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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
COMMISSION FILE NUMBER 1-12881
LONE STAR TECHNOLOGIES, INC.
(A DELAWARE CORPORATION)
5501 LBJ FREEWAY, SUITE 1200
DALLAS, TEXAS 75240
972/386-3981
I.R.S. EMPLOYER IDENTIFICATION NUMBER: 75-2085454
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $1.00 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of January 31, 1998, the number of shares of common stock outstanding was
22,503,248. The aggregate market value of common stock (based upon the closing
price on the New York Stock Exchange on that date) held by nonaffiliates of the
registrant was approximately $651 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's Proxy Statement for its 1998 Annual Meeting of
Shareholders are incorporated by reference into Part III hereof.
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TABLE OF CONTENTS
Page
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PART I
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS. . . . . . . . . . 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . 10
ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION . . . . . . . . . 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . 17
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . 36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT. . . . . . . . . . . . . . . . . . . . . . . . . 36
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . . 36
ITEM 15. SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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PART I
ITEM 1. BUSINESS
GENERAL
Lone Star Technologies, Inc. (LST) is a management and holding company that
currently has one principal operating subsidiary, Lone Star Steel Company
(Steel). Steel serves three business segments: oilfield products, specialty
tubing products, and flat rolled steel and other tubular products and services.
Oilfield products are comprised of casing, tubing, and line pipe, that are
manufactured and marketed globally to the oil and gas drilling industry.
Specialty tubing products consist of Drawn Over Mandrel (DOM) tubing and
as-welded tubing that are manufactured and marketed globally to automotive,
fluid power, and other markets for various mechanical applications. Flat rolled
steel and other tubular products and services are manufactured and provided to
general industrial markets. LST's consolidated revenues are not seasonal.
However, Steel's sales of oilfield products are sensitive to the level of
domestic drilling activity, which is in turn dependent on the prices of oil and
natural gas.
LST was incorporated in Delaware in 1986 and became the holding company of
Steel, pursuant to Steel's merger with a wholly owned subsidiary of LST. In
1988, LST acquired the stock of American Federal Bank (AFB), a federally
chartered savings bank. During May 1991, a major creditor group received 19.5%
of the common stock of Steel, creating a minority interest in Steel. In 1995,
LST repurchased 4.95% of Steel's common stock from Steel's minority
shareholders. In January 1997, all of the remaining outstanding common stock,
preferred stock and warrants held by the other minority shareholders of Steel
were purchased by LST, making Steel a wholly owned subsidiary of LST. In
November 1993, LST sold the stock of AFB. During August 1997, LST received
$12.4 million as a final payment on the sale of AFB. The accompanying
consolidated financial statements reflect this payment as a gain from
discontinued operations.
LINES OF BUSINESS INFORMATION
In the last three years, segment revenues were as follows:
<TABLE>
<CAPTION>
($ in millions)
1997 1996 1995
---------------- --------------- ---------------
$ % $ % $ %
--- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Oilfield products revenues 454.1 69 371.0 68 241.6 57
Specialty tubing products revenues 129.0 20 109.8 20 115.2 27
Flat rolled steel and other tubular revenues 71.2 11 68.2 12 69.0 16
----- ---- ------ --- ----- ---
Consolidated net revenues 654.3 100 549.0 100 425.8 100
----- ---- ------ --- ----- ---
----- ---- ------ --- ----- ---
</TABLE>
Additional segment information is included in Note B to the consolidated
financial statements.
OILFIELD PRODUCTS. Steel manufactures and markets oil country tubular goods
(OCTG) and line pipe.
OCTG offered by Steel includes the widest size and chemistry range of electric
resistance welded (ERW) high-quality prime casing and tubing for oil and gas
drilling and production in the United States. Casing, which represents about
75% of all OCTG tonnage sold by Steel, is the structural retainer for the walls
of oil and gas wells. It also serves to prevent pollution of nearby water
reservoirs and to prevent contamination of a well's production. Casing is
generally not removed after it has been installed. Production tubing is
installed within the casing to convey oil and gas to the surface. Steel offers
the widest
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ranges of OCTG diameters (2 1/16" to 20") and grades produced in the industry,
including grades that have been successfully used for drilling at depths of over
30,000 feet.
Demand for OCTG is affected by drilling activity which is driven by customers'
expectations of future oil and gas prices and political factors such as energy
and trade policies. Domestic drilling activity was up 21% in 1997 from the
prior year, according to the average number of rigs operating in the United
States as measured by Baker Hughes. Steel's open orders for OCTG at December
31, 1997, were down 21% from the prior year-end as distributors continued to
work down slightly higher inventory levels at the end of the year.
Approximately 6% of shipments in 1997 were used outside the United States.
Sales and earnings are affected by price, cost, availability of raw materials,
oil and gas drilling activity, general economic conditions, and an equitable
trade environment.
LINE PIPE offered by Steel ranges in diameter from 2 3/8" to 16" and is used to
gather and transport oil and gas from the well site to storage or refining
facilities. Approximately 10% of Steel's line pipe shipments were exported in
1997.
SALES AND DISTRIBUTION. Steel's domestic OCTG sales distribution network
consists of 14 nonexclusive distributors that maintain and deliver product
inventory to major and independent oil and gas companies that explore for oil
and natural gas. Line pipe is also sold through nonexclusive distributors and
directly to end users. Internationally, OCTG is sold through distributors and
trading companies as well as directly to end users. The largest customer and
the second largest customer, both distributors of Steel's oilfield products in
1997, accounted for 17% and 12% of total tons shipped, respectively. About 77%
of the oil and gas wells drilled in the United States in 1997 were located in
Texas, Oklahoma, Kansas, Louisiana, New Mexico, and the federal waters of the
Gulf of Mexico, all within 750 miles of Steel's mill in Lone Star, Texas. The
majority of Steel's oilfield products were sold for use in these states, as well
as the Gulf of Mexico which is less than 250 miles from Steel's mill.
ALLIANCE MILLS. Steel has expanded into other marketing agreements to sell
steel tubular products manufactured by six unrelated companies. These
arrangements are intended to expand Steel's product offerings without a
substantial investment in plant and equipment and enhance Steel's marketing
competitiveness. These transactions are performed on a commission basis,
through purchase and resale of the products, and under agreements to process
flat rolled steel provided by Steel into tubular products. These arrangements
accounted for over 20% of Steel's revenues from oilfield products during 1997.
RAW MATERIALS AND INVENTORIES. OCTG and line pipe are generally produced to
fill specific orders and, accordingly, Steel maintains the majority of its
inventory in the form of raw materials, work-in-process, or finished goods
earmarked for specific orders. Some work-in-process and finished inventories
are maintained in order to provide flexibility in responding to customer
delivery demands.
Steel purchases steel slabs, scrap steel, and steel coils for use in the
manufacture of its products. The availability of steel slabs to meet production
needs remained tight in 1997, and it was often necessary for Steel to commit to
purchase slabs 90 to 150 days prior to production. Steel has secured
commitments from a major supplier to be provided most of its steel slab
requirements for 1998. Steel's principal raw material for its internally
produced steel slabs is steel scrap, which is purchased in the spot market and
internally generated from Steel's operations. The price of scrap steel and
steel slabs can be volatile and is influenced by a number of competitive market
conditions beyond the control of Steel.
COMPETITION. OCTG and line pipe are sold in highly competitive markets. Steel
offers a wide range of sizes and chemistries and, based on generally available
market data, Steel believes that it is one of the largest domestic suppliers of
OCTG. Users of OCTG base their purchase decisions on four factors:
availability, price, quality, and service. Steel believes that it is
competitive in all of these areas.
Two primary markets exist for OCTG, and Steel serves both. Deep critical wells,
such as offshore wells, require high-performance OCTG that can sustain enormous
pressure as measured by burst strength, collapse strength, and yield strength.
Both major and independent oil companies that conduct drilling programs of this
nature emphasize quality and compliance
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with specific standards. Steel, with its full-body normalized ERW manufacturing
process that meets American Petroleum Institute standards, often competes with
seamless OCTG in this market. Operators drilling shallow wells generally
purchase OCTG on the basis of price and availability because wells of this
nature require fewer performance characteristics. Steel competes in this
market, which is served primarily by producers of seam-annealed ERW and seamless
OCTG, with its full range of Lone Star-Registered Trademark- products as well as
with its Wildcat-TM- brand of OCTG.
Several domestic manufacturers produce limited lines of OCTG, and a number of
foreign manufacturers produce OCTG for export to the United States. Imported
OCTG accounted for approximately 16% of the apparent supply available to the
domestic OCTG market during 1997 and 14% during 1996 and 1995, as compared to
24% in 1994. A reduction of imported OCTG from levels experienced in the 1992
to 1994 period resulted from the imposition of protective tariffs on certain
foreign countries in 1995. These trade tariffs, which were intended to promote
an equitable trade environment, remained in effect during 1997. Because these
protective tariffs cover significant OCTG producing countries in Asia, the level
of imported OCTG has not substantially changed as a result of currency
devaluations and general slowdowns in certain Asian economies at the end of
1997.
SPECIALTY TUBING PRODUCTS. Steel manufactures and markets specialty tubing.
SPECIALTY TUBING includes a wide array of high-quality, custom-made steel
tubular products which require critical tolerances, precise dimensional control,
and special metallurgical properties. Steel's specialty tubing products range
in size from 7/8" to 15 1/2" in outside diameter and are made from a variety of
combinations of chemical compositions, thermal treatments, mechanical
properties, and surface finishes. Product uses include the manufacture of
automotive, construction, and farm equipment and industrial applications such as
hydraulic cylinders, stabilizer tubes, intrusion devices, machine parts, bearing
races, downhole pump barrels, and printing rollers. Because of the wide range
of industrial applications, sales traditionally follow general domestic economic
conditions.
Steel produces most of its specialty tubing by the drawn over mandrel (DOM)
process which uses a drawbench to pull tubing through a die and over a mandrel.
Steel believes it has the largest domestic manufacturing capacity for DOM
tubing. The use of the DOM manufacturing process enables Steel to achieve
higher critical tolerances and dimensional control than other processes.
Steel's 1,000,000 pound drawbench, the largest in the United States, also
enables Steel to manufacture larger diameter, heavier wall products and thus
access a broader market than its competitors. Moreover, Steel is the only DOM
specialty tubing manufacturer in the U.S. that produces its own electric arc
furnace (EAF) steel, which allows for control of the complete manufacturing
process. DOM specialty tubing order quantities are typically small (usually
less than 50,000 pounds) and made to exact customer specifications. Steel's
integration of steelmaking and tube finishing allows for optimal inventory
control, combined with just-in-time customer delivery of tubes with special
steel chemistries and precise dimensional requirements.
Steel also produces as-welded specialty tubing which does not utilize the DOM
process. A typical application for this product is trailer axles.
Demand for specialty tubing products, within the traditional markets, was up in
1997 due to strong automotive sales, construction activity, and general economic
conditions. Open orders at year-end 1997 were 56% more than the prior year-end.
SALES AND DISTRIBUTION. Domestically, specialty tubing is marketed and sold
through 19 nonexclusive steel service centers and directly to end users.
Specialty tubing products have detailed design specifications and in some cases
long lead times, making annual contracts an efficient mechanism for large
purchasers. The largest customer of Steel's specialty tubing in 1997 accounted
for 14% of total shipments. Internationally, the majority of Steel's specialty
tubing is currently sold directly to end users. Exports accounted for
approximately 26% and 19% of Steel's DOM specialty tubing shipments in 1997 and
1996, respectively.
RAW MATERIALS AND INVENTORIES. Raw materials are readily available from
multiple sources. Production is generally
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scheduled to meet specific orders and, accordingly, inventory is managed to
minimize the amount of finished goods on hand. Work-in-process inventories are
maintained in order to provide flexibility in responding to customer needs.
Steel purchases steel slabs, scrap steel, and coiled steel for use in the
manufacture of its products. The availability of steel slabs to meet production
needs remained tight in 1997, and it was often necessary for Steel to commit to
purchase slabs 90 to 150 days prior to production. Steel has secured
commitments from a major supplier to be provided most of its steel slab
requirements for 1998. Steel's principal raw material for its internally
produced steel slabs is steel scrap, which is purchased in the spot market and
internally generated from Steel's operations. The price of scrap steel and
steel slabs can be volatile and is influenced by a number of competitive market
conditions beyond the control of Steel.
COMPETITION. The market for specialty tubing is competitive and is served by
several manufacturers. During 1996, Steel completed a capital expenditure
program to expand its specialty tubing capacity. The expansion allowed Steel to
ship 18% more tons in 1997 over 1996. Based on generally available market data,
Steel believes it has the largest production capacity for DOM specialty tubing
products in the United States.
Steel is the only fully integrated DOM producer in the United States. Because
these products are made to end-user specification and often require just-in-time
delivery, only small quantities are imported into the United States. In
contrast to the OCTG market, seamless and ERW specialty tubing products differ
in their applications. ERW is preferred for many mechanical tubing applications
because its consistent wall thickness requires less machining in the finishing
process. Seamless tubes are used primarily in heavy gauge applications such as
boiler and pressure tubing.
FLAT ROLLED STEEL AND OTHER TUBULAR PRODUCTS AND SERVICES. Steel manufactures
and markets flat rolled steel and other miscellaneous tubular products that are
secondary to its manufacture of oilfield and specialty tubing products. Steel's
participation in the flat rolled steel commodity market to some extent involves
its excess capacity for flat rolled steel as related to the manufacture of its
oilfield and specialty tubing products and certain cost considerations
associated with its total manufacturing operations.
FLAT ROLLED STEEL is primarily used by Steel in the manufacture of tubular
products. It is also sold to fabricators of large diameter transmission pipe,
storage tanks, rail cars, and a variety of other construction and industrial
products.
SALES AND DISTRIBUTION. Flat rolled steel is sold directly to end users and
through service centers, primarily in the southwestern region of the United
States. The largest customer of Steel's flat rolled steel accounted for 80% of
Steel's flat rolled steel sales in 1997 as well as substantially all other sales
of miscellaneous tubular products other than oilfield and specialty tubing
products. This customer has steel processing facilities located adjacent to
Steel's facilities in East Texas, and those facilities purchase most of its flat
rolled steel from Steel. Sales to this customer represented approximately 8% of
Steel's total revenues for 1997.
RAW MATERIALS AND INVENTORIES. Steel produces flat rolled steel from its
internally produced slabs and slabs purchased from unrelated companies. The
availability of steel slabs to meet production needs remained tight in 1997, and
it was often necessary for Steel to commit to purchase slabs 90 to 150 days
prior to production. Steel has secured commitments from a major supplier to be
provided most of its steel slab requirements for 1998. Steel's principal raw
material used in the production of its slabs is steel scrap, which is purchased
in the spot market and internally generated from Steel's operations. The price
of steel scrap can be volatile and is influenced by a number of competitive
market conditions beyond the control of Steel.
COMPETITION. Flat rolled steel is sold in highly competitive markets generally
concentrated in the southwestern region of the United States. Sales and
earnings are affected by the cost of raw materials, use of flat rolled steel by
Steel in the manufacture of its tubular products, demand by outside customers,
and general economic conditions.
OTHER SERVICES. Transportation, storage, and other services are provided by
Steel's subsidiaries.
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OTHER PRODUCTS. Steel markets its surplus and reject pipe as secondary products
for use in structural and piling applications in the construction industry.
RESEARCH, DEVELOPMENT, AND PATENTS
Steel conducts limited research and development activities at its metallurgical
laboratory on its facilities in East Texas. Its patents do not significantly
affect financial results.
EMPLOYEES
At December 31, 1997, LST and Steel had a total of 2,044 active employees, of
whom 1,390 were members of two unions represented by three bargaining units.
The majority of union workers are represented by the United Steelworkers of
America under a contract signed in May 1996, which expires on May 31, 2001, with
a provision to reopen the contract for wages but not other benefits or work
conditions after May 31, 1999. Management considers its relationship with its
employees to be good.
FOREIGN OPERATIONS
Steel conducts no manufacturing operations outside the United States. Export
sales to destinations outside the United States were approximately $58.1
million, $50.0 million, and $37.9 million for the years 1997, 1996, and 1995,
respectively.
ENVIRONMENTAL
Steel's operating activities are governed by numerous environmental laws, which
are regulated by state and federal agencies. The three major areas of
regulation are air quality, water quality, and solid and hazardous waste
management.
RELATIONSHIP OF FEDERAL AND STATE REGULATION. The United States Environmental
Protection Agency (EPA) is responsible for implementing and enforcing federal
environmental laws. In Texas, the environmental regulatory agency is the Texas
Natural Resource Conservation Commission (TNRCC). Most federal environmental
statutes expressly provide for state assumption of responsibility when it can be
demonstrated that the state program is as stringent as the federal program;
however, the EPA retains authority to enforce the program if the state fails to
do so. Texas is authorized to implement the federal hazardous waste program
under the Resource Conservation and Recovery Act (RCRA) and the federal air
quality program under the Clean Air Act. The Texas air quality program also
requires all new or modified facilities that may emit any air contaminant to
obtain a permit which may impose limitations on emissions. Texas has not yet
been delegated authority to implement the federal water quality program under
the Clean Water Act. Therefore, dual federal and state water quality programs
exist in Texas, requiring companies such as Steel to obtain both a federal
permit and a state permit to discharge wastewater into state waters. In
addition, Texas has state environmental programs that supplement and operate
independently of the federal environmental programs. Texas has established its
own program for the regulation of municipal and industrial solid wastes under
the Texas Solid Waste Disposal Act. Steel's operations generate wastes that are
regulated as industrial solid waste under this program.
AIR quality is governed by the federal Clean Air Act and the Texas Clean Air
Act. The TNRCC has primary responsibility for implementing and enforcing the
federal law through the state program. The Texas State Implementation Plan
implements, maintains, and enforces the National Ambient Air Quality Standards
established by the EPA, as well as the other federal air quality programs.
Recently, the TNRCC adopted rules implementing Title V of the federal Clean Air
Act, which requires subject sources to apply for a general operating permit.
Steel has submitted an abbreviated application for a general
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operating permit, as required. The TNRCC has not yet set a deadline for subject
sources within the steel industry to submit full applications. Once the TNRCC
issues Steel a general operating permit, Steel will have additional record
keeping obligations.
Emission sources at Steel's facilities are currently regulated by a combination
of individual permit limitations and statewide standards. Sources which existed
before the implementation of the state permitting requirements are registered
with the TNRCC as "grandfathered sources" and are not required to obtain a
permit. If, however, a grandfathered source is modified in a manner that
increases the amount or changes the character of air contaminants emitted into
the atmosphere, it becomes subject to permitting requirements. Steel is
presently in substantial compliance with the conditions of its permits and
applicable standards.
WATER quality is governed by the federal Clean Water Act, implemented by the
EPA, and the state Water Code, implemented by the TNRCC. Steel is required to
have two separate permits to discharge wastewater from each of its outfalls: a
National Pollutant Discharge Elimination System (NPDES) permit issued by the EPA
and a wastewater discharge permit issued by the TNRCC. The regulatory emphasis
on wastewater is directed at the control of effluent toxicity. Steel is also
required to have an NPDES permit to discharge storm water that is not commingled
with wastewater. Steel's storm water discharges are permitted through the EPA's
NPDES General Permit for Storm Water Discharges Associated With Industrial
Activities.
In the process of manufacturing low alloy carbon grade steel and fabricating
steel pipe and tube, Steel generates wastewater which contains certain
contaminants from the process. Steel is authorized by both a state and a
federal permit to discharge its wastewater to either of two receiving water
bodies, Ellison Creek Reservoir or Big Cypress Creek. Each permit contains
effluent limitations for the contaminants of concern that might be present in
Steel's wastewater. The effluent limitations are usually the same in both
permits, but if not, the more stringent limitations determine the maximum
concentrations of contaminants that may be present in Steel's wastewater. To
comply with these limitations, Steel treats its wastewater before discharge.
The permits require that Steel monitor the concentrations of the contaminants of
concern in its effluent on a regular basis and report the monitoring results to
the TNRCC and the EPA.
The only compliance issue for Steel is the effluent limitations for total lead
at its process discharge outfall. Steel's state wastewater discharge permit was
renewed effective August 1, 1994, for a five-year term. The effluent
limitations for total lead were less stringent for the first three years than
the remaining two years of the permit term because the TNRCC also issued an
order granting Steel a three-year variance from the Texas Surface Water Quality
Standards for dissolved lead. The order was based on scientific evidence that
less stringent, site-specific water quality standards for dissolved lead were
appropriate for the receiving water bodies into which Steel discharges its
wastewater. Thereafter, the TNRCC adopted, and the EPA approved, the
site-specific water quality standards for dissolved lead. Before the temporary
variance expired on August 1, 1997, and in accordance with the terms of the
temporary variance, Steel submitted an application to the TNRCC for an amendment
to its wastewater discharge permit to modify the final effluent limitations for
total lead at its process discharge outfall. Recently, the TNRCC provided to
Steel, for review, a draft proposed permit that contains effluent limitations
for total lead at that outfall based on the site-specific water quality
standards for dissolved lead. The proposed effluent limitations for total lead
are less stringent than those that were authorized by the temporary variance.
Steel anticipates that the TNRCC will issue to Steel the final amended permit
within a few months. Steel further anticipates that it will be able to comply
with all requirements of its state wastewater discharge permit as amended.
Steel's existing federal NPDES permit for wastewater discharges was scheduled to
expire in June 1995. However, this permit continues in effect until the EPA
takes final action on a renewal NPDES permit. On December 31, 1994, the EPA
published a notice of intent to issue Steel a renewal NPDES permit. The draft
NPDES permit contained effluent limitations for total lead that are less
stringent than those in the existing NPDES permit. The EPA based this
modification on the site-specific water quality standards for dissolved lead.
The only requirement in the draft NPDES permit on which the EPA and Steel could
not reach agreement was the inclusion of a whole effluent toxicity (WET) limit.
WET is measured by exposing freshwater organisms, such as fathead minnow larvae,
to various concentrations of effluent for seven days and then determining the
growth and survival of the test organisms. A WET limit is a legally enforceable
permit limitation that is
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based on the survival of the test organism in a stated concentration of the
effluent. Steel opposed the inclusion of a WET limit in its renewal NPDES
permit, because its effluent contains naturally occurring bacteria that are
pathogenic to fathead minnow larvae. These pathogenic bacteria interfere with
the WET tests. Steel also later filed a Petition for Review challenging the EPA
final rule adopting the WET test methods for the reason that EPA did not address
in the methods the issue of how to account for adverse influences of pathogens
in the conduct of WET tests. Steel and the EPA have been involved in settlement
negotiations to resolve both the Petition for Review and the NPDES permit issue.
Steel believes that it will be able to settle both matters favorably with the
EPA.
SOLID AND HAZARDOUS WASTE management is governed by the Texas Solid Waste
Disposal Act and RCRA. The TNRCC has primary responsibility for implementing
and enforcing the federal law through the state program.
Solid waste, some of which is now classified as hazardous, has been generated by
Steel since it began operation. As with similar mills in the industry, Steel's
EAF generates dust containing lead, chromium, and cadmium. Until 1988, Steel
disposed of the EAF dust and other wastes in on-site management units. Steel is
registered as a large quantity generator and only stores hazardous waste on-site
for periods less than ninety (90) days. Hazardous wastes, and most nonhazardous
wastes, are now shipped off-site to commercial facilities for disposal or
reclamation. EAF dust has been recycled for metals recovery since 1991.
In the past, Steel operated solid waste management units for the storage and
disposal of nonhazardous and hazardous wastes. These sites include four
land-based RCRA waste management units and a fifth site which predates RCRA. In
1996, Steel received TNRCC approval of a closure plan for the site not subject
to RCRA (a pond previously used for storing spent acid and a tarry waste).
Closure began in September 1997. Two sites subject to RCRA (the main plant
landfill and a site that received air pollution sludge) have been closed as
hazardous waste landfills in accordance with requirements of RCRA and
corresponding state regulations. These sites are subject to post-closure care
obligations, including groundwater monitoring, for up to thirty years. Of the
remaining two sites, one has been closed by a combination of removal (clean
closed) and conversion to nonhazardous landfill and one has been clean closed,
in accordance with requirements of RCRA and corresponding state regulations. In
1996, TNRCC accepted the closure certifications for all four units and released
the clean-closed and nonhazardous units from further RCRA requirements. The
TNRCC will issue Steel a permit for the facilities requiring post-closure care.
Steel estimates the actual cost of RCRA post-closure care for the remaining
twenty-four years to be approximately $350,000.
ITEM 2. PROPERTIES
Steel conducts its operations at facilities on a 2,000-acre site in East Texas.
The original facilities, constructed in the 1940's and 1950's have been expanded
and modernized, and include two electric arc furnaces (EAF) equipped with
oxy-fuel burners with a combined capacity of approximately 575,000 ingot tons
per year; two rolling mills, a "two-high" mill that rolls the EAF ingots into
slabs and a "four-high" single stand reversing Steckel mill that produces flat
rolled coils; coil slitting and handling equipment; two pipe welding mills; six
draw benches, including the largest specialty tubing drawbench in the United
States; heat treating facilities; numerous types of ultrasonic and
electromagnetic testing and inspection equipment; finishing facilities at which
tubular goods are threaded and couplings are applied; and various support
facilities including a shortline railroad and other transportation and storage
facilities. Steel's and LST's headquarters are located in leased facilities in
Dallas, Texas.
Steel's annual rated capacity approximates 480,000 slab tons, 1,250,000 flat
rolled tons, and 1,000,000 welded pipe tons. Steel has access through marketing
arrangements and agreements with alliance mills to additional oilfield pipe
capacity of approximately 250,000 tons. In 1997, the specialty tubing
facilities operated near 80% of capacity. The rolling mills and pipe mills
generally operated at or above 90% of capacity, while the EAF's operated at
about 50% of capacity.
In addition to the manufacturing facilities, Steel owns 8,250 acres in Texas
which were purchased primarily for iron ore or coal reserves, and Steel owns
mineral interests in an additional 12,000 acres in Oklahoma and 60,000 acres in
Texas. No
9
<PAGE>
minerals have been recovered from these properties for many years because their
use is no longer required in Steel's operations. Steel owns nominal oil and gas
interests in an additional 9,400 acres in Texas.
ITEM 3. LEGAL PROCEEDINGS
Management does not believe, based upon analysis of known facts and
circumstances and reports from legal counsel, that any pending legal proceeding
will have a material adverse effect on the financial condition of LST and its
subsidiaries taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
LST's Common Stock trades on New York Stock Exchange under the symbol LSS. The
following table summarizes the range of trading prices by quarter for the last
two years (in $):
<TABLE>
<CAPTION>
First Second Third Fourth
<S> <C> <C> <C> <C> <C>
1997 High 22 28 5/8 52 1/2 59 3/16
Low 15 3/8 18 27 13/16 22 1/4
1996 High 11 5/8 12 7/8 17 1/4 18 7/8
Low 8 7/8 10 3/8 11 13 5/8
</TABLE>
As of January 31, 1998, LST had approximately 4,200 common shareholders of
record. LST has paid no dividends on its Common Stock since becoming a public
company.
On July 28, 1997, LST called for redemption of its $50.0 million principal
amount 8% convertible subordinated debentures due 2002. By the end of August
1997, substantially all of the debentures were converted into LST common stock
increasing the total shares outstanding by 2.1 million.
During December 1997, LST purchased 0.5 million shares of its common stock to be
used as treasury stock under a Board of Directors approved plan to buy up to 1
million common shares.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
($ in millions, except share and employee data)
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Oilfield products revenues $ 454.1 $ 371.0 $ 241.6 $ 196.6 $ 197.0
Specialty tubing products revenues 129.0 109.8 115.2 94.8 72.7
Flat rolled and other tubular revenues 71.2 68.2 69.0 65.6 62.8
------ ------- ------- ------- -------
Total revenues 654.3 549.0 425.8 357.0 332.5
Gross earnings 64.2 48.2 26.2 12.8 6.3
Selling, general, and administrative expenses (19.6) (16.4) (14.6) (16.2) (16.9)
------ ------- ------- ------- -------
Operating earnings (loss) 44.6 31.8 11.6 (3.4) (10.6)
Interest income 3.0 4.4 5.8 4.3 0.9
Interest expense (6.6) (6.8) (8.7) (8.2) (7.0)
Other income (loss) 0.3 (0.1) 2.4 2.5 0.3
Minority interest in Steel - (3.8) (1.5) 1.0 2.3
Income tax (0.9) (0.6) - - -
------ ------- ------- ------- -------
Earnings (loss) from continuing operations 40.4 24.9 9.6 (3.8) (14.1)
Earnings (loss) from continuing operations
per common share - diluted 1.83 1.19 0.46 (0.19) (0.69)
Net earnings (loss) 53.7 24.9 9.6 1.2 (7.2)
Net earnings (loss) per common share - diluted $ 2.44 $ 1.19 $ 0.46 $ (0.04) $ (0.35)
Common shares used for diluted EPS 22.1 20.9 20.6 20.4 20.3
Current assets $ 207.2 $ 206.6 $ 194.5 $ 180.8 $ 235.6
Total assets 405.8 396.0 357.7 345.7 411.2
Current liabilities 81.3 74.7 53.5 53.4 57.9
Total liabilities 188.1 267.2 255.5 249.6 267.8
Shareholders' equity $ 217.7 $ 128.8 $ 102.2 $ 96.1 $ 143.4
Shares outstanding (millions) 22.5 20.7 20.5 20.4 20.3
Capital expenditures $ 34.7 $ 20.0 $ 14.9 $ 7.0 $ 5.8
Depreciation and amortization $ 14.3 $ 11.8 $ 11.4 $ 11.4 $ 11.0
Active employees 2,044 1,941 1,696 1,592 1,688
</TABLE>
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
LST's revenues are derived from Steel's three business segments: oilfield
products, specialty tubing products, and flat rolled steel and other tubular
products and services.
PRODUCTS AND MARKETS. The oilfield products business includes the manufacture
and marketing of OCTG, the casing and tubing used in oil and gas well drilling
and production, and line pipe that is used to gather and transport oil and gas
from the well site to storage or refining facilities. Steel is one of the
largest domestic producers and suppliers of OCTG, based on data compiled by the
American Iron & Steel Institute. OCTG represents over three-fourths of Steel's
oilfield products volume as measured in tonnage, and exports have ranged from
approximately 6% to 12% of this segment's shipments during the last three years.
Demand for oilfield products is generally affected by customers' expectations of
future oil and gas prices and political factors such as energy and trade
policies. A key indicator of domestic demand is the average number of drilling
rigs operating in the United States. According to Baker Hughes, the average
United States rig counts in 1997, 1996, and 1995 were 943, 779, and 723,
respectively. Demand is also affected by the amount of oilfield products
imported into this country as well as available industry inventories. Imported
OCTG represented approximately 16% of the apparent supply in 1997 and 14% in
1996 and 1995, as compared to 24% in 1994. A reduction of imported OCTG from
levels experienced in the 1992 to 1994 period resulted from the imposition of
protective tariffs on certain foreign countries in 1995. These trade tariffs,
which were intended to promote an equitable trade environment, remained in
effect during 1997. Because these protective tariffs cover significant OCTG
producing countries in Asia, the level of imported OCTG has not substantially
changed as a result of currency devaluations and general slowdowns in certain
Asian economies at the end of 1997. The effect of available inventory increased
in significance last year as OCTG mills operated near their full productive
capacity. The volatility of oil and gas prices creates uncertainty with respect
to the timing and extent of increased activity in the energy sector. This
affects customer confidence in the longer term outlook for energy prices and as
a result some drilling projects may be deferred. However, domestic markets
strengthened considerably in 1997 as oil and gas prices were at levels needed to
justify additional exploration and production spending while efficiencies from
new oilfield technologies continued to lower costs associated with these
activities.
