counterclaim, suspension, deferment, recoupment, diminution, reduction,
rescission, cancellation, repudiation, defense or other right including, without
limitation, any past, present or future claims that Lessee may have against
Lessor, any Owner Participant, the Indenture Trustee or any holder of any
Equipment Note, any vendor or manufacturer of any Unit, or any other Person for
any reason whatsoever, (b) any defect in or failure of title, merchantability,
condition, design, construction, compliance with specifications, operation or
fitness for use of all or any part of any Unit, or any interruption or cessation
in or prohibition of the use or possession of any Unit for any reason
whatsoever, (c) any damage to, or removal, abandonment, requisition, taking,
condemnation, loss, theft or destruction of all or any part of any Unit or any
interference, interruption, restriction, curtailment or cessation in the use or
possession of any Unit by Lessee or any other Person for any reason whatsoever
or of whatever duration, (d) any insolvency, bankruptcy, reorganization or
similar proceeding by or against any Person, (e) the invalidity, illegality or
unenforceability of this Lease, any other Operative Agreement, or any other
instrument referred to herein or therein or any other infirmity herein or
therein or any lack of right, power or authority of Lessee to enter into this
Lease or any other Operative Agreement to which it is a party or to perform the
obligations hereunder or thereunder or consummate the transactions contemplated
hereby or thereby or any doctrine of force majeure, impossibility, frustration
or failure of consideration, or (f) any other circumstance or happening
whatsoever, foreseeable or unforeseeable, whether or not similar to any of the
foregoing. To the extent permitted by applicable Law, Lessee hereby waives any
and all rights which it may now have or which at any time thereafter may be
conferred upon it, by statute or otherwise, to terminate, cancel, quit, rescind,
avoid or surrender this Lease with respect to any Unit, except in accordance
with the express terms hereof. Each payment of Rent made by Lessee hereunder
shall be final and Lessee shall not seek or have any right to recover all or any
part of such payment from Lessor or any Person for any reason whatsoever.
Nothing contained herein shall be construed to waive any claim which Lessee
might have under any of the Operative Agreements or otherwise or to limit the
right of Lessee to make any claim it might have against Lessor or any other
Person or to pursue such claim in such manner as Lessee shall deem appropriate,
except as provided above. If for any reason whatsoever this Lease shall be
terminated by operation of Law or otherwise except as expressly provided herein,
Lessee shall nonetheless pay an amount equal to each Rent payment at the time
and in the manner that such payment would become due and payable hereunder if
this Lease had not been terminated.
Section 20. Notices.
Unless otherwise expressly specified or permitted by the terms hereof,
all communications and notices provided for herein shall be in writing or by a
telecommunications device capable of creating a written record, and any such
notice shall become effective (a) upon personal delivery thereof, including
without limitation by express mail or courier service, (b) in the case of notice
by United States mail, by certified or registered mail with postage prepaid and
marked return receipt requested upon receipt thereof, or (c) in the case of
notice by such a telecommunications device, upon transmission thereof, provided
such transmission is promptly confirmed by any of the methods set forth in
clauses (a) or (b) above, in each case addressed to each party at its address
set forth below or, in the case of any such party, at such other address as such
party may from time to time designate by written notice to the other parties:
If to Lessee: Birmingham Steel Corporation
1000 Urban Center Drive, Suite 300
Birmingham, Alabama 35242-2516
Attention: Vice President and Treasurer
Telephone: (205) 970-1200
Facsimile: (205) 970-1353
If to the Owner
Trustee or Lessor: PNC Bank, Kentucky, Inc.
Citizens Plaza
Louisville, Kentucky 40296
Attention: Corporate Trust Department
Telephone: (502) 581-3200
Facsimile: (502) 581-2705
with a copy to: each Owner Participant and the Indenture Trustee at
the addresses set forth
below
If to each Owner
Participant: NationsBank, National Association
c/o NationsBanc Leasing Corporation
NationsBank Plaza, NC1-002-38-20
101 South Tryon Street
Charlotte, North Carolina 28255-0001
Attention: Manager of Corporate Leasing
Administration
Telephone: (704) 386-8234
Facsimile: (704) 386-0892
AmSouth Leasing, Ltd.
c/o AmSouth Leasing Corporation
AmSouth Sonat Tower
1900 Fifth Avenue North, 8th Floor
Birmingham, Alabama 35203
Attention: President
Telephone: (205) 326-5780
Facsimile: (205) 307-4124
If to the Indenture
Trustee: First Union National Bank
230 South Tryon Street, 9th Floor
Charlotte, North Carolina 28288-1179
Attention: Corporate Trust Department
Telephone: (704) 383-9568
Facsimile: (704) 383-7316
Section 21. Assignment; Sublease.
Lessee will not, without the prior written consent of Lessor (which
consent shall be given or withheld in Lessor's sole discretion), assign or
otherwise transfer its rights or obligations with respect to this Lease, any
other Operative Agreement or any of the Equipment and any attempted assignment
or other transfer by Lessee without such Lessor consent shall be null and void.
In addition, Lessee will not, without the prior written consent of
Lessor (which consent shall be given or withheld in Lessor's reasonable
discretion), enter into any sublease with respect to its rights or obligations
under this Lease, any other Operative Agreement or any of the Equipment
(provided, unless expressly stated otherwise by Lessor in giving such written
consent at such time, each such sublease must be a Permitted Sublease) and any
attempted sublease by Lessee without such Lessor consent shall be null and void.
Any sublease referenced in this Lease shall only be deemed a "Permitted
Sublease" if at the time Lessee enters into such sublease, all of the following
conditions shall have been satisfied: (a) no such sublease by Lessee will (i)
adversely affect the insurance coverage provided under Section 12, or (ii)
adversely affect the rights of Lessor hereunder or under any Operative Agreement
(including without limitation the Lien of the Indenture Trustee under the
Indenture), (b) all obligations of Lessee hereunder and under each Operative
Agreement shall be and remain primary and shall continue in full force and
effect as the obligations of a principal and not of a guarantor or surety, (c)
each such sublease, and the rights and interests of any sublessee thereunder,
shall in all events be expressly subject and subordinate to this Lease, the
rights and interests of Lessor and its successors and assigns, (d) such sublease
shall not include any term or provision which would require or permit the
sublessee thereunder to take any actions inconsistent with this Lease or the
other Operative Agreements, (e) the term of any such sublease shall in no event
exceed the then remaining portion of the Lease Term or grant the sublessee
rights not permitted to Lessee under this Lease, (f) such sublease contains
provisions regarding use, lien lifting, maintenance, insurance, casualty and
condemnation, modification and replacement, right of entry, repossession after
default and further assurances, all in favor of Lessee, as sublessor under such
sublease, which are, in the reasonable determination of the Lessor, no less
favorable to Lessee, as sublessor, than the corresponding provisions of this
Lease are to Lessor, (g) Lessee notifies Lessor in writing of such sublease and
delivers an executed copy thereof to Lessor, and (h) no Lease Default or Lease
Event of Default shall have occurred and be continuing.
Lessee hereby grants a Lien (securing its obligations hereunder) to
Lessor respecting all right, title and interest of Lessee, now or hereafter
arising, in all subleases with respect to the Equipment (whether or not such
subleases are Permitted Subleases) and in connection therewith, Lessee will take
all actions necessary (x) to perfect and maintain a first priority Lien in favor
of Lessor respecting such subleases and the Lien thereon of the Indenture
Trustee under the Indenture and (y) to protect the rights of Lessor in the Unit
subject to such subleases.
Section 22. Purchase Option; Renewal Option; Return Option.
22.1 Election by Lessee.
Not less than 270 days prior to the Basic Term Expiration Date or the
expiration date of any applicable Renewal Term, Lessee shall give Lessor
irrevocable notice of its decision with respect to all, but not less than all,
the Equipment to purchase, return or renew this Lease; provided, notwithstanding
the foregoing, if a Lease Default or a Lease Event of Default shall have
occurred and be continuing (in each case, under Sections 14(a), (b), (d) or (e))
at any time during the applicable 270 day period referenced in this sentence,
(a) no such election by Lessee to purchase all, but not less than all, the
Equipment or to renew this Lease shall be valid or have any force or effect and
(b) Lessee shall be deemed to have elected to return all, but not less than all,
the Equipment to Lessor. Lessee may not make any elections regarding purchase or
return of the Equipment or renewing the term of this Lease unless such election
is made with regard to all, but not less than all, the Equipment. If Lessee
elects to purchase or renew this Lease, Lessee shall comply with Sections 22.2
or 22.3, as the case may be. If Lessee elects to return to Lessor all, but not
less than all, the Equipment, Lessee shall comply with Section 6. If Lessee
fails to comply with the notice requirements of this Section 22.1 and does not
timely give such notice prior to the Basic Term Expiration Date or the
expiration date of any of the first four Renewal Terms, Lessee shall be deemed
to have irrevocably elected to renew this Lease for a Renewal Term of one year.