Steel's specialty tubing products segment includes two product groups: Drawn
Over Mandrel (DOM) tubing and as-welded tubing. Specialty tubing consists of a
wide array of high-quality, custom-made steel tubular products requiring
critical tolerances, precise dimensional control, and special metallurgical
properties. These products are used in the further manufacture of automotive,
construction, and other industrial equipment such as hydraulic cylinders,
stabilizer tubes and intrusion devices, and machine parts.
Specialty tubing is used in a wide range of industrial applications and,
therefore, demand is sensitive to general economic conditions. Demand increased
during 1997 and open orders were up 56% at year-end as compared to year-end
1996. International shipments of DOM specialty tubing were 26%, 19%, and 15% of
shipments in 1997, 1996, and 1995, respectively.
Steel's participation in the flat rolled steel commodity market is generally
concentrated in the southwestern region of the United States and is affected by
factors such as price, capacity utilization, and raw material costs. Flat
rolled steel produced by Steel is primarily used by Steel in the manufacture of
tubular products, but is also sold to customers for the manufacture of a variety
of commercial and industrial products. Flat rolled steel is sold in highly
competitive markets, with price, quality, and availability primarily determining
customer purchase decisions.
MANUFACTURING. The manufacture of Steel's products is capital intensive.
Utilization rates rose significantly during 1997
12
<PAGE>
at Steel's manufacturing facilities. Certain facilities were utilized in excess
of 90% of capacity for significant periods during 1997. The level of production
volume through Steel's various facilities has a significant effect on the cost
of manufacturing. Key variable costs include costs of raw materials, including
scrap steel, steel slabs, coils, electricity, and natural gas. Steel has
entered into certain marketing alliances and manufacturing arrangements with
unrelated companies involving the marketing of their products and processing of
flat rolled steel provided by Steel into tubular products which provides Steel
access to additional manufacturing capacity.
Steel is under a capital expenditure program for the 1997 to 1998 period
totaling approximately $70.0 million. This program is designed to improve
quality and lower costs and will be financed from operating cash flows and
available borrowings under Steel's revolving credit facility.
RESULTS OF OPERATIONS
Consolidated revenues reported in the statements of earnings are as follows:
<TABLE>
<CAPTION>
($ in millions)
1997 1996 1995
-------------- --------------- --------------
$ % $ % $ %
--- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Oilfield products revenues 454.1 69 371.0 68 241.6 57
Specialty tubing products revenues 129.0 20 109.8 20 115.2 27
Flat rolled steel and other tubular revenues 71.2 11 68.2 12 69.0 16
----- ---- ----- --- ----- ---
Consolidated net revenues 654.3 100 549.0 100 425.8 100
----- ---- ----- --- ----- ---
----- ---- ----- --- ----- ---
</TABLE>
Shipments of products by segment are as follows:
<TABLE>
<CAPTION>
(in tons)
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Oilfield products 632,600 545,300 363,600
Specialty tubing products 119,800 101,500 103,600
Flat rolled steel and other tubular products 194,100 195,800 190,900
------- ------- -------
Total tons shipped 946,500 842,600 658,100
------- ------- -------
------- ------- -------
</TABLE>
1997 COMPARED WITH 1996
NET REVENUES of $654.3 million increased 19.2% over 1996. Net revenues from
oilfield products improved 22.4% to $454.1 million in 1997. Shipment volumes
and prices were up from 1996 levels by 16.0% and 5.5%, respectively. Demand for
Steel's OCTG rose as land based drilling increased in 1997. This was reflected
in the average domestic rig count which increased to 943 in 1997 from 779 in
1996. Demand was also favorably impacted by the reduction in imported OCTG
resulting from the continuation of duties imposed on products from certain
countries.
Specialty tubing products revenues increased by 17.5% to $129.0 million from
higher shipment volumes with flat prices. Shipment volumes were up 18.0% due to
additional automotive sales, robust construction activity, and strengthening
demand in the overall economy. Steel achieved higher shipments with new
capacity from the expansion of its specialty tubing facilities in late 1996.
Flat rolled and other tubular products net revenues were up 4.4% to $71.2
million due to higher realized prices with flat shipment volumes.
13
<PAGE>
GROSS EARNINGS improved 33.2% to $64.2 million in 1997 from $48.2 million in
1996. The improvement was due to higher shipments of oilfield and specialty
tubing products combined with small price increases for oilfield products and
flat rolled steel. Increased production volumes also resulted in improved gross
margins as raw material costs were essentially unchanged from 1996.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES increased to $19.6 million from
$16.4 million in 1996 due to additional selling expenses associated with higher
sales and continued modernization of computer systems.
INTEREST INCOME decreased $1.4 million in 1997 from 1996 to $3.0 million
primarily due to usage of $25.0 million of invested funds in January to buy the
remaining minority interest in Steel.
INTEREST EXPENSE of $6.6 million was $0.2 million less than 1996 due to the
conversion of LST's $50.0 million subordinated debentures at the end of August
into 2.1 million shares of LST's common stock.
OTHER INCOME, NET. Net other income of $0.3 million and $0.1 million for 1997
and 1996, respectively, consisted of nonrecurring miscellaneous items.
EARNINGS FROM CONTINUING OPERATIONS for 1997 improved to $40.4 million, or $1.83
per diluted share, from $24.9 million, or $1.19 per diluted share, in 1996. The
improvement was due to higher shipment volumes, small price increases for
oilfield products and better gross margins.
EXTRAORDINARY ITEMS totaling $0.9 million, or $.04 per diluted share, reflect a
$1.1 million prepayment charge on the refinancing of Steel's revolving credit
facility and a $2.0 million gain related to reduction of prior reserves for
United Mine Worker's claims.
GAIN FROM DISCONTINUED OPERATIONS of $12.4 million, or $.57 per diluted share,
resulted from receipt of escrowed proceeds of $12.4 million from the prior sale
of American Federal Bank.
NET EARNINGS of $53.7 million, or $2.44 per diluted share, included earnings
from continuing operations of $40.4 million, extraordinary items of $0.9 million
and gain from discontinued operations of $12.4 million.
1996 COMPARED WITH 1995
NET REVENUES increased 28.9% to $549.0 million in 1996 from $425.8 million in
1995. Net revenues of oilfield products increased 53.6% to $371.0 in 1996 from
$241.6 million in 1995. Shipment volumes and prices increased in 1996 from 1995
levels by 50% and 2.4%, respectively, as the average domestic rig count
increased to 779 in 1996 from 723 in 1995. As in 1995, demand for Steel's OCTG
was favorably impacted due to the reduction in imported OCTG resulting from the
continuation of protective tariffs on imported products from certain countries,
and by the types of drilling being conducted, such as deep water drilling in the
Gulf of Mexico, which increased the industry's requirements for larger diameter,
higher grade products for which Steel is most competitive.
Specialty tubing products net revenues decreased by 4.7% to $109.8 million in
1996 from $115.2 million in 1995 primarily attributable to weak demand from
steel service centers which was partially offset by increased demand from
automobile manufacturers. For the specialty tubing product group, 1996 shipment
volume and price decreased by 2.0% and 2.7%, respectively.
Flat rolled and other tubular products net revenues were down 1.2% to $68.2
million in 1996 from $69.0 million in 1995 due to lower average selling prices.
14
<PAGE>
GROSS EARNINGS improved 84.0% to $48.2 million in 1996 from $26.2 million in
1995. This was attributable to increased shipments and prices of oilfield
products and a 12.2% decrease in the cost of steel slabs.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES increased to $16.4 million in 1996
from $14.6 million in 1995, primarily due to additional sales expenses as
product sales increased and additional spending to modernize management
information systems.
INTEREST INCOME was $1.4 million less in 1996 than in 1995 as short-term
interest rates were lower on average in 1996 than in 1995.
INTEREST EXPENSE for 1996 decreased $1.9 million from $8.7 million in 1995,
reflecting average lower borrowings in 1996 on Steel's revolving credit facility
compared to 1995.
OTHER INCOME, NET. Net other loss in 1996 consisted of miscellaneous items
totaling of $0.1 million. Net other income in 1995 was $2.4 million and
included $3.0 million from the gain on sale of approximately 9,400 acres of land
in East Texas.
EARNINGS FROM CONTINUING OPERATIONS AND NET EARNINGS for 1996 were both $24.9
million or $1.19 per diluted share. For 1995, net earnings and earnings from
continuing operations were both $9.6 million or $0.46 per diluted share.
FINANCIAL CONDITION AND LIQUIDITY
At December 31, 1997, LST had available cash and cash equivalents, short-term
investments, and marketable securities totaling $39.5 million.
Also, at year-end Steel had a $100.0 million revolving credit facility, under
which it had $56.6 million of availability, after reduction for borrowings and
outstanding letters of credit. This $100.0 million facility replaced another
$75.0 million credit facility from other lenders in October 1997. Under the new
credit facility interest is payable under one of two rate options: at the
London Interbank Offered Rate (LIBOR) plus an index which is based on quarterly
debt ratio calculations or the institution's prime lending rate. At December
31, 1997, the rate was 6.47% and was indexed at 0.50% over LIBOR. Steel also
pays an indexed rate on the unused portion of the credit facility, which at
December 31, 1997 was 0.15% per annum. The term of the agreement is through
October 2002. The revolving credit agreement also includes requirements to
maintain minimum net worth levels, meet certain financial ratios and restricts
Steel's ability to incur additional indebtedness.
On August 28, 1997, LST's $50.0 million 8% subordinated debentures were
converted into 2.1 million shares of LST common stock.
Steel requires capital primarily to fund general working capital needs and
capital expenditures. Principal sources of funds include cash generated by
operations and borrowings. Steel believes that funds generated by operations
and its borrowing capacity under the revolving credit agreement will provide the
liquidity necessary to fund its cash requirements during 1997.
Steel's operations are subject to restrictive environmental compliance and
permitting requirements of various governmental agencies that include the TNRCC
and the EPA. Steel believes that the cost of maintaining compliance with
environmental requirements will fall within its contemplated operating and
capital expenditure plans, averaging $1 - $3 million annually in the foreseeable
future.
LST and Steel have completed an assessment of certain year 2000 issues on
various computer related systems. Necessary changes outlined in an
implementation plan for corrective actions are being made. It is expected that
the required changes will be made by year 2000 to preclude any material adverse
consequences. Corrective actions are estimated to cost $1 - $1.5 million in
1998 and are being funded primarily from ongoing computer systems operating
budgets. LST and Steel are in
15
<PAGE>
the process of conducting an additional assessment of certain year 2000 issues
on Steel's manufacturing equipment, time based operating equipment, and
significant suppliers, which will be completed in 1998. It is anticipated that
corrective actions, if any, will be made by year 2000.
LST has no direct business operations other than Steel or significant sources of
cash other than from short-term investments or the sale of securities. LST is
reimbursed by Steel for most of its operating costs as provided by its
cost-sharing agreement with Steel. Under Steel's revolving credit agreement,
funds can be distributed to LST from unrestricted net worth, which at December
31, 1997 was $54.7 million. Unrestricted net worth increases by 50% of Steel's
future net earnings less distributions. At 1997 year-end, restricted net worth
was $108.4 million.
LST periodically purchases steel slabs which are consigned to Steel for use in
its production process and thereby affords Steel somewhat longer payment periods
for this raw material. Steel pays LST as the slabs are used plus interest on
unpaid amounts. During 1997, LST's slab purchases amounted to approximately
$113.3 million.
In November 1993, LST sold the stock of AFB, one of its operating subsidiaries,
to Guaranty Federal Bank, F.S.B. (GFB). The sale price was $155.7 million; of
that, LST received $135.7 million in cash on the date of the sale, $5.0 million
in November 1994, and $15.0 million was in escrow to pay for certain GFB claims
pursuant to the sale agreement. During August of 1997, LST received $12.4
million from the escrow in final settlement of all outstanding claims and
recognized the same amount as gain from discontinued operations.
RECENT ACCOUNTING PRONOUNCEMENTS
LST will adopt SFAS No. 130, "Reporting Comprehensive Income" effective January
1, 1998. SFAS No. 130 established standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is defined as the total of net
income and all other non-owner changes in equity. LST's only non-owner change
in equity at December 31, 1997, is a minimum pension liability adjustment. Upon
adoption, comprehensive income and the cumulative other comprehensive income
will be reported in a consolidated statement of shareholders' equity which is
currently shown in Note D, to the consolidated financial statements.
LST will adopt SFAS No. 131, "Disclosure about Segments of An Enterprise and
Related Information", effective January 1, 1998. This pronouncement changes the
requirements under which public businesses must report segment information. The
objective of the pronouncement is to provide information about a company's
different types of business activities and different economic environments.
SFAS No. 131 will require companies to select segments based on their internal
reporting system. LST's current segments, as reported herein, are consistent
with the company's internal reporting systems. Therefore, adoption of this
pronouncement will not have a significant impact on LST's financial statement
disclosures.
FORWARD LOOKING INFORMATION
The statements included in this Annual Report regarding future financial
performance and results and the other statements that are not historical facts
are forward-looking statements. The words "believes," "intends," "expects,"
"anticipates," "projects," "estimates," "predicts," and similar expressions are
also intended to identify forward-looking statements. Such statements involve
risks, uncertainties and assumptions, including, but not limited to, industry
and market conditions, environmental liabilities, competitive pricing, practices
and conditions, availability and pricing of raw materials, fluctuations in
prices of crude oil and natural gas, the trade environment, the impact of
current and future laws and governmental regulations (particularly environmental
laws and regulations) and other factors discussed in this Annual Report and in
other filings with the Securities and Exchange Commission. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual outcomes may vary materially from those indicated.
16
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
LST and its subsidiaries do not invest in commodities or foreign currencies.
LST's investments in cash equivalents, short-term investments and marketable
securities, the weighted average maturity of which is less than one year, are
held to maturity. Therefore, interest rate risk is not considered to be
material. Information regarding LST's investments is included in Note A to the
consolidated financial statements.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . 18
Consolidated Statements of Earnings,
for the years ended December 31, 1997, 1996, and 1995. . . . . . . 19
Consolidated Balance Sheets at December 31, 1997 and 1996. . . . . . . . . . 20
Consolidated Statements of Cash Flows,
for the years ended December 31, 1997, 1996, and 1995. . . . . . . 21
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . 22
Schedule I - Condensed Financial Information of Registrant . . . . . . . . . 35
17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Lone Star Technologies, Inc.
(LST):
We have audited the accompanying consolidated balance sheets of LST (a Delaware
corporation) and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
the three years ended December 31, 1997. These financial statements and the
schedule referred to below are the responsibility of LST's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of LST and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the three years ended December 31, 1997, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not a part
of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Dallas, Texas,
January 20, 1998
18
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Net revenues $ 654.3 $ 549.0 $ 425.8
Cost of goods sold (590.1) (500.8) (399.6)
------- ------- -------
Gross earnings 64.2 48.2 26.2
Selling, general, and administrative expenses (19.6) (16.4) (14.6)
------- ------- -------
Operating earnings 44.6 31.8 11.6
Interest income 3.0 4.4 5.8
Interest expense (6.6) (6.8) (8.7)
Minority interest in Steel - (3.8) (1.5)
Other income (loss) 0.3 (0.1) 2.4
------- ------- -------
Earnings from continuing operations before income tax 41.3 25.5 9.6
Income tax (0.9) (0.6) -
------- ------- -------
Earnings from continuing operations 40.4 24.9 9.6
Extraordinary items 0.9 - -
------- ------- -------
Earnings before gain from discontinued operations 41.3 24.9 9.6
Gain from discontinued operations 12.4 - -
------- ------- -------
NET EARNINGS $ 53.7 $ 24.9 $ 9.6
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
PER COMMON SHARE - BASIC:
Net earnings from continuing operations $ 1.88 $ 1.21 $ 0.47
Extraordinary items 0.04 - -
Gain from discontinued operations 0.58 - -
-------------------------------------
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS $ 2.50 $ 1.21 $ 0.47
PER COMMON SHARE - DILUTED:
Net earnings from continuing operations $ 1.83 $ 1.19 $ 0.46
Extraordinary items 0.04 - -
Gain from discontinued operations 0.57 - -
-------------------------------------
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS $ 2.44 $ 1.19 $ 0.46
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes. 19
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
-----------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14.2 $ 27.3
Short-term investments 6.3 20.1
Accounts receivable, net 80.1 80.0
Current inventories, net 102.1 76.4
Other current assets 4.5 2.8
-----------------------
TOTAL CURRENT ASSETS 207.2 206.6
Marketable securities 19.0 19.8
Property, plant, and equipment, net 161.4 139.9
Other noncurrent assets 18.2 29.7
-----------------------
TOTAL ASSETS $ 405.8 $ 396.0
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 50.1 $ 46.7
Accrued liabilities 31.2 27.7
Current portion of long-term debt - 0.3
-----------------------
TOTAL CURRENT LIABILITIES 81.3 74.7
-----------------------
Subordinated debentures - 50.0
Revolving credit facility 43.0 37.8
Postretirement benefit obligations 37.8 41.8
Other noncurrent liabilities 26.0 45.8
Minority interest in Steel - 17.1
-----------------------
TOTAL LIABILITIES 188.1 267.2
-----------------------
Commitments and Contingencies (See Note I) - -
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value
(authorized: 10,000,000 shares, issued: none) - -
Common stock, $1 par value
(authorized: 40,000,000 shares, issued: 23,059,864,
20,683,261, respectively) 23.1 20.7
Capital surplus 209.9 160.1
Minimum pension liability adjustment (9.7) (6.8)
Retained earnings (deficit) 9.4 (44.3)
Treasury stock (548,616 and 48,616 common shares,
respectively, at cost) (15.0) (0.9)
-----------------------
TOTAL SHAREHOLDERS' EQUITY 217.7 128.8
-----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 405.8 $ 396.0
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying notes. 20
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1997 1996 1995
-------------------------------------
BEGINNING CASH AND CASH EQUIVALENTS $ 27.3 $ 40.0 $ 41.8
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings 53.7 24.9 9.6
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Minority interest in Steel - 3.8 1.5
Gain on sale of discontinued operations (12.4) - -
Depreciation and amortization 14.3 11.8 11.4
Extraordinary item - UMWA liability (2.0) - -
Accounts receivable, net (0.1) (15.8) (9.3)
Current inventories, net (25.7) (20.7) (14.3)
Accounts payable and accrued liabilities 6.9 22.2 -
Other (8.8) (6.6) (3.7)
-------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 25.9 19.6 (4.8)
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (34.7) (20.0) (14.9)
Short-term investments 13.8 12.5 8.4
Proceeds from sale of discontinued operations 12.4 - -
Marketable securities 0.8 (19.8) -
Proceeds from sale of assets - 1.5 4.5
-------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (7.7) (25.8) (2.0)
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial borrowings under new revolving credit facility 50.0 - -
Net payments under new revolving credit facility (7.0) - -
Net change in borrowings under old revolving credit facility (37.8) (7.3) 6.1
Installment note repayment (0.3) (1.3) (1.2)
Minority interest contributions for preferred stock in Steel - 1.3 1.0
Treasury stock purchases (14.1) - -
Acquisition of minority interest (25.0) - (1.6)
Issuance of common stock 2.9 0.8 0.7
-------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (31.3) (6.5) 5.0
-------------------------------------
Net decrease in cash and cash equivalents (13.1) (12.7) (1.8)
-------------------------------------
ENDING CASH AND CASH EQUIVALENTS $ 14.2 $ 27.3 $ 40.0
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Conversion of subordinated debentures to common stock $ 50.0 - -
</TABLE>
See accompanying notes. 21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lone Star Technologies, Inc. (LST) is a management and holding company whose
principal operating subsidiary, Lone Star Steel Company (Steel), manufactures
and globally markets oilfield products to the oil and gas drilling industry,
specialty tubing products to automotive, fluid power, and other markets for
various mechanical applications, and flat rolled steel and other tubular
products to domestic industrial markets.
ACCOUNTING POLICIES - NOTE A
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of LST and its subsidiaries. Intercompany transactions are eliminated
in consolidation. Gain from discontinued operations in 1997 relates to the
final settlement of the 1993 sale of American Federal Bank (see Note J).
CASH, INVESTMENTS, AND MARKETABLE SECURITIES. LST's cash equivalents include
U.S. government and related agencies obligations and corporate debt instruments
rated A-1, P-1 or higher with original maturities of less than three months.
Short-term investments consist of U. S. government and related agencies debt
obligations and corporate debt instruments with maturities at purchase greater
than three months and up to one year. Marketable securities consist of U. S.
government and related agencies debt obligations with maturities at purchase
greater than one year and up to two years. LST's total cash equivalents, short-
term investments and marketable securities, the weighted average maturity of
which is less than one year, are classified as held-to-maturity because LST has
the intent and ability to hold them to maturity. At December 31, 1997, LST's
cash and cash equivalents, short-term investments and marketable securities,
which had a carrying amount that approximated market value, consisted of $30.0
million in U. S. government and related agencies obligations and $9.5 million in
corporate debt instruments at amortized cost.
INVENTORIES are stated at the lower of cost (principally last-in, first-out
"LIFO") or market value and include raw materials, labor, and overhead.
PROPERTY, PLANT, AND EQUIPMENT are stated at cost. Depreciation is provided on
the straight-line method over the estimated useful lives of depreciable assets.
Long-lived assets including property, plant and equipment are periodically
evaluated in accordance with Statement of Financial Accounting Standards No. 121
to determine whether events or changes in circumstances have occurred that
indicate the remaining asset balances may not be recoverable and an impairment
loss should be recorded.
INCOME TAXES. LST files a consolidated federal income tax return. LST utilizes
an asset and liability approach for financial accounting and income tax
reporting. Deferred tax liabilities or assets are recognized for the estimated
future tax effects attributable to temporary differences and carryforwards and
are adjusted whenever tax rates or other provisions of income tax statutes
change.
MINORITY INTEREST. In January 1997, all of the outstanding common stock,
preferred stock, and warrants held by other shareholders of Steel were purchased
by LST, making Steel a wholly owned subsidiary. This acquisition was accounted
for under the purchase method of accounting. Prior to 1997, minority ownership
in Steel was included in the liabilities section of LST's consolidated balance
sheets, and results for the years ended December 31, 1996 and 1995 were adjusted
in the consolidated statements of earnings to reflect the participation of
minority ownership in Steel's earnings.
USE OF ESTIMATES. Preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities, and the reported
amounts of revenues and expenses. Actual results could differ from those
estimates.
22
<PAGE>
RECLASSIFICATIONS. Certain 1996 balances have been reclassified to conform to
current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS. LST will adopt SFAS No. 130, "Reporting
Comprehensive Income" effective January 1, 1998. SFAS No. 130 established
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. Comprehensive income is
defined as the total of net income and all other non-owner changes in equity.
LST's only non-owner change in equity at December 31, 1997, is a minimum pension
liability adjustment. Upon adoption, comprehensive income and the cumulative
other comprehensive income will be reported in a consolidated statement of
shareholders' equity which is currently shown in Note D, to the consolidated
financial statements.
LST will adopt SFAS No. 131, "Disclosure about Segments of An Enterprise and
Related Information", effective January 1, 1998. This pronouncement changes the
requirements under which public businesses must report segment information. The
objective of the pronouncement is to provide information about a company's
different types of business activities and different economic environments.
SFAS No. 131 will require companies to select segments based on their internal
reporting system. LST's current segments, as reported herein, are consistent
with the company's internal reporting systems. Therefore, adoption of this
pronouncement will not have a significant impact on LST's financial statement
disclosures.
23
<PAGE>
LINES OF BUSINESS AND CURRENT OPERATING ENVIRONMENT - NOTE B
Steel serves three business segments: oilfield products, specialty tubing
products, and flat rolled steel and other tubular products and services.
Oilfield products are comprised of casing, tubing, and line pipe, that are
manufactured and marketed globally to the oil and gas drilling industry.
Specialty tubing products consist of Drawn Over Mandrel (DOM) tubing and as-
welded tubing that are manufactured and marketed globally to automotive, fluid
power, and other markets for various mechanical applications. Flat rolled steel
and other tubular products and services are manufactured and provided to general
industrial markets.
<TABLE>
<CAPTION>
Years ended December 31,
($ in millions; unaudited)
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
OILFIELD PRODUCTS
Net revenues $ 454.1 $ 371.0 $ 241.6
Operating earnings (loss) 36.1 17.2 (3.1)
Identifiable assets 238.0 208.5 163.7
Capital expenditures 22.1 8.7 6.9
Depreciation and amortization $ 9.0 $ 8.1 $ 6.9
SPECIALTY TUBING PRODUCTS
Net revenues $ 129.0 $ 109.8 $ 115.2
Operating earnings 12.3 17.7 17.3
Identifiable assets 103.4 83.3 79.4
Capital expenditures 12.2 11.0 7.5
Depreciation and amortization $ 4.6 $ 2.9 $ 3.3
FLAT ROLLED AND OTHER TUBULAR PRODUCTS
Net revenues $ 71.2 $ 68.2 $ 69.0
Operating loss (1.1) (1.6) (0.8)
Identifiable assets 20.4 23.1 28.1
Capital expenditures 0.4 0.3 0.5
Depreciation and amortization $ 0.7 $ 0.8 $ 1.2
CORPORATE AND OTHER NON-SEGMENTS
Net revenues $ - $ - $ -
Operating loss (2.7) (1.5) (1.8)
Identifiable assets $ 44.0 $ 81.1 $ 86.5
TOTAL FROM CONTINUING OPERATIONS
Net revenues $ 654.3 $ 549.0 $ 425.8
Operating earnings 44.6 31.8 11.6
Total assets 405.8 396.0 357.7
Capital expenditures 34.7 20.0 14.9
Depreciation and amortization $ 14.3 $ 11.8 $ 11.4
</TABLE>
Sales of oilfield products are greatly impacted by the level of domestic oil and
gas drilling, which in turn is primarily dependent on oil and natural gas
prices. Because of the volatility of both prices and drilling activity as well
as other factors, such as competition from foreign imports, demand for these
steel products can be subject to significant fluctuations.
24
<PAGE>
Steel's specialty tubing products segment includes two product groups: DOM
tubing and as-welded tubing. Specialty tubing consists of a wide array of
high-quality, custom-made steel tubular products requiring critical tolerances,
precise dimensional control, and special metallurgical properties. Specialty
tubing is used in a wide range of industrial applications and, therefore, demand
is sensitive to general economic conditions.
Steel's participation in the flat rolled steel commodity market to some extent
involves its excess capacity for flat rolled steel as related to the manufacture
of its oilfield and specialty tubing products and certain cost considerations
associated with its total manufacturing operations. Steel's flat rolled steel
commodity market is generally concentrated in the southwestern region of the
United States. Flat rolled steel is sold in highly competitive markets, with
price, quality, and availability primarily determining customer purchase
decisions.
Steel's primary manufacturing facilities are located in East Texas. Raw
materials and supplies, principally scrap steel, steel slabs, and steel coils
used in the manufacture of Steel's products have historically been readily
available from various competitive sources. The manufacture of Steel's products
uses several common facilities and shares administrative support. Accordingly,
the segment information contains certain costs and assets which are allocated
and may not reflect each line of business as if it were operated separately.
Steel's principal market is domestic, although sales are also made into
international markets. The majority of sales of tubular products occur through
networks of sales distributors, although some tubular product sales and most
flat rolled steel sales are made directly to end users. Sales to the largest
oilfield products customer were approximately 13% of net revenues in 1997, and
10% in both 1996, and 1995. Sales to another significant customer of flat
rolled steel and other tubular products were approximately 8%, 9%, and 12% of
net revenues for 1997, 1996, and 1995, respectively. Direct foreign revenues as
a percent of total revenues were approximately 9% of the total in 1997, 1996,
and 1995.
Of Steel's total labor force, 68% are represented by three collective bargaining
agreements. The majority of union workers are represented by the United
Steelworkers of America under a contract signed in May 1996, which expires on
May 31, 2001, with a provision to reopen the contract for wages but not other
benefit or work conditions after May 31, 1999.
LST and Steel have completed an assessment of certain year 2000 issues on
various computer related systems. Necessary changes outlined in an
implementation plan for corrective actions are being made. It is expected that
the required changes will be made by year 2000 to preclude any material adverse
consequences. Corrective actions are estimated to cost $1 - $1.5 million in
1998 and are being funded primarily from ongoing computer systems operating
budgets. LST and Steel are in the process of conducting an additional
assessment of certain year 2000 issues on Steel's manufacturing equipment, time
based operating equipment, and significant suppliers, which will be completed in
1998. It is anticipated that corrective actions, if any, will be made by year
2000.
25
<PAGE>
ADDITIONAL BALANCE SHEET INFORMATION - NOTE C
<TABLE>
<CAPTION>
($ in millions)
1997 1996
---------- ----------
<S> <C> <C>
INVENTORIES
Finished goods $ 40.1 $ 28.1
Work in process 77.0 62.2
Raw materials 4.1 7.5
Materials, supplies, and other 27.5 25.3
---------- ----------
Total inventories before LIFO valuation reserve 148.7 123.1
Reserve to reduce inventories to LIFO value (37.4) (36.5)
---------- ----------
Total inventories 111.3 86.6
Amount included in other noncurrent assets (9.2) (10.2)
---------- ----------
Net current inventories $ 102.1 $ 76.4
---------- ----------
---------- ----------
PROPERTY, PLANT, AND EQUIPMENT
Land and land improvements $ 11.2 $ 11.1
Buildings, structures, and improvements 13.3 13.0
Machinery and equipment 291.9 275.9
Construction in progress 26.4 9.6
---------- ----------
Total property, plant, and equipment 342.8 309.6
Less accumulated depreciation and amortization (181.4) (169.7)
---------- ----------
Property, plant, and equipment, net $ 161.4 $ 139.9
---------- ----------
---------- ----------
OTHER NONCURRENT ASSETS
Funds held in escrow $ - $ 15.0
Inventory (supplies and spare parts) 9.2 10.2
Other 9.0 4.5
---------- ----------
Total other noncurrent assets $ 18.2 $ 29.7
---------- ----------
---------- ----------
ACCRUED LIABILITIES
Accrued compensation $ 8.4 $ 7.7
Property taxes 4.1 3.3
Warranty reserves 2.6 2.6
Environmental reserves 2.0 2.0
Pension obligations 3.0 4.5
Other 11.1 7.6
---------- ----------
Total accrued liabilities $ 31.2 $ 27.7
---------- ----------
---------- ----------
OTHER NONCURRENT LIABILITIES
Environmental reserves $ 11.1 $ 13.1
UMWA obligations 7.3 9.7
Deferred gain on sale of discontinued operations - 15.0
Other 7.6 8.0
---------- ----------
Total other noncurrent liabilities $ 26.0 $ 45.8
---------- ----------
---------- ----------
</TABLE>
The Coal Industry Retiree Health Benefit Act of 1992 ("Act") created a benefit
plan fund to provide medical and death benefits to certain United Mine Workers
of America ("UMWA") retirees and eligible dependents. Steel is required to pay
premiums assessed annually under the Act for the benefit of former employees who
worked in Steel's now-discontinued coal mining
26
<PAGE>
operations. A liability has been recorded for the total estimated future
payments related to this Act. Steel is making these payments under protest.