If Lessee fails to comply with the notice requirements of this Section 22.1 and
does not timely give such notice prior to the expiration date of the fifth
Renewal Term, Lessee shall be deemed to have irrevocably elected to return all,
but not less than all, the Equipment at the end of such fifth Renewal Term in
accordance with Section 6.
22.2 Purchase Option.
So long as no Lease Event of Default or Section 14(a), (b), (d) or (e)
Lease Default shall have occurred and be continuing and Lessee shall have duly
given notice in accordance with Section 22.1 of the intention of Lessee to
purchase all, but not less than all, the Equipment, Lessee shall have the right
at its option to purchase all, but not less than all, the Equipment at the Basic
Term Expiration Date or the expiration date of any Renewal Term then in effect,
at a price equal to the Fair Market Sales Value of all, but not less than all,
the Equipment (as determined pursuant to Section 22.4). At such time, Lessee
shall also pay all Basic Rent, all Supplemental Rent (including without
limitation any Make-Whole Amount) then due and owing or accrued and all Sales
Expenses. Upon receipt of all funds then due and owing to Lessor hereunder,
Lessor shall convey to Lessee all of Lessor's right, title and interest in and
to all, but not less than all, the Equipment on an "AS-IS", "WHERE-IS" and "WITH
ALL FAULTS" basis without recourse to or representation or warranty by Lessor,
except as to the absence of Lessor's Liens, and deliver a bill of sale to Lessee
to transfer the same. At such time, Lessor will also request in writing that the
Indenture Trustee execute and deliver to Lessee an appropriate instrument
releasing such Equipment from the Lien of the Indenture. If Lessee has exercised
its purchase option, but has not on or prior to the Basic Term Expiration Date
or the expiration date of any Renewal Term, as applicable, paid all amounts for
which it is obligated under this Section 22.2, then Lessor in its sole
discretion may elect to refuse to convey such right, title and interest in and
to such Equipment to Lessee. Except as to the above-referenced representation
and warranty as to the absence of Lessor's Liens, Lessor shall not be required
to make any other representation or warranty regarding the Equipment, its
condition or any other matters and may specifically disclaim any such
representations or warranties.
22.3 Renewal Options.
So long as no Lease Event of Default or Section 14(a), (b), (d) or (e)
Lease Default shall have occurred and be continuing and Lessee shall have duly
given notice in accordance with Section 22.1 of the intention of Lessee to renew
this Lease with respect to all, but not less than all, the Equipment, Lessee
shall have the right at its option to so renew this Lease with respect to all,
but not less than all, the Equipment for up to five renewal periods, each such
period of one year's duration (individually, a "Renewal Term" and collectively,
the "Renewal Terms"). The Basic Rent for all, but not less than all, the
Equipment during each such Renewal Term shall be the Fair Market Rental Value
thereof, as determined pursuant to Section 22.4, payable semi-annually in
arrears.
22.4 Appraisal.
Not less than 360 days prior to the Basic Term Expiration Date or the
expiration date of any applicable Renewal Term with respect to all, but not less
than all, the Equipment, Lessee will propose to Lessor (to the extent Lessee has
elected to purchase the Equipment or enter into a Renewal Term, in each case in
accordance with Section 22.1) an appraiser (the "Lessee Appraiser") to conduct
an appraisal of all, but not less than all, the Equipment in order to establish
(a) the Fair Market Sales Value of all, but not less than all, the Equipment at
(i) the Basic Term Expiration Date or the expiration date of the applicable
Renewal Term (regarding any purchase of all, but not less than all, the
Equipment by Lessee) or (ii) the commencement of and the expiration of the
proposed Renewal Term (regarding any renewal of this Lease by Lessee for all,
but not less than all, the Equipment for a Renewal Term) and (b) the Fair Market
Rental Value of all, but not less than all, the Equipment during the proposed
Renewal Term (regarding any renewal of this Lease by Lessee for a Renewal Term).
Lessee will consult with Lessor prior to selecting the Lessee Appraiser with the
intent of selecting a mutually acceptable appraiser. Lessee's request for a
determination of Fair Market Sales Value and Fair Market Rental Value pursuant
to this Section 22.4 shall not obligate Lessee to exercise any of the options
provided in this Section 22; provided, however, that notwithstanding any
language to the contrary contained in this Section 22.4, the Lessee shall have
only one (1) right during the Basic Term and during any Renewal Term to request
a determination of Fair Market Sales Value and Fair Market Rental Value.
If Lessee and Lessor mutually agree as to the Lessee Appraiser within
ten days from the date Lessee notifies Lessor of its proposal of the Lessee
Appraiser, the Lessee Appraiser will determine the values and amounts then at
issue within 30 days of its selection as appraiser, and such values and amounts
shall be used for all purposes under the Lease. Lessee will pay all fees and
expenses of the Lessee Appraiser. If Lessee and Lessor cannot mutually agree on
a Lessee Appraiser within ten days from the date Lessee notifies Lessor of its
proposal of the Lessee Appraiser, Lessee will retain the Lessee Appraiser, and
Lessor will retain an appraiser (the "Lessor Appraiser") within 30 days of the
date Lessee notifies Lessor of its proposal of the Lessee Appraiser. Lessee will
pay all fees and expenses of the Lessee Appraiser, and Lessor will pay all fees
and expenses of the Lessor Appraiser. The Lessee Appraiser and the Lessor
Appraiser will consult for a period of not more than ten days with the intent of
selecting a third appraiser (the "Consensus Appraiser") (whose fees and expenses
will be shared equally by Lessee and Lessor). If the Lessee Appraiser and the
Lessor Appraiser cannot agree within the ten day time period with regard to
selecting the Consensus Appraiser, the Consensus Appraiser will be selected by
the American Arbitration Association. Within 30 days of the selection of the
Consensus Appraiser, (a) the Lessee Appraiser, the Lessor Appraiser and the
Consensus Appraiser will each determine appraisal values and amounts then at
issue, (b) the values and amounts of such appraiser which deviate the most from
the average of the three appraisers shall be discarded and (c) the values and
amounts of the remaining two appraisers shall be averaged and used for all
purposes under this Lease. Any such appraiser which fails to submit its
appraised values and amounts within the time period set forth above shall not
thereafter be considered for purposes of this Section 22.4.
22.5 Stipulated Loss Value During Renewal Term.
All of the provisions of this Lease, other than Section 10, shall be
applicable during any Renewal Term, except as specified in the next succeeding
sentence. During any Renewal Term, the Stipulated Loss Value of each Unit shall
be determined on the basis of the Fair Market Sales Value of such Unit as of the
first day of such Renewal Term, reduced in equal monthly increments to the Fair
Market Sales Value of such Unit as of the last day of such Renewal Term.
22.6 Early Buy-Out Purchase Option.
So long as no Lease Event of Default or Section 14(a), (b), (d) or (e)
Lease Default shall have occurred and be continuing and Lessee shall have duly
given notice (the "EBO Notice") not less than 120 days prior to the Early
Buy-Out Date of the intention of Lessee to purchase all, but not less than all,
Lessor's right, title and interest in and to the Equipment, Lessee shall have
the right at its option to purchase all, but not less than all, Lessor's right,
title and interest in and to the Equipment on the Early Buy-Out Date. Lessee
shall specify in the EBO Notice Lessee's election to either pay for the
Equipment (i) in full on the Early Buy-Out Date at a price (the "Early Buy-Out
Price") equal to 43.05837047% or (ii) in installments on the dates (with the
first such installment due on the Early Buy-Out Date) and in the amounts set
forth on Schedule 4 to the Lease Supplement with respect to such Equipment. If
Lessee elects to pay the Early Buy-Out Price in installments, Lessee's
obligation to pay Lessor the remaining installments of the Early Buy-Out Price
will be secured, at the option of the Lessee, by (1) a first priority Lien on
the Equipment (or such other collateral acceptable to Lessor) pursuant to
documentation in form and substance reasonably acceptable to Lessor or (2) a
letter of credit in favor of the Lessor in form, and issued by a financial
institution, acceptable to Lessor. On the Early Buy-Out Date Lessee shall also
pay all Basic Rent, all Supplemental Rent (including without limitation any
Make-Whole Amount) then due and owing or accrued as a result of the exercise by
Lessee of its option to purchase under this Section 22.6 and all Sales Expenses;
provided that notwithstanding any language contained herein to the contrary, any
amount of the Early Buy-Out Price payable by the Lessee on the Early Buy-Out
Date, together with other amounts of Rent paid by the Lessee on such date, will
be under all circumstances and in any event, at least sufficient to pay in full,
the aggregate unpaid principal of, and all unpaid interest on the Equipment
Notes, plus all other sums (including, without limitation, Make-Whole Amount, if
any) due and payable to the Lenders under the Operative Agreements. Upon receipt
of all funds due and owing to Lessor hereunder on the Early Buy-Out Date, Lessor
shall convey to Lessee all of Lessor's right, title and interest in and to all,
but not less than all, the Equipment (including, without limitation, Lessor's
rights in and to the Head Lease Documents with respect to such Equipment, as
applicable) on an "AS-IS", "WHERE-IS" and "WITH ALL FAULTS" basis without
recourse to or representation or warranty by Lessor, except as to the absence of
Lessor's Liens, and deliver a bill of sale to Lessee to transfer the same and
Lessee's obligation to pay Basic Rent with respect to such Equipment shall
terminate. At such time, Lessor will also request in writing that the Indenture
Trustee execute and deliver to Lessee an appropriate instrument releasing such
Equipment from the Lien of the Indenture. If Lessee has exercised its purchase
option, but has not on or prior to the Early Buy-Out Date, paid all amounts for
which it is obligated under this Section 22.6, then Lessor in its sole
discretion may elect to refuse to convey such Equipment to Lessee. Except as to
the above-referenced representation and warranty as to the absence of Lessor's
Liens, Lessor shall not be required to make any other representation or warranty
regarding the Equipment, its condition or any other matters and may specifically
disclaim any such representations or warranties.