During 1997, the estimated UMWA liability was adjusted downward resulting in a
$2.0 million extraordinary gain.
Accounts receivable is stated net of allowance for doubtful accounts of $1.4
million both at December 31, 1997 and 1996. Approximately $140.8 million and
$116.8 million of total inventories before LIFO valuation reserves were
accounted for on the LIFO basis at December 31, 1997 and 1996, respectively.
Non-LIFO inventories are stated at the lower of average cost or market. The
total inventories before LIFO valuation reserves approximate replacement cost of
the inventories.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - NOTE D
<TABLE>
<CAPTION>
($ in millions)
------------------------------------------------------------------------------------------
Minimum
Pension Retained
Common Capital Liability Earnings Treasury
Stock Surplus Adjustment (Deficit) Stock Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 20.4 158.9 (3.5) (78.8) (0.9) 96.1
Employee benefit plan stock issuance 0.1 0.6 - - - 0.7
Pension liability adjustment - - (4.2) - - (4.2)
Net earnings - - - 9.6 - 9.6
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 20.5 159.5 (7.7) (69.2) (0.9) 102.2
Employee benefit plan stock issuance 0.2 0.6 - - - 0.8
Pension liability adjustment - - 0.9 - - 0.9
Net earnings - - - 24.9 - 24.9
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 20.7 160.1 (6.8) (44.3) (0.9) 128.8
Employee benefit plan stock issuance 0.3 2.6 - - - 2.9
Acquisition of minority interest - - (1.2) - - (1.2)
Pension liability adjustment - - (1.7) - - (1.7)
Conversion of subordinated debentures 2.1 47.2 - - - 49.3
Treasury stock purchases - - - - (14.1) (14.1)
Net earnings - - - 53.7 - 53.7
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 23.1 209.9 (9.7) 9.4 (15.0) 217.7
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
CHANGE IN COMMON SHARES OUTSTANDING:
<TABLE>
<CAPTION>
Treasury
Issued Stock Outstanding
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1995 20,556,816 (48,616) 20,508,200
Employee benefit plans 126,445 - 126,445
------------ ------------ ------------
Balance, December 31, 1996 20,683,261 (48,616) 20,634,645
Employee benefit plans 316,200 - 316,200
Subordinated debenture conversion 2,060,403 - 2,060,403
Treasury share purchases - (500,000) (500,000)
------------ ------------ ------------
Balance, December 31, 1997 23,059,864 (548,616) 22,511,248
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
27
<PAGE>
DEBT - NOTE E
<TABLE>
<CAPTION>
At December 31,
($ in millions)
1997 1996
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
LST convertible subordinated debentures $ - $ - $ 50.0 $ 45.0
Steel revolving credit facilities 43.0 43.0 37.8 37.8
Steel 48-month installment note - - 0.3 0.3
-------- -------- -------- --------
Total debt 43.0 43.0 88.1 83.1
Less current installments - - (0.3) (0.3)
-------- -------- -------- --------
Total long-term debt $ 43.0 $ 43.0 $ 87.8 $ 82.8
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
On July 28, 1997, LST called for redemption of its $50.0 million principal
amount 8% convertible subordinated debentures due 2002. By the end of August
1997, substantially all of the debentures were converted into LST common stock,
increasing the total shares outstanding by 2.1 million.
At December 31, 1997, Steel had a $100.0 million revolving credit facility,
under which it had $56.6 million of availability after reduction for borrowings
and outstanding letters of credit. This $100.0 million facility replaced
another $75.0 million credit facility from other lenders in October 1997. A
$1.1 million prepayment penalty was recognized as an extraordinary item on
retirement of the old credit agreement (see Note J). Under the new credit
arrangement interest is payable under one of two rate options: at the London
Interbank Offered Rate (LIBOR) plus an index which is based on quarterly debt
ratio calculations or the institution's prime lending rate. At December 31,
1997 the rate was 6.47% and was indexed at 0.50% over LIBOR. Steel also pays an
indexed rate on the unused portion of the credit facility, which at December 31,
1997 was 0.15% per annum. The term of the agreement is through October 2002 and
it is collateralized by the assets of Steel excluding real property. Other
requirements include meeting minimum net worth levels and certain financial
ratios, and restrictions on Steel's ability to incur additional indebtedness.
Under the agreement, Steel can distribute funds to LST from unrestricted net
worth, which at December 31, 1997 was $54.7 million. Unrestricted net worth
increases by 50% of LSS's future net earnings, less distributions. At 1997 year
end, restricted net worth of Steel was $108.4 million.
Cash paid for interest during 1997, 1996, and 1995 was $9.4 million, $7.2
million, and $8.9 million, respectively. Interest of $0.4 million was
capitalized into property, plant, and equipment during 1996.
NET EARNINGS PER SHARE - NOTE F
During 1997 LST adopted SFAS No. 128, "Earnings Per Share." Under SFAS No. 128
basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock. The numbers of shares used to compute
basic earnings per share in 1997, 1996, and 1995 were approximately 21.5
million, 20.6 million, and 20.4 million, respectively. Diluted earnings per
share is computed by dividing net income by the weighted average number of
shares of common stock and other dilutive securities. The number of shares used
to compute diluted earnings per share in 1997, 1996, and 1995 were approximately
22.1 million, 20.9 million, and 20.6 million, respectively.
INCOME TAXES - NOTE G
There was a current income tax expense for federal alternative minimum tax of
$0.9 million in 1997, $0.6 million in 1996, and
28
<PAGE>
none in 1995. Cash paid for income taxes was $1.3 million in 1997, and none in
1996 and 1995. There was no deferred income tax expense or benefit for 1997,
1996, or 1995. A reconciliation of computed income taxes to actual income taxes
follows:
<TABLE>
<CAPTION>
($ in millions)
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Earnings from continuing operations before income tax $ 41.3 $ 25.5 $ 9.6
Statutory federal income tax rate 35% 35% 35%
-------- -------- --------
Income tax expense at statutory rate 14.5 8.9 3.4
Minority interest in Steel - (1.3) (0.5)
Net operating loss, benefit recognized (13.6) (7.0) (2.9)
-------- -------- --------
Income taxes (federal alternative minimum tax) $ 0.9 $ 0.6 $ -
-------- -------- --------
-------- -------- --------
</TABLE>
The following table discloses the components of the deferred tax amounts at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
($ in millions)
1997 1996
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS - temporary differences
Postretirement benefit accruals $ 13.0 $ 14.5
Environmental reserves 4.6 5.3
UMWA liability 2.7 3.5
Deferred gains - 5.0
Other expense accruals and reserves 7.5 7.4
Inventories 4.3 4.3
Other 0.5 0.5
-------- --------
Total deferred tax assets - temporary differences 32.6 40.5
Net operating loss carryforwards 78.1 86.2
-------- --------
Total deferred tax assets 110.7 126.7
DEFERRED TAX LIABILITY - temporary difference for basis in
and depreciation of property, plant, and equipment (35.7) (35.6)
-------- --------
Net deferred tax assets 75.0 91.1
Less valuation allowance (75.0) (91.1)
-------- --------
NET DEFERRED TAX AMOUNT $ - $ -
-------- --------
-------- --------
</TABLE>
At December 31, 1997, LST had federal tax net operating loss carryforwards
(NOL's) of approximately $223.1 million, a portion of which may be related to
AFB and subject to an agreement with the Federal Deposit Insurance Corporation
(FDIC) whereby LST may be required to pay the FDIC for certain tax benefits. If
not utilized, the NOL's will expire between years 2002 and 2010, and their
future availability may be limited if LST or a member of the consolidated group
experiences an ownership change of more than 50 percentage points, as defined by
IRS regulations. LST's common stock is publicly traded, and management cannot
assure that future trading will not result in an ownership change, as defined,
which would limit availability of the NOL's. Due to these uncertainties
regarding possible utilization of NOL's and the sensitivity of Steel's earnings
to the level of domestic drilling activity, valuation allowances were recorded
to fully reserve the computed net deferred tax assets.
EMPLOYEE BENEFIT PLANS - NOTE H
DEFINED CONTRIBUTION PLANS. LST and Steel have defined contribution plans
available to substantially all full-time employees under which participants can
make voluntary pretax contributions. For nonbargaining unit employees, LST and
Steel make matching contributions within specified limits. Steel makes
contributions at rates specified under collective agreements for its bargaining
unit employees. Steel and LST contributions totaled $1.5 million in 1997, $0.8
million in 1996, and $0.7 million in 1995.
29
<PAGE>
STOCK OPTION PLAN. LST has a long-term incentive plan which provides for the
issuance of up to 2,700,000 shares of common stock to key employees and outside
directors through the granting of incentive (the right to grant further
incentive options expired in 1995) and nonqualified stock options, stock
appreciation rights, restricted stock grants, and performance unit grants. The
option price is the average of the high and low market price on the date of the
grant. Options are generally exercisable for ten years with one-fourth of the
shares becoming exercisable on the one-year anniversary of the grant date and an
additional one-fourth becoming exercisable on the same anniversary date over the
next three years. If a change of control of LST occurs before an option's
fourth anniversary, the option may be exercised in full earlier. Also,
accelerated vesting of options can occur upon death or retirement from
employment of an option holder. Following is a summary of stock option activity
during 1997, 1996, and 1995:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Under Option Price Range ($) Price ($)
------------------- --------------- ---------
<S> <C> <C> <C>
OUTSTANDING, DECEMBER 31, 1994 824,647 2.59 - 17.38 7.56
Granted in 1995 232,500 6.88 - 8.13 7.68
Exercised in 1995 (96,130) 3.06 - 8.50 7.17
Canceled in 1995 (68,161) 5.88 - 16.13 7.99
-------- ----- ----- --------
OUTSTANDING, DECEMBER 31, 1995 892,856 2.59 - 17.38 7.60
Granted in 1996 105,000 11.06 - 11.06 11.06
Exercised in 1996 (126,445) 2.59 - 8.31 5.27
Canceled in 1996 (19,336) 6.00 - 11.06 7.73
-------- ----- ----- --------
OUTSTANDING, DECEMBER 31, 1996 852,075 2.59 - 17.38 8.37
Granted in 1997 390,000 19.06 - 19.75 19.33
Exercised in 1997 (316,200) 3.06 - 17.38 9.13
-------- ----- ----- --------
OUTSTANDING, DECEMBER 31, 1997 925,875 2.59 - 19.75 12.73
-------- ----- ----- --------
-------- ----- ----- --------
</TABLE>
At December 31, 1997, 847,775 shares were available for grant and 354,625 shares
were exercisable.
The weighted average fair value per option granted in 1997, 1996, and 1995 was
$9.72, $5.91, and $4.71, respectively. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions for grants in 1997, 1996, and 1995,
respectively: risk free interest rates of 6.36%, 5.73%, and 6.88%; volatility of
47.94%, 54.4%, and 65.5%; and expected lives of five years for all 1997, 1996,
and 1995 option grants with payment of no dividends.
LST accounts for this plan under APB Opinion 25, under which no compensation
cost has been recognized. Had compensation cost for this plan been determined
consistent with FASB Statement No. 123, net income and earnings per share would
have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
($ in millions)
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net income - as reported $ 53.7 $ 24.9 $ 9.6
- pro forma $ 52.6 $ 24.6 $ 9.4
Basic earnings per share - as reported $ 2.50 $ 1.21 $ .47
- pro forma $ 2.45 $ 1.20 $ .46
Diluted earnings per share - as reported $ 2.44 $ 1.19 $ .46
- pro forma $ 2.39 $ 1.18 $ .46
</TABLE>
30
<PAGE>
Because the Statement 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
POSTRETIREMENT BENEFIT PLANS. Steel sponsors an unfunded, defined benefit,
postretirement health care plan ("Health Care Plan") for most of its bargaining
unit employees and a limited number of nonbargaining unit retirees eligible
under special early retirement programs. Health Care Plan benefits are provided
to eligible retirees and their spouses until they reach the age of 65, at which
time coverage terminates. Additionally, Steel provides for certain other
postretirement benefits, primarily life insurance. Steel accrues for the
anticipated cost of these postretirement benefits over the employees' years of
service. Net postretirement benefits expense for 1997, 1996, and 1995 included
the following components:
<TABLE>
<CAPTION>
($ in millions)
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Service cost - benefits earned $ 0.5 $ 0.5 $ 0.4
Interest cost on unfunded accumulated
benefit obligation $ 0.9 $ 0.8 $ 0.9
Amortization of net gain - (0.1) -
------ ------ ------
Total postretirement benefits expense $ 1.4 $ 1.2 $ 1.3
------ ------ ------
------ ------ ------
</TABLE>
The following table sets forth the unfunded status and the amounts recognized
for postretirement benefits in the consolidated balance sheets at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
($ in millions)
1997 1996
---------- ----------
<S> <C> <C>
Accumulated benefit obligation
Retirees $ 1.7 $ 1.9
Active plan participants - fully eligible 0.4 0.3
Active plan participants - not fully eligible 10.2 9.7
---------- ----------
Unfunded accumulated benefit obligation 12.3 11.9
Unrecognized net gain 0.8 0.5
---------- ----------
Net benefit obligation recognized in consolidated
balance sheet 13.1 12.4
Amount included in accrued liabilities (0.8) (0.9)
---------- ----------
Amount included in postretirement benefit obligations $ 12.3 $ 11.5
---------- ----------
---------- ----------
</TABLE>
The annual rate of the increase in per capita cost of covered health care
benefits was assumed to gradually decrease from 8% to an ultimate trend rate of
6% by the year 2004. An increase of 1% per year in the assumed medical cost
trend rate would have resulted in an additional obligation of $1.2 million for
accumulated benefits at December 31, 1997, and an additional $0.2 million in the
aggregate of the service cost and interest cost components of net benefits
expense for 1997. A weighted average discount rate of 7% and 7.5% was used to
determine the accumulated obligation at December 31, 1997 and 1996,
respectively.
PENSION PLANS. Steel has three defined benefit pension plans covering
substantially all of its bargaining unit employees. Retirement benefits are
based on years of service at progressively increasing flat-rate amounts. A
special lump-sum payment equal to 13 weeks of vacation pay is made upon
retirement. Steel's policy is to fund the minimum contribution each year as
required by applicable regulations.
During 1996, the largest of Steel's three plans was amended so that new
employees hired on or after June 4, 1996, do not participate in the defined
benefit plan. Such new employees are eligible to participate in one of Steel's
defined contribution retirement plans, as are substantially all other employees.
The amendment also provided for increased benefits to plan participants retiring
on or after June 1, 1996.
31
<PAGE>
November 30th was the measurement date for determining the plans' assets and
obligations for 1997 and 1996. At December 31, 1997 and 1996, the plans' funded
status and amounts recognized in the consolidated balance sheets were as
follows:
<TABLE>
<CAPTION>
($ in millions)
1997 1996
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 79.1 $ 76.2
-------- --------
-------- --------
Accumulated benefit obligation $ 81.9 $ 78.8
-------- --------
-------- --------
Projected benefit obligation $ 82.7 $ 79.4
Plans' assets at fair value (53.2) (44.0)
-------- --------
Projected benefit obligation in excess of plans' assets 29.5 35.4
Unrecognized net loss (10.7) (8.7)
Prior service cost not yet recognized in net pension expense (1.3) (1.5)
Unrecognized net obligation at January 1, 1986 (3.1) (4.0)
Adjustment required to recognize minimum liability 14.1 13.6
-------- --------
Pension liability recognized in consolidated balance sheet 28.5 34.8
Amount included in accrued liabilities (3.0) (4.5)
-------- --------
Amount included in postretirement benefit obligations $ 25.5 $ 30.3
-------- --------
-------- --------
</TABLE>
In determining the projected benefit obligation, weighted average discount rates
of 7% and 7.5% were used for 1997 and 1996, respectively. The expected
long-term rate of return on assets was assumed to be 9% for both years. The
annual rate of increase in compensation was assumed to be 4% for both 1997 and
1996. Steel has recorded an adjustment, as shown in the above table, to
recognize a minimum pension liability. Offsetting this liability at December
31, 1997, was a noncurrent intangible asset of $4.4 million and a reduction of
shareholders' equity of $9.7 million, with no recorded tax benefit assumed. The
December 31, 1996 balance sheet reflected an offsetting $5.6 million intangible
asset and a reduction of shareholders' equity of $6.8 million, net of minority
interest. The plans' assets consist primarily of short-term money market
investments, government and corporate obligations, real estate, and public
market equity securities.
Net pension expense in 1997, 1996, and 1995 was as follows:
<TABLE>
<CAPTION>
($ in millions)
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned $ 0.9 $ 0.9 $ 0.7
Interest cost on projected benefit obligation 5.5 5.6 5.7
Return on plan assets (6.6) (6.2) (6.8)
Net amortization and deferral 4.2 4.1 5.0
-------- -------- --------
Total pension expense $ 4.0 $ 4.4 $ 4.6
-------- -------- --------
-------- -------- --------
</TABLE>
PROFIT SHARING PLAN. Steel has a profit sharing plan for substantially all
employees which provides for payment of a specified percentage of Steel's
quarterly operating earnings. Steel's payments to employees were $3.9 million,
$2.7 million, and $0.6 million for 1997, 1996, and 1995, respectively.
32
<PAGE>
COMMITMENTS AND CONTINGENCIES - NOTE I
Steel has various commitments for the purchase of raw materials, supplies,
services, and energy arising in the ordinary course of business. The majority
of these commitments are for a period of less than one year.
Steel's operations are subject to numerous environmental laws. The three major
areas of regulation are air quality, water quality, and solid and hazardous
waste management. The primary governmental oversight agencies include the Texas
Natural Resource Conservation Commission and the Environmental Protection
Agency. Steel has agreements with these agencies to conduct numerous
environmental studies and to develop plans to ensure continuous compliance with
applicable laws and regulations. Steel is engaged in various ongoing
environmental studies, monitoring programs, and capital projects. Estimated
expenditures for certain remediation programs are included in accrued
liabilities and other noncurrent liabilities as shown in Note C and are computed
on a non-discounted basis. Steel believes that its environmental expenditures
will continue to fall within its contemplated operating and capital plans.
Steel leases equipment under various operating leases. Rental expense totaled
$3.9 million, $3.7 million, and $3.5 million in 1997, 1996, and 1995,
respectively. Future minimum lease payments under noncancellable operating
leases are as follows: 1998, $1.7 million; 1999, $1.6 million; 2000, $1.1
million; 2001, $0.6 million; and 2002, $0.4 million, and thereafter,
$0.9 million.
LST and its subsidiaries are parties to a number of lawsuits and controversies
which are not discussed herein. Management of LST and its operating companies,
based upon their analysis of known facts and circumstances and reports from
legal counsel, does not believe that any such matter will have a material
adverse effect on the results of operations or financial condition of LST and
its subsidiaries, taken as a whole.
GAIN FROM DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEMS - NOTE J
In November 1993, LST sold the stock of AFB, one of its operating subsidiaries.
The sale price was $155.7 million; of that, LST received $135.7 million in cash
on the sale date. Additional payments were received of $5.0 million in November
1994 and $12.4 million in August 1997, and recognized as gains from discontinued
operations. There were no income tax effects recognized for these items.
Extraordinary items recognized in 1997 include a gain of $2.0 million related to
reduction of the UMWA liability (Note C), reduced by a loss of $1.1 million for
the early prepayment fee in connection with the refinancing of Steel's revolving
credit facility (Note E). There were no income tax effects recognized for these
items.
33
<PAGE>
QUARTERLY FINANCIAL SUMMARY - NOTE K
<TABLE>
<CAPTION>
($ in millions, except share amounts; quarterly amounts unaudited):
Quarter
-----------------------------------------------------
1997 First Second Third Fourth Total Year
- ---- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues $ 159.2 $ 172.3 $ 167.4 $ 155.4 $ 654.3
Gross earnings 14.3 16.3 16.7 16.9 64.2
Earnings from continuing operations 7.8 10.3 10.7 11.6 40.4
Extraordinary items - - - 0.9 0.9
Gain from discontinued operations - - 12.4 - 12.4
Net earnings $ 7.8 $ 10.3 $ 23.1 $ 12.5 $ 53.7
PER COMMON SHARE - BASIC:
- -------------------------
Earnings from continuing operations $ 0.38 $ 0.50 $ 0.50 $ 0.51 $ 1.88
Extraordinary items - - - 0.04 0.04
Gain from discontinued operations - - 0.58 - 0.58
-------- -------- -------- -------- --------
Net earnings available to common shareholders $ 0.38 $ 0.50 $ 1.08 $ 0.55 $ 2.50
PER COMMON SHARE - DILUTED:
- ---------------------------
Earnings from continuing operations $ 0.37 $ 0.48 $ 0.48 $ 0.49 $ 1.83
Extraordinary items - - - 0.04 0.04
Gain from discontinued operations - - 0.56 - 0.57
-------- -------- -------- -------- --------
Net earnings available to common shareholders $ 0.37 $ 0.48 $ 1.04 $ 0.53 $ 2.44
1996
- ----
Net revenues $ 112.5 $ 141.9 $ 143.0 $ 151.6 $ 549.0
Gross earnings 7.3 13.2 12.9 14.8 48.2
Net earnings $ 2.6 $ 7.1 $ 7.2 $ 8.0 $ 24.9
PER COMMON SHARE - BASIC:
- -------------------------
Net earnings available to common shareholders $ 0.13 $ 0.35 $ 0.35 $ 0.39 $ 1.21
PER COMMON SHARE - DILUTED:
- ---------------------------
Net earnings available to common shareholders $ 0.13 $ 0.34 $ 0.34 $ 0.38 $ 1.19
</TABLE>
34
<PAGE>
LONE STAR TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
($ in millions, except share data)
Year ended December 31,
--------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS 1997 1996 1995
- ---------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net earnings $ 53.7 $ 24.9 $ 9.6
Undistributed equity in Steel's earnings (39.9) (22.7) (6.6)
Gain on sale of discontinued operations (12.4) - -
Other (14.8) 3.5 (3.4)
-------- -------- --------
Net cash provided (used) by operating activities (13.4) 5.7 (0.4)
Net cash provided (used) by investing activities 27.0 (19.2) (2.0)
Net cash provided (used) by financing activities (36.2) 0.8 0.7
-------- -------- --------
Net decrease in cash and cash equivalents (22.6) (12.7) (1.7)
Beginning cash and cash equivalents 27.3 40.0 41.7
-------- -------- --------
Ending cash and cash equivalents $ 4.7 $ 27.3 $ 40.0
-------- -------- --------
-------- -------- --------
Years ended December 31,
--------------------------------------
CONDENSED STATEMENTS OF EARNINGS 1997 1996 1995
- -------------------------------- -------- -------- --------
General and administrative expenses $ (2.8) $ (1.5) $ (1.8)
Steel cost sharing 2.3 1.5 1.5
Equity in Steel's earnings 39.9 22.7 6.6
Interest income 2.9 4.4 5.8
Interest expense (2.7) (4.0) (4.0)
Other income from Steel 1.7 1.8 1.5
Gain on sale of discontinued operations 12.4 - -
-------- -------- --------
Net earnings $ 53.7 $ 24.9 $ 9.6
-------- -------- --------
-------- -------- --------
Cash dividends received from Steel $ - $ - $ -
-------- -------- --------
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1997
-----------------------
CONDENSED BALANCE SHEETS 1997 1996
- ------------------------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4.7 $ 27.3
Short-term investments 6.3 20.1
Due from Steel 30.2 11.4
Other current assets 0.1 0.1
-------- --------
Total current assets 41.3 58.9
Investment in Steel 163.1 108.0
Marketable securities 19.0 19.8
Other noncurrent assets 4.5 13.7
-------- --------
Total assets $ 227.9 $ 200.4
-------- --------
-------- --------
Current liabilities $ 5.3 $ 1.7
Long-term debt - 50.0
Other noncurrent liabilities 4.9 19.9
-------- --------
Total liabilities 10.2 71.6
-------- --------
Shareholders' equity:
Preferred stock, $1 par value (authorized:
10,000,000 shares, issued: none) - -
Common stock, $1 par value (authorized:
40,000,000 shares, issued:
23,059,864 and 20,683,261, respectively) 23.1 20.7
Capital surplus 209.9 160.1
Minimum pension liability adjustment (9.7) (6.8)
Retained earnings 9.4 (44.3)
Treasury stock (548,616 and 48,616 common shares,
respectively, at cost) (15.0) (0.9)
-------- --------
Total shareholders' equity 217.7 128.8
-------- --------
Total liabilities and shareholders' equity $ 227.9 $ 200.4
-------- --------
-------- --------
</TABLE>
35
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this item is contained in LST's proxy statement for
the 1998 Annual Meeting of Shareholders, and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this item is contained in LST's proxy statement for
the 1998 Annual Meeting of Shareholders, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this item with respect to beneficial owners of more
than 5 percent of outstanding common stock and to directors and executive
officers is contained in LST's proxy statement for the 1998 Annual Meeting of
Shareholders, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this item with respect to directors and executive
officers is contained in LST's proxy statement for the 1998 Annual Meeting of
Shareholders, and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements - The following Consolidated Financial Statements
are filed as part of this report:
- Report of Independent Public Accountants
- Consolidated Statements of Earnings - for the years ended
December 31, 1997, 1996, and 1995
- Consolidated Balance Sheets at December 31, 1997 and 1996
- Consolidated Statements of Cash Flows - for the years ended
December 31, 1997, 1996, and 1995
- Notes to Consolidated Financial Statements
2. Schedule I - Condensed Financial Information of Registrant
Note: All schedules not filed herein for which provision is made under rules
of Regulation S-X have been omitted as not applicable or not required
or the information required has been included in the notes to the
consolidated financial statements.
36
<PAGE>
3. Index to Exhibits
DESCRIPTION
3.1 Certificate of Incorporation of Registrant (incorporated by reference
to Exhibit 3(a) to Form S-4 Registration Statement of LST as filed on
April 4, 1986, File No. 33-4581); Certificate of Amendment to
Certificate of Incorporation dated September 30, 1986 (incorporated by
reference to Exhibit 3(b) of Form 10-K of LST as filed on April 7,
1989).
3.2 Agreement and Plan of Merger dated March 6, 1986, among Steel, a Texas
corporation, LST, a Delaware corporation, and Lone Star Steel Company
Merging Corporation, a Delaware corporation (incorporated by reference
to Exhibit II to Form S-4 Registration Statement of LST as filed on
April 4, 1986, File No. 33-4581).
3.3 By-Laws as adopted March 6, 1986, as amended effective September 30,
1986 (incorporated by reference to Exhibit 3(d) of Form 10-K of LST as
filed on April 7, 1989).
4.1 Statement of Resolution establishing Cumulative Preferred Stock,
Series A (par value $1 per share), dated September 9, 1988
(incorporated by reference to Exhibit 3-C- of Form 10-K of LST as
filed on April 7, 1989).
4.2 LST Indenture with Bankers Trust Company, Trustee, with respect to
$50,000,000 8% Convertible Subordinated Debentures Due 2002
(Eurobonds), dated August 26, 1987 (incorporated by reference to
Exhibit 4-C- of Form 10-K of LST as filed on April 7, 1989).
10.1 Amended 1985 Long-Term Incentive Plan (incorporated by reference to
Exhibit A of Proxy Statement of LST as filed on October 22, 1993).*
10.1(a) Amendments to the Amended 1985 Long-Term Incentive Plan adopted on May
8, 1997 (incorporated by reference to Exhibit 10.1(a) to Form 10-Q of
LST for the quarter ended June 30, 1997).*
10.2 LST Corporate Improvement Incentive Program adopted October 9, 1990
(incorporated by reference to Exhibit 10(s) to Form 10-K as filed on
March 15, 1991).*
10.3 Employment Retention Policy adopted May 8, 1997, letter agreements
dated May 22, 1997 between LST and John P. Harbin, Charles J. Keszler
and Robert F. Spears and between Steel and W. Byron Dunn and letter
agreement dated September 25, 1997 between LST and Rhys J. Best.*
10.4 Financing Agreement dated March 2, 1993, between The CIT
Group/Business Credit, Inc. and Steel (incorporated by reference to
Exhibit 10(af) to Form 10-K as filed on March 15, 1993); Amendment
agreement dated February 14, 1994 (related to Financing Agreement
dated March 2, 1993).
10.5 Amendment Agreement dated February 14, 1994, related to Financing
Agreement dated March 2, 1993, between The CIT Group/Business Credit,
Inc. and Steel (incorporated by reference to Exhibit 10.9 to Form 10-K
as filed on March 28, 1996).
10.6 Amendment Agreement dated September 25, 1995, related to Financing
Agreement dated March 2, 1993, between The CIT Group/Business Credit,
Inc. and Steel (incorporated by reference to Exhibit 10.10 to Form
10-K as filed on March 28, 1996).
10.7 Amendment Agreement dated March 4, 1996, related to Financing
Agreement dated March 2, 1993, between The CIT Group/Business Credit,
Inc. and Steel (incorporated by reference to same numbered Exhibit to
Form 10-K for the year ended December 31, 1996).
10.8 Amendment Agreement dated January 17, 1997, related to Financing
Agreement dated March 2, 1993, between The CIT Group/Business Credit,
Inc. and Steel (incorporated by reference to same numbered Exhibit to
Form 10-K for the year ended December 31, 1996).
10.9 Loan and Security Agreement dated March 22, 1993, between Steel and
the CIT Group Equipment Financing, Inc. (incorporated by reference to
Exhibit 10.9 to Form 10-K as filed on February 27, 1995).
10.10 Agreement dated November 2, 1994, among Steel, LST, and certain
minority holders of Steel regarding participation in the First Capital
Project by acquiring convertible preferred stock of Steel
(incorporated by reference to Exhibit 10.11 to Form 10-K as filed on
February 27, 1995).
10.11 Stockholders and Registration Rights Agreement among Steel, LST, and
Minority Shareholders of Steel, dated May 16, 1991 (incorporated by
reference to Exhibit 10(p) to Form 10-K filed on March 5, 1992).
10.12 Cost Sharing Agreement between Steel and LST, dated May 16, 1991
(incorporated by reference to Exhibit 10(p) to Form 10-K filed on
March 5, 1992); Amendment to the Cost Sharing Agreement dated May 16,
1991, between LST and Steel dated March 2, 1993 (incorporated by
reference to Exhibit 10(ai) to Form 10-K as filed on March 15, 1993).
10.13 Tax Allocation and Indemnification Agreement dated May 16, 1991,
between Steel and LST (incorporated by reference to Exhibit 10(r) to
Form 10-K filed on March 5, 1992); Amendment to Tax Allocation and
Indemnification Agreement dated May 16, 1991, among LST, Steel, and
Steel subsidiaries dated March 2, 1993 (incorporated by reference to
Exhibit 10(ah) to Form 10-K as filed on March 15, 1993).