Section 23. Limitation of Lessor's Liability.
It is expressly agreed and understood that all representations,
warranties and undertakings of Lessor hereunder (except as expressly provided
herein) shall be binding upon Lessor only in its capacity as Owner Trustee under
the Trust Agreement and in no case shall PNC Bank, Kentucky, Inc. be personally
liable for or on account of, any statements, representations, warranties,
covenants or obligations stated to be those of Lessor hereunder, except that
Lessor (or any successor Owner Trustee) shall be personally liable for its gross
negligence or willful misconduct and for its breach of its covenants,
representations and warranties contained herein to the extent covenanted or made
in its individual capacity.
Section 24. Miscellaneous.
24.1 Governing Law; Severability.
This Lease, and any extensions, amendments, modifications, renewals or
supplements hereto shall be governed by and construed in accordance with the
internal Laws of the State of New York; provided, however, that the parties
shall be entitled to all rights conferred by any applicable Federal statute,
rule or regulation. Whenever possible, each provision of this Lease shall be
interpreted in such manner as to be effective and valid under applicable Law,
but if any provision of this Lease shall be prohibited by or invalid under the
Laws of any jurisdiction, such provision, as to such jurisdiction, shall be, to
the extent permitted by Law, ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Lease in any other jurisdiction.
24.2 Execution in Counterparts.
This Lease may be executed in any number of counterparts, each executed
counterpart constituting an original and in each case such counterparts shall
constitute but one and the same instrument; provided, however, that to the
extent that this Lease constitutes chattel paper (as such term is defined in the
Uniform Commercial Code) no security interest in this Lease may be created
through the transfer or possession of any counterpart hereof other than the
counterpart bearing the receipt therefor executed by the Indenture Trustee on
the signature page hereof, which counterpart shall constitute the only
"original" hereof for purposes of the Uniform Commercial Code.
24.3 Headings and Table of Contents: Section References.
The headings of the sections of this Lease and the Table of Contents
are inserted for purposes of convenience only and shall not be construed to
affect the meaning or construction of any of the provisions hereof. All
references herein to numbered sections, unless otherwise indicated, are to
sections of this Lease.
24.4 Successors and Assigns.
This Lease shall be binding upon and shall inure to the benefit of, and
shall be enforceable by, the parties hereto and their respective permitted
successors and assigns.
24.5 True Lease.
It is the intent of the parties to this Lease that it will be a true
lease and not a "conditional sale," and that Lessor shall at all times be
considered to be the owner of each Unit which is the subject of this Lease for
the purposes of all Federal, state, city and local income taxes or for franchise
taxes measured by income, and that this Lease conveys to Lessee no right, title
or interest in any Unit except as lessee.
24.6 Amendments and Waivers.
No term, covenant, agreement or condition of this Lease may be
terminated, amended or compliance therewith waived (either generally or in a
particular instance, retroactively or prospectively) except (a) by an instrument
or instruments in writing executed by each party hereto and (b) as may be
permitted by the terms of the Indenture.
24.7 Business Days.
If any payment is to be made hereunder or any action is to be taken
hereunder on any date that is not a Business Day, such payment or action
otherwise required to be made or taken on such date shall be made or taken on
the immediately succeeding Business Day with the same force and effect as if
made or taken on such scheduled date and as to any payment (provided any such
payment is made on such succeeding Business Day) no interest shall accrue on the
amount of such payment from and after such scheduled date to the time of such
payment on such next succeeding Business Day.
24.8 Directly or Indirectly.
Where any provision in this Lease refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
24.9 Incorporation by Reference.
(a) The payment obligations set forth in Sections 7.1 and 7.2 of the
Participation Agreement are hereby incorporated by reference.
(b) Any provision of any other Operative Agreement stated herein to be
incorporated by reference shall be construed as having been incorporated herein
with the same effect as if such provision had been set forth in this Lease in
full, and shall survive any termination of the Operative Agreement from which
such provision is incorporated.
24.10 Uniform Commercial Code.
The parties hereto intend that this Lease be construed as a "finance
lease" under Article 2-A of the New York Uniform Commercial Code.
Notwithstanding any other provision herein to the contrary, the parties hereto
agree that, to the extent permitted by Law, Article 2-A-401 of the Uniform
Commercial Code of the State of New York shall not be applicable to this Lease
or the obligations of the parties hereunder.
24.11 Determination of Fair Market Sales Value.
Except as otherwise expressly provided herein, Fair Market Sales Value
shall be determined by an appraiser selected by Lessor and reasonably acceptable
to Lessee; provided, however, Lessee shall have no such consent right regarding
the selection of an appraiser in connection with the selection of an appraiser
for purposes of determining Fair Market Sales Value under Section 15.
[The remainder of this page is intentionally left blank]
<PAGE>
Equipment Lease Agreement
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be duly
executed and delivered on the day and year first above written.
LESSOR:
PNC BANK, KENTUCKY, INC., not in its
individual capacity except as otherwise
expressly provided herein but solely as
Owner Trustee
By:/s/W. Michael Hanks
Name: W. Michael Hanks
Title: Vice President
LESSEE:
BIRMINGHAM STEEL CORPORATION
By:/s/James F. Tierney
Name: James F. Tierney
Title: Treasurer
<PAGE>
BIRMINGHAM STEEL TRUST NO. 97-1
DEFINITIONS
General Provisions
The following terms shall have the following meanings for all purposes
of the Operative Agreements referred to below, unless otherwise defined in an
Operative Agreement or the context thereof shall otherwise require. Such
meanings shall be equally applicable to both the singular and the plural forms
of the terms herein defined. In the case of any conflict between the provisions
of this Appendix A and the provisions of the main body of any Operative
Agreement, the provisions of the main body of such Operative Agreement shall
control the construction of such Operative Agreement.
Unless the context otherwise requires, (a) references to agreements
shall be deemed to mean and include such agreements as the same may be amended,
modified, supplemented, restated and/or replaced from time to time to the extent
permitted by the Operative Agreements, (b) references to parties to agreements
shall be deemed to include the successors and assigns of such parties permitted
in accordance with the Operative Agreements, (c) references in any document to
articles, sections, paragraphs, clauses, annexes, appendices, schedules or
exhibits are references to articles, sections, paragraphs, clauses, annexes,
appendices, schedules or exhibits in or to such document, (d) the headings,
subheadings and table of contents used in any document are solely for
convenience of reference and shall not constitute a part of any such document
nor shall they affect the meaning, construction or effect of any provision
thereof, (e) references to any law includes any amendment or modification to
such law and any rules or regulations issued thereunder or any law enacted in
substitution or replacement therefor, (f) when used in any document, words such
as "hereunder", "hereto", "hereof" and "herein" and other words of like import
shall, unless the context clearly indicates to the contrary, refer to the whole
of the applicable document and not to any particular article, section,
subsection, paragraph or clause thereof, (g) references to "including" means
including without limiting the generality of any description preceding such term
and for purposes hereof the rule of ejusdem generis shall not be applicable to
limit a general statement, followed by or referable to an enumeration of
specific matters, to matters similar to those specifically mentioned, (h) each
of the parties to the Operative Agreements and their counsel have reviewed and
revised, or requested revisions to, the Operative Agreements, and the usual rule
of construction that any ambiguities are to be resolved against the drafting
party shall be inapplicable in the construction and interpretation of the
Operative Agreements and any amendments or exhibits thereto and (i) capitalized
terms used in any Operative Agreements which are not defined in this Appendix A
but are defined in another Operative Agreement shall have the meanings so
ascribed to such terms in the applicable Operative Agreement.
Defined Terms
"Additional Insured Parties" shall mean the Owner Trustee (in its
individual capacity and as trustee), the Owner Participants, the Lenders and the
Indenture Trustee.
"Additional Storage Period" shall have the meaning specified in Section
6.3 of the Lease.
"Affiliate" shall mean, with respect to any Person, any other Person
which directly or indirectly controls, or is controlled by, or is under a common
control with, such first Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" shall have meanings correlative to the foregoing.
"AmSouth" shall mean AmSouth Leasing, Ltd., an Alabama limited
partnership.
"Appraisal" shall have the meaning specified in Section 4.2(a) of the
Participation Agreement.
"Approved Insurers" shall mean insurers of nationally or
internationally recognized responsibility and rated at least "A-" by Best's Key
Rating Guide; provided, however, that if an insurer is an Approved Insurer at
the beginning of any policy period, it shall be deemed to remain an Approved
Insurer for the balance of the policy period.
"Bankruptcy Code" shall mean the United States Bankruptcy Reform Act of
1978, 11 U.S.C. ss. 101 et seq.
"Basic Rent" shall mean, with respect to any Unit, all rent payable by
Lessee to Lessor pursuant to Section 3.2 of the Lease for such Unit, and all
rent payable pursuant to Section 22.3 of the Lease for any Renewal Term
thereunder for such Unit.
"Basic Term" shall have the meaning specified in Section 3.1 of the
Lease.
"Basic Term Commencement Date" shall have the meaning specified in the
Lease Supplement.
"Basic Term Expiration Date" shall have the meaning specified in the
Lease Supplement.
"Beneficial Interest" shall mean the interest of each Owner Participant
as a co-tenant under the Trust Agreement.
"Bill of Sale" shall mean the warranty bill of sale dated the Closing
Date executed by the Seller in favor of the Owner Trustee on behalf of the Owner
Participants as co-tenants covering the Units delivered on the Closing Date by
the Seller.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which commercial banking institutions are authorized or required by Law,
regulation or executive order to be closed in Birmingham, Alabama, Charlotte,
North Carolina, New York, New York and the city and state in which the principal
corporate trust office of the Owner Trustee is located, or, until the Lien of
the Indenture has been discharged, the city and state in which the principal
corporate trust office of the Indenture Trustee is located.
"Certificate of Acceptance" shall have the meaning specified in Section
2.3(b) of the Participation Agreement.
"Change in Tax Law" shall mean a change, amendment, modification,
addition or deletion (whether proposed, temporary or final) in or to the Code,
any regulation thereunder or any Revenue Ruling, Revenue Procedure or other
published administrative determination or judicial proceeding, in each case
after the execution and delivery of the Participation Agreement.
"Closing" shall have the meaning specified in Section 2.3(b) of the
Participation Agreement.
"Closing Date" shall have the meaning specified in Section 2.1 of the
Participation Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Consensus Appraiser" shall have the meaning specified in Section 22.4
of the Lease.
"Debt Amortization" shall mean with respect to any Equipment Note the
amortization schedule of principal payments applicable thereto.
"Debt Rate" shall mean as of the date of determination, a rate equal to
the rate of interest per annum borne by the Equipment Notes then outstanding
(computed on the basis of a 360-day year of twelve 30-day months).
"Early Buy-Out Date" shall have the meaning specified in the Lease
Supplement.
"Early Buy-Out Price" shall have the meaning specified in Section 22.6
of the Lease.
"Environmental Law" shall mean any federal, state, county or local
statute, law, regulation, rule, ordinance, code, order, decree, license, or
permit relating to environmental matters, including but not limited to the
Comprehensive Environmental Response, Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Clean Air Act, the Clean Water Act,
or any other federal, state or local statute, law, ordinance, code, rule,
regulation, order, decree, license or permit regulating, or relating to, or
imposing liability for a standard of conduct concerning the environment, noise
or any hazardous, toxic or dangerous substance, products, materials, wastes,
pollutants or contaminants.
"Environmental Violation" shall mean any activity, occurrence or
condition that violates or threatens (if the threat requires remediation under
any Environmental Law and is not remediated during any grace period allowed
under such Environmental Law) to violate or results in or threatens (if the
threat requires remediation under any Environmental Law and is not remediated
during any grace period allowed under such Environmental Law) to result in
noncompliance with any Environmental Law.
"Equipment" shall mean that certain melt shop equipment more
specifically described in Schedule 1 to a Lease Supplement, any Replacement Unit
and all Parts.
"Equipment Cost" shall mean, collectively, the aggregate sum of the
purchase price for all the Equipment paid by the Owner Trustee to the Seller
pursuant to Section 2 of the Participation Agreement and as specified in the
Lease Supplement dated the Closing Date and, individually, such purchase price
allocable to each Unit and set forth in the Lease Supplement with respect to the
Equipment.
"Equipment Notes" shall mean the Equipment Notes, each to be
substantially in the form therefor required by the Indenture, issued by the
Owner Trustee pursuant to Section 2.02 of the Indenture, and authenticated by
the Indenture Trustee, in principal amounts and bearing interest at the rates
and payable as provided in the Indenture and secured as provided in the Granting
Clause of the Indenture, and shall include any Equipment Notes issued in
exchange therefor or replacement thereof pursuant to Sections 2.07 or 2.08 of
the Indenture.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974.
"Event of Loss" shall have the meaning specified in Section 11.1 of the
Lease.
"Excepted Property" shall have the meaning provided thereto in the
Granting Clauses of the Indenture.
"Fair Market Rental Value" shall mean, with respect to a Unit, the
rental value of such Unit that would be obtained in an arm's length lease
transaction for the term contemplated between an informed and willing lessee
under no compulsion to lease and an informed and willing lessor under no
compulsion to lease, assuming such Unit of Equipment is in the condition and
location required by the Lease.
"Fair Market Sales Value" shall mean, with respect to a Unit, the sales
value of such Unit, that would be obtained in an arm's length sale transaction
of such Unit between an informed and willing buyer under no compulsion to buy
and an informed and willing seller under no compulsion to sell, assuming such
Unit is in the condition and location required by the Lease; provided, however,
in the computation of Fair Market Sales Value for purposes of Section 15 of the
Lease, such determination shall be based upon the actual condition and location
of each Unit of Equipment.
"Hazardous Materials" means any petroleum, petroleum by-product,
natural or synthetic gas, asbestos, polychlorinated biphenyls or any other
toxic, hazardous, flammable, corrosive or otherwise dangerous substance,
product, material, waste, pollutant or contaminant, the manufacture, use,
handling, storage, disposal or remediation of which is regulated under any
applicable Environmental Law.
"Head Lease" shall mean that certain Industrial Personal Property Lease
Agreement dated as of November 10, 1997 between the Owner Trustee, as lessee,
and Head Lessor, as lessor.
"Head Lease Default" shall mean event or condition which with notice or
lapse of time or both would become a Head Lease Event of Default.
"Head Lease Documents" shall mean the Head Lease, the Supplemental
Agreement, Head Lessor Note, the Security Agreement, the Master Purchase
Agreement and the Owner Trustee Bill of Sale.
"Head Lease Event of Default" shall mean a "Lease Event of Default"
under the Head Lease.
"Head Lessor" shall mean The Industrial Development Board of the City
of Memphis and County of Shelby, Tennessee.
"Head Lessor Note" shall have the meaning provided thereto in the Head
Lease.
"Indemnified Person" shall have the meaning specified in Section 7.2(b)
of the Participation Agreement.
"Indenture" or "Trust Indenture" shall mean the Trust Indenture and
Security Agreement (Birmingham Steel Trust No. 97-1) dated as of September 30,
1997 between the Owner Trustee, in the capacities described therein, and the
Indenture Trustee, including supplementation by each Indenture Supplement
pursuant thereto.
"Indenture Default" shall mean an event or condition which with notice
or the lapse of time or both would become an Indenture Event of Default.
"Indenture Estate" shall have the meaning specified in the Granting
Clauses of the Indenture.
"Indenture Event of Default" shall have the meaning specified in
Section 4.01 of the Indenture.
"Indenture Investment" shall mean any obligation issued or guaranteed
by the United States of America or any of its agencies for the payment of which
the full faith and credit of the United States of America is pledged.