10.14 Stock Purchase Agreement, Assistance Agreement, Capital Maintenance
Agreement, and Subordination Agreement regarding the acquisition by
LST of AFB dated August 18, 1988 (incorporated by reference to Form 8
(Amendment
37
<PAGE>
No. 3 to Form 8-K) dated January 11, 1989); Amendment No. 1 to the
Assistance Agreement of August 18, 1988, dated August 31, 1990
(incorporated by reference to Exhibit 10(q) to Form 10-K as filed on
March 15, 1991); Settlement Agreement and Second Amendment to
Assistance Agreement dated September 30, 1992, among the FDIC, as
Manager, the RTC, AFB, and LSST (incorporated by reference to Exhibit
10(ab) to Form 10-K as filed on March 15, 1993).
10.15 Agreement and Plan of Merger dated March 25, 1992, as amended by First
Amendment to Agreement and Plan of Merger dated April 15, 1992,
between AFB and Americity (incorporated by reference to Form 8-K dated
July 14, 1992).
10.16 Holdback Escrow Agreement dated July 1, 1992, among Americity, AFB,
Bank One, Texas, as Agent, and James C. Jarocki, as Shareholder
Representative (incorporated by reference to Exhibit 10(x) to Form
10-K as filed on March 15, 1993).
10.17 Letter Agreement dated July 1, 1992, among AFB, Americity, and the
FDIC, as Manager (regarding assignment and assumption of the
Termination Agreement and Tax Benefits Cancellation Agreement)
(incorporated by reference to Exhibit 10(y) to Form 10-K as filed on
March 15, 1993); Termination Agreement dated December 18, 1991, among
Americity, the FDIC, as Manager, and the RTC (terminating Assistance
Agreement of November 18, 1988, between Americity and the FSLIC)
(incorporated by reference to Exhibit 10(z) to Form 10-K as filed on
March 15, 1993); Tax Benefits Cancellation Agreement dated December
18, 1991, among Americity, the FDIC, as Manager, and the RTC
(incorporated by reference to Exhibit 10(aa) to Form 10-K as filed on
March 15, 1993).
10.18 Stock Purchase Agreement and Agreement and Plan of Reorganization by
and among Guaranty Federal Bank, F.S.B., Guaranty Holdings, Inc. I,
LST, and LSST Financial Services Corporation, dated February 16, 1993,
First Amendment to Stock Purchase Agreement and Agreement and Plan of
Reorganization, dated April 2, 1993, Second Amendment to Stock
Purchase Agreement and Agreement and Plan of Reorganization, dated
August 31, 1993, and Third Amendment to Stock Purchase Agreement and
Agreement and Plan of Reorganization, dated September 30, 1993
(incorporated by reference to Exhibit B of Proxy Statement of LST as
filed October 22, 1993).
10.19 Holdback Escrow Agreement to Stock Purchase Agreement and Agreement
and Plan of Reorganization, dated November 12, 1993 (incorporated by
reference to Exhibit C of Proxy Statement of LST as filed October 22,
1993).
10.20 Agreement dated October 31, 1995, among Steel, LST and the minority
shareholders of Steel regarding participation in capital projects not
to exceed $5,000,000 by acquiring convertible preferred stock of Steel
(incorporated by reference to Exhibit 10.23 to Form 10-K as filed on
March 28, 1996).
10.21 Contract for Electric Service dated September 30, 1996 between
Southwestern Electric Power Company and Steel (incorporated by
reference to same numbered Exhibit to Form 10-K for the year ended
December 31, 1996).
10.22 Assignment, Termination and Release dated January 21, 1997, among
Steel, LST, and the minority shareholders of Steel (incorporated by
reference to same numbered Exhibit to Form 10-K for the year ended
December 31, 1996).
10.23 Credit Agreement dated as of October 2, 1997 by and among Steel and
the banks named therein.
10.24 Cost Sharing Agreement dated as of July 1, 1997 between LST and Steel,
replacing Cost Sharing Agreement dated May 16, 1991 (Exhibit 10.12 to
this Form 10-K).
10.25 Termination Agreement dated as of July 1, 1997 between LST and Steel,
terminating Tax Allocation and Indemnification Agreement dated May 16,
1991 (Exhibit 10.13 to this Form 10-K).
10.26 Compromise and Settlement Agreement and Release dated July 31, 1997
between LST and Guaranty Federal Bank, F.S.B.
21 List of Subsidiaries.
23 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
Date of Report Date Filed Description
-------------- ---------- ------------------------------
None.
38
<PAGE>
ITEM 15. SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LONE STAR TECHNOLOGIES, INC.
Date: February 20, 1998 By: /s/ Charles J. Keszler
-----------------------------------
(Charles J. Keszler)
Vice President - Finance
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ----------- ----- ----
<S> <C> <C>
/s/ John P. Harbin , Chairman, Director, and February 20, 1998
- ---------------------------------------- Chief Executive Officer
(John P. Harbin) (Principal Executive Officer)
/s/ Charles J. Keszler , Vice President-Finance and February 20, 1998
- ---------------------------------------- Treasurer (Principal Financial
(Charles J. Keszler) and Accounting Officer)
/s/ Rhys J. Best *, Director February 20, 1998
- ----------------------------------------
(Rhys J. Best)
/s/ Charles L. Blackburn *, Director February 20, 1998
- ----------------------------------------
(Charles L. Blackburn)
/s/ Dean P. Guerin *, Director February 20, 1998
- ----------------------------------------
(Dean P. Guerin)
/s/ Frederick B. Hegi, Jr. *, Director February 20, 1998
- ----------------------------------------
(Frederick B. Hegi, Jr.)
/s/ James E. McCormick *, Director February 20, 1998
- ----------------------------------------
(James E. McCormick)
/s/ Thomas M. Mercer, Jr. *, Director February 20, 1998
- ----------------------------------------
(Thomas M. Mercer, Jr.)
</TABLE>
*By: /s/ Charles J. Keszler
-----------------------------------
(Charles J. Keszler, Attorney-in-Fact)
39
<PAGE>
INDEX TO EXHIBITS
<TABLE>
DESCRIPTION
<S> <C>
3.1 Certificate of Incorporation of Registrant (incorporated by reference
to Exhibit 3(a) to Form S-4 Registration Statement of LST as filed
on April 4, 1986, File No. 33-4581); Certificate of Amendment to
Certificate of Incorporation dated September 30, 1986 (incorporated by
reference to Exhibit 3(b) of Form 10-K of LST as filed on April 7,
1989).
3.2 Agreement and Plan of Merger dated March 6, 1986, among Steel, a Texas
corporation, LST, a Delaware corporation, and Lone Star Steel Company
Merging Corporation, a Delaware corporation (incorporated by reference
to Exhibit II to Form S-4 Registration Statement of LST as filed on
April 4, 1986, File No. 33-4581).
3.3 By-Laws as adopted March 6, 1986, as amended effective September 30,
1986 (incorporated by reference to Exhibit 3(d) of Form 10-K of LST as
filed on April 7, 1989).
4.1 Statement of Resolution establishing Cumulative Preferred Stock,
Series A (par value $1 per share), dated September 9, 1988
(incorporated by reference to Exhibit 3(c) of Form 10-K of LST as
filed on April 7, 1989).
4.2 LST Indenture with Bankers Trust Company, Trustee, with respect to
$50,000,000 8% Convertible Subordinated Debentures Due 2002
(Eurobonds), dated August 26, 1987 (incorporated by reference to
Exhibit 4(c) of Form 10-K of LST as filed on April 7, 1989).
10.1 Amended 1985 Long-Term Incentive Plan (incorporated by reference to
Exhibit A of Proxy Statement of LST as filed on October 22, 1993).*
10.1(a) Amendments to the Amended 1985 Long-Term Incentive Plan adopted on
May 8, 1997 (incorporated by reference to Exhibit 10.1(a) to Form
10-Q of LST for the quarter ended June 30, 1997).*
10.2 LST Corporate Improvement Incentive Program adopted October 9, 1990
(incorporated by reference to Exhibit 10(s) to Form 10-K as filed on
March 15, 1991).*
10.3 Employment Retention Policy adopted May 8, 1997, letter agreements
dated May 22, 1997 between LST and John P. Harbin, Charles J. Keszler
and Robert F. Spears and between Steel and W. Byron Dunn and letter
agreement dated September 25, 1997 between LST and Rhys J. Best.*
10.4 Financing Agreement dated March 2, 1993, between The CIT
Group/Business Credit, Inc. and Steel (incorporated by reference
to Exhibit 10(af) to Form 10-K as filed on March 15, 1993);
Amendment agreement dated February 14, 1994 (related to Financing
Agreement dated March 2, 1993).
10.5 Amendment Agreement dated February 14, 1994, related to Financing
Agreement dated March 2, 1993, between The CIT Group/Business
Credit, Inc. and Steel (incorporated by reference to Exhibit 10.9 to
Form 10-K as filed on March 28, 1996).
10.6 Amendment Agreement dated September 25, 1995, related to Financing
Agreement dated March 2, 1993, between The CIT Group/Business
Credit, Inc. and Steel (incorporated by reference to Exhibit 10.10
to Form 10-K as filed on March 28, 1996).
10.7 Amendment Agreement dated March 4, 1996, related to Financing
Agreement dated March 2, 1993, between The CIT Group/Business
Credit, Inc. and Steel (incorporated by reference to same numbered
Exhibit to Form 10-K for the year ended December 31, 1996).
10.8 Amendment Agreement dated January 17, 1997, related to Financing
Agreement dated March 2, 1993, between The CIT Group/Business
Credit, Inc. and Steel (incorporated by reference to same numbered
Exhibit to Form 10-K for the year ended December 31, 1996).
10.9 Loan and Security Agreement dated March 22, 1993, between Steel and
the CIT Group Equipment Financing, Inc. (incorporated by reference
to Exhibit 10.9 to Form 10-K as filed on February 27, 1995).
10.10 Agreement dated November 2, 1994, among Steel, LST, and certain
minority holders of Steel regarding participation in the First
Capital Project by acquiring convertible preferred stock of Steel
(incorporated by reference to Exhibit 10.11 to Form 10-K as filed on
February 27, 1995).
10.11 Stockholders and Registration Rights Agreement among Steel, LST, and
Minority Shareholders of Steel, dated May 16, 1991 (incorporated by
reference to Exhibit 10(p) to Form 10-K filed on March 15, 1992).
10.12 Cost Sharing Agreement between Steel and LST, dated May 16, 1991
(incorporated by reference to Exhibit 10(p) to Form 10-K filed on
March 5, 1992); Amendment to the Cost Sharing Agreement dated May
16, 1991, between LST and Steel dated March 2, 1993 (incorporated by
reference to Exhibit 10(ai) to Form 10-K as filed on March 15, 1993).
10.13 Tax Allocation and Indemnification Agreement dated May 16, 1991,
between Steel and LST (incorporated by reference to Exhibit 10(r) to
Form 10-K filed on March 5, 1992); Amendment to Tax Allocation and
Indemnification Agreement dated May 16, 1991, among LST, Steel, and
Steel subsidiaries dated March 2, 1993 (incorporated by
</TABLE>
<PAGE>
reference to Exhibit 10(ah) to Form 10-K as filed on March 15, 1993).
10.14 Stock Purchase Agreement, Assistance Agreement, Capital Maintenance
Agreement, and Subordination Agreement regarding the acquisition by
LST of AFB dated August 18, 1988 (incorporated by reference to Form 8
(Amendment No.3 to Form 8-K) dated January 11, 1989); Amendment No. 1
to the Assistance Agreement of August 18, 1988, dated August 31, 1990
(incorporated by reference to Exhibit 10(q) to Form 10-K as filed on
March 15, 1991); Settlement Agreement and Second Amendment to Assistance
Agreement dated September 30, 1992, among the FDIC, as Manager, the
RTC, AFB, and LSST (incorporated by reference to Exhibit 10(ab) to Form
10-K as filed on March 15, 1993).
10.15 Agreement and Plan of Merger dated March 25, 1992, as amended by First
Amendment to Agreement and Plan of Merger dated April 15, 1992, between
AFB and Americity (incorporated by reference to Form 8-K dated
July 14, 1992).
10.16 Holdback Escrow Agreement dated July 1, 1992, among Americity, AFB,
Bank One, Texas, as Agent, and James C. Jarocki, as Shareholder
Representative (incorporated by reference to Exhibit 10(x) to Form 10-K
as filed on March 15, 1993).
10.17 Letter Agreement dated July 1, 1992, among AFB, Americity, and the
FDIC, as Manager (regarding assignment and assumption of the Termination
Agreement and Tax Benefits Cancellation Agreement) (incorporated by
reference to Exhibit 10(y) to Form 10-K as filed on March 15, 1993);
Termination Agreement dated December 18, 1991, among Americity, the
FDIC, as Manager, and the RTC (terminating Assistance Agreement of
November 18, 1988, between Americity and the FSLIC) (incorporated by
reference to Exhibit 10(z) to Form 10-K as filed on March 15, 1993);
Tax Benefits Cancellation Agreement dated December 18, 1991, among
Americity, the FDIC, as Manager, and the RTC (incorporated by reference
to Exhibit 10(aa) to Form 10-K as filed on March 15, 1993).
10.18 Stock Purchase Agreement and Agreement and Plan of Reorganization by
and among Guaranty Federal Bank, F.S.B., Guaranty Holdings, Inc. I,
LST, and LSST Financial Services Corporation, dated February 16, 1993,
First Amendment to Stock Purchase Agreement and Agreement and Plan of
Reorganization, dated April 2, 1993, Second Amendment to Stock Purchase
Agreement and Agreement and Plan of Reorganization, dated August 31,
1993, and Third Amendment to Stock Purchase Agreement and Agreement and
Plan of Reorganization, dated September 30, 1993 (incorporated by
reference to Exhibit B of Proxy Statement of LST as filed October 22,
1993).
10.19 Holdback Escrow Agreement to Stock Purchase Agreement and Agreement
and Plan of Reorganization, dated November 12, 1993 (incorporated by
reference to Exhibit C of Proxy Statement of LST as filed October 22,
1993).
10.20 Agreement dated October 31, 1995, among Steel, LST and the minority
shareholders of Steel regarding participation in capital projects not
to exceed $5,000,000 by acquiring convertible preferred stock of Steel
(incorporated by reference to Exhibit 10.23 to Form 10-K as filed on
March 28, 1996).
10.21 Contract for Electric Service dated September 30, 1996 between
Southwestern Electric Power Company and Steel (incorporated by
reference to same numbered Exhibit to Form 10-K for the year ended
December 31, 1996).
10.22 Assignment, Termination and Release dated January 21, 1997, among
Steel, LST, and the minority shareholders of Steel (incorporated by
reference to same numbered Exhibit to Form 10-K for the year ended
December 31, 1996).
10.23 Credit Agreement dated as of October 2, 1997 by and among Steel and
the banks named therein.
10.24 Cost Sharing Agreement dated as of July 1, 1997 between LST and
Steel, replacing Cost Sharing Agreement dated May 16, 1991 (Exhibit
10.12 to this Form 10-K).
10.25 Termination Agreement dated as of July 1, 1997 between LST and Steel,
terminating Tax Allocation and Indemnification Agreement dated May 16,
1991 (Exhibit 10.13 to this Form 10-K).
10.26 Compromise and Settlement Agreement and Release dated July 31, 1997
between LST and Guaranty Federal Bank, F.S.B.
21 List of Subsidiaries.
23 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
* Management contract or compensatory plan or arrangement.
<PAGE>
EMPLOYMENT RETENTION
POLICY
In order to attract and retain officers and key employees for Lone Star
Technologies, Inc. (the "Corporation") and its subsidiaries, particularly in the
event of a threat or the occurrence of a Change in Control, the Board of
Directors of the Corporation (the "Board") has adopted the following Employment
Retention Policy:
If the employment of any Officer or key employee designated by the Board or
its Compensation Committee (the "Committee") is involuntarily terminated without
Cause or is voluntarily terminated with Good Reason within two years after the
occurrence of a Change in Control of his Employer, his Employer shall pay a lump
sum, as determined by the Board or the Committee, to the Officer in an amount
that does not exceed twenty-four times his Monthly Compensation or to the key
employee in an amount that does not exceed twelve times his Monthly
Compensation. Each person designated by the Board or the Committee will be
covered by this Policy upon his entering into the letter agreement in the form
attached.
The Board shall have the right to amend or terminate this Policy at any
time, but any such amendment or termination, whether adopted prior to or after a
Change in Control, shall not adversely affect any person covered by this Policy
prior to such amendment or termination.
The Corporation will request that the other Employers adopt this Policy and
will make reasonable efforts to require any successor to the business or assets
of any Employer expressly to assume and to agree to be bound by this Policy.
DEFINITIONS:
"Cause" for termination of a person's employment means his illegal conduct
or gross misconduct that in either case is willful and results in material
damage to his Employer's business or reputation or his willful failure or
refusal to perform his duties or obligations to his Employer or to comply in all
material respects with the lawful directives of the Employer's Chief Executive
Officer or Board of Directors, provided that he has received written notice from
his Employer stating the nature of such failure or refusal and has reasonable
opportunity to correct the stated deficiency.
"Change in Control" means, with respect to an Employer that is a subsidiary
of the Corporation, (i) any event that results in the Corporation not
controlling the Employer or owning all or substantially all of the Employer's
assets or (ii) any Change in Control of the Corporation.
<PAGE>
"Change in Control" means, with respect to the Corporation, any of the
following:
(i) any event affecting the Corporation that would be required to be
reported by a reporting company as a change in control pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act");
(ii) any "person" (as that term is used in Section 13(d) of the Exchange
Act) becomes the "beneficial owner" (as defined by Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation representing more
than 50% of either the then outstanding shares of the Corporation's Common Stock
or the combined voting power of the Corporation's then outstanding securities;
(iii) at any time during any twenty-four month period, the individuals
who were serving on the Board at the beginning of that period or who were
nominated for election or were elected to the Board during that period by a vote
of at least two-thirds of such individuals still in office shall cease to
constitute a majority of the Board;
(iv) any merger or consolidation of the Corporation with any other
corporation or any sale of all or substantially all of the assets of the
Corporation, other than a merger, consolidation or sale that results in the
voting securities of the Corporation outstanding immediately prior thereto
continuing to represent more than 50% of the combined voting power of the voting
securities of the Corporation or the surviving entity or any parent thereof
outstanding immediately thereafter; or
(v) the stockholders of the Corporation approve a plan of complete
liquidation or dissolution of the Corporation.
"Employer" is the Corporation or any corporation that is or becomes a
subsidiary of the Corporation and its respective successors and assigns.
"Good Reason" with respect to the voluntary termination of a person's
employment means the occurrence, after a Change in Control, of (i) any adverse
change in his status, position, authority or responsibilities, (ii) a reduction
in his compensation, (iii) any material change in his employment location or
(iv) the failure or refusal of any successor to his Employer to expressly assume
his Employer's obligations under this Policy.
"Monthly Compensation" is a person's salary and cash bonus paid during the
twelve months prior to the termination of his employment or, if higher, his
salary and cash bonus paid during the twelve months prior to the Change in
Control of his Employer, in each case computed as a monthly average.
"Officer" is any person who is or becomes the President, Chief Executive
Officer, Treasurer, Controller, Secretary or any Vice President of an Employer.
2
Adopted by LST Board on May 8, 1997
<PAGE>
[Form of Letter Agreement]
[Date]
[Name and address of
Officer or key employee]
Dear ______________________:
In recognition of the valuable service rendered to your employer and in
consideration of your continued employment, your employer is pleased to inform
you that you are eligible to be covered by the Employment Retention Policy, a
copy of which is attached. Your lump sum payment under the Policy would be ____
times your Monthly Compensation as defined in the Policy.
If you wish to be covered by this Policy, please sign and return a copy of
this letter to me. By electing to be covered you are agreeing with your employer
that any prior "contingent severance pay agreement" between you and your
employer is hereby terminated. "Contingent severance pay agreement" is any
agreement in which your employer agrees to pay you cash compensation if your
employment is terminated following a sale, liquidation, transfer of assets or
other change in control of your employer.
Upon your signing and returning a copy of this letter agreement to me, the
Employment Retention Policy will constitute a legally binding obligation of your
employer to you in accordance with its terms.
Sincerely,
[Name of Employer]
By:
----------------------------------
Chief Executive Officer
Accepted and Agreed:
- ---------------------------
[Name of Officer or
key employee]
<PAGE>
LONE STAR
TECHNOLOGIES, INC.
May 22, 1997
Mr. John P. Harbin
Chairman and Chief Executive Officer
Lone Star Technologies, Inc.
5501 LBJ Freeway, Suite 1200
Dallas, Texas 75240
Dear Jack:
In recognition of the valuable service rendered to your employer and in
consideration of your continued employment, your employer is pleased to inform
you that you are eligible to be covered by the Employment Retention Policy, a
copy of which is attached. Your lump sum payment under the Policy would be 24
times your Monthly Compensation as defined in the Policy.
If you wish to be covered by this Policy, please sign and return a copy of
this letter to me. By electing to be covered you are agreeing with your employer
that any prior "contingent severance pay agreement" between you and your
employer is hereby terminated. "Contingent severance pay agreement" is any
agreement in which your employer agrees to pay you cash compensation if your
employment is terminated following a sale, liquidation, transfer of assets or
other change in control of your employer.
Upon your signing and returning a copy of this letter agreement to me, the
Employment Retention Policy will constitute a legally binding obligation of your
employer to you in accordance with its terms.
Sincerely,
LONE STAR TECHNOLOGIES, INC.
By: /s/ Robert F. Spears
----------------------------------
Robert F. Spears, Vice President,
General Counsel and Secretary
Accepted and Agreed:
/s/ John P. Harbin
- ---------------------------
John P. Harbin
Attachment
<PAGE>
LONE STAR
TECHNOLOGIES, INC.
May 22, 1997
Mr. Charles J. Keszler
Vice President-Finance
Lone Star Technologies, Inc.
5501 LBJ Freeway, Suite 1200
Dallas, Texas 75240
Dear Chuck:
In recognition of the valuable service rendered to your employer and in
consideration of your continued employment, your employer is pleased to inform
you that you are eligible to be covered by the Employment Retention Policy, a
copy of which is attached. Your lump sum payment under the Policy would be 24
times your Monthly Compensation as defined in the Policy.
If you wish to be covered by this Policy, please sign and return a copy of
this letter to me. By electing to be covered you are agreeing with your employer
that any prior "contingent severance pay agreement" between you and your
employer is hereby terminated. "Contingent severance pay agreement" is any
agreement in which your employer agrees to pay you cash compensation if your
employment is terminated following a sale, liquidation, transfer of assets or
other change in control of your employer.
Upon your signing and returning a copy of this letter agreement to me, the
Employment Retention Policy will constitute a legally binding obligation of your
employer to you in accordance with its terms.
Sincerely,
LONE STAR TECHNOLOGIES, NC.
By: /s/ John P. Harbin
------------------------------------
John P. Harbin
Chairman and Chief Executive Officer
Accepted and Agreed:
/s/ Charles J. Keszler
- ----------------------------
Charles J. Keszler
Attachment
<PAGE>
LONE STAR
TECHNOLOGIES, INC.
May 22, 1997
Mr. Robert F. Spears
Vice President, General Counsel
and Secretary
Lone Star Technologies, Inc.
5501 LBJ Freeway, Suite 1200
Dallas, Texas 75240
Dear Bob:
In recognition of the valuable service rendered to your employer and in
consideration of your continued employment, your employer is pleased to inform
you that you are eligible to be covered by the Employment Retention Policy, a
copy of which is attached. Your lump sum payment under the Policy would be 24
times your Monthly Compensation as defined in the Policy.
If you wish to be covered by this Policy, please sign and return a copy of
this letter to me. By electing to be covered you are agreeing with your employer
that any prior "contingent severance pay agreement" between you and your
employer is hereby terminated. "Contingent severance pay agreement" is any
agreement in which your employer agrees to pay you cash compensation if your
employment is terminated following a sale, liquidation, transfer of assets or
other change in control of your employer.
Upon your signing and returning a copy of this letter agreement to me, the
Employment Retention Policy will constitute a legally binding obligation of your
employer to you in accordance with its terms.
Sincerely,
LONE STAR TECHNOLOGIES, INC.
By: /s/ John P. Harbin
----------------------------------
John P. Harbin
Chairman and Chief Executive Officer
Accepted and Agreed
/s/ Robert F. Spears
- ---------------------------
Robert F. Spears
Attachment
<PAGE>
LONE STAR STEEL COMPANY
May 22, 1997
Mr. W. Byron Dunn
Executive Vice President
Lone Star Steel Company
5501 LBJ Freeway, Suite 1200
Dallas, Texas 75240
Dear Byron:
In recognition of the valuable service rendered to your employer and in
consideration of your continued employment, your employer is pleased to inform
you that you are eligible to be covered by the Employment Retention Policy, a
copy of which is attached. Your lump sum payment under the Policy would be 24
times your Monthly Compensation as defined in the Policy.
If you wish to be covered by this Policy, please sign and return a copy of
this letter to me. By electing to be covered you are agreeing with your employer
that any prior "contingent severance pay agreement" between you and your
employer is hereby terminated. "Contingent severance pay agreement" is any
agreement in which your employer agrees to pay you cash compensation if your
employment is terminated following a sale, liquidation, transfer of assets or
other change in control of your employer.
Upon your signing and returning a copy of this letter agreement to me, the
Employment Retention Policy will constitute a legally binding obligation of your
employer to you in accordance with its terms.
Sincerely,
LONE STAR STEEL COMPANY
By: /s/ Rhys J. Best
----------------------------------
Rhys J. Best
Chief Executive Officer
Accepted and Agreed
/s/ W. Byron Dunn
- --------------------------
W. Byron Dunn
Attachment
<PAGE>
LONE STAR
TECHNOLOGIES, INC.
September 25, 1997
Mr. Rhys J. Best
President
Lone Star Technologies, Inc.
5501 LBJ Freeway, Suite 1200
Dallas, Texas 75240
Dear Rhys:
In recognition of the valuable service rendered to your employer and in
consideration of your continued employment, your employer is pleased to inform
you that you are eligible to be covered by the Employment Retention Policy, a
copy of which is attached. Your lump sum payment under the Policy would be 24
times your Monthly Compensation as defined in the Policy.
If you wish to be covered by this Policy, please sign and return a copy of
this letter to me. By electing to be covered you are agreeing with your employer
that any prior "contingent severance pay agreement" between you and your
employer is hereby terminated. "Contingent severance pay agreement" is any
agreement in which your employer agrees to pay you cash compensation if your
employment is terminated following a sale, liquidation, transfer of assets or
other change in control of your employer.
Upon your signing and returning a copy of this letter agreement to me, the
Employment Retention Policy will constitute a legally binding obligation of your
employer to you in accordance with its terms.
Sincerely,
LONE STAR TECHNOLOGIES, INC.