"Indenture Supplement" shall mean an Indenture Supplement dated the
Closing Date or the date that any Replacement Unit is subjected to the lien and
security interest of the Indenture, substantially in the form of Exhibit A to
the Indenture, of the Owner Trustee, in the capacities described therein, or
between the Owner Trustee, in the capacities described therein, and the
Indenture Trustee, covering the Units delivered on the Closing Date or such
Replacement Unit, as the case may be.
"Indenture Trustee" shall mean First Union National Bank, a national
banking association with its main office in Charlotte, North Carolina, as
trustee under the Indenture and its successors thereunder.
"Indenture Trustee Agreements" shall mean each of the Operative
Agreements to which the Indenture Trustee is a party.
"Landlord Waiver and Consent" shall mean each Landlord Waiver and
Consent entered into in connection with the Overall Transaction by each holder
of a fee or leasehold interest in the real property on which the Units are
located substantially in the form of Exhibit C to the Participation Agreement.
"Late Rate" shall mean, at any time, the lesser of (a) the maximum
interest rate from time to time permitted by Law and (b) the greater of (i)
9.49% per annum and (ii) two percent over the Prime Rate at such time.
"Law" shall mean any statute, law, ordinance, regulation, rule,
directive, code, order, writ, license, permit, injunction or decree of any
Tribunal.
"Lease" shall mean the Equipment Lease Agreement (Birmingham Steel
Trust No. 97-1) dated as of September 30, 1997 between Lessor and Lessee.
"Lease Default" shall mean an event or condition which with notice or
lapse of time or both would become a Lease Event of Default under the Lease.
"Lease Event of Default" shall have the meaning specified in Section 14
of the Lease.
"Lease Supplement" shall mean a Lease Supplement (Birmingham Steel
Trust No. 97-1), dated the Closing Date or the date that any Replacement Unit is
subjected to the Lease, substantially in the form of Exhibit A to the Lease,
between Lessor and Lessee, covering the Units delivered on the Closing Date or
such Replacement Unit, as the case may be.
"Lease Term" shall mean, with respect to any Unit, the Basic Term
applicable to such Unit and all Renewal Terms applicable to such Unit.
"Lender" shall mean and include each party described as a "Lender"
under the Participation Agreement prior to the issuance of the Equipment Notes,
and after such issuance, each registered holder from time to time of an
Equipment Note issued under the Indenture.
"Lenders' Commitment" shall have the meaning specified in Section
2.2(b) of the Participation Agreement.
"Lessee" shall have the meaning specified in the first paragraph of the
Lease.
"Lessee Agreements" shall mean each of the Operative Agreements to
which Lessee is a party.
"Lessee Appraiser" shall have the meaning specified in Section 22.4 of
the Lease.
"Lessor" shall have the meaning specified in the first paragraph of the
Lease.
"Lessor Appraiser" shall have the meaning specified in Section 22.4 of
the Lease.
"Lessor's Liens" shall mean any Lien affecting, on or in respect of the
Equipment, the Lease or the Trust Estate arising as a result of (a) claims
against Lessor (in its individual capacity or as Owner Trustee) or any Owner
Participant, not related to the transactions contemplated by the Operative
Agreements, (b) acts or omissions of Lessor (in its individual capacity or as
Owner Trustee) or any Owner Participant, not related to the transactions
contemplated by the Operative Agreements or in breach of any covenant or
agreement of such Person set forth in any of the Operative Agreements, (c) taxes
imposed against Lessor (in its individual capacity or as Owner Trustee) or any
Owner Participant or the Trust Estate which are not indemnified against by
Lessee pursuant to the Participation Agreement or under the Tax Indemnity
Agreement, except to the extent not due and payable or the amount or validity of
which is being contested in good faith by appropriate proceedings so long as
there is no material risk of the impairment of the Lien of the Indenture or the
loss of the benefit of the Equipment to Lessee under the Lease or rights or
ability of the Indenture Trustee to recover full and timely payments under the
Lease or (d) claims against Lessor or any Owner Participant arising out of the
transfer (whether voluntary or involuntary) by Lessor or any Owner Participant
(without the consent of Lessee, the Indenture Trustee and the Lenders) of all or
any portion of their respective interests in the Equipment, the Trust Estate or
the Operative Agreements, other than a transfer pursuant to Sections 10, 11, 12,
15 or 22 of the Lease or pursuant to the Head Lease Documents.
"Lien" shall mean any mortgage, pledge, security interest, lien,
encumbrance or disposition of title.
"Loan" shall mean any loan made by the Lenders to or for the account of
the Owner Trustee pursuant to the Indenture.
"Majority In Interest" shall mean, as of a particular date of
determination, with respect to any action or decision of the holders of the
Equipment Notes, the holders of more than 50% in aggregate principal unpaid
amount of the Equipment Notes, if any, then outstanding which are affected by
such decision or action (exclusive of any Equipment Notes then owned by the
Owner Trustee, the Owner Participants, the Lessee, or any of their respective
Affiliates, unless 100% in the aggregate principal unpaid amount of the
Equipment Notes shall be held by one or more such parties).
"Make-Whole Amount" with respect to any Loan, on any date of prepayment
or acceleration with respect to the Equipment Notes or portion thereof issued
with respect to such Loan, the excess, if any, of (i) the present value, as of
such date of prepayment or acceleration, of the respective installments of
principal of and interest (exclusive of the interest accrued through such date)
on such Equipment Notes or portion thereof to be prepaid that, but for such
prepayment or acceleration, would have been payable on the payment dates after
such prepayment or acceleration over (ii) the principal amount of such Equipment
Note or portion thereof to be prepaid or accelerated. Such present value shall
be determined by discounting the amounts of such installments semi-annually from
their respective payment dates to the date of prepayment or acceleration at a
rate equal to the applicable Reinvestment Yield (as defined below) as of the
date of such prepayment or acceleration plus 0.50%. "Reinvestment Yield" means,
at any date of determination, with respect to an Equipment Note, the yield to
maturity of either (i) the yield reported as of 10:00 A.M. (New York City time)
on the Business Day preceding the date of determination on the display
designated PX1 on the Bloomberg Financial Markets Screen (or such other display
as may replace such displays on the Bloomberg service or specify the applicable
data on any other generally available service) for actively traded U.S. Treasury
securities having a constant maturity equal to the then remaining weighted
average life to maturity of such Equipment Note (or portion thereof to be
prepaid) as of the date of determination, or (ii) if such yields shall not be
reported as of such time or the yields reported as of such time shall not be
ascertainable, the Treasury Constant Maturity Series yields reported for the
latest day for which such yields shall have been so reported as of the Business
Day next preceding the date of determination in Federal Reserve Statistical
Release H.15 (519) (or any comparable successor publication) for U.S. Treasury
Securities having a constant maturity equal to the then remaining weighted
average life to maturity of such Equipment Note (or portion thereof to be
prepaid) as of the date of determination; provided, however, if no maturity
exactly corresponding to the then remaining weighted average life to maturity of
such Equipment Note shall appear therein, yields for the two most closely
corresponding published maturities (one greater and one less than such weighted
average life to maturity) shall be calculated pursuant to the foregoing sentence
and the Reinvestment Yield shall be interpolated from such yields on a
straight-line basis (rounding in each of such relevant periods, to the nearest
month).
"Manufacturer" shall mean each Person conveying good and marketable
title with respect to any Equipment to Seller.
"Master Purchase Agreement" shall have the meaning provided thereto in
the Head Lease.
"Mortgagee Waiver and Consent" shall mean each Mortgagee Waiver and
Consent entered into in connection with the Overall Transaction by each
mortgagee of the real property on which the Units are located, substantially in
the form of Exhibit D to the Participation Agreement.
"NationsBank" shall mean NationsBank, National Association, a national
banking association.
"Net Economic Return" shall mean both the net after-tax yield and total
after-tax cash flow and the timing thereof expected by each of the original
Owner Participants with respect to the Equipment and the Lease, utilizing the
multiple investment sinking fund method of analysis and the same assumptions as
used by such Owner Participants in making the computations of Basic Rent and
Stipulated Loss Value initially specified in Schedules 2 and 3 to the Lease
Supplement.
"Notice of Delivery" shall have the meaning specified in Section 2.3(a)
of the Participation Agreement.
"Officer's Certificate" shall mean a certificate signed (a) in the case
of a corporation by the Chairman of the Board of Directors, President, any Vice
President, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of such corporation, (b) in the case of a partnership by the Chairman
of the Board of Directors, the President or any Vice President, the Treasurer or
an Assistant Treasurer of a corporate general partner and (c) in the case of a
commercial bank or trust company, the Chairman or Vice Chairman of the Executive
Committee or the Treasurer, any Trust Officer, any Vice President, any Executive
or Senior or Second or Assistant Vice President, or any other officer or
assistant officer customarily performing the functions similar to those
performed by the persons who at the time shall be such officers, or to whom any
corporate trust matter is referred because of his knowledge of and familiarity
with the particular subject.