By: /s/ John P. Harbin
------------------------------------
John P. Harbin
Chairman and Chief Executive Officer
Accepted and Agreed
/s/ Rhys J. Best
- -------------------------
Rhys J. Best
Attachment
<PAGE>
CREDIT AGREEMENT
by and among
LONE STAR STEEL COMPANY
and
THE BANKS PARTY HERETO
and
PNC BANK, NATIONAL ASSOCIATION, As Agent
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, N.A.,
As Co-Agent
Dated as of October 2, 1997
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
1. CERTAIN DEFINITIONS 1
1.1 Certain Definitions 1
1.2 Construction 18
1.2.1 Number; Inclusion 18
1.2.2 Determination 18
1.2.3 Agent's Discretion and Consent 19
1.2.4 Documents Taken as a Whole 19
1.2.5 Headings 19
1.2.6 Implied References to This Agreement 19
1.2.7 Persons 19
1.2.8 Modifications to Documents 19
1.2.9 From, To and Through 19
1.2.10 Shall; Will 20
1.3 Accounting Principles 20
2. REVOLVING CREDIT AND SWING LOAN FACILITIES 20
2.1 Revolving Credit Commitments 20
2.1.1 Revolving Credit Loans 20
2.1.2 Swing Loan Commitment 21
2.1.3 Reduction of Commitment 21
2.2 Nature of Banks' Obligations with Respect to Revolving
Credit Loans 21
2.3 Commitment Fees 22
2.4 Revolving Credit Loan Requests; Swing Loan Requests 22
2.4.1 Revolving Credit Loan Requests 22
2.4.2 Swing Loan Requests 23
2.5 Making Revolving Credit Loans and Swing Loans; Revolving
Credit Notes and Swing Notes 23
2.5.1 Making Revolving Credit Loans 23
2.5.2 Making Swing Loans 23
2.6 Revolving Credit Notes 24
2.7 Swing Loan Note 24
2.8 Use of Proceeds 24
2.9 Borrowings to Repay Swing Loans 24
2.10 Letter of Credit Subfacility 24
2.10.1 Issuance of Letters of Credit 24
2.10.2 Letter of Credit Fees 25
2.10.3 Disbursements, Reimbursement 25
2.10.4 Repayment of Participation Advances 26
2.10.5 Documentation 27
2.10.6 Determinations to Honor Drawing Requests 27
2.10.7 Nature of Participation and Reimbursement Obligations 27
2.10.8 Indemnity 29
2.10.9 Liability for Acts and Omissions 29
2.10.10 Comparable Treatment of the Agent Under Overdraft
Reimbursement Agreement and Letters of Credit 30
-i-
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
2.11 Extension by Banks of the Expiration Date 30
3. COLLATERAL 30
4. INTEREST RATES 31
4.1 Interest Rate Options 31
4.1.1 Rate Options 31
4.1.2 Rate Quotations 31
4.2 Interest Periods 31
4.2.1 Ending Date and Business Day 32
4.2.2 Amount of Borrowing Tranche 32
4.2.3 Termination Before Expiration Date 32
4.2.4 Renewals 32
4.3 Interest After Default 32
4.3.1 Letter of Credit Fees, Interest Rate 32
4.3.2 Other Obligations 32
4.3.3 Acknowledgment 33
4.4 Euro-Rate Unascertainable; Illegality; Increased Costs;
Deposits Not Available 33
4.4.1 Unascertainable 33
4.4.2 Illegality; Increased Costs; Deposits Not Available 33
4.4.3 Agent's and Bank's Rights 34
4.5 Selection of Interest Rate Options 34
5. PAYMENTS 34
5.1 Payments 34
5.2 Pro Rata Treatment of Banks 35
5.3 Interest Payment Dates 35
5.4 Voluntary Prepayments 36
5.4.1 Right to Prepay 36
5.4.2 Replacement of a Bank 37
5.4.3 Change of Lending Office 37
5.5 Additional Compensation in Certain Circumstances 37
5.5.1 Increased Costs or Reduced Return Resulting from Taxes,
Reserves, Capital Adequacy Requirements, Expenses, Etc. 37
5.5.2 Indemnity 38
5.6 Settlement Date Procedures 39
6. REPRESENTATIONS AND WARRANTIES 40
6.1 Representations and Warranties 40
6.1.1 Organization and Qualification 40
6.1.2 Capitalization and Ownership 40
6.1.3 Subsidiaries 40
6.1.4 Power and Authority 41
6.1.5 Validity and Binding Effect 41
6.1.6 No Conflict 41
6.1.7 Litigation 41
6.1.8 Title to Properties 42
-ii-
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
6.1.9 Financial Statements 42
6.1.10 Use of Proceeds; Margin Stock; Section 20 Subsidiaries 42
6.1.11 Full Disclosure 43
6.1.12 Taxes 43
6.1.13 Consents and Approvals 44
6.1.14 No Event of Default; Compliance with Instruments 44
6.1.15 Patents, Trademarks, Copyrights, Licenses, Etc. 44
6.1.16 Security Interests 44
6.1.17 Status of the Pledged Collateral 45
6.1.18 Insurance 45
6.1.19 Compliance with Laws 46
6.1.20 Material Contracts; Burdensome Restrictions 46
6.1.21 Investment Companies; Regulated Entities 46
6.1.22 Plans and Benefit Arrangements 46
6.1.23 Employment Matters 47
6.1.24 Environmental Matters 48
6.1.25 Senior Debt Status 49
6.2 Updates to Schedules 50
7. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT 51
7.1 First Loans and Letters of Credit 51
7.1.1 Officer's Certificate 51
7.1.2 Secretary's Certificate 51
7.1.3 Delivery of Loan Documents 52
7.1.4 Opinion of Counsel 52
7.1.5 Legal Details 52
7.1.6 Payment of Fees 52
7.1.7 Consents 52
7.1.8 Officer's Certificate Regarding MACs 53
7.1.9 No Violation of Laws 53
7.1.10 No Actions or Proceedings 53
7.1.11 Insurance Policies; Certificates of Insurance;
Endorsements 53
7.1.12 Filing Receipts; Lien Searches 53
7.1.13 Administrative Questionnaire 54
7.1.14 Repayment of Existing Indebtedness; Payoff Letters 54
7.1.15 Processor and Warehouseman's Agreements 54
7.2 Each Additional Loan or Letter of Credit 54
8. COVENANTS 55
8.1 Affirmative Covenants 55
8.1.1 Preservation of Existence, Etc 55
8.1.2 Payment of Liabilities, Including Taxes, Etc. 55
8.1.3 Maintenance of Insurance 55
8.1.4 Maintenance of Properties and Leases 56
8.1.5 Maintenance of Patents, Trademarks, Etc. 57
8.1.6 Visitation Rights 57
8.1.7 Keeping of Records and Books of Account 57
8.1.8 Plans and Benefit Arrangements 57
8.1.9 Compliance with Laws 57
-iii-
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
8.1.10 Use of Proceeds 58
8.1.11 Further Assurances 58
8.1.12 Subordination of Intercompany Loans 58
8.1.13 Processors and Warehousemen's Agreements 58
8.2 Negative Covenants 59
8.2.1 Indebtedness 59
8.2.2 Liens 60
8.2.3 Guaranties 60
8.2.4 Loans and Investments 60
8.2.5 Dividends and Related Distributions 61
8.2.6 Liquidations, Mergers, Consolidations, Acquisitions 64
8.2.7 Dispositions of Assets or Subsidiaries 66
8.2.8 Affiliate Transactions 67
8.2.9 Subsidiaries, Partnerships and Joint Ventures 67
8.2.10 Continuation of or Change in Business 68
8.2.11 Plans and Benefit Arrangements 68
8.2.12 Fiscal Year 69
8.2.13 Issuance of Stock 69
8.2.14 Changes in Organizational Documents 69
8.2.15 Minimum Interest Coverage Ratio 69
8.2.16 Maximum Leverage Ratio 69
8.2.17 Minimum Tangible Net Worth 69
8.2.18 Minimum Working Capital 70
8.2.19 Negative Pledges-- Assets of the Loan Parties 70
8.2.20 Slab Financing Agreement 70
8.3 Reporting Requirements 70
8.3.1 Quarterly Financial Statements 70
8.3.2 Annual Financial Statements 71
8.3.3 Certificate of the Borrower 71
8.3.4 Notice of Default 72
8.3.5 Notice of Litigation 72
8.3.6 Certain Events 72
8.3.7 Budgets, Forecasts, Other Reports and Information 72
8.3.8 Notices Regarding Plans and Benefit Arrangements 73
9. DEFAULT 74
9.1 Events of Default 74
9.1.1 Payments Under Loan Documents 75
9.1.2 Breach of Representation or Warranty 75
9.1.3 Breach of Negative Covenants or Visitation Rights 75
9.1.4 Breach of Other Covenants 75
9.1.5 Defaults in Other Agreements or Indebtedness 75
9.1.6 Final Judgments or Orders 76
9.1.7 Loan Document Unenforceable 76
9.1.8 Uninsured Losses; Proceedings Against Assets 76
9.1.9 Notice of Lien or Assessment 76
9.1.10 Insolvency 76
9.1.11 Events Relating to Plans and Benefit Arrangements 77
9.1.12 Cessation of Business 77
-iv-
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
9.1.13 Change of Control 77
9.1.14 Involuntary Proceedings 78
9.1.15 Voluntary Proceedings 78
9.2 Consequences of Event of Default 78
9.2.1 Events of Default Other Than Bankruptcy, Insolvency or
Reorganization Proceedings 78
9.2.2 Bankruptcy, Insolvency or Reorganization Proceedings 79
9.2.3 Set-off 79
9.2.4 Suits, Actions, Proceedings 79
9.2.5 Application of Proceeds 80
9.2.6 Other Rights and Remedies 80
9.3 Notice of Sale 80
10. THE AGENT 81
10.1 Appointment 81
10.2 Delegation of Duties 81
10.3 Nature of Duties; Independent Credit Investigation 81
10.4 Actions in Discretion of Agent; Instructions From the Banks 82
10.5 Reimbursement and Indemnification of Agent by the Borrower 82
10.6 Exculpatory Provisions; Limitation of Liability 83
10.7 Reimbursement and Indemnification of Agent by Banks 83
10.8 Reliance by Agent 84
10.9 Notice of Default 84
10.10 Notices 84
10.11 Banks in Their Individual Capacities 84
10.12 Holders of Notes 85
10.13 Equalization of Banks 85
10.14 Successor Agent 86
10.15 Agent's Fee 86
10.16 Availability of Funds 86
10.17 Calculations 87
10.18 Beneficiaries 87
11. MISCELLANEOUS 87
11.1 Modifications, Amendments or Waivers 87
11.1.1 Increase of Commitment; Extension or Expiration Date 87
11.1.2 Extension of Payment; Reduction of Principal Interest
or Fees; Modification of Terms of Payment 88
11.1.3 Release of Collateral or Guarantor 88
11.1.4 Miscellaneous 88
11.2 No Implied Waivers; Cumulative Remedies; Writing Required 88
11.3 Reimbursement and Indemnification of Banks by the Borrower;
Taxes 89
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TABLE OF CONTENTS
Section Page
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11.4 Holidays 89
11.5 Funding by Branch, Subsidiary or Affiliate 90
11.5.1 Notional Funding 90
11.5.2 Actual Funding 90
11.6 Notices 90
11.7 Severability 91
11.8 Governing Law 91
11.9 Prior Understanding 91
11.10 Duration; Survival 91
11.11 Successors and Assigns 92
11.12 Confidentiality 93
11.12.1 General 93
11.12.2 Sharing Information With Affiliates of the Banks 93
11.13 Counterparts 94
11.14 Agent's or Bank's Consent 94
11.15 Exceptions 94
11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL 94
11.17 Tax Withholding Clause 95
11.18 Joinder of Guarantors 95
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LIST OF SCHEDULES AND EXHIBITS
SCHEDULES
SCHEDULE 1.1(A) - PRICING GRID
SCHEDULE 1.1(B) - REVOLVING CREDIT COMMITMENTS OF BANKS AND ADDRESSES
FOR NOTICES
SCHEDULE 1.1(P) - PERMITTED LIENS
SCHEDULE 6.1.1 - QUALIFICATIONS TO DO BUSINESS
SCHEDULE 6.1.2(A) - CAPITALIZATION (LIST)
SCHEDULE 6.1.2(B) - CAPITALIZATION (EXCEPTION)
SCHEDULE 6.1.3(A) - SUBSIDIARIES (LIST)
SCHEDULE 6.1.3(B) - SUBSIDIARIES (EXCEPTION)
SCHEDULE 6.1.8(A) - OWNED AND LEASED REAL PROPERTY (LIST)
SCHEDULE 6.1.8(B) - OWNED AND LEASED REAL PROPERTY (EXCEPTION)
SCHEDULE 6.1.13 - CONSENTS AND APPROVALS
SCHEDULE 6.1.15(A) - PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES, ETC.
(EXCEPTION)
SCHEDULE 6.1.15(B) - PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES, ETC. (LIST)
SCHEDULE 6.1.17 - PARTNERSHIP AGREEMENTS; LLC AGREEMENTS
SCHEDULE 6.1.18(A) - INSURANCE POLICIES (LIST)
SCHEDULE 6.1.18(B) - INSURANCE POLICIES (EXCEPTION)
SCHEDULE 6.1.20 - MATERIAL CONTRACTS
SCHEDULE 6.1.22 - EMPLOYEE BENEFIT PLAN DISCLOSURES
SCHEDULE 6.1.24 - ENVIRONMENTAL DISCLOSURES
SCHEDULE 8.2.1 - PERMITTED INDEBTEDNESS
EXHIBITS
EXHIBIT 1.1(A)(1) - ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(G)(1) - GUARANTOR JOINDER
EXHIBIT 1.1(G)(2) - GUARANTY AGREEMENT
EXHIBIT 1.1(I)(1) - INTERCOMPANY SUBORDINATION AGREEMENT
EXHIBIT 1.1(I)(2) - SUBORDINATION AGREEMENT
EXHIBIT 1.1(P)(1) - PATENT, TRADEMARK AND COPYRIGHT SECURITY AGREEMENT
EXHIBIT 1.1(P)(2) - PLEDGE AGREEMENT
EXHIBIT 1.1(R) - REVOLVING CREDIT NOTE
EXHIBIT 1.1(S)(1) - SECURITY AGREEMENT
EXHIBIT 1.1(S)(2) - SWING LOAN NOTE
EXHIBIT 2.4.1 - LOAN REQUEST
EXHIBIT 2.4.2 - SWING LOAN REQUEST
EXHIBIT 7.1.4 - OPINION OF COUNSEL
EXHIBIT 8.1.13(A)(1) - PROCESSOR AGREEMENT
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EXHIBIT 8.1.13(A)(2) - WAREHOUSEMAN'S AGREEMENT
EXHIBIT 8.1.13(B) - PROCESSOR FINANCING STATEMENT
EXHIBIT 8.2.5 - DIVIDEND, PREFERRED STOCK REDEMPTION AND INTERCOMPANY
INDEBTEDNESS COMPLIANCE CERTIFICATE
EXHIBIT 8.2.6 - ACQUISITION COMPLIANCE CERTIFICATE
EXHIBIT 8.3.3 - QUARTERLY COMPLIANCE CERTIFICATE
These Schedules and Exhibits are not filed with this Credit Agreement.
Registrant agrees to furnish supplementally a copy of any omitted schedule or
exhibit to the Commission upon request.
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of October 2, 1997 and is made by and
among Lone Star Steel Company, a Delaware corporation (the "Borrower"), each
of the Guarantors (as hereinafter defined), the BANKS (as hereinafter
defined), and PNC BANK, NATIONAL ASSOCIATION, in its capacity as agent for
the Banks under this Agreement (hereinafter referred to in such capacity as
the "Agent") and Bank of America National Trust and Savings Association,
N.A., as Co-Agent.
WITNESSETH:
WHEREAS, the Borrower has requested the Banks to provide a revolving
credit facility to the Borrower; and
WHEREAS, the revolving credit facility shall be used to refinance
existing Indebtedness of the Borrower, to fund redemptions of preferred stock
of the Borrower, for general working capital purposes and as otherwise
provided herein; and
WHEREAS, the Banks are willing to provide such credit upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally
bound hereby, covenant and agree as follows:
1. CERTAIN DEFINITIONS
1.1 CERTAIN DEFINITIONS.
In addition to words and terms defined elsewhere in this Agreement,
the following words and terms shall have the following meanings,
respectively, unless the context hereof clearly requires otherwise:
AFFILIATE as to any Person shall mean any other Person (i) which
directly or indirectly controls, is controlled by, or is under common control
with such Person, (ii) which beneficially owns or holds 5% or more of any
class of the voting or other equity interests of such Person, or (iii) 5% or
more of any class of voting interests or other equity interests of which is
beneficially owned or held, directly or indirectly, by such Person. Control,
as used in this definition, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
or policies of a Person, whether through the ownership of voting securities,
by contract or otherwise, including the power to elect a majority of the
directors or trustees of a corporation or trust, as the case may be.
<PAGE>
AGENT shall mean PNC Bank, National Association, and its successors
and assigns.
AGENT'S FEE shall have the meaning assigned to that term in Section
10.15.
AGENT'S LETTER shall have the meaning assigned to that term in
Section 10.15.
AGREEMENT shall mean this Credit Agreement, as the same may be
supplemented or amended from time to time, including all schedules and
exhibits.
ANNUAL STATEMENTS shall have the meaning assigned to that term in
Section 6.1.9(i).
APPLICABLE COMMITMENT FEE RATE shall mean the percentage rate per
annum based on the Leverage Ratio then in effect according to the pricing
grid on SCHEDULE 1.1(A) below the heading "Commitment Fee." The Applicable
Commitment Fee Rate shall be computed in accordance with the parameters set
forth on SCHEDULE 1.1(A).
APPLICABLE MARGIN shall mean, as applicable:
(A) the percentage spread to be added to Base Rate under the Base
Rate Option based on the Leverage Ratio then in effect according to the
pricing grid on SCHEDULE 1.1(A) below the heading "Base Rate Spread," or
(B) the percentage spread to be added to Euro-Rate under the
Euro-Rate Option based on the Leverage Ratio then in effect according to the
pricing grid on SCHEDULE 1.1(A) below the heading "Euro-Rate Spread."
The Applicable Margin shall be computed in accordance with the
parameters set forth on SCHEDULE 1.1(A).
ASSIGNMENT AND ASSUMPTION AGREEMENT shall mean an Assignment and
Assumption Agreement by and among a Purchasing Bank, a Transferor Bank and
the Agent, as Agent and on behalf of the remaining Banks, substantially in
the form of EXHIBIT 1.1(A)(1).
AUTHORIZED OFFICER shall mean those individuals, designated by
written notice to the Agent from the Borrower, authorized to execute notices,
reports and other documents on behalf of the Loan Parties required hereunder.
The Borrower may amend such list of individuals from time to time by giving
written notice of such amendment to the Agent.
BANKS shall mean the financial institutions named on SCHEDULE
1.1(B) and their respective successors and assigns as permitted hereunder,
each of which is referred to herein as a Bank.
BASE NET WORTH shall mean the sum of
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(i) $122,698,000, PLUS
(ii) 50% of consolidated net income of the Borrower and its
Subsidiaries for each fiscal quarter in which net income was earned (as
opposed to a net loss) during the period from September 1, 1997 through the
date of determination,
PLUS
(iii) the amount of any contributions made to the capital of the
Borrower after the Closing Date or proceeds received by the Borrower after
the Closing Date from the sale of its capital stock, net of ordinary and
reasonable expenses directly related to such sale, and
MINUS
(iv) the amount of payments made by the Borrower after the Closing
Date to redeem its Preferred Stock to the extent that such payments reduce
the Consolidated Tangible Net Worth of the Borrower and are permitted
hereunder.
BASE RATE shall mean the greater of (i) the interest rate per annum
announced from time to time by the Agent at its Principal Office as its then
prime rate, which rate may not be the lowest rate then being charged
commercial borrowers by the Agent, or (ii) the Federal Funds Effective Rate
plus 1/2% per annum.
BASE RATE OPTION shall mean the option of the Borrower to have
Revolving Credit Loans bear interest at the rate and under the terms and
conditions set forth in Section 4.1.1(i).
BENEFIT ARRANGEMENT shall mean at any time an "employee benefit
plan," within the meaning of Section 3(3) of ERISA, which is neither a Plan
nor a Multiemployer Plan and which is maintained, sponsored or otherwise
contributed to by any member of the ERISA Group.
BORROWER shall mean Lone Star Steel Company, a corporation
organized and existing under the laws of the State of Delaware.
BORROWER'S SHARES shall have the meaning assigned to that term in
Section 6.1.2.
BORROWING DATE shall mean, with respect to any Loan, the date for
the making thereof or the renewal or conversion thereof at the same or to a
different Interest Rate Option, which shall be a Business Day.
BORROWING TRANCHE shall mean specified portions of Loans
outstanding as follows: (i) any Loans to which a Euro-Rate Option applies
which become subject to the same Interest Rate Option under the same Loan
Request by the Borrower and which have the same
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Interest Period shall constitute one Borrowing Tranche, and (ii) all Loans to
which a Base Rate Option applies shall constitute one Borrowing Tranche.
BUSINESS DAY shall mean any day other than a Saturday or Sunday or
a legal holiday on which commercial banks are authorized or required to be
closed for business in Pittsburgh, Pennsylvania; and if the applicable
Business Day relates to any Loan to which the Euro-Rate Option applies, such
day must also be a day on which dealings are carried on in the London
interbank market.
CITBC shall mean The CIT Group/Business Credit, Inc.
CLOSING DATE shall mean the Business Day on which the first Loan
shall be made, which shall be October 2, 1997.
COLLATERAL shall mean the Pledged Collateral, the UCC Collateral,
and the Intellectual Property Collateral.
CO-AGENT shall mean and Bank of America National Trust and Savings
Association, N.A. The Co-Agent shall have no duties or responsibilities under
this Agreement.
COLLATERAL PACKAGE shall have the meaning assigned to such term in
Section 8.1.13.
COMMERCIAL LETTER OF CREDIT shall mean any Letter of Credit which
is a commercial letter of credit issued in respect of the purchase of goods
or services by one or more of the Loan Parties in the ordinary course of
their business.
COMMITMENT shall mean as to any Bank its Revolving Credit
Commitment, and in the case of the Agent, its Swing Loan Commitment, and
COMMITMENTS shall mean the aggregate of the Revolving Credit Commitments and
Swing Loan Commitment of all of the Banks.
COMMITMENT FEE shall have the meaning assigned to that term in
Section 2.3.
CONSIDERATION shall mean with respect to any Permitted Acquisition,
the aggregate, without duplication, of(i) the cash paid by any of the Loan
Parties, directly or indirectly, to the seller in connection therewith, (ii)
the Indebtedness incurred or assumed by any of the Loan Parties, whether in
favor of the seller or otherwise, (iii) any Guaranty of Indebtedness or any
other Guaranty that constitutes a liability under GAAP given or incurred by
any Loan Party in connection therewith, and (iv) any other consideration
given or obligation that constitutes a liability under GAAP incurred by any
of the Loan Parties in connection therewith.
CONSIGNED INVENTORY shall mean inventory which belongs to Lone Star
Technologies which is in the possession of the Loan Parties on consignment or
similar arrangement.
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CONSOLIDATED TANGIBLE NET WORTH shall mean as of any date of
determination total stockholders' equity less intangible assets of the
Borrower and its Subsidiaries as of such date determined and consolidated in
accordance with GAAP.
DOLLAR, DOLLARS, U.S. DOLLARS and the symbol $ shall mean lawful
money of the United States of America.
DRAWING DATE shall have the meaning assigned to that term in
Section 2.10.3.2
EBITDA for any period of determination shall mean (i) the sum of
net income, depreciation, amortization, other non-cash charges to net income,
interest expense and income tax expense minus (ii) non-cash credits to net
income, in each case of the Borrower and its Subsidiaries for such period
determined and consolidated in accordance with GAAP.
ENVIRONMENTAL COMPLAINT shall mean any written complaint setting
forth a cause of action for personal or property damage or natural resource
damage or equitable relief, order, notice of violation, citation, issued
pursuant to any Environmental Laws by an Official Body, or subpoena relating
to, arising out of, or issued pursuant to, any of the Environmental Laws or
any Environmental Conditions, as the case may be.
ENVIRONMENTAL CONDITIONS shall mean any conditions of the
environment, including the workplace, natural resources (including flora or
fauna), soil, surface water, groundwater, any actual or potential drinking
water supply sources, substrata or the ambient air, which are in
noncompliance with applicable Environmental Laws relating to or arising out
of, or caused by, the use, handling, storage, treatment, recycling,
generation, transportation, release, spilling, leaking, pumping, emptying,
discharging, injecting, escaping, leaching, disposal, dumping, threatened
release or other management or mismanagement of Regulated Substances
resulting from the use of, or operations on, any Property.
ENVIRONMENTAL LAWS shall mean all federal, state, local and foreign
Laws and regulations, including permits, licenses, authorizations, bonds,
orders, judgments, and consent decrees issued, or entered into, pursuant
thereto, relating to pollution or protection of human health or the
environment.
ERISA shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations
thereunder, as from time to time in effect.
ERISA GROUP shall mean, at any time, the Borrower and all members
of a controlled group of corporations and all trades or businesses (whether
or not incorporated) under common control and all other entities which,
together with the Borrower, are treated as a single employer under Section
414 of the Internal Revenue Code.
EURO-RATE shall mean with respect to the Loans comprising any
Borrowing Tranche to which the Euro-Rate Option applies for any Interest
Period, the interest rate per
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annum determined by the Agent by dividing (the resulting quotient rounded
upward to the nearest 1/100th of 1% per annum) (i) the rate of interest
determined by the Agent in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the average of
the London interbank offered rates of interest per annum for U.S. Dollars at
11:00 a.m. London time as set forth on Telerate display page 3750 or such
other display page on the Telerate System as may replace such page to
evidence the average of rates quoted by banks designated by the British
Bankers' Association (or appropriate successor or, if the British Bankers'
Association or its successor ceases to provide such quotes, a comparable
replacement determined by the Agent) two (2) Business Days prior to the first
day of such Interest Period for an amount comparable to such Borrowing
Tranche and having a borrowing date and a maturity comparable to such
Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve
Percentage. The Euro-Rate may also be expressed by the following formula:
Telerate page 3750 quoted by British Bankers'
Euro-Rate = ASSOCIATION OR APPROPRIATE SUCCESSOR
------------------------------------
1.00 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Euro-Rate Option
outstanding on the effective date of any change in the Euro-Rate Reserve
Percentage as of such effective date. The Agent shall give prompt notice to
the Borrower of the Euro-Rate as determined or adjusted in accordance
herewith, which determination shall be conclusive absent manifest error.
EURO-RATE OPTION shall mean the option of the Borrower to have
Revolving Credit Loans bear interest at the rate and under the terms and
conditions set forth in Section 4.1.1(ii).
EURO-RATE RESERVE PERCENTAGE shall mean the maximum percentage
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as
determined by the Agent which is in effect during any relevant period, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the reserve requirements (including supplemental,
marginal and emergency reserve requirements) with respect to eurocurrency
funding (currently referred to as "Eurocurrency Liabilities") of a member
bank in such System.
EVENT OF DEFAULT shall mean any of the events described in Section
9.1 and referred to therein as an "Event of Default."
EXISTING CREDIT AGREEMENT shall mean that certain Financing
Agreement dated as of March 2, 1993, as amended, between the Borrower and
CITBC.
EXPIRATION DATE shall mean, with respect to the Revolving Credit
Commitments and Swing Loan Commitment, October 2, 2002.
FEDERAL FUNDS EFFECTIVE RATE for any day shall mean the rate per
annum (based on a year of 360 days and actual days elapsed and rounded upward
to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York
(or any successor) on such day as
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<PAGE>
being the weighted average of the rates on overnight federal funds
transactions arranged by federal funds brokers on the previous trading day,
as computed and announced by such Federal Reserve Bank (or any successor) in
substantially the same manner as such Federal Reserve Bank computes and
announces the weighted average it refers to as the "Federal Funds Effective
Rate" as of the date of this Agreement; PROVIDED, if such Federal Reserve
Bank (or its successor) does not announce such rate on any day, the "Federal
Funds Effective Rate" for such day shall be the Federal Funds Effective Rate
for the last day on which such rate was announced.
GAAP shall mean generally accepted accounting principles as are in
effect from time to time, subject to the provisions of Section 1.3, and
applied on a consistent basis both as to classification of items and amounts.
GOVERNMENTAL ACTS shall have the meaning assigned to that term in
Section 2.10.8.
GUARANTOR shall mean each Person signing as a Guarantor on the
signature pages hereto on the date hereof or which joins this Agreement as a
Guarantor after the date hereof pursuant to Section 11.18.
GUARANTOR JOINDER shall mean a joinder by a Person as a Guarantor
under this Agreement, the Guaranty Agreement and the other Loan Documents in
the form of EXHIBIT 1.1(G)(1).
GUARANTY of any Person shall mean any obligation of such Person
guaranteeing or in effect guaranteeing any liability or obligation of any
other Person in any manner, whether directly or indirectly, including any
agreement to indemnify or hold harmless any other Person, any performance
bond or other suretyship arrangement and any other form of assurance against
loss, except endorsement of negotiable or other instruments for deposit or
collection in the ordinary course of business.
GUARANTY AGREEMENT shall mean the Guaranty and Suretyship Agreement
in substantially the form of EXHIBIT 1.1(G)(2) which will be executed and
delivered each Guarantor on the Closing Date and any Person which thereafter
joins this Agreement as a Guarantor pursuant to Section 11.18.
HISTORICAL STATEMENTS shall have the meaning assigned to that term
in Section 6.1.9(i).
INACTIVE SUBSIDIARIES means the four Subsidiaries listed on
Schedule 6.1.3 and designated as "Inactive Subsidiaries."
INDEBTEDNESS shall mean, as to any Person at any time, any and all
indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or
joint or several) of such Person for or in respect of: (i) borrowed money or
which are evidenced by a bond, note or similar instrument, (ii) amounts
raised under or liabilities in respect of any note purchase or acceptance
credit
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<PAGE>
facility, (iii) reimbursement obligations (contingent or otherwise) under any
letter of credit, currency swap agreement, interest rate swap, cap, collar or
floor agreement or other interest rate management device, (iv) any other
transaction (including forward sale or purchase agreements, capitalized
leases and conditional sales agreements) having the commercial effect of a
borrowing of money entered into by such Person to finance its operations or
capital requirements (but not including trade payables and accrued expenses
incurred in the ordinary course of business which are not represented by a
promissory note or other evidence of indebtedness and which are not more than
forty-five (45) days past due except if such trade payable is being contested
in good faith), or (v) any Guaranty of Indebtedness for borrowed money.
Notwithstanding any of the foregoing, Indebtedness shall not include any
obligations of the Borrower to Lone Star Technologies incurred under the Slab
Financing Arrangement relating to the purchases of slab.
INELIGIBLE SECURITY shall mean any security which may not be
underwritten or dealt in by member banks of the Federal Reserve System under
Section 16 and Section 21 of the Banking Act of 1933 (12 U.S.C. Section 24,
Seventh, Section 378(a)), as amended.
INSOLVENCY PROCEEDING shall mean, with respect to any Person, (a) a
case, action or proceeding with respect to such Person (i) before any court
or any other Official Body under any bankruptcy, insolvency, reorganization
or other similar Law now or hereafter in effect, or (ii) for the appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator,
conservator (or similar official) of any such Person or otherwise relating to
the liquidation, dissolution, winding-up or relief of such Person, or (b) any
general assignment for the benefit of creditors, composition, marshaling of
assets for creditors, or other, similar arrangement in respect of such
Person's creditors generally or any substantial portion of its creditors;
undertaken under any Law.
INTELLECTUAL PROPERTY COLLATERAL shall mean all of the property
described in the Patent, Trademark and Copyright Assignment.
INTERCOMPANY SUBORDINATION AGREEMENT shall mean as applicable (i) a
Subordination Agreement among the Agent for the benefit of the Banks, the
Borrower and Lone Star Technologies in the form attached hereto as EXHIBIT
1.1(I)(1), or (ii) a Subordination Agreement among the Agent for the benefit
of the Banks and the Loan Parties in the form attached hereto as EXHIBIT
1.1(I)(2).
INTEREST COVERAGE RATIO shall mean for any period of determination
the ratio of(i) EBITDA to (ii) the sum of (A) interest expense of the
Borrower and its Subsidiaries for such period plus (B) cash dividend payments
or other cash distributions paid by the Borrower or cash or other
consideration paid to purchase whether by way of redemption or otherwise
capital stock of the Borrower during such period, excluding cash payments
made by the Borrower to redeem the Preferred Stock of the Borrower.
INTEREST PERIOD shall have the meaning assigned to such term in
Section 4.2.
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INTEREST RATE OPTION shall mean any Euro-Rate Option or Base Rate
Option.
INTERIM STATEMENTS shall have the meaning assigned to that term in
Section 6.1.9(i).
INTERNAL REVENUE CODE shall mean the Internal Revenue Code of 1986,
as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations
thereunder, as from time to time in effect.
INVENTORY of the Loan Parties shall mean all inventory of the Loan
Parties as determined under GAAP, except for Consigned Inventory.
LABOR CONTRACTS shall mean all employment agreements, employment
contracts, collective bargaining agreements and other agreements among any
Loan Party or Subsidiary of a Loan Party and its employees.
LAW shall mean any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, opinion, release, ruling,
order, injunction, writ, decree or award of any Official Body.
LETTER OF CREDIT shall have the meaning assigned to that term in
Section 2.10.1.
LETTER OF CREDIT FEE shall have the meaning assigned to that term
in Section 2.10.2.
LETTERS OF CREDIT OUTSTANDING shall mean at any time the sum of(i)
the aggregate undrawn face amount (i.e., the amount available for drawing) of
outstanding Letters of Credit and (ii) the aggregate amount of all unpaid and
outstanding Reimbursement Obligations.
LEVERAGE RATIO shall be computed as of the end of each fiscal
quarter of the Borrower ending on or after September 30, 1997 as the ratio of
consolidated Indebtedness on such quarter-end to the EBITDA for the four
fiscal quarters ending on such quarter-end.
LIEN shall mean any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, whether voluntarily or involuntarily given, including any
conditional sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security and any
filed financing statement or other notice of any of the foregoing (whether or
not a lien, security interest or other encumbrance is created or exists at
the time of the filing).
LLC INTERESTS shall have the meaning given to such term in Section
6.1.3.
LOAN DOCUMENTS shall mean this Agreement, the Agent's Letter, the
Intercompany Subordination Agreement, the Notes, the Patent, Trademark and
Copyright
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Assignment, the Security Agreement, any Pledge Agreement or Guaranty
Agreement hereafter executed and delivered under this Agreement, and any
other instruments, certificates or agreements delivered or contemplated to be
delivered hereunder or thereunder or in connection herewith or therewith, as
the same may be supplemented or amended from time to time in accordance
herewith or therewith, and LOAN DOCUMENT shall mean any of the Loan Documents.
LOAN PARTIES shall mean the Borrower and any Guarantors.
LOAN REQUEST shall have the meaning given to such term in Section
2.4.
LOANS shall mean collectively and LOAN shall mean separately all
Revolving Credit Loans and the Swing Loans or any Revolving Credit Loan or
the Swing Loan.
LONE STAR TECHNOLOGIES shall mean Lone Star Technologies, Inc., a
Delaware corporation which owns all of the capital stock of the Borrower.