"Operative Agreements" shall mean the Participation Agreement, the Bill
of Sale, the Trust Agreement, the Equipment Notes, the Lease, each Lease
Supplement, the Indenture, each Indenture Supplement, the Purchase Agreements,
the Purchase Agreement Assignments, the Tax Indemnity Agreement, the Landlord
Waiver and Consent, the Mortgagee Waiver and Consent, the Certificate of
Acceptance and the Head Lease Documents and each other document, instrument or
agreement to which any Participant, Trustee or Lessee is a party, or is granted
rights, in each case in connection with the Overall Transaction.
"Optional Modification" shall mean, for any Unit, as specified in
Section 9.2 of the Lease.
"Overall Transaction" shall mean the financing and lease transactions
contemplated by the Operative Agreements, including without limitation the
acquisition of the Equipment under the Purchase Agreements.
"Owner Participant Agreements" shall mean each of the Operative
Agreements to which the Owner Participants are a party.
"Owner Participants" shall mean NationsBank and AmSouth.
"Owner Participants' Commitment" shall have the meaning specified in
Section 2.2(a) of the Participation Agreement.
"Owner Trust" or "Trust" shall mean the trust created by the Trust
Agreement.
"Owner Trustee" shall mean the Trust Company, not in its individual
capacity but solely as Owner Trustee under the Trust Agreement and its
successors thereunder.
"Owner Trustee Agreements" shall mean the Trust Agreement and each of
the other Operative Agreements to which Owner Trustee is a party.
"Owner Trustee Bill of Sale" shall mean that certain quitclaim bill of
sale dated the Closing Date executed by the Owner Trustee in favor of the Head
Lessor.
"Participants" shall mean the Lenders and the Owner Participants.
"Participation Agreement" shall mean the Participation Agreement
(Birmingham Steel Trust No. 97-1) dated as of September 30, 1997 among Lessee,
the Owner Participants, the Owner Trustee, the Indenture Trustee and the Lenders
which are parties thereto.
"Parts" shall mean all appliances, parts, components, instruments,
appurtenances, accessories, furnishings and other equipment of whatever nature
which may from time to time be incorporated or installed in or attached to a
Unit of Equipment or until replaced, if not so incorporated or installed, in
accordance with the terms of Section 9.3 of the Lease.
"Payment Date" shall mean each January 15 and July 15 of each year
occurring during the Lease Term of the Lease, commencing on January 15, 1998;
provided, that the last such Payment Date shall be November 10, 2012; provided,
further, that if any such date shall not be a Business Day, then "Payment Date"
shall mean the next succeeding Business Day.
"Permitted Investments" shall mean (a) direct obligations of the United
States of America and agencies thereof for which the full faith and credit of
the United States of America is pledged, (b) obligations fully guaranteed by the
United States of America, (c) certificates of deposit issued by, or bankers'
acceptances of, or time deposits with, any bank, trust company or national
banking association incorporated or doing business under the Laws of the United
States of America or one of the States thereof having combined capital and
surplus and retained earnings of at least $500,000,000 (including the Indenture
Trustee and the Owner Trustee if such conditions are met) and having a rating
assigned to the long-term unsecured debt of such institutions by Standard &
Poor's Ratings Group and Moody's Investors Service, Inc. at least equal to AA
and Aa2, respectively, (d) commercial paper of companies, banks, trust companies
or national banking associations incorporated or doing business under the Laws
of the United States of America or one of the States thereof and in each case
having a rating assigned to such commercial paper by Standard & Poor's Ratings
Group or Moody's Investors Service, Inc. (or, if neither such organization shall
rate such commercial paper at any time, by any nationally recognized rating
organization in the United States of America) equal to the highest rating
assigned by such organization, and (e) a money market fund registered under the
Investment Company Act of 1940, the portfolio of which is limited to the United
States government obligations and United States agency obligations; provided,
that if all of the above investments are unavailable, the entire amount to be
invested may be used to purchase Federal Funds from an entity described in (c)
above; provided, further, that no investment shall be eligible as a "Permitted
Investment" unless the final maturity or date of return of such investment is 90
days or less from the date of purchase thereof.
"Permitted Liens" shall mean, with respect to the Equipment: (a) the
interests of the Head Lessor and Lessor under the Head Lease and the interest of
Lessor under the Security Agreement; provided, however that in the event that
the Head Lease is terminated in accordance with its terms, the interests of the
Head Lessor under the Head Lease shall no longer constitute a Permitted Lien,
(b) the interests of Lessee and the Owner Trustee under the Lease and the Lease
Supplements, (c) the interest of Lessee and any sublessee as provided in any
sublease permitted pursuant to Section 21 of the Lease, (d) any Liens thereon
for taxes, assessments, levies, fees and other governmental and similar charges
not due and payable or the amount or validity of which is being contested in
good faith by appropriate proceedings so long as there exists no material risk
of sale, forfeiture, loss, or loss of or interference with use or possession of,
any Unit or impairment of the Lien of the Indenture thereon, criminal sanctions
arising therefrom or interference with the payment of Rent or the rights or
ability of the Indenture Trustee to receive full and timely payments under the
Lease and appropriate reserves with respect thereto are maintained in accordance
with generally accepted accounting principles, (e) any Liens of mechanics,
suppliers, materialmen, laborers, employees, repairmen and other like Liens
arising in the ordinary course of Lessee's (or if a sublease is then in effect,
any sublessee's) business securing obligations which are not due and payable or
the amount or validity of which is being contested in good faith by appropriate
proceedings so long as there exists no material risk of sale, forfeiture, loss,
or loss of or interference with use or possession, of any Unit or impairment of
the Lien of the Indenture thereon, criminal sanctions arising therefrom or
interference with the payment of Rent or the rights or ability of the Indenture
Trustee to receive full and timely payments under the Lease, (f) the Lien and
security interest granted to the Indenture Trustee under and pursuant to the
Indenture, if any, and the respective rights of the Lenders, the Indenture
Trustee, the Owner Participants and the Owner Trustee under the Operative
Agreements, (g) Liens arising out of any judgment or award against Lessee (or
any sublessee permitted pursuant to Section 21 of the Lease) with respect to
which an appeal or proceeding for review being prosecuted in good faith and for
the payment of which adequate reserves have been provided as required by
generally accepted accounting principles or other appropriate provisions have
been made and with respect to which there shall have been secured a stay of
execution pending such appeal or proceeding for review and there exists no
material risk of sale, forfeiture, loss, or loss of or interference with the use
or possession, of any Unit or any interest therein or impairment of the Lien of
the Indenture thereon, criminal sanctions arising therefrom or interference with
the payment of Rent or the rights or ability of the Indenture Trustee to receive
full and timely payments under the Lease, (h) salvage rights of insurers under
insurance policies maintained pursuant to Section 12 of the Lease and (i) other
Liens bonded to the reasonable satisfaction of the Owner Participants and the
Indenture Trustee.
"Permitted Subleases" shall have the meaning specified in Section 21 of
the Lease.
"Person" shall mean an individual, partnership, corporation, trust,
limited liability company, association or unincorporated organization, and a
government or agency or political subdivision thereof.
"Prime Rate" shall mean the per annum rate of interest (computed on the
basis of a 360-day year of twelve 30-day months) established from time to time
by NationsBank as its prime rate, which rate may not be the lowest rate of
interest charged by NationsBank to its customers.
"Proceeds of Sale" shall mean the amount received by Lessor from any
Third Party Purchaser of any Unit pursuant to a sale of such Unit to such Third
Party Purchaser in accordance with Section 10 of the Lease.
"Purchase Agreements" shall mean any purchase contract or purchase
order assigned to the Owner Trustee pursuant to a Purchase Agreement Assignment.
"Purchase Agreement Assignments" shall mean each Purchase Agreement
Assignment (Birmingham Steel Trust No. 97-1) dated as of November 10, 1997
between Lessee and Lessor and consented to by the respective Manufacturer.
"Real Property Lease" shall mean the Real Property Lease Agreement
dated as of November 10, 1997 between The Industrial Development Board of The
City of Memphis and County of Shelby, Tennessee and Lessee.
"Renewal Term" or "Renewal Terms" shall have the meaning specified in
Section 22.3 of the Lease.
"Rent" shall mean, for any Unit, all Basic Rent and Supplemental Rent
therefor.
"Replacement Unit" shall mean a Unit of Equipment which shall have been
leased under the Lease pursuant to Section 11 thereof.
"Required Modification" shall mean, for any Unit, as specified in
Section 9.1 of the Lease.