MATERIAL ADVERSE CHANGE shall mean any set of circumstances or
events which (a) has or is reasonably expected to have any material adverse
effect whatsoever upon the validity or enforceability of this Agreement or
any other Loan Document, (b) is or is reasonably expected to be material and
adverse to the business, properties, assets, financial condition, results of
operations or prospects of the Loan Parties taken as a whole, (c) impairs
materially or is reasonably expected to impair materially the ability of the
Loan Parties taken as a whole to duly and punctually pay or perform its
Indebtedness, or (d) impairs materially or is reasonably expected to impair
materially the ability of the Agent or any of the Banks, to the extent
permitted, to enforce their legal remedies pursuant to the Loan Documents.
MONTH, with respect to an Interest Period under the Euro-Rate
Option, shall mean the interval between the days in consecutive calendar
months numerically corresponding to the first day of such Interest Period. If
any Euro-Rate Interest Period begins on a day of a calendar month for which
there is no numerically corresponding day in the month in which such Interest
Period is to end, the final month of such Interest Period shall be deemed to
end on the last Business Day of such final month.
MULTIEMPLOYER PLAN shall mean any employee benefit plan which is a
"multiemployer plan" within the meaning of Section 4001 (a)(3) of ERISA and
to which the Borrower or any member of the ERISA Group is then making or
accruing an obligation to make contributions or, within the preceding five
Plan years, has made or had an obligation to make such contributions.
MULTIPLE EMPLOYER PLAN shall mean a Plan which has two or more
contributing sponsors (including the Borrower or any member of the ERISA
Group) at least two of whom are not under common control, as such a plan is
described in Sections 4063 and 4064 of ERISA.
NON-QUALIFIED INVENTORY OF THE LOAN PARTIES shall mean all
Inventory of the Loan Parties (i) in the possession of Processors or
Warehousemen unless the Borrower has
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caused such Processor or Warehouseman to execute and deliver to the Agent for
the benefit of the Banks a Processors Agreement or a Warehouseman's
Agreement, as applicable, and (ii) in the possession of Persons other than
either the Loan Parties or Persons described in clause (i) above.
NOTES shall mean the Revolving Credit Notes and Swing Loan Note.
NOTICES shall have the meaning assigned to that term in Section
11.6.
OBLIGATION shall mean any obligation or liability of any of the
Loan Parties to the Agent or any of the Banks under or in connection with
this Agreement, the Notes, the Letters of Credit, the Agent's Letter or any
other Loan Document, howsoever created, arising or evidenced, whether direct
or indirect, absolute or contingent, now or hereafter existing, or due or to
become due.
OFFICIAL BODY shall mean any national, federal, state, local or
other government or political subdivision or any agency, authority, bureau,
central bank, commission, department or instrumentality thereof, or any
court, tribunal, grand jury or arbitrator, in each case whether foreign or
domestic.
ORA INDEMNITY AGREEMENT shall mean that the last paragraph of the
Termination/Reassignment pursuant to which the Borrower agrees to reimburse
the Agent for any amounts which the Agent pays to CITBC under the Overdraft
Reimbursement Agreement as more fully provided therein. The ORA Indemnity
Agreement is supplemented by the Borrower's agreements in Section 2 hereof
which agreements shall supersede the ORA Indemnity Agreement to the extent of
any conflict between the two.
ORAIA REIMBURSEMENT OBLIGATIONS shall mean reimbursement
obligations of the Borrower under the ORA Indemnity Agreement.
TERMINATION/REASSIGNMENT shall mean that certain letter agreement
titled "Termination/Reassignment" dated as of the Closing Date between the
Borrower and CITBC, pursuant to which CITBC agrees to release its Liens in
the assets of the Borrower upon payoff of the amounts due to CITBC as more
fully provided therein.
OVERDRAFT REIMBURSEMENT AGREEMENT shall mean that certain Indemnity
Agreement by PNC Bank, National Association in favor of CITBC attached to and
referred to (as a "letter") in the Termination/Reassignment, pursuant to
which the Agent agrees to reimburse CITBC for any checks or similar
instruments delivered by the Borrower or its account debtors to CITBC which
are dishonored or returned after the date thereof as more fully provided
therein.
PARTICIPATION ADVANCE shall mean, with respect to any Bank, such
Bank's payment in respect of its participation in a Reimbursement Borrowing
according to its Ratable Share pursuant to Section 2.10.4.
PARTNERSHIP INTERESTS shall have the meaning given to such term in
Section 6.1.3.
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PATENT, TRADEMARK AND COPYRIGHT SECURITY AGREEMENT shall mean the
Patent, Trademark and Copyright Security Agreement in substantially the form
of EXHIBIT 1.1(P)(1) executed and delivered by each of the Loan Parties to
the Agent for the benefit of the Banks.
PBGC shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA or any successor.
PERMITTED ACQUISITIONS shall have the meaning assigned to such term
in Section 8.2.6.
PERMITTED INVESTMENTS shall mean:
(i) direct obligations of the United States of America or any
agency or instrumentality thereof or obligations backed by the full faith and
credit of the United States of America maturing in twelve (12) months or less
from the date of acquisition;
(ii) commercial paper maturing in 180 days or less rated not
lower than A-1, by Standard & Poor's or P-1 by Moody's Investors Service,
Inc. on the date of acquisition; and
(iii) demand deposits, time deposits or certificates of deposit
maturing within one year in commercial banks whose obligations are rated A-1,
A or the equivalent or better by Standard & Poor's on the date of acquisition.
(iv) Payroll deposits and other deposits available for withdrawal
on demand, with any commercial bank not meeting the qualification specified
in subparagraph (iii) above but which is located in the area in which a Loan
Party maintains an office, provided that all such deposits in all such
accounts are made in the ordinary course of business and do not in the
aggregate exceed $5,000,000 at any time; and
(vii) investments in money market funds all of whose assets
comprise securities of the types and maturities described in subparagraphs
(i) through (iii) above.
PERMITTED LIENS shall mean:
(i) Liens for taxes, assessments, or similar charges which are
not yet due and payable;
(ii) Pledges or deposits made in the ordinary course of business
to secure payment of worker's compensation, or to participate in any fund in
connection with worker's compensation, unemployment insurance, old-age
pensions or other social security programs;
(iii) Liens of mechanics, materialmen, warehousemen, carriers, or
other like Liens, securing obligations incurred in the ordinary course of
business that are not yet due
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and payable and Liens of landlords securing obligations to pay lease payments
that are not yet due and payable or in default;
(iv) Good-faith pledges or deposits to secure (i) performance of
bids, tenders, contracts (other than for the repayment of borrowed money) or
leases, not in excess of the aggregate amount due thereunder or indemnity,
performance or other similar bonds or, in each instance in the ordinary
course of business or (ii) statutory obligations or surety, appeal or other
similar bonds;
(v) Encumbrances consisting of zoning restrictions, easements or
other restrictions on the use of real property, none of which materially
impairs the use of such property or the value thereof, and none of which is
violated in any material respect by existing or proposed structures or land
use;
(vi) Liens in favor of the Agent for the benefit of the Banks;
(vii) Liens on property leased by any Loan Party or Subsidiary of
a Loan Party under capital and operating leases securing obligations of such
Loan Party or Subsidiary to the lessor under such leases;
(viii) Any Lien existing on the date of this Agreement and
described on SCHEDULE 1.1(P), PROVIDED that the principal amount secured
thereby is not hereafter increased, and no additional assets (other than
accessions and improvements to, and proceeds of, the property subject
thereto) become subject to such Lien;
(ix) Purchase Money Security Interests, PROVIDED that the
aggregate amount of loans and deferred payments secured by such Purchase
Money Security Interests shall not exceed $1,000,000 (excluding for the
purpose of this computation any loans or deferred payments secured by Liens
described on SCHEDULE 1.1(P)); and
(x) The following, (A) if the validity or amount thereof is
being contested in good faith by appropriate and lawful proceedings
diligently conducted so long as levy and execution thereon have been stayed
and continue to be stayed or (B) if a final judgment is entered and such
judgment is discharged within thirty (30) days of entry, and in the aggregate
do not materially impair the ability of any Loan Party to perform its
Obligations hereunder or under the other Loan Documents taken as a whole:
(1) Claims or Liens for taxes, assessments or charges due and
payable; PROVIDED that the applicable Loan Party maintains such reserves or
other appropriate provisions as shall be required by GAAP and pays all such
taxes, assessments or charges forthwith upon the commencement of
proceedings (which are not promptly stayed or enjoined) to foreclose any
such Lien;
(2) Claims, Liens or encumbrances upon, and defects of title to,
real or personal property other than the Collateral, including any
attachment of
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personal or real property or other legal process prior to adjudication of
a dispute on the merits;
(3) Claims or Liens of mechanics, materialmen, warehousemen,
landlords or other like Liens; or
(4) Liens resulting from final judgments or orders other than
those which cause an Event of Default under Section 9.1.6.
(xi) Liens on accounts receivable sold or pledged by a Loan Party
in accordance with Section 8.2.7(v).
PERMITTED OTHER LINE OF BUSINESS ACQUISITION shall have the meaning
in Section 8.2.6.
PERSON shall mean any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, unincorporated
organization, joint venture, Official Body, or any other entity.
PLAN shall mean at any time an employee pension benefit plan
(including a Multiple Employer Plan, but not a Multiemployer Plan) which is
covered by Title IV of ERISA or is subject to the minimum funding standards
under Section 412 of the Internal Revenue Code and either (i) is maintained
by any member of the ERISA Group for employees of any member of the ERISA
Group or (ii) has at any time within the preceding five years been maintained
by any Person which was at such time a member of the ERISA Group for
employees of any Person which was at such time a member of the ERISA Group.
PLEDGE AGREEMENT shall mean the Pledge Agreement in substantially
the form of EXHIBIT 1.1 (P)(2) executed and delivered by the owners of the
capital stock each of the Guarantors on the date hereof and any other
Subsidiary which hereafter joins this Agreement as a Guarantor pursuant to
Section 11.18.
PLEDGED COLLATERAL shall mean the property of the Loan Parties in
which security interests are to be granted under the Pledge Agreement.
PNC BANK shall mean PNC Bank, National Association, its successors
and assigns.
POTENTIAL DEFAULT shall mean any event or condition which with
notice, passage of time or a determination by the Agent or the Required
Banks, or any combination of the foregoing, would constitute an Event of
Default.
PREFERRED STOCK shall mean the Series A Preferred Stock, par value
$1 per share, of the Borrower.
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PRINCIPAL OFFICE shall mean the main banking office of the Agent in
Pittsburgh, Pennsylvania.
PRIOR SECURITY INTEREST shall mean a valid and enforceable
perfected first-priority security interest under the Uniform Commercial Code
in the UCC Collateral and the Pledged Collateral which is subject only to
Permitted Liens.
PROCESSOR shall have the meaning assigned to such term in Section
8.1.13.
PROHIBITED TRANSACTION shall mean any prohibited transaction as
defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA
for which neither an individual nor a class exemption has been issued by the
United States Department of Labor.
PROPERTY shall mean all real property, both owned and leased, of
any Loan Party or Subsidiary of a Loan Party.
PURCHASE MONEY SECURITY INTEREST shall mean Liens upon tangible
personal property securing loans, advances or financial accommodations to any
Loan Party or Subsidiary of a Loan Party or deferred payments by such Loan
Party or Subsidiary for the purchase of such tangible personal property.
Purchase Money Security Interests do not include capitalized leases.
PURCHASING BANK shall mean a Bank which becomes a party to this
Agreement by executing an Assignment and Assumption Agreement.
RATABLE SHARE shall mean the proportion that a Bank's Commitment
(excluding the Swing Loan Commitment) bears to the Commitments (excluding the
Swing Loan Commitments) of all of the Banks.
REGULATED SUBSTANCES shall mean any substance, including any solid,
liquid, semisolid, gaseous, thermal, thoriated or radioactive material,
refuse, garbage, wastes, chemicals, petroleum products, by-products,
coproducts, impurities, dust, scrap, heavy metals, defined as a "hazardous
substance," "pollutant," "pollution," "contaminant," "hazardous or toxic
substance," "extremely hazardous substance,""toxic chemical,""toxic waste,"
"hazardous waste," "industrial waste," "residual waste," "solid waste,"
"municipal waste," "mixed waste," "infectious waste," "chemotherapeutic
waste," "medical waste," or "regulated substance" or any related materials,
substances or wastes as now or hereafter defined pursuant to any
Environmental Laws, ordinances, rules, regulations or other directives of any
Official Body charged with the administration of Environmental Laws, the
generation, manufacture, extraction, processing, distribution, treatment,
storage, disposal, transport, recycling, reclamation, use, reuse, spilling,
leaking, dumping, injection, pumping, leaching, emptying, discharge, escape,
release or other management or mismanagement of which is regulated by any
Environmental Laws.
REGULATION U shall mean Regulation U, T, G or X as promulgated by
the Board of Governors of the Federal Reserve System, as amended from time to
time.
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REIMBURSEMENT BORROWING shall have the meaning assigned to such
term in Section 2.10.3.4.
REIMBURSEMENT OBLIGATION shall have the meaning assigned to such
term in Section 2.10.3.2.
REPORTABLE EVENT shall mean a reportable event described in Section
4043 of ERISA and regulations thereunder with respect to a Plan or
Multiemployer Plan.
REQUIRED BANKS shall mean
(i) if there are no Loans, Reimbursement Obligations or
Reimbursement Borrowings outstanding, Banks whose Revolving Credit
Commitments aggregate at least 51% of the Revolving Credit Commitments of all
of the Banks, or
(ii) if there are Loans, Reimbursement Obligations, or
Reimbursement Borrowings outstanding, any Bank or group of Banks if the sum
of the Loans (excluding the Swing Loans), Reimbursement Obligations and
Reimbursement Borrowings of such Banks then outstanding aggregates at least
51% of the total principal amount of all of the Loans (excluding the Swing
Loans), Reimbursement Obligations and Reimbursement Borrowings then
outstanding. Reimbursement Obligations and Reimbursement Borrowings shall be
deemed, for purposes of this definition, to be in favor of the Agent and not
a participating Bank if such Bank has not made its Participation Advance in
respect thereof and shall be deemed to be in favor of such Bank to the extent
of its Participation Advance if it has made its Participation Advance in
respect thereof
REQUIRED SHARE shall have the meaning assigned to such term in
Section 5.6.
REVOLVING CREDIT COMMITMENT shall mean, as to any Bank at any time,
the amount initially set forth opposite its name on SCHEDULE 1.1(B) in the
column labeled "Amount of Commitment for Revolving Credit Loans," and
thereafter on Schedule I to the most recent Assignment and Assumption
Agreement, and REVOLVING CREDIT COMMITMENTS shall mean the aggregate
Revolving Credit Commitments of all of the Banks.
REVOLVING CREDIT LOANS shall mean collectively and REVOLVING CREDIT
LOAN shall mean separately all Revolving Credit Loans or any Revolving Credit
Loan made by the Banks or one of the Banks to the Borrower pursuant to
Section 2.1 or 2.10.3.
REVOLVING CREDIT NOTES shall mean collectively and REVOLVING CREDIT
NOTE shall mean separately all the Revolving Credit Notes of the Borrower in
the form of EXHIBIT 1.1(R) evidencing the Revolving Credit Loans together
with all amendments, extensions, renewals, replacements, refinancings or
refundings thereof in whole or in part.
REVOLVING FACILITY USAGE shall mean at any time the sum of the
Loans outstanding and the Letters of Credit Outstanding.
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SECTION 20 SUBSIDIARY shall mean the Subsidiary of the bank holding
company controlling any Bank, which Subsidiary has been granted authority by
the Federal Reserve Board to underwrite and deal in certain Ineligible
Securities.
SECURITY AGREEMENT shall mean the Security Agreement in
substantially the form of EXHIBIT 1.1(S)(1) executed and delivered by each of
the Loan Parties to the Agent for the benefit of the Banks.
SENIOR OFFICER shall mean with respect to any Loan Party, the Chief
Executive Officer, Chief Financial Officer or Controller of such Loan Party
(or equivalent positions if such positions are replaced with other positions
in the future).
SETTLEMENT DATE shall mean the Wednesday of each week (if such day
is a Business Day and if not, the next succeeding Business Day) and any other
Business Day on which the Agent elects to effect settlement pursuant to
Section 5.6.
SLAB FINANCING ARRANGEMENT shall mean Borrower's Slab Financing
Arrangement with Lone Star Technologies as from time to time in effect,
provided that the Borrower's Obligations thereunder must be subject to the
Subordination Agreement and the maximum principal amount owing thereunder
must not exceed $30,000,000 without the consent of the Required Banks.
STANDARD & POOR'S shall mean Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc.
STANDBY LETTER OF CREDIT shall mean a Letter of Credit issued to
support obligations of one or more of the Loan Parties, contingent or
otherwise, which finance or otherwise support the working capital and
business needs of the Loan Parties and is not a Commercial Letter of Credit.
SUBSIDIARY of any Person at any time shall mean (i) any corporation
or trust of which 50% or more (by number of shares or number of votes) of the
outstanding capital stock or shares of beneficial interest normally entitled
to vote for the election of one or more directors or trustees (regardless of
any contingency which does or may suspend or dilute the voting rights) is at
such time owned directly or indirectly by such Person or one or more of such
Person's Subsidiaries, (ii) any partnership of which 50% or more of either
the general partnership interests or the total partnership interests is at
the time directly or indirectly owned by such Person or one or more of such
Person's Subsidiaries, (iii) any limited liability company of which 50% or
more of the limited liability company interests is at the time directly or
indirectly owned by such Person or one or more of such Person's Subsidiaries
or (iv) any other Person which is controlled by such Person or one or more of
such Person's Subsidiaries.
SUBSIDIARY SHARES shall have the meaning assigned to that term in
Section 6.1.3.
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SWING LOAN COMMITMENT shall mean PNC Bank's commitment to make
Swing Loans to the Borrower pursuant to Section 2.1.2 hereof in an aggregate
principal amount up to $5,000,000.
SWING LOAN NOTE shall mean the Swing Loan Note of the Borrower in
the form of EXHIBIT 1.1(S)(2) evidencing the Swing Loans, together with all
amendments, extensions, renewals, replacements, refinancings or refundings
thereof in whole or in part.
SWING LOAN REQUEST shall mean a request for Swing Loans made in
accordance with Section 2.4.2 hereof.
SWING LOANS shall mean collectively and SWING LOAN shall mean
separately all Swing Loans or any Swing Loan made by PNC Bank to the Borrower
pursuant to Section 2.1.2 hereof.
TRANSFEROR BANK shall mean the selling Bank pursuant to an
Assignment and Assumption Agreement.
UCC COLLATERAL shall mean the property of the Loan Parties in which
security interests are to be granted under the Security Agreement.
UNIFORM COMMERCIAL CODE shall have the meaning assigned to that
term in Section 6.1.16.
WAREHOUSEMAN shall have the meaning assigned to such term in
Section 8.1.13.
1.2 CONSTRUCTION.
Unless the context of this Agreement otherwise clearly requires, the
following rules of construction shall apply to this Agreement and each of the
other Loan Documents:
1.2.1 NUMBER; INCLUSION.
references to the plural include the singular, the
plural, the part and the whole; "or" has the inclusive meaning represented by
the phrase "and/or," and "including" has the meaning represented by the
phrase "including without limitation";
1.2.2 DETERMINATION.
references to "determination" of or by the Agent or the
Banks shall be deemed to include good-faith estimates by the Agent or the
Banks (in the case of quantitative determinations) and good-faith beliefs by
the Agent or the Banks (in the case of qualitative determinations), except
where this Agreement provides that such determination shall include other
estimates or beliefs, as the case may be, and such determination shall be
conclusive absent manifest error;
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1.2.3 AGENT'S DISCRETION AND CONSENT.
whenever the Agent or the Banks are granted the right
herein to act in its or their sole discretion or to grant or withhold consent
such right shall be exercised in good faith, except where this Agreement
provides that such right shall be exercised under a different standard;
1.2.4 DOCUMENTS TAKEN AS A WHOLE.
the words "hereof," "herein," "hereunder," "hereto" and
similar terms in this Agreement or any other Loan Document refer to this
Agreement or such other Loan Document as a whole and not to any particular
provision of this Agreement or such other Loan Document;
1.2.5 HEADINGS.
the section and other headings contained in this
Agreement or such other Loan Document and the Table of Contents (if any),
preceding this Agreement or such other Loan Document are for reference
purposes only and shall not control or affect the construction of this
Agreement or such other Loan Document or the interpretation thereof in any
respect;
1.2.6 IMPLIED REFERENCES TO THIS AGREEMENT.
article, section, subsection, clause, schedule and
exhibit references are to this Agreement unless otherwise specified;
1.2.7 PERSONS.
reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are
permitted by this Agreement or such other Loan Document, as the case may be,
and reference to a Person in a particular capacity excludes such Person in
any other capacity;
1.2.8 MODIFICATIONS TO DOCUMENTS.
reference to any agreement (including this Agreement and
any other Loan Document together with the schedules and exhibits hereto or
thereto), document or instrument means such agreement, document or instrument
as amended, modified, replaced, substituted for, superseded or restated;
1.2.9 FROM, TO AND THROUGH.
relative to the determination of any period of time,
"from" means "from and including," "to" means "to but excluding," and
"through" means "through and including"; and
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1.2.10 SHALL; WILL.
references to "shall" and "will" are intended to have the
same meaning.
1.3 ACCOUNTING PRINCIPLES.
Except as otherwise provided in this Agreement, all computations and
determinations as to accounting or financial matters and all financial
statements to be delivered pursuant to this Agreement shall be made and
prepared in accordance with GAAP (including principles of consolidation where
appropriate), and all accounting or financial terms shall have the meanings
ascribed to such terms by GAAP; PROVIDED, HOWEVER, that (i) all accounting
terms used in Section 8.2 [Negative Covenants] (and all defined terms used in
the definition of any accounting term used in Section 8.2) shall have the
meaning given to such terms (and defined terms) under GAAP as in effect on
the date hereof applied on a basis consistent with those used in preparing
the Annual Statements referred to in Section 6.1.9(i) [Historical Statements]
and (ii), Consigned Inventory, and the corresponding account payable for the
payment of such Consigned Inventory shall be excluded when computing the
amount of inventory or assets or accounts payable, as the case may be, of the
Loan Parties for purposes of the financial covenants in Section 8.2.15
through 8.2.18 or elsewhere in this Agreement and for purposes of the
definitions comprising such covenants. In the event of any change after the
date hereof in GAAP, and if such change would result in the inability to
determine compliance with the covenants set forth in Section 8.2 based upon
the Borrower's regularly prepared financial statements by reason of the
preceding sentence, then the parties hereto agree to endeavor, in good faith,
to agree upon an amendment to this Agreement that would adjust such financial
covenants in a manner that would not affect the substance thereof, but would
allow compliance therewith to be determined in accordance with the Borrower's
financial statements at that time.
2. REVOLVING CREDIT AND SWING LOAN FACILITIES
2.1 REVOLVING CREDIT COMMITMENTS.
2.1.1 REVOLVING CREDIT LOANS.
Subject to the terms and conditions hereof and relying
upon the representations and warranties herein set forth, each Bank severally
agrees to make Revolving Credit Loans to the Borrower at any time or from
time to time on or after the date hereof to the Expiration Date provided that
after giving effect to such Loan the aggregate amount of Loans from such Bank
shall not exceed such Bank's Revolving Credit Commitment minus such Bank's
Ratable Share of the Letters of Credit Outstanding. Within such limits of
time and amount and subject to the other provisions of this Agreement, the
Borrower may borrow, repay and reborrow pursuant to this Section 2.1.
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2.1.2 SWING LOAN COMMITMENT.
Subject to the terms and conditions hereof and relying
upon the representations and warranties herein set forth, PNC Bank may, at
its option, cancelable at any time for any reason whatsoever, make swing
loans (the "Swing Loans") to the Borrower at any time or from time to time
after the date hereof to, but not including, the Expiration Date, in an
aggregate principal amount up to but not in excess of $5,000,000 (the "Swing
Loan Commitment"), provided that the aggregate Revolving Facility Usage of
all the Banks at any one time outstanding shall not exceed the Revolving
Credit Commitments of all the Banks. Within such limits of time and amount
and subject to the other provisions of this Agreement, the Borrower may
borrow, repay and reborrow pursuant to this Section 2.1.2.
2.1.3 REDUCTION OF COMMITMENT.
2.1.3.1 VOLUNTARY.
The Borrower shall have the right at any time and from
time to time upon five (5) Business Days' prior written notice to the Agent
to permanently reduce, in whole multiples of $5,000,000 of principal, or
terminate the Revolving Credit Commitments without penalty or premium, except
as hereinafter set forth, provided that any such reduction or termination
shall be accompanied by (a) the payment in full of any Commitment Fee then
accrued on the amount of such reduction or termination and (b) prepayment of
the Revolving Credit Notes, together with the full amount of interest accrued
on the principal sum to be prepaid (and all amounts referred to in Section
5.5 hereof), to the extent that the Revolving Facility Usage exceeds the
Revolving Credit Commitments as so reduced or terminated. From the effective
date of any such reduction or termination the obligations of Borrower to pay
the Commitment Fee pursuant to Section 2.3 shall correspondingly be reduced
or cease.
2.1.3.2 MANDATORY REDUCTION ON SALE OR ASSIGNMENT
OF ACCOUNTS.
The Revolving Credit Commitments shall be reduced upon a
sale or assignment of the accounts receivable of the Borrower as provided in
Section 8.2.7(v) provided that the Borrower also shall make the payments
described in clauses (a) and (b) of Section 2.1.3.1 in connection with such
reduction of Revolving Credit Commitments.
2.2 NATURE OF BANKS' OBLIGATIONS WITH RESPECT TO REVOLVING CREDIT LOANS.
Each Bank shall be obligated to participate in each request for Revolving
Credit Loans pursuant to Section 2.4 [Revolving Credit Loan Requests] in
accordance with its Ratable Share. The aggregate of each Bank's Revolving
Credit Loans outstanding hereunder to the Borrower at any time shall never
exceed its Revolving Credit Commitment minus its Ratable Share of the Letters
of Credit Outstanding. The obligations of each Bank hereunder are several.
The failure of any Bank to perform its obligations hereunder shall not affect
the Obligations of the Borrower to any other party nor shall any other party
be liable for the failure of such Bank to
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perform its obligations hereunder. The Banks shall have no obligation to make
Revolving Credit Loans hereunder on or after the Expiration Date.
2.3 COMMITMENT FEES.
Accruing from the date hereof to the Expiration Date, the Borrower agrees
to pay to the Agent for the account of each Bank, as consideration for such
Bank's Revolving Credit Commitment hereunder, a nonrefundable commitment fee
(the "Commitment Fee") equal to the Applicable Commitment Fee Rate (computed on
the basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed) on the average daily difference between the amount of (i) such Bank's
Revolving Credit Commitment as the same may be constituted from time to time and
the (ii) the sum of such Bank's Loans outstanding plus its Ratable Share of the
amount of Letters of Credit Outstanding. All Commitment Fees shall be payable in
arrears on the first Business Day of each October, January, April and July after
the date hereof and on the Expiration Date or upon acceleration of the Notes.
2.4 REVOLVING CREDIT LOAN REQUESTS: SWING LOAN REQUESTS.
2.4.1 REVOLVING CREDIT LOAN REQUESTS.
Except as otherwise provided herein, the Borrower may from
time to time prior to the Expiration Date request the Banks to make Revolving
Credit Loans, or renew or convert the Interest Rate Option applicable to
existing Revolving Credit Loans pursuant to Section 4.2 [Interest Periods], by
delivering to the Agent, not later than 12:00 Noon, Pittsburgh time, (i) three
(3) Business Days prior to the proposed Borrowing Date with respect to the
making of Revolving Credit Loans to which the Euro-Rate Option applies or the
conversion to or the renewal of the Euro-Rate Option for any Loans; and (ii) one
(1) Business Day prior to either the proposed Borrowing Date with respect to the
making of a Revolving Credit Loan to which the Base Rate Option applies or the
last day of the preceding Interest Period with respect to the conversion to the
Base Rate Option for any Loan, of a duly completed request therefor
substantially in the form of EXHIBIT 2.4.1 or a request by telephone immediately
confirmed in writing by letter, facsimile or telex in such form (each, a "Loan
Request"), it being understood that the Agent may rely on the authority of any
individual making such a telephonic request without the necessity of receipt of
such written confirmation. Each Loan Request shall be irrevocable and shall
specify (i) the proposed Borrowing Date; (ii) the aggregate amount of the
proposed Loans comprising each Borrowing Tranche, which shall be in integral
multiples of $500,000 and not less than $1,000,000 for each Borrowing Tranche to
which the Euro-Rate Option applies and not less than the lesser of $500,000 or
the maximum amount available for Borrowing Tranches to which the Base Rate
Option applies; (iii) whether the Euro-Rate Option or Base Rate Option shall
apply to the proposed Loans comprising the applicable Borrowing Tranche; and
(iv) in the case of a Borrowing Tranche to which the Euro-Rate Option applies,
an appropriate Interest Period for the Loans comprising such Borrowing Tranche.
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2.4.2 SWING LOAN REQUESTS.
Except as otherwise provided herein, the Borrower may from
time to time prior to the Expiration Date request PNC Bank to make Swing Loans
by delivery to PNC Bank not later than Noon Pittsburgh time on the proposed
Borrowing Date of a duly completed request therefor substantially in the form of
EXHIBIT 2.4.2 hereto or a request by telephone immediately confirmed in writing
by letter, facsimile or telex (each, a "Swing Loan Request"), it being
understood that the Agent may rely on the authority of any individual making
such a telephonic request without the necessity of receipt of such written
confirmation. Each Swing Loan Request shall be irrevocable and shall specify the
proposed Borrowing Date and the principal amount of such Swing Loan, which shall
be not less than $100,000.
2.5 MAKING REVOLVING CREDIT LOANS AND SWING LOANS: REVOLVING CREDIT NOTES
AND SWING NOTES.
2.5.1 MAKING REVOLVING CREDIT LOANS.
The Agent shall, promptly after receipt by it of a Loan Request pursuant to
Section 2.4 [Revolving Credit Loan Requests], notify the Banks of its receipt of
such Loan Request specifying: (i) the proposed Borrowing Date and the time and
method of disbursement of the Revolving Credit Loans requested thereby; (ii) the
amount and type of each such Revolving Credit Loan and the applicable Interest
Period (if any); and (iii) the apportionment among the Banks of such Revolving
Credit Loans as determined by the Agent in accordance with Section 2.2 [Nature
of Banks' Obligations]. Each Bank shall remit the principal amount of each
Revolving Credit Loan to the Agent such that the Agent is able to, and the Agent
shall, to the extent the Banks have made funds available to it for such purpose
and subject to Section 7.2 [Each Additional Loan], find such Revolving Credit
Loans to the Borrower in U.S. Dollars and immediately available funds at the
Principal Office prior to 2:00 p.m., Pittsburgh time, on the applicable
Borrowing Date, PROVIDED that if any Bank fails to remit such funds to the Agent
in a timely manner, the Agent may elect in its sole discretion to fund with its
own funds the Revolving Credit Loans of such Bank on such Borrowing Date, and
such Bank shall be subject to the repayment obligation in Section 10.16
[Availability of Funds].
2.5.2 MAKING SWING LOANS.
So long as PNC Bank elects to make Swing Loans, PNC Bank
shall, after receipt by it of a Swing Loan Request pursuant to Section 2.4.2,
fund such Swing Loan to the Borrower in U.S. Dollars and immediately available
funds at the Principal Office prior to 3:00 o'clock PM Pittsburgh time on the
Borrowing Date. PNC Bank may at any time (i) terminate, temporarily or
permanently, the Swing Loan facility hereunder by notifying the Borrower or (ii)
elect not to make a Swing Loan following its receipt of a Swing Loan Request
(and before the making of such Swing Loan).
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2.6 REVOLVING CREDIT NOTES.
The Obligation of the Borrower to repay the aggregate unpaid principal
amount of the Revolving Credit Loans made to it by each Bank, together with
interest thereon, shall be evidenced by a Revolving Credit Note dated the
Closing Date payable to the order of such Bank in a face amount equal to the
Revolving Credit Commitment of such Bank.
2.7 SWING LOAN NOTE.
The Obligation of the Borrower to repay the aggregate unpaid principal
amount of the Swing Loans made to it by PNC Bank, together with interest
thereon, shall be evidenced by the Swing Loan Note dated the Closing Date
payable to the order of PNC Bank in a face amount equal to the Swing Loan
Commitment.
2.8 USE OF PROCEEDS.
The proceeds of the Revolving Credit Loans shall be used to refinance the
Indebtedness of the Borrower for borrowed money existing prior to the Closing
Date, to redeem the Preferred Stock of the Borrower and to make certain
dividends and other distributions to Lone Star Technologies permitted hereunder
and for general purposes all in accordance with Section 8.1.10 [Use of
Proceeds].
2.9 BORROWINGS TO REPAY SWING LOANS.
PNC may, at its option, exercisable at any time for any reason whatsoever,
demand repayment of the Swing Loans, and each Bank shall make a Revolving Credit
Loan in an amount equal to such Bank's Ratable Share of the aggregate principal
amount of the outstanding Swing Loans, plus, if PNC so requests, accrued
interest thereon, PROVIDED that no Bank shall be obligated in any event to make
Revolving Credit Loans in excess of its Revolving Credit Commitment. Revolving
Credit Loans made pursuant to the preceding sentence shall bear interest at the
Base Rate Option and shall be deemed to have been properly requested in
accordance with Section 2.4.1 and of the apportionment among the Banks, and the
Banks shall be unconditionally obligated to fund such Revolving Credit Loans
(whether or not the conditions specified in Section 2.4.1 are then satisfied) by
the time PNC so requests, which shall not be earlier than 3:00 p.m. Pittsburgh
time on the Business Day next after the date the Banks receive such notice from
PNC.
2.10 LETTER OF CREDIT SUBFACILITY.
2.10.1 ISSUANCE OF LETTERS OF CREDIT.
Borrower may request the issuance of a letter of credit
(each a "Letter of Credit") on behalf of itself or another Loan Party by
delivering to the Agent a completed application and agreement for letters of
credit in such form as the Agent may specify from time to time by no later than
Noon Pittsburgh time, at least five (5) Business Days, or such shorter period as
may be agreed to by the Agent, in advance of the proposed date of issuance.
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Each Letter of Credit shall be either a Standby Letter of Credit or a
Commercial Letter of Credit. Subject to the terms and conditions hereof and
in reliance on the agreements of the other Banks set forth in this Section
2.10, the Agent will issue a Letter of Credit provided that each Letter of
Credit shall (A) have a maximum maturity of twenty four (24) months from the
date of issuance, and (B) in no event expire later than ten (10) Business
Days prior to the Expiration Date and providing that in no event shall (i)
the Letters of Credit Outstanding exceed, at any one time, $20,000,000 or
(ii) the Revolving Facility Usage exceed, at any one time, the Revolving
Credit Commitments (for purposes of this computation, PNC Bank's Swing Loans
shall be deemed to be borrowed amounts under its Revolving Credit Commitment).
2.10.2 LETTER OF CREDIT FEES.
The Borrower shall pay (i) to the Agent for the ratable
account of the Banks a fee (the "Letter of Credit Fee") at a percentage rate per
annum equal to the Applicable Margin which applies to Loans under the Euro-Rate
Option, and (ii) to the Agent for its own account a fronting fee equal to 1/8%
per annum (computed on the basis of a year of 360 days and actual days elapsed),
which fees shall be computed on the daily average Letters of Credit Outstanding
and shall be payable quarterly in arrears commencing with the first Business Day
of each October, January, April and July following issuance of each Letter of
Credit and on the Expiration Date. The Borrower shall also pay to the Agent for
the Agent's sole account the Agent's then in effect customary administrative
fees and expenses payable with respect to the Letters of Credit as the Agent may
generally charge or incur from time to time in connection with the issuance,
maintenance, modification (if any), assignment or transfer (if any),
negotiation, and administration of Letters of Credit.
2.10.3 DISBURSEMENTS, REIMBURSEMENT.
2.10.3.1 Immediately upon the Issuance of each Letter
of Credit, each Bank shall be deemed to, and hereby irrevocably and
unconditionally agrees to, purchase from the Agent a participation in such
Letter of Credit and each drawing thereunder in an amount equal to such Bank's
Ratable Share of the maximum amount available to be drawn under such Letter of
Credit and the amount of such drawing, respectively. Each Bank is hereby deemed
to, and hereby irrevocably and unconditionally agrees to, purchase from the
Agent a participation in the Overdraft Reimbursement Agreement and each of the
Agent's obligations thereunder, including the Agent's obligations in connection
with any right of CITBC to be reimbursed by the Agent, in an amount equal to
such Bank's Ratable Share of each such obligation.
2.10.3.2 In the event of any request for a drawing
under a Letter of Credit by the beneficiary or transferee thereof or any demand
for reimbursement by or right of reimbursement in favor of CITBC under the
Overdraft Reimbursement Agreement, the Agent will promptly notify the Borrower.
Provided that it shall have received such notice, the Borrower shall reimburse
(such obligation to reimburse the Agent shall sometimes be referred to as a
"Reimbursement Obligation") the Agent prior to 12:00 noon, Pittsburgh time on
each date that an amount is paid by the Agent under any Letter of Credit or
Overdraft Reimbursement
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Agreement (each such date, a "Drawing Date") in an amount equal to the amount
so paid by the Agent. In the event the Borrower fails to reimburse the Agent
for the full amount of any drawing under any Letter of Credit or payment by
the Agent under the Overdraft Reimbursement Agreement by 12:00 noon,
Pittsburgh time, on the Drawing Date, the Agent will promptly notify each
Bank thereof, and the Borrower shall be deemed to have requested that
Revolving Credit Loans be made by the Banks under the Base Rate Option to be
disbursed on the Drawing Date under such Letter of Credit or Overdraft
Reimbursement Agreement, subject to the amount of the unutilized portion of
the Revolving Credit Commitment and subject to there being no Potential
Default or Event of Default described in or arising under Sections 9.1.14
or 9.1.15 (each a "Bankruptcy Default"). Any notice given by the Agent
pursuant to this Section 2.10.3.2 may be oral if immediately confirmed in
writing; provided that the lack of such an immediate confirmation shall not
affect the conclusiveness or binding effect of such notice.
2.10.3.3 Each Bank shall upon any notice pursuant to
Section 2.10.3.2 make available to the Agent an amount in immediately
available funds equal to its Ratable Share of the amount of the drawing or
other payment by the Agent, whereupon the participating Banks shall (subject
to Section 2.10.3.4) each be deemed to have made a Revolving Credit Loan
under the Base Rate Option to the Borrower in that amount. If any Bank so
notified fails to make available to the Agent for the account of the Agent
the amount of such Bank's Ratable Share of such amount by no later than 2:00
p.m., Pittsburgh time on the Drawing Date, then interest shall accrue on such
Bank's obligation to make such payment, from the Drawing Date to the date on
which such Bank makes such payment (i) at a rate per annum equal to the
Federal Funds Effective Rate during the first three days following the
Drawing Date and (ii) at a rate per annum equal to the rate applicable to
Loans under the Base Rate Option on and after the fourth day following the
Drawing Date. The Agent will promptly give notice of the occurrence of the
Drawing Date, but failure of the Agent to give any such notice on the Drawing
Date or in sufficient time to enable any Bank to effect such payment on such
date shall not relieve such Bank from its obligation under this Section
2.10.3.3.
2.10.3.4 With respect to any unreimbursed drawing or
other payment by the Agent described in this Section 2.10.3 above that is not
converted into Revolving Credit Loans under the Base Rate Option to the Borrower
in whole or in part as contemplated by Section 2.10.3.2, because of the
existence of a Bankruptcy Default or for any other reason, the Borrower shall be
deemed to have incurred from the Agent a borrowing (each a "Reimbursement
Borrowing") in the amount of such drawing. Such Reimbursement Borrowing shall be
due and payable on demand (together with interest) and shall bear interest at
the rate per annum applicable to the Revolving Credit Loans under the Base Rate
Option. Each Bank's payment to the Agent pursuant to Section 2.10.3.3 shall be
deemed to be a payment in respect of its participation in such Reimbursement
Borrowing and shall constitute a Participation Advance from such Bank in
satisfaction of its participation obligation under this Section 2.10.3.
2.10.4 REPAYMENT OF PARTICIPATION ADVANCES.
2.10.4.1 Upon (and only upon) receipt by the Agent
for its account of immediately available funds from the Borrower (i) in
reimbursement of any
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payment made by the Agent under the Letter of Credit or the Overdraft
Reimbursement Agreement with respect to which any Bank has made a
Participation Advance to the Agent, or (ii) in payment of interest on such a
payment made by the Agent under such a Letter of Credit or Overdraft
Reimbursement Agreement, the Agent will pay to each Bank, in the same funds
as those received by the Agent, the amount of such Bank's Ratable Share of
such funds, except the Agent shall retain the amount of the Ratable Share of
such funds of any Bank that did not make a Participation Advance in respect
of such payment by Agent.
2.10.4.2 If the Agent is required at any time to
return to any Loan Party, or to a trustee, receiver, liquidator, custodian, or
any official in any Insolvency Proceeding, any portion of the payments made by
any Loan Party to the Agent pursuant to Section 2.10.4.1 in reimbursement of a
payment made under the Letter of Credit or the Overdraft Reimbursement Agreement
or interest or fee thereon, each Bank shall, on demand of the Agent, forthwith
return to the Agent the amount of its Ratable Share of any amounts so returned
by the Agent plus interest thereon from the date such demand is made to the date
such amounts are returned by such Bank to the Agent, at a rate per annum equal
to the Federal Funds Effective Rate in effect from time to time.
2.10.5 DOCUMENTATION.
Each Loan Party agrees to be bound by the terms of the
Overdraft Reimbursement Agreement and the Agent's application and agreement
for letters of credit. In the event of a conflict between such Overdraft
Reimbursement Agreement or application for letters of credit or agreement and
this Agreement, this Agreement shall govern. It is understood and agreed
that, except in the case of gross negligence or willful misconduct, the Agent
shall not be liable for any error, negligence and/or mistakes, whether of
omission or commission, in following any Loan Party's instructions or those
contained in the Letters of Credit or Overdraft Reimbursement Agreement or
any modifications, amendments or supplements thereto.
2.10.6 DETERMINATIONS TO HONOR DRAWING REQUESTS.
In determining whether to honor any request for drawing
under any Letter of Credit by the beneficiary thereof, the Agent shall be
responsible only to determine that the documents and certificates required to be
delivered under such Letter of Credit have been delivered and that they on their
face comply with and satisfy the requirements of such Letter of Credit.
2.10.7 NATURE OF PARTICIPATION AND REIMBURSEMENT OBLIGATIONS.
Each Bank's obligation in accordance with this Agreement to
make the Revolving Credit Loans or Participation Advances, as contemplated by
Section 2.10.3, as a result of a drawing under a Letter of Credit, and the
Obligations of the Borrower to reimburse the Agent upon a draw under a Letter of
Credit, shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Section 2.10 under all
circumstances, including the following circumstances:
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(i) any set-off, counterclaim, recoupment, defense or other
right which such Bank may have against the Agent, the Borrower or any other
Person for any reason whatsoever;
(ii) the failure of any Loan Party or any other Person to
comply, in connection with a Reimbursement Borrowing, with the conditions set
forth in Section 2.1 [Revolving Credit Commitments], 2.4 [Revolving Credit
Loan Requests], 2.5.1 [Making Revolving Credit Loans] or 7.2 [Each Additional
Loan] or as otherwise set forth in this Agreement for the making of a Revolving
Credit Loan, it being acknowledged that such conditions are not required for
the making of a Reimbursement Borrowing and the obligation of the Banks to
make Participation Advances under Section 2.10.3;
(iii) any lack of validity or enforceability of any Letter of
Credit;
(iv) the existence of any claim, set-off, defense or other
right which any Loan Party or any Bank may have at any time against a
beneficiary or any transferee of any Letter of Credit (or any Persons for whom
any such transferee may be acting), the Agent or any Bank or any other Person
or, whether in connection with this Agreement, the transactions contemplated
herein or any unrelated transaction (including any underlying transaction
between any Loan Party or Subsidiaries of a Loan Party and the beneficiary for
which any Letter of Credit was procured);
(v) any draft, demand, certificate or other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect even if the Agent has been notified thereof;
(vi) payment by the Agent under any Letter of Credit against
presentation of a demand, draft or certificate or other document which does not
comply with the terms of such Letter of Credit;
(vii) any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of any
Loan Party or Subsidiaries of a Loan Party;
(viii) any breach of this Agreement or any other Loan Document by
any party thereto;
(ix) the occurrence or continuance of an Insolvency Proceeding
with respect to any Loan Party;
(x) the fact that an Event of Default or a Potential Default
shall have occurred and be continuing; and
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(xi) the fact that the Expiration Date shall have passed or
this Agreement or the Commitments hereunder shall have been terminated.
2.10.8 INDEMNITY.
In addition to amounts payable as provided in Section 10.5
[Reimbursement and Indemnification of Agent by the Borrower], the Borrower
hereby agrees to protect, indemnify, pay and save harmless the Agent from and
against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable fees, expenses and disbursements of
counsel and allocated costs of internal counsel) which the Agent may incur or be
subject to as a consequence, direct or indirect, of (i) the issuance of any
Letter of Credit, other than as a result of (A) the gross negligence or willful
misconduct of the Agent as determined by a final judgment of a court of
competent jurisdiction or (B) subject to the following clause (ii), the wrongful
dishonor by the Agent of a proper demand for payment made under any Letter of
Credit, or (ii) the failure of the Agent to honor a drawing under any such
Letter of Credit as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto Official Body (all such
acts or omissions herein called "Governmental Acts").
2.10.9 LIABILITY FOR ACTS AND OMISSIONS.
As between any Loan Party and the Agent, such Loan Party
assumes all risks of the acts and omissions of, or misuse of the Letters of
Credit by, the respective beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, the Agent shall not be
responsible for: (i) the form, validity, sufficiency, accuracy, genuineness
or legal effect of any document submitted by any party in connection with the
application for an issuance of any such Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged (even if the Agent shall have been notified thereof);
(ii) the validity or sufficiency of any instrument transferring or assigning
or purporting to transfer or assign any such Letter of Credit or the rights
or benefits thereunder or proceeds thereof, in whole or in part, which may
prove to be invalid or ineffective for any reason; (iii) the failure of the
beneficiary of any such Letter of Credit, or any other party to which such
Letter of Credit may be transferred, to comply fully with any conditions
required in order to have a right to draw upon such Letter of Credit or any
other claim of any Loan Party against any beneficiary of such Letter of
Credit, or any such transferee, or any dispute between or among any Loan
Party and any beneficiary of any Letter of Credit or any such transferee;
(iv) errors, omissions, interruptions or delays in transmission or delivery
of any messages, by mail, cable, telegraph, telex or otherwise, whether or
not they be in cipher; (v) errors in interpretation of technical terms; (vi)
any loss or delay in the transmission or otherwise of any document required
in order to make a drawing under any such Letter of Credit or of the proceeds
thereof; (vii) the misapplication by the beneficiary of any such Letter of
Credit of the proceeds of any drawing under such Letter of Credit; or (viii)
any consequences arising from causes beyond the control of the Agent,
including any Governmental Acts, and none of the above shall affect or
impair, or prevent the vesting of, any of the Agent's rights or powers
hereunder. Nothing in the preceding sentence shall relieve the Agent from
liability for the Agent's gross negligence or
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willful misconduct in connection with actions or omissions described in such
clauses (i) through (viii) of such sentence.
In furtherance and extension and not in limitation of
the specific provisions set forth above, any action taken or omitted by the
Agent under or in connection with the Letters of Credit issued by it or any
documents and certificates delivered thereunder, if taken or omitted in good
faith, shall not put the Agent under any resulting liability to the Borrower or
any Bank.
2.10.10 COMPARABLE TREATMENT OF THE AGENT UNDER OVERDRAFT
REIMBURSEMENT AGREEMENT AND LETTERS OF CREDIT.
All of the rights given to the Agent under Sections
2.10.6 through 2.10.9 above relating to Letters of Credit issued by the Agent
hereunder shall apply in a comparable manner and shall be given to the Agent
relating to the Overdraft Reimbursement Agreement and each reference in such
Section to a Letter of Credit or Letters of Credit shall be deemed to refer also
to the Overdraft Reimbursement Agreement.
2.11 EXTENSION BY BANKS OF THE EXPIRATION DATE.
Upon or promptly after delivery by the Borrower of the annual
financial statements to be provided under Section 8.3.2 [Annual Financial
Statements] for the fiscal year ending December 31, 1998 or any subsequent
fiscal year, the Borrower may request a one-year extension of the Expiration
Date by written notice to the Banks, and the Banks agree to respond to the
Borrower's request for an extension by the later of sixty (60) days following
receipt of the request or May 31 of such year; provided, however, that the
failure of any Bank to respond within such time period shall not in any manner
constitute an agreement by such Bank to extend the Expiration Date. If all Banks
elect to extend, the Expiration Date shall be extended for a period of one year.
3. COLLATERAL
Each of the Loan Parties shall grant first priority Liens in their assets
(including capital stock of each of the Loan Parties but excluding all real
property, all stock of the Inactive Subsidiaries, and any immaterial assets of
the Inactive Subsidiaries) pursuant to the Patent, Trademark and Copyright
Security Agreement, the Security Agreement and the Pledge Agreement. Any
Subsidiaries of the Borrower formed after the date hereof shall guaranty the
Obligations of the Loan Parties hereunder pursuant to a Guaranty Agreement as
more fully provided in Sections 8.2.9 and 11.18. Each of the Loan Parties and
Lone Star Technologies shall execute and deliver to the Agent for the benefit of
the Banks the Intercompany Subordination Agreement as provided in Section 7.1.3.
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4. INTEREST RATES
4.1 INTEREST RATE OPTIONS.
The Borrower shall pay interest in respect of the outstanding unpaid
principal amount of the Loans as selected by it from the Base Rate Option or
Euro-Rate Option set forth below applicable to the Loans, it being understood
that, subject to the provisions of this Agreement, the Borrower may select
different Interest Rate Options and different Interest Periods to apply
simultaneously to the Loans comprising different Borrowing Tranches and may
convert to or renew one or more Interest Rate Options with respect to all or any
portion of the Loans comprising any Borrowing Tranche, PROVIDED that there shall
not be at any one time outstanding more than Six (6) Borrowing Tranches in the
aggregate among all of the Loans, and PROVIDED FURTHER that only the Base Rate
Option shall apply to the Swing Loans. If at any time the designated rate
applicable to any Loan made by any Bank exceeds such Bank's highest lawful rate
(i.e., the highest rate such Bank is permitted to charge to the Borrower, taking
into account all applicable Laws), the rate of interest on such Bank's Loan
shall be limited to such Bank's highest lawful rate.
4.1.1 RATE OPTIONS.
The Borrower shall have the right to select from the
following Interest Rate Options applicable to the Revolving Credit Loans
(subject to the provisions above regarding Swing Loans):
(i) REVOLVING CREDIT BASE RATE OPTION: A
fluctuating rate per annum (computed on the basis of a year of 365 or 366 days,
as the case may be, and actual days elapsed) equal to the Base Rate plus the
Applicable Margin, such interest rate to change automatically from time to time
effective as of the effective date of each change in the Base Rate; or
(ii) REVOLVING CREDIT EURO-RATE OPTION: A rate per
annum (computed on the basis of a year of 360 days and actual days elapsed)
equal to the Euro-Rate plus the Applicable Margin.
4.1.2 RATE QUOTATIONS.
The Borrower may call the Agent on or before the date
on which a Loan Request is to be delivered to receive an indication of the rates
then in effect, but it is acknowledged that such projection shall not be binding
on the Agent or the Banks nor affect the rate of interest which thereafter is
actually in effect when the election is made.
4.2 INTEREST PERIODS.
At any time when the Borrower shall select, convert to or renew a
Euro-Rate Option, the Borrower shall notify the Agent thereof at least three (3)
Business Days prior to the effective date of such Euro-Rate Option by delivering
a Loan Request. The notice shall specify
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an interest period (the "Interest Period") during which such Interest Rate
Option shall apply, such Interest Period to be one, two, three or six Months
if Borrower selects the Euro-Rate Option. Notwithstanding the preceding
sentence, the following provisions shall apply to any selection of, renewal
of, or conversion to a Euro-Rate Option:
4.2.1 ENDING DATE AND BUSINESS DAY.
any Interest Period which would otherwise end on a date
which is not a Business Day shall be extended to the next succeeding Business
Day unless such Business Day falls in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day;
4.2.2 AMOUNT OF BORROWING TRANCHE.
each Borrowing Tranche of Euro-Rate Loans shall be in
integral multiples of $500,000 and not less than $1,000,000
4.2.3 TERMINATION BEFORE EXPIRATION DATE.
the Borrower shall not select, convert to or renew an
Interest Period for any portion of the Loans that would end after the Expiration
Date; and
4.2.4 RENEWALS.
in the case of the renewal of a Euro-Rate Option at the
end of an Interest Period, the first day of the new Interest Period shall be the
last day of the preceding Interest Period, without duplication in payment of
interest for such day.
4.3 INTEREST AFTER DEFAULT.
To the extent permitted by Law, upon the occurrence of an Event of
Default and until such time as such Event of Default shall have been cured or
waived:
4.3.1 LETTER OF CREDIT FEES. INTEREST RATE.
the Letter of Credit Fees and the rate of interest for
each Loan otherwise applicable pursuant to Section 2.10.2 [Letter of Credit
Fees] or Section 4.1 [Interest Rate Options], respectively, shall be increased
by 2.0% per annum; and
4.3.2 OTHER OBLIGATIONS.
each other Obligation hereunder if not paid when due
shall bear interest at a rate per annum equal to the sum of the rate of interest
applicable under the Base Rate Option plus an additional 2.0% per annum from the
time such Obligation becomes due and payable and until it is paid in full.
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4.3.3 ACKNOWLEDGMENT.
The Borrower acknowledges that the increase in rates
referred to in this Section 4.3 reflects, among other things, the fact that such
Loans or other amounts have become a substantially greater risk given their
default status and that the Banks are entitled to additional compensation for
such risk; and all such interest shall be payable by Borrower upon demand by
Agent.
4.4 EURO-RATE UNASCERTAINABLE; ILLEGALITY; INCREASED COSTS; DEPOSITS
NOT AVAILABLE.
4.4.1 UNASCERTAINABLE.
If on any date on which a Euro-Rate would otherwise be
determined, the Agent shall have determined that:
(i) adequate and reasonable means do not exist
for ascertaining such Euro-Rate, or
(ii) a contingency has occurred which materially
and adversely affects the London interbank eurodollar market relating to the
Euro-Rate, the Agent shall have the rights specified in Section 4.4.3.
4.4.2 ILLEGALITY; INCREASED COSTS; DEPOSITS NOT
AVAILABLE.
If at any time any Bank shall have determined that:
(i) the making, maintenance or funding of any
Loan to which a Euro-Rate Option applies has been made impracticable or unlawful
by compliance by such Bank in good faith with any Law or any interpretation or
application thereof by any Official Body or with any request or directive of any
such Official Body (whether or not having the force of Law), or
(ii) such Euro-Rate Option will not adequately and
fairly reflect the cost to such Bank of the establishment or maintenance of any
such Loan, or
(iii) after making all reasonable efforts,
deposits of the relevant amount in Dollars for the relevant Interest Period for
a Loan to which a Euro-Rate Option applies, respectively, are not available to
such Bank with respect to such Loan, in the London interbank market,
then the Agent shall have the rights specified in Section 4.4.3.
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4.4.3 AGENT'S AND BANK'S RIGHTS.
In the case of any event specified in Section 4.4.1
above, the Agent shall promptly so notify the Banks and the Borrower thereof,
and in the case of an event specified in Section 4.4.2 above, such Bank shall
promptly so notify the Agent and endorse a certificate to such notice as to the
specific circumstances of such notice, and the Agent shall promptly send copies
of such notice and certificate to the other Banks and the Borrower. Upon such
date as shall be specified in such notice (which shall not be earlier than the
date such notice is given), the obligation of (A) the Banks, in the case of such
notice given by the Agent, or (B) such Bank, in the case of such notice given by
such Bank, to allow the Borrower to select, convert to or renew a Euro-Rate
Option shall be suspended until the Agent shall have later notified the
Borrower, or such Bank shall have later notified the Agent, of the Agent's or
such Bank's, as the case may be, determination that the circumstances giving
rise to such previous determination no longer exist. If at any time the Agent
makes a determination under Section 4.4.1 and the Borrower has previously
notified the Agent of its selection of conversion to or renewal of a Euro-Rate
Option and such Interest Rate Option has not yet gone into effect, such
notification shall be deemed to provide for selection of, conversion to or
renewal of the Base Rate Option otherwise available with respect to such Loans.
If any Bank notifies the Agent of a determination under Section 4.4.2, the
Borrower shall, subject to the Borrower's indemnification Obligations under
Section 5.5.2 [Indemnity], as to any Loan of the Bank to which a Euro-Rate
Option applies, on the date specified in such notice either convert such Loan to
the Base Rate Option otherwise available with respect to such Loan, or prepay
such Loan in accordance with Section 5.4 [Voluntary Prepayments]. Absent due
notice from the Borrower of conversion or prepayment, such Loan shall
automatically be converted to the Base Rate Option otherwise available with
respect to such Loan upon such specified date.
4.5 SELECTION OF INTEREST RATE OPTIONS.
If the Borrower fails to select a new Interest Period to apply to any
Borrowing Tranche of Loans under the Euro-Rate Option at the expiration of an
existing Interest Period applicable to such Borrowing Tranche in accordance with
the provisions of Section 4.2 [Interest Periods], or if any such selection is
ineffective for any reason (including Borrower's inability to meet any of the
conditions described in Section 7.2), then the Borrower shall be deemed to have
converted such Borrowing Tranche to the Base Rate Option, as applicable,
commencing upon the last day of the existing Interest Period.
5. PAYMENTS
5.1 PAYMENTS.
All payments and prepayments to be made in respect of principal,
interest, Commitment Fees, Letter of Credit Fees, Agent's Fee or other fees or
amounts due from the Borrower or any other Loan Party hereunder or under the
other Loan Documents shall be payable prior to 12:00 Noon, Pittsburgh time, on
the date when due without presentment, demand, protest
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or notice of any kind, all of which are hereby expressly waived by the
Borrower and each other Loan Party, and without set-off counterclaim or other
deduction of any nature, and an action therefor shall immediately accrue.
Such payments shall be made to the Agent at the Principal Office for the
account of PNC Bank with respect to the Swing Loans and for the ratable
accounts of the Banks with respect to the Revolving Credit Loans or
Reimbursement Obligations in U.S. Dollars and in immediately available funds,
and the Agent shall promptly distribute such amounts to the Banks in
immediately available funds, PROVIDED that in the event payments are received
by 11:00 a.m., Pittsburgh time, by the Agent with respect to the Loans and
such payments are not distributed to the Banks on the same day received by
the Agent, the Agent shall pay the Banks the Federal Funds Effective Rate
with respect to the amount of such payments for each day held by the Agent
and not distributed to the Banks. The Agent's and each Bank's statement of
account, ledger or other relevant record shall be prima facia evidence of the
amount of principal of and interest on the Loans and other amounts owing
under this Agreement.
5.2 PRO RATA TREATMENT OF BANKS.
Each borrowing shall be allocated to each Bank according to its
Ratable Share, and each selection of, conversion to or renewal of any Interest
Rate Option and each payment or prepayment by the Borrower with respect to
principal, interest, Commitment Fees, Letter of Credit Fees, or other fees
(except for the Agent's Fee) or amounts due from the Borrower hereunder to the
Banks with respect to the Loans, shall (except as provided in Section 4.4.3
[Agent's and Bank's Rights] in the case of an event specified in Section 4.4
[Euro-Rate Unascertainable, Etc.], 5.4.2 [Replacement of a Bank] or 5.5
[Additional Compensation in Certain Circumstances]) be made in proportion to the
applicable Loans outstanding from each Bank and, if no such Loans are then
outstanding, in proportion to the Ratable Share of each Bank. Notwithstanding
any of the foregoing, each borrowing or payment or prepayment by the Borrower of
principal, interest, fees or other amounts from the Borrower with respect to
Swing Loans shall be made by or to PNC Bank according to Section 2.
5.3 INTEREST PAYMENT DATES.
Interest on Loans to which the Base Rate Option applies shall be due
and payable in arrears on the first Business Day of each October, January, April
and July after the date hereof and on the Expiration Date or upon acceleration
of the Notes. Interest on Loans to which the Euro-Rate Option applies shall be
due and payable on the last day of each Interest Period for those Loans and, if
such Interest Period is longer than three (3) Months, also on the 90th day of
such Interest Period. Interest on the principal amount of each Loan or other
monetary Obligation shall be due and payable on demand after such principal
amount or other monetary Obligation becomes due and payable (whether on the
stated maturity date, upon acceleration or otherwise).
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5.4 VOLUNTARY PREPAYMENTS.
5.4.1 RIGHT TO PREPAY.
The Borrower shall have the right at its option from
time to time to prepay the Loans in whole or part without premium or penalty
(except as provided in Section 5.4.2 below or in Section 5.5 [Additional
Compensation in Certain Circumstances]):
(i) at any time with respect to any Loan to which
the Base Rate Option applies,
(ii) on the last day of the applicable Interest
Period with respect to Loans to which a Euro-Rate Option applies,
(iii) on the date specified in a notice by any
Bank pursuant to Section 4.4 [Euro-Rate Unascertainable, Etc.] with respect to
any Loan to which a Euro-Rate Option applies.
Whenever the Borrower desires to prepay any part of the
Loans, it shall provide a prepayment notice to the Agent by 1:00 p.m. at least
one (1) Business Day prior to the date of prepayment of the Revolving Credit
Loans or no later than Noon, Pittsburgh time, on the date of prepayment of Swing
Loans, setting forth the following information:
(x) the date, which shall be a Business Day, on which the
proposed prepayment is to be made;
(y) a statement indicating the application of the prepayment
between the Swing Loans and Revolving Credit Loans; and
(z) the total principal amount of such prepayment, which shall
not be less than $100,000 for any Swing Loan, $100,000 for any
Revolving Credit Loan to which the Base Rate Option applies or
$500,000 for any Revolving Credit Loan to which the Euro-Rate Option
applies.