"Responsible Officer" shall mean, with respect to the subject matter of
any covenant, agreement or obligation of any party contained in any Operative
Agreement, the Chairman of the Board of Directors, the President, or any Vice
President, Treasurer, Assistant Treasurer or other officer, who in the normal
performance of his operational responsibility would have knowledge of such
matters and the requirements with respect thereto.
"Return Date" shall mean, for any Unit of Equipment, the date
determined in accordance with Section 6.1 of the Lease.
"Sales Expenses" shall mean (a) all property, excise, sales, transfer
and use taxes and other taxes (as such may be applicable to the sale or transfer
of the Equipment), (b) all reasonable fees, costs and expenses of such sale or
transfer of the Equipment (including without limitation reasonable fees, costs
and expenses of attorneys or those associated with transportation, storage,
security or insurance) incurred by Lessor and (c) any and all other amounts
incurred in connection with such sale or transfer of the Equipment for which
Lessor would be liable (if not paid) or which (if not paid) would constitute a
Lien on the Equipment or any Unit.
"Scheduled Closing Date" shall have the meaning specified in Section
2.6(b) of the Participation Agreement.
"Securities Act" shall mean the Securities Act of 1933.
"Security" shall have the same meaning as in Section 2(l) of the
Securities Act.
"Security Agreement" shall mean have the meaning provided thereto in
the Head Lease.
"Seller" shall mean the seller conveying good and marketable legal
title in favor of Lessor with respect to any Equipment and executing the Bill of
Sale (or such other evidence of title transfer in form and substance
satisfactory to the Participants) in connection therewith.
"Severable Modification" shall mean, for any Unit, as specified in
Section 9.2 of the Lease.
"Significant Remedy" shall have the meaning provided thereto in Section
4.04(b) of the Indenture.
"Stipulated Loss Value" shall mean for any Unit as of any date of
determination the amount determined by multiplying the Equipment Cost for such
Unit by the relevant percentage specified in Schedule 3 to the Lease Supplement
pertaining to such Unit. Stipulated Loss Value as of any date of determination
(a) shall not include any Basic Rent payable on such date and (b) in all cases
shall be an amount not less than the outstanding principal balance owed with
respect to the applicable Equipment Notes.
"Storage Period" shall mean, for any Unit of Equipment as specified in
Section 6.3 of the Lease.
"Subsidiary" of any Person shall mean any corporation, association, or
other business entity of which more than 50% (by number of votes) of the voting
stock at the time outstanding shall at the time be owned, directly or
indirectly, by such Person or by any other corporation, association or trust
which is itself a Subsidiary within the meaning of this definition, or
collectively by such Person and any one or more such Subsidiaries.
"Supplemental Agreement" shall have the meaning provided thereto in the
Head Lease.
"Supplemental Agreement Event of Default" shall have the meaning of
"Event of Default" under the Supplemental Agreement.
"Supplemental Rent" shall mean all amounts, liabilities and obligations
(other than Basic Rent thereunder) which Lessee is obligated to pay under the
Operative Agreements to or on behalf of any of the other parties thereto,
including, but not limited to, Stipulated Loss Value payments thereunder, an
amount equal to Make-Whole Amount, if any, payable in accordance with Section
3.3 of the Lease, and indemnity payments.
"Tax Authority" shall have the meaning specified in Section 7.1(b) of
the Participation Agreement.
"Tax Indemnitee" shall have the meaning specified in Section 7.1(a) of
the Participation Agreement.
"Tax Indemnity Agreement" shall mean the Tax Indemnity Agreement
(Birmingham Steel Trust No. 97-1) dated as of September 30, 1997 among Lessee
and the Owner Participants.
"Taxes" shall have the meaning specified in Section 7.1(b) of the
Participation Agreement.
"Ten-Day Period" shall have the meaning specified in Section 4.04(a) of
the Indenture.
"Termination Date" shall mean, for any Unit, as specified in Section
10.1 of the Lease.
"Third Party Purchaser" shall mean a purchaser of any Unit which is
financially capable of purchasing such Unit, is reasonably acceptable to Lessor
and is not an Affiliate or Subsidiary of Lessee.
"Total Equipment Cost" shall mean the sum of the Equipment Costs for
all Units.
"Transaction Costs" shall have the meaning specified in Section 2.5(a)
of the Participation Agreement.
"Transferee" shall have the meaning specified in Section 6.1(a) of the
Participation Agreement.
"Tribunal" shall mean any state, commonwealth, federal, foreign,
territorial or other court or governmental body or subdivision, agency,
department, commission, board, bureau or instrumentality of any governmental
body.
"Trust" shall mean the trust created by the Trust Agreement.
"Trust Agreement" shall mean that certain Trust Agreement (Birmingham
Steel Trust No. 97-1) dated as of September 30, 1997 among the Owner
Participants and First Security Bank, National Association.
"Trust Company" shall mean PNC Bank, Kentucky, Inc., a bank organized
and existing under the Laws of the Commonwealth of Kentucky.
"Trust Estate" shall have the meaning specified in Section 1.1 of the
Trust Agreement.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939.
"Trustees" shall mean the Owner Trustee and the Indenture Trustee.
"Unit" shall mean each unit or item of Equipment.
<PAGE>
Exhibit 10.3
LEASE SUPPLEMENT (Birmingham Steel Trust No. 97- 1) NO. 1
Dated November 10, 1997
between
PNC BANK, KENTUCKY, INC.,
not in its individual capacity except as expressly provided herein
but solely as Owner Trustee, Lessor
and
BIRMINGHAM STEEL CORPORATION,
Lessee
CERTAIN OF THE RIGHT, TITLE AND INTEREST OF LESSOR IN AND TO
THIS LEASE SUPPLEMENT, THE EQUIPMENT COVERED HEREBY AND THE RENT DUE AND TO
BECOME DUE UNDER THE LEASE HAVE BEEN ASSIGNED AS COLLATERAL SECURITY TO, AND ARE
SUBJECT TO A SECURITY INTEREST IN FAVOR OF, FIRST UNION NATIONAL BANK, NOT IN
ITS INDIVIDUAL CAPACITY BUT SOLELY AS INDENTURE TRUSTEE UNDER A TRUST INDENTURE
AND SECURITY AGREEMENT (BIRMINGHAM STEEL TRUST NO. 97-1), DATED AS OF SEPTEMBER
30,1997, BETWEEN SAID INDENTURE TRUSTEE, AS SECURED PARTY, AND LESSOR, AS
DEBTOR. INFORMATION CONCERNING SUCH SECURITY INTEREST MAY BE OBTAINED FROM THE
INDENTURE TRUSTEE AT ITS ADDRESS SET FORTH IN SECTION 20 OF THE LEASE. SEE
SECTION 13 HEREOF FOR INFORMATION CONCERNING THE RIGHTS OF THE HOLDER OF THE
CHATTEL PAPER ORIGINAL COPY HEREOF AND THE HOLDERS OF THE VARIOUS OTHER
COUNTERPARTS HEREOF.
<PAGE>
LEASE SUPPLEMENT (Birmingham Steel Trust No. 97- 1) NO. 1
LEASE SUPPLEMENT (Birmingham Steel Trust No. 97- 1) NO. 1 dated November
10, 1997 (as amended, modified, supplemented, restated and/or replaced from time
to time, this "Lease Supplement") between PNC BANK, KENTUCKY, INC., not in its
individual capacity except as expressly), provided Herein but solely as Owner
Trustee (together with its successors and permitted assigns hereunder, the
"Lessor") under the Trust Agreement, and BIRMINGHAM STEEL CORPORATION, a
Delaware corporation (together with its successors and permitted assigns
hereunder, the "Lessee");
WITNESSETH:
Lessor and Lessee have heretofore entered into that certain Equipment
Lease Agreement (Birmingham Steel Trust No. 97- 1) dated as of September 30,
1997 (as amended, modified, supplemented, restated and/or replaced from time to
time, the "Lease"). The Lease provides for the execution and delivery of a Lease
Supplement substantially in the form hereof for the purpose of confirming the
acceptance and lease of the Units under the Lease as and when delivered by
Lessor to Lessee in accordance with the terms thereof. Unless otherwise defined
herein, capitalized terms used herein shall have the meanings specified in
Appendix A to the Lease;
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:
1 . Lessee hereby acknowledges and confirms that it has
approved the Units identified on Schedule 1 (collectively, the "Equipment")
hereto at the time and on the date set forth in the Certificate of Acceptance.
2. Lessor hereby confirms delivery and lease to Lessee, and
Lessee hereby confirms acceptance and lease from Lessor, under the Lease as
hereby supplemented, of the Equipment.
3. Lessee hereby represents and warrants that no Event of Loss
has occurred with respect to the Equipment as of the date hereof.
4. The aggregate Equipment Cost for the Equipment is
$75,000,000 and the Equipment Cost with respect to each Unit subject to the
Lease pursuant this Lease Supplement is set forth on Schedule 1 hereto.
5. The Basic Rent for the Equipment is an amount computed in
accordance with Schedule 2.
6. The Stipulated Loss Value for the Equipment is an amount
computed in accordance with Schedule 3.
7. The Basic Term Commencement Date for the Equipment is
November 10, 1997.
8. The Basic Term Expiration Date for the Equipment is
November 10, 2012.
9. The Early Buy-Out Date for the Equipment is the first
Payment Date set forth on the Schedule 4 hereto.
10. Lessee hereby confirms its agreement, in accordance with
the Lease as supplemented by this Lease Supplement to pay Rent to Lessor for
each Unit leased hereunder as provided for in the Lease.
11. Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
Lease Supplement may refer to the "Equipment Lease Agreement, dated as of
September 30, 1997", the "Lease Agreement, dated as of September 30, 1997," or
the "Lease, dated as of September 30, 1997," or may identify the Lease in any
other respect without making specific reference to this Lease Supplement, but
nevertheless all such references shall be deemed to include this Lease
Supplement, unless the context shall otherwise require.
12. This Lease Supplement shall be construed in connection
with and as part of the Lease, and all terms, conditions and covenants contained
in the Lease shall be and remain in full force and effect.
13. This Lease Supplement may be executed in any number of
counterparts, each executed counterpart constituting an original and in each
case such counterparts shall constitute but one and the same instrument
provided, however that to the extent that this Lease Supplement constitutes
chattel paper (as such term is defined in the Uniform Commercial Code) no
security interest in this Lease Supplement may be created through the transfer
or possession of any counterpart hereof other than the counterpart bearing the
receipt therefor executed by the Indenture Trustee on the signature page hereof,
which counterpart shall constitute the only cc original" hereof for purposes of
the Uniform Commercial Code.
14. This Lease Supplement shall in all respects be governed
by, and construed in accordance with, the Laws of the State of New York,
including all matters of construction, validity and performance.
15. This Lease Supplement shall be construed in connection
with and as part of the Lease, and all terms, conditions and covenants contained
in the Lease (a) are hereby incorporated herein by reference as though restated
in their entirety and (b) shall be and remain in full force and effect.
<PAGE>
IN WITNESS WBEREOF, Lessor and Lessee have caused this Lease Supplement
to be duly executed and delivered on the day and year first above written.
LESSOR:
PNC BANK, KENTUCKY, INC., not in its
individual capacity, but solely as Owner
Trustee
By:/s/W. Michael Hanks
Name: W. Michael Hanks
Title: Vice President
LESSEE:
BIRMINGHAM STEEL CORPORATION
By:/s/James F. Tierney
Name: James F. Tierney
Title: Treasurer
<PAGE>
Schedule 1
<TABLE>
<CAPTION>
Birmingham Steel Corporation
Memphis, TN
Equipment List
VENDOR EQUIPMENT* TOTAL COST
<S> <C> <C>
Voest-Alpine Industries, Inc. 1 150-ton finger shaft furnace $27,959,436
1 150-ton ladle furnace
1 Vacuum tank degasser
1 5-strand continuous bloom caster
1 Fume control system
United McGill Corporation 1 Electrostatic Precipitator 935,938
Bricmont, Inc. 1 Walking beam reheat furnace 4,983,628
Danieli 1 9-stand billet reduction mill 15,420,836
Steltech, LTD 1 Metallurgical test laboratory 254,469
1 Macroetcher 158,280
Herzog Corporation 1 Spectrometer and metallurgy 748,140
lab equipment
ABB Industrial Systems, Inc. 1 5OOkV Substation 9,852,031
1 13.8kV Substation 1,082,003
1 Harmonic Filter Banks 1,221,452
2 120 MVA Arc Furnace 5,640,056
transformers with two reactors
Systems Engineering 1 Alloy/DRI/Flux Material 5,191,172
Handling System
Sumitomo Metal Industries 1 Mold level control system 756,742
1 Breakout detection system 337,472
Babcock & Wilcox 1 Boiler for vacuum tank degasser 458,345
$75,000,000
</TABLE>
*In each case together with all appliances, parts, components, instruments,
appurtenances, accessories, furnishings and/or other equipment or property
incorporated in or installed on or attached to said equipment, fixtures,
supplies and personal property. <PAGE>
Schedule 2 to Lease Supplement No. 1 (Birmingham Steel
Trust No.97 - 1)
Basic Rent
Rent Payment Date Basic Rent Percentage*
Nov 10 1997 0.00000000%
Jan 15 1998 1.59967559%
Jul 15 1998 4.42987089%
Jan 15 1999 4.42987089%
Jul 15 1999 4.42987089%
Jan 15 2000 4.42987089%
Jul 15 2000 4.42987089%
Jan 15 2001 4.42987089%
Jul 15 2001 4.42987089%
Jan 15 2002 4.42987089%
Jul 15 2002 4.42987089%
Jan 15 2003 4.42987089%
Jul 15 2003 4.42987089%
Jan 15 2004 4.42987089%
Jul 15 2004 4.42987089%
Jan 15 2005 4.42987089%
Jul 15 2005 5.37213165%
Jan 15 2006 5.37213165%
Jul 15 2006 5.37213165%
Jan 15 2007 5.37213165%
Jul 15 2007 5.37213165%
Jan 15 2008 5.37213165%
Jul 15 2008 5.37213165%
Jan 15 2009 5.37213165%
Jul 15 2009 5.37213165%
Jan 15 2010 5.37213165%
Jul 15 2010 5.37213165%
Jan 15 2011 5.37213165%
Jul 15 2011 5.37213165%
Jan 15 2012 5.37213165%
Jul 15 2012 5.37213165%
Nov 10 2012 3.46252009%
*Expressed as a percentage of Equipment Cost.
<PAGE>
Schedule 3 to Lease Supplement No. 1 (Birmingham Steel
Trust No. 97-1)
Stipulated Loss Value
Rent Payment Date Stipulated Loss Value Percentage*
Nov 10 1997 101.64758205
Jan 15 1998 101.58360606
Jul 15 1998 101.27744524
Jan 15 1999 100.68672353
Jul 15 1999 99.85037998
Jan 15 2000 98.77842141
Jul 15 2000 97.52060467
Jan 15 2001 96.08661988
Jul 15 2001 94.50998279
Jan 15 2002 92.80038627
Jul 15 2002 90.97056754
Jan 15 2003 89.00938319
Jul 15 2003 86.92210781
Jan 15 2004 84.69815043
Jul 15 2004 82.35797166
Jan 15 2005 79.92853019
Jul 15 2005 76.49494857
Jan 15 2006 73.01919060
Jul 15 2006 69.50214988
Jan 15 2007 65.96108782
Jul 15 2007 62.38433403
Jan 15 2008 58.79035340
Jul 15 2008 55.16676399
Jan 15 2009 51.53380797
Jul 15 2009 47.85936046
Jan 15 2010 44.03802013
Jul 15 2010 40.05950119
Jan 15 2011 35.92266672
Jul 15 2011 31.60999081
Jan 15 2012 27.18355303
Jul 15 2012 22.75730316
Nov 10 2012 20.00000000
*Expressed as a percentage of Equipment Cost.
<PAGE>
Schedule 4 to Lease Supplement No. 1 (Birmingham Steel
Trust No. 97- 1)
EBO Schedule
Payment Date EBO Percentage*
Jul 15 2009 26.42770208%
Sep 15 2009 7.59472847%
Dec 15 2009 7.59472847%
Apr 15 2010 1.44121145%
-------------
43.05837047%
*Expressed as a percentage of Equipment Cost.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the December
31, 1997 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-30-1998
<PERIOD-END> Dec-31-1997
<CASH> 1,234
<SECURITIES> 0
<RECEIVABLES> 116,162
<ALLOWANCES> 2,085
<INVENTORY> 200,861
<CURRENT-ASSETS> 341,719
<PP&E> 941,485
<DEPRECIATION> 196,020
<TOTAL-ASSETS> 1,189,448
<CURRENT-LIABILITIES> 146,162
<BONDS> 53,500
0
0
<COMMON> 298
<OTHER-SE> 475,237
<TOTAL-LIABILITY-AND-EQUITY> 1,189,448
<SALES> 267,453
<TOTAL-REVENUES> 267,453
<CGS> 241,942
<TOTAL-COSTS> 241,942
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,603
<INTEREST-EXPENSE> 6,511
<INCOME-PRETAX> 4,852
<INCOME-TAX> 2,075
<INCOME-CONTINUING> 2,777
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,777
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