All prepayment notices shall be irrevocable. The principal amount
of the Loans for which a prepayment notice is given, together with interest on
such principal amount except with respect to Loans to which the Base Rate Option
applies, shall be due and payable on the date specified in such prepayment
notice as the date on which the proposed prepayment is to be made. Except as
provided in Section 4.4.3 [Agent's and Bank's Rights], if the Borrower prepays a
Loan but fails to specify the applicable Borrowing Tranche which the Borrower is
prepaying, the prepayment shall be applied first to Loans to which the Base Rate
Option applies, then to Dollar Loans to which the Euro-Rate Option applies. Any
prepayment hereunder shall be subject to the Borrower's Obligation to indemnify
the Banks under Section 5.5.2 [Indemnity].
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5.4.2 REPLACEMENT OF A BANK.
In the event any Bank (i) gives notice under Section
4.4 [Euro-Rate Unascertainable, Etc.] or Section 5.5.1 [Increased Costs, Etc.],
(ii) does not fund Revolving Credit Loans because the making of such Loans would
contravene any Law applicable to such Bank, (iii) does not approve any action as
to which consent of the Required Banks is requested by the Borrower and obtained
hereunder, or (iv) becomes subject to the control of an Official Body (other
than normal and customary supervision), then the Borrower shall have the right
at its option, with the consent of the Agent, which shall not be unreasonably
withheld, to prepay the Loans of such Bank in whole, together with all interest
accrued thereon, and terminate such Bank's Commitment within ninety (90) days
after (w) receipt of such Bank's notice under Section 4.4 [Euro-Rate
Unascertainable, Etc.] or Section 5.5.1 [Increased Costs, Etc.], (x) the date
such Bank has failed to fund Revolving Credit Loans because the making of such
Loans would contravene Law applicable to such Bank, (y) the date of obtaining
the consent which such Bank has not approved, or (z) the date such Bank became
subject to the control of an Official Body, as applicable; PROVIDED that the
Borrower shall also pay to such Bank at the time of such prepayment any amounts
required under Section 5.5 [Additional Compensation in Certain Circumstances]
and any accrued interest due on such amount and any related fees; PROVIDED,
however, that the Commitment of such Bank shall be provided by one or more of
the remaining Banks or a replacement bank acceptable to the Agent; PROVIDED,
further, the remaining Banks shall have no obligation hereunder to increase
their Commitments. Notwithstanding the foregoing, the Agent may only be replaced
subject to the requirements of Section 10. 14 [Successor Agent] and PROVIDED
that all Letters of Credit have expired or been terminated or replaced.
5.4.3 CHANGE OF LENDING OFFICE.
Each Bank agrees that upon the occurrence of any event
giving rise to increased costs or other special payments under Section 4.4.2
[Illegality, Etc.] or Section 5.5.1 [Increased Costs, Etc.] with respect to such
Bank, it will if requested by the Borrower, use reasonable efforts (subject to
overall policy considerations of such Bank) to designate another lending office
for any Loans or Letters of Credit affected by such event, PROVIDED that such
designation is made on such terms that such Bank and its lending office suffer
no economic, legal or regulatory disadvantage, with the object of avoiding the
consequence of the event giving rise to the operation of such Section. Nothing
in this Section 5.4.3 shall affect or postpone any of the Obligations of the
Borrower or any other Loan Party or the rights of the Agent or any Bank provided
in this Agreement.
5.5 ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES.
5.5.1 INCREASED COSTS OR REDUCED RETURN RESULTING FROM
TAXES, RESERVES, CAPITAL ADEQUACY REQUIREMENTS, EXPENSES, ETC.
If any Law, guideline or interpretation or any change
in any Law, guideline or interpretation or application thereof by any Official
Body charged with the
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interpretation or administration thereof or compliance with any request or
directive (whether or not having the force of Law) of any central bank or
other Official Body:
(i) subjects any Bank to any tax or changes the
basis of taxation with respect to this Agreement, the Notes, the Loans or
payments by the Borrower of principal, interest, Commitment Fees, or other
amounts due from the Borrower hereunder or under the Notes (except for taxes on
the overall net income of such Bank([including taxes referred to in the last
sentence of Section 11.17])),
(ii) imposes, modifies or deems applicable any
reserve, special deposit or similar requirement against credits or commitments
to extend credit extended by, or assets (funded or contingent) of, deposits with
or for the account of, or other acquisitions of funds by, any Bank, or
(iii) imposes, modifies or deems applicable any
capital adequacy or similar requirement (A) against assets (funded or
contingent) of, or letters of credit, other credits or commitments to extend
credit extended by, any Bank, or (B) otherwise applicable to the obligations of
any Bank under this Agreement, and the result of any of the foregoing is to
increase the cost to, reduce the income receivable by, or impose any additional
expense (including loss of margin) upon any Bank with respect to this Agreement,
the Notes or the making, maintenance or funding of any part of the Loans (or, in
the case of any capital adequacy or similar requirement, to have the effect of
reducing the rate of return on any Bank's capital, taking into consideration
such Bank's customary policies with respect to capital adequacy) by an amount
which such Bank in its sole discretion deems to be material, such Bank shall
from time to time notify the Borrower and the Agent of the amount determined
reasonably and in good faith (using any reasonable averaging and attribution
methods employed in good faith) by such Bank to be necessary to compensate such
Bank for such increase in cost, reduction of income, additional expense or
reduced rate of return. Such notice shall set forth in reasonable detail the
basis for such determination. Such amount shall be due and payable by the
Borrower to such Bank ten (10) Business Days after such notice is given.
5.5.2 INDEMNITY.
In addition to the compensation required by Section
5.5.1 [Increased Costs, Etc.], the Borrower shall indemnify each Bank against
all liabilities, losses or expenses (including loss of margin, any loss or
expense incurred in liquidating or employing deposits from third parties and any
loss or expense incurred in connection with funds acquired by a Bank to fund or
maintain Loans subject to a Euro-Rate Option) which such Bank sustains or incurs
as a consequence of any
(i) payment, prepayment, conversion or renewal of
any Loan to which a Euro-Rate Option applies on a day other than the last day of
the corresponding Interest Period (whether or not such payment or prepayment is
mandatory, voluntary or automatic and whether or not such payment or prepayment
is then due),
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(ii) attempt by the Borrower to revoke (expressly,
by later inconsistent notices or otherwise) in whole or part any Loan Requests
under Section 2.4 [Revolving Credit Loan Requests] or Section 4.2 [Interest
Periods] or notice relating to prepayments under Section 5.4 [Voluntary
Prepayments], or
(iii) default by the Borrower in the performance
or observance of any covenant or condition contained in this Agreement or any
other Loan Document, including any failure of the Borrower to pay when due (by
acceleration or otherwise) any principal, interest, Commitment Fee or any other
amount due hereunder.
If any Bank sustains or incurs any such loss or
expense, it shall from time to time notify the Borrower of the amount determined
reasonably and in good faith by such Bank (which determination may include any
reasonably assumptions, allocations of costs and expenses and averaging or
attribution methods as such Bank shall elect) to be necessary to indemnify such
Bank for such loss or expense. Such notice shall set forth in reasonable detail
the basis for such determination. Such amount shall be due and payable by the
Borrower to such Bank ten (10) Business Days after such notice is given.
5.6 SETTLEMENT DATE PROCEDURES.
In order to minimize the transfer of funds between the Banks and the
Agent, the Borrower may borrow, repay and reborrow Swing Loans and PNC Bank may
make Swing Loans as provided in Section 2.1.2 hereof. Not later than 10:00 am,
Pittsburgh time, on each Settlement Date, the Agent shall notify each Bank of
its Ratable Share of the total of the Revolving Credit Loans and the Swing Loans
(each a "Required Share"). The Agent shall also effect settlement of the Swing
Loans in accordance with the foregoing sentence on the proposed Borrowing Dates
for Revolving Credit Loans and on any mandatory prepayment dates and may at its
option effect settlement on any other Business Day (each a" Settlement Date").
On each Settlement Date, (i) the Borrower may in its discretion repay all
outstanding Swing Loans, or (ii) if the Borrower does not repay all outstanding
Swing Loans the Agent shall notify each Bank of its Ratable Share of the Swing
Loans (each a "Required Share"). On such Settlement Date, the Borrower shall be
deemed to borrow from the Banks Revolving Credit Loans under the Base Rate
Option equal to the outstanding Swing Loans and simultaneously making payment of
the proceeds thereof in repayment of the Swing Loans. Prior to 12:00 Noon,
Pittsburgh time on such Settlement Date, each Bank shall fund its Required Share
of the Revolving Credit Loans referred to in the preceding sentence by making
payment thereof to the Agent. These settlement procedures are established solely
as a matter of administrative convenience, and nothing contained in this Section
5.6 shall relieve the Banks of their obligations to fund other Revolving Credit
Loans on dates other than a Settlement Date pursuant to Section 2.1.2. The
Agent may at any time at its option for any reason whatsoever require each Bank
to pay immediately to the Agent such Bank's Ratable Share of the outstanding
Revolving Credit Loans and each Bank may at any time require the Agent to pay
immediately to such Bank its Ratable Share of all payments made by the Borrower
to the Agent with respect to the Revolving Credit Loans.
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6. REPRESENTATIONS AND WARRANTIES
6.1 REPRESENTATIONS AND WARRANTIES.
The Loan Parties, jointly and severally, represent and warrant to the
Agent and each of the Banks as follows:
6.1.1 ORGANIZATION AND QUALIFICATION.
Each Loan Party and each Subsidiary of the Borrower is
a corporation, partnership or limited liability company duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. Each Loan Party and each Subsidiary of the Borrower has the lawful
power to own or lease its properties and to engage in the business it presently
conducts or proposes to conduct. Each Loan Party and each Subsidiary of the
Borrower is duly licensed or qualified and in good standing in each jurisdiction
listed on SCHEDULE 6.1.1 and in all other jurisdictions where the property owned
or leased by it or the nature of the business transacted by it or both makes
such licensing or qualification necessary in order to prevent a Material Adverse
Change.
6.1.2 CAPITALIZATION AND OWNERSHIP.
Schedule 6.1.2(A) sets forth the authorized capital
stock of the Borrower including Borrower's common stock and Preferred Stock, and
the number of shares of such capital stock (referred to herein as the
"Borrower's Shares") which are issued and outstanding. All such Borrower's
Shares are owned by Lone Star Technologies as indicated on SCHEDULE 6.1.2(A).
All of the Borrower's Shares have been validly issued and are fully paid and
nonassessable. There are no options, warrants or other rights in favor of any
Person other than Lone Star Technologies outstanding to purchase the Borrower's
Shares except as indicated on SCHEDULE 6.1.2(B).
6.1.3 SUBSIDIARIES.
SCHEDULE 6.1.3(A) states the name of each of the
Borrower's Subsidiaries, its jurisdiction of incorporation, its authorized
capital stock, the issued and outstanding shares (referred to herein as the
"Subsidiary Shares") and the owners thereof if it is a corporation, its
outstanding partnership interests (the "Partnership Interests") if it is a
partnership and its outstanding limited liability company interests, interests
assigned to managers thereof and the voting rights associated therewith (the
"LLC Interests") if it is a limited liability company. The Borrower and each
Subsidiary of the Borrower has good and marketable title to all of the
Subsidiary Shares, Partnership Interests and LLC Interests it purports to own,
free and clear in each case of any Lien, other than statutory Permitted Liens.
All Subsidiary Shares, Partnership Interests and LLC Interests have been validly
issued, and all Subsidiary Shares are fully paid and nonassessable. All capital
contributions and other consideration required to be made or paid in connection
with the issuance of the Partnership Interests and LLC Interests have been made
or paid, as the case may be. There are no options, warrants or other rights
outstanding to purchase
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any such Subsidiary Shares, Partnership Interests or LLC Interests except as
indicated on SCHEDULE 6.1.3(B).
6.1.4 POWER AND AUTHORITY.
Each Loan Party has full power to enter into, execute,
deliver and carry out this Agreement and the other Loan Documents to which it is
a party, to incur the Indebtedness contemplated by the Loan Documents and to
perform its Obligations under the Loan Documents to which it is a party, and all
such actions have been duly authorized by all necessary proceedings on its part.
6.1.5 VALIDITY AND BINDING EFFECT.
This Agreement has been duly and validly executed and
delivered by each Loan Party, and each other Loan Document which any Loan Party
is required to execute and deliver on or after the date hereof will have been
duly executed and delivered by such Loan Party on the required date of delivery
of such Loan Document. This Agreement and each other Loan Document constitutes,
or when executed and delivered will constitute, legal, valid and binding
obligations of each Loan Party which is or will be a party thereto on and after
the date of delivery thereof, enforceable against such Loan Party in accordance
with its terms, except to the extent that enforceability of any of such Loan
Document may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforceability of creditors' rights generally
or by general principles of equity.
6.1.6 NO CONFLICT.
Neither the execution and delivery of this Agreement or
the other Loan Documents by any Loan Party nor the consummation of the
transactions herein or therein contemplated or compliance with the terms and
provisions hereof or thereof by any of them will in any material way conflict
with, constitute a default under or result in any breach of (i) the terms and
conditions of the certificate of incorporation, bylaws, certificate of limited
partnership, partnership agreement, certificate of formation, limited liability
company agreement or other organizational documents of any Loan Party or (ii)
any Law or any material agreement or instrument or order, writ, judgment,
injunction or decree to which any Loan Party or any of its Subsidiaries is a
party or by which it or any of its Subsidiaries is bound or to which it is
subject, or result in the creation or enforcement of any Lien, charge or
encumbrance whatsoever upon any property (now or hereafter acquired) of any Loan
Party or any of its Subsidiaries (other than Liens granted under the Loan
Documents).
6.1.7 LITIGATION.
Except as disclosed on Schedule 6.1.7, there are no
actions, suits, proceedings or investigations pending or, to the knowledge of
any Loan Party, threatened against such Loan Party or any Subsidiary of such
Loan Party at law or equity before any Official Body which individually or in
the aggregate may reasonably be expected to result in any Material
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Adverse Change. None of the Loan Parties or any Subsidiaries of any Loan
Party is in violation of any order, writ, injunction or any decree of any
Official Body which may reasonably be expected to result in any Material
Adverse Change.
6.1.8 TITLE TO PROPERTIES.
All real property owned or leased by each Loan Party and
each Subsidiary of each Loan Party is described on SCHEDULE 6.1.8(A). Each Loan
Party and each Subsidiary of each Loan Party has good and marketable title to or
valid leasehold interest in all material properties, assets and other rights
which it purports to own or lease or which are reflected as owned or leased on
its books and records, free and clear of all Liens and encumbrances except
Permitted Liens, and subject to the terms and conditions of the applicable
leases. Except as disclosed in SCHEDULE 6.1.8(B), all of the material leases of
real property are in full force and effect without the necessity for any consent
which has not previously been obtained upon consummation of the transactions
contemplated hereby.
6.1.9 FINANCIAL STATEMENTS.
(i) HISTORICAL STATEMENTS. The Borrower has delivered
to the Agent copies of its audited consolidated year-end financial statements
for and as of the end of the three fiscal years ended December 31, 1996 (the
"Annual Statements"). In addition, the Borrower has delivered to the Agent
copies of its unaudited consolidated interim financial statements for the fiscal
year to date and as of the end of the fiscal quarter ended June 30, 1997 (the
"Interim Statements") (the Annual and Interim Statements being collectively
referred to as the "Historical Statements"). The Historical Statements were
compiled from the books and records maintained by the Borrower's management, are
correct and complete and fairly represent the consolidated financial condition
of the Borrower and its Subsidiaries as of their dates and the results of
operations for the fiscal periods then ended and have been prepared in
accordance with GAAP consistently applied, subject (in the case of the Interim
Statements) to normal year-end audit adjustments.
(ii) ACCURACY OF FINANCIAL STATEMENTS. Neither the
Borrower nor any Subsidiary of the Borrower has any liabilities, contingent or
otherwise, or forward or long-term commitments required under GAAP to be
disclosed in the Historical Statements or in the notes thereto that are not so
disclosed, and except as disclosed therein there are no unrealized or
anticipated losses from any commitments of the Borrower or any Subsidiary of the
Borrower which may reasonably be expected to cause a Material Adverse Change.
Since December 31, 1996, no Material Adverse Change has occurred.
6.1.10 USE OF PROCEEDS; MARGIN STOCK; SECTION 20 SUBSIDIARIES.
6.1.10.1 GENERAL.
The Loan Parties intend to use the proceeds of the Loans in
accordance with Sections 2.8 and 8.1.10.
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6.1.10.2 MARGIN STOCK.
None of the Loan Parties or any Subsidiaries of any Loan Party
engages or intends to engage principally, or as one of its important activities,
in the business of extending credit for the purpose, immediately, incidentally
or ultimately, of purchasing or carrying margin stock (within the meaning of
Regulation U). No part of the proceeds of any Loan has been or will be used,
immediately, incidentally or ultimately, to purchase or carry any margin stock
or to extend credit to others for the purpose of purchasing or carrying any
margin stock or to refund Indebtedness originally incurred for such purpose, or
for any purpose which entails a violation of or which is inconsistent with the
provisions of Regulation U. None of the Loan Parties or any Subsidiary of any
Loan Party holds or intends to hold margin stock in such amounts that more than
25% of the reasonable value of the assets of any Loan Party or Subsidiary of any
Loan Party are or will be represented by margin stock.
6.1.10.3 SECTION 20 SUBSIDIARIES.
The Loan Parties do not intend to use and shall not use any
portion of the proceeds of the Loans, directly or indirectly (i) knowingly to
purchase any Ineligible Securities from a Section 20 Subsidiary during any
period in which such Section 20 Subsidiary makes a market in such Ineligible
Securities, (ii) knowingly to purchase during the underwriting or placement
period Ineligible Securities being underwritten or privately placed by a Section
20 Subsidiary, or (iii) to make payments of principal or interest on Ineligible
Securities underwritten or privately placed by as Section 20 Subsidiary and
issued by or for the benefit of any Loan Party or any Affiliate of any Loan
Party.
6.1.11 FULL DISCLOSURE.
Neither this Agreement nor any other Loan Document, nor any
certificate, statement, agreement or other documents furnished to the Agent or
any Bank in connection herewith or therewith, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which they were made, not misleading. There is no fact known to any Loan Party
which materially and adversely affects the business, property, assets, financial
condition or results of operations of the Loan Parties taken as a whole which
has not been set forth in this Agreement or in the certificates, statements,
agreements or other documents furnished in writing to the Agent and the Banks
prior to or at the date of the making of this representation in connection with
the transactions contemplated hereby.
6.1.12 TAXES.
Except as disclosed in Schedule 6.1.12, all federal, and all
material state, local and other, tax returns required to have been filed with
respect to each Loan Party and each Subsidiary of the Borrower have been filed,
and payment or adequate provision has been made for the payment of all material
taxes, fees, assessments and other governmental charges which have or may become
due pursuant to said returns or to assessments received (except to the
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extent that such taxes, fees, assessments and other charges are being
contested in good faith by appropriate proceedings diligently conducted and
for which such reserves or other appropriate provisions, if any, as shall be
required by GAAP shall have been made) and there are no agreements or waivers
extending the statutory period of limitations applicable to any federal
income tax return of any Loan Party or Subsidiary of any Loan Party for any
period.
6.1.13 CONSENTS AND APPROVALS.
Except for the filing of financing statements and the Patent
and Trademark Assignment in the applicable governmental filing offices, no
consent, approval, exemption, order or authorization of or a registration or
filing with, any Official Body or any other Person is required by any Law or any
agreement in connection with the execution, delivery and carrying out of this
Agreement and the other Loan Documents by any Loan Party, except as listed on
SCHEDULE 6.1.13, all of which shall have been obtained or made on or prior to
the Closing Date except as otherwise indicated on SCHEDULE 6.1.13.
6.1.14 NO EVENT OF DEFAULT: COMPLIANCE WITH INSTRUMENTS.
No event has occurred and is continuing and no condition
exists or will exist after giving effect to the borrowings or other extensions
of credit to be made on the Closing Date under or pursuant to the Loan Documents
which constitutes an Event of Default or Potential Default. None of the Loan
Parties or any Subsidiaries of any Loan Party is in violation of (i) any term of
its certificate of incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, limited liability company
agreement or other organizational documents or (ii) any agreement or instrument
to which it is a party or by which it or any of its properties may be subject or
bound where such violation would constitute a Material Adverse Change.
6.1.15 PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES, ETC.
Each Loan Party and each Subsidiary of the Borrower owns or
possesses all the material patents, trademarks, service marks, trade names,
copyrights, licenses, registrations, franchises, permits and rights necessary to
own and operate its properties and to carry on its business as presently
conducted and planned to be conducted by such Loan Party or Subsidiary, without
known conflict with the rights of others, except as may be disclosed in SCHEDULE
6.1.15(A). All material patents, trademarks, service marks, trade names,
copyrights, licenses, registrations, franchises and permits of each Loan Party
and each Subsidiary of the Borrower are listed and described on SCHEDULE
6.1.15(B).
6.1.16 SECURITY INTERESTS.
Upon completion of the filing and other steps described in the
following sentence, the Liens and security interests granted to the Agent for
the benefit of the Banks pursuant to the Patent, Trademark and Copyright
Security Agreement, the Pledge Agreement and the Security Agreement in the
Collateral will constitute Prior Security Interests
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under the Uniform Commercial Code as in effect in each applicable
jurisdiction (the "Uniform Commercial Code") or other applicable Law,
entitled to all the rights, benefits and priorities provided by the Uniform
Commercial Code or such Law. Upon the filing of financing statements relating
to said security interests in each office and in each jurisdiction where
required in order to perfect the security interests described above, taking
possession of any stock certificates or other certificates evidencing the
Pledged Collateral and recordation of the Patent, Trademark and Copyright
Security Agreement in the United States Patent and Trademark Office and
United States Copyright Office, as applicable, all such action as is
necessary or advisable to establish such rights of the Agent will have been
taken, and there will be upon execution and delivery of the Patent, Trademark
and Copyright Security Agreement, the Pledge Agreement and the Security
Agreement, such filings and such taking of possession, no necessity for any
further action in order to preserve, protect and continue such rights, except
the filing of continuation statements with respect to such financing
statements within six months prior to each five-year anniversary of the
filing of such financing statements. All filing fees and other expenses in
connection with each such action have been or will be paid by the Borrower.
6.1.17 STATUS OF THE PLEDGED COLLATERAL.
All the shares of capital stock, Partnership Interests or
LLC Interests included in the Pledged Collateral pledged to the Agent for the
benefit of the Banks are, or will be upon issuance, validly issued and
nonassessable and owned beneficially and of record by the pledgor free and clear
of any Lien (other than statutory Permitted Liens) or restriction on transfer,
except as otherwise provided by the Pledge Agreement and except as the right of
the Banks to dispose of the shares, Partnership Interests or LLC Interests may
be limited by the Securities Act of 1933, as amended, and the regulations
promulgated by the Securities and Exchange Commission thereunder and by
applicable state securities laws. There are no shareholder, partnership, limited
liability company or other agreements or understandings with respect to the
shares of capital stock, Partnership Interests or LLC Interests included in the
Pledged Collateral except for the partnership agreements and limited liability
company agreements described on SCHEDULE 6.1.17. The Loan Parties have
delivered true and correct copies of such partnership agreements and limited
liability company agreements to the Agent.
6.1.18 INSURANCE.
SCHEDULE 6.1.18(A) lists all insurance policies to which any
Loan Party or Subsidiary of any Loan Party is a party, all of which are valid
and in full force and effect. No notice has been given or claim made and no
grounds exist to cancel or avoid any of such policies or to reduce the coverage
provided thereby. Except as disclosed in SCHEDULE 6.1.18(B), such policies
provide adequate coverage from reputable and financially sound insurers in
amounts sufficient to insure the assets and risks of each Loan Party and each
Subsidiary of the Borrower in accordance with prudent business practice in the
industry of the Loan Parties and their Subsidiaries.
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6.1.19 COMPLIANCE WITH LAWS.
The Loan Parties and their Subsidiaries are in compliance in
all material respects with all applicable Laws (other than Environmental Laws
which are specifically addressed in Section 6.1.24 [Environmental Matters]) in
all jurisdictions in which any Loan Party or Subsidiary of any Loan Party is
presently or will be doing business except where the failure to do so would not
constitute a Material Adverse Change.
6.1.20 MATERIAL CONTRACTS; BURDENSOME RESTRICTIONS.
SCHEDULE 6.1.20 lists all material contracts relating to the
business operations of each Loan Party and each Subsidiary of the Borrower,
including all employee benefit plans and written Labor Contracts with ten or
more employees or with key managers. All such material contracts are valid,
binding and enforceable upon such Loan Party or Subsidiary and each of the other
parties thereto in accordance with their respective terms, and there is no
default thereunder, to the Loan Parties' knowledge, with respect to parties
other than such Loan Party or Subsidiary except in each case for matters which
do not constitute a Material Adverse Change. None of the Loan Parties or their
Subsidiaries is bound by any contractual obligation, or subject to any
restriction in any organization document, or any requirement of Law which could
result in a Material Adverse Change.
6.1.21 INVESTMENT COMPANIES; REGULATED ENTITIES.
None of the Loan Parties or any Subsidiaries of any Loan
Party is an "investment company" registered or required to be registered under
the Investment Company Act of 1940 or under the "control" of an "investment
company" as such terms are defined in the Investment Company Act of 1940 and
shall not become such an "investment company" or under such "control." None of
the Loan Parties or any Subsidiaries of any Loan Party is subject to any other
Federal or state statute or regulation limiting its ability to incur
Indebtedness for borrowed money.
6.1.22 PLANS AND BENEFIT ARRANGEMENTS.
Except as set forth on SCHEDULE 6.1.22:
(i) The Borrower and each other member of the ERISA Group
are in compliance in all material respects with any applicable provisions of
ERISA with respect to all Benefit Arrangements, Plans and Multiemployer Plans.
There has been no Prohibited Transaction with respect to any Benefit Arrangement
or any Plan or, to the best knowledge of the Borrower, with respect to any
Multiemployer Plan or Multiple Employer Plan, which could result in any material
liability of the Borrower or any other member of the ERISA Group. The Borrower
and all other members of the ERISA Group have made when due any and all payments
required to be made under any agreement relating to a Multiemployer Plan or a
Multiple Employer Plan or any Law pertaining thereto. With respect to each Plan
and Multiemployer Plan, the Borrower and each other member of the ERISA Group
(i) have fulfilled
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in all material respects their obligations under the minimum funding
standards of ERISA, (ii) have not incurred any material liability to the PBGC
other than for premium payments, and (iii) do not currently have asserted
against them or currently owe any penalty for failure to fulfill the minimum
funding requirements of ERISA.
(ii) To the best of the Borrower's knowledge, each Multi
employer Plan and Multiple Employer Plan is able to pay benefits thereunder when
due.
(iii) Neither the Borrower nor any other member of the
ERISA Group has instituted or intends to institute proceedings to terminate any
Plan.
(iv) No event requiring notice to the PBGC under Section
302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur with
respect to any Plan, and no amendment with respect to which security is required
under Section 307 of ERISA has been made or is reasonably expected to be made to
any Plan.
(v) Neither the Borrower nor any other member of the ERISA
Group has incurred or reasonably expects to incur any material withdrawal
liability under ERISA to any Multiemployer Plan or Multiple Employer Plan.
Neither the Borrower nor any other member of the ERISA Group has been notified
by any Multiemployer Plan or Multiple Employer Plan that such Multiemployer Plan
or Multiple Employer Plan has been terminated within the meaning of Title IV of
ERISA and, to the best knowledge of the Borrower, no Multiemployer Plan or
Multiple Employer Plan is reasonably expected to be reorganized or terminated,
within the meaning of Title IV of ERISA.
(vi) To the extent that any Benefit Arrangement is insured,
the Borrower and all other members of the ERISA Group have paid when due all
premiums required to be paid for all periods through the Closing Date. To the
extent that any Benefit Arrangement is funded other than with insurance, the
Borrower and all other members of the ERISA Group have made when due all
contributions required to be paid for all periods through the Closing Date.
(vii) All Plans, Benefit Arrangements and Multiemployer
Plans have been administered in material accordance with their terms and
applicable Law.
6.1.23 EMPLOYMENT MATTERS.
Each of the Loan Parties and each of their Subsidiaries is
in compliance with the Labor Contracts and all applicable federal, state and
local labor and employment Laws including those related to equal employment
opportunity and affirmative action, labor relations, minimum wage, overtime,
child labor, medical insurance continuation, worker adjustment and relocation
notices, immigration controls and worker and unemployment compensation, where
the failure to comply would constitute a Material Adverse Change. There are no
outstanding grievances, arbitration awards or appeals therefrom arising out of
the Labor Contracts or current or threatened strikes, picketing, handbilling or
other work stoppages or
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slowdowns at facilities of any of the Loan Parties or any of their
Subsidiaries which in any case would constitute a Material Adverse Change.
The Borrower has delivered to the Agent true and correct copies of each of
the written Labor Contracts with ten or more employees or with key managers.
6.1.24 ENVIRONMENTAL MATTERS.
Except as disclosed on SCHEDULE 6.1.24:
(i) None of the Loan Parties or any Subsidiaries of any
Loan Party has received any Environmental Complaint from any Official Body or
private Person alleging that such Loan Party or Subsidiary or any prior owner of
any of the Property is currently a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 ET SEQ., or any other federal or state list of environmentally
problematic sites under which any Loan Party may be required to undertake
remedial activities pursuant to applicable Environmental Laws and none of the
Loan Parties has any reason to believe that such an Environmental Complaint
might be received with respect to one or more matters which might reasonably be
expected to require them to make material expenditures for unbudgeted
remediation of environmental conditions during the term of this Agreement. There
are no pending or, to any Loan Party's knowledge, threatened Environmental
Complaints relating to any Loan Party or Subsidiary of any Loan Party or, to any
Loan Party's knowledge, any prior owner of any of the Property pertaining to, or
arising out of, any Environmental Conditions with respect to one or more matters
which might reasonably be expected to require them to make material expenditures
for unbudgeted remediation of environmental conditions during the term of this
Agreement.
(ii) There are no known circumstances at, on or under any of
the Property that constitute a material breach of or material non-compliance
with any Environmental Laws, and there are no known past or present
Environmental Conditions at, on or under any of the Property or, to any Loan
Party's knowledge, at, on or under adjacent property, that prevent material
compliance with the Environmental Laws at any of the Property except for those
matters, if any, which are being addressed under the supervision of an Official
Body with jurisdiction over such matters.
(iii) Neither any of the Property nor any structures,
improvements, equipment, fixtures, activities or facilities thereon or
thereunder contain or use Regulated Substances except in material compliance
with Environmental Laws. There are no processes, facilities, operations,
equipment or other activities at, on or under any of the Property, or, to any
Loan Party's knowledge, at, on or under adjacent property, that currently result
in the release or threatened release of Regulated Substances onto any of the
Property, except to the extent that such releases or threatened releases are not
a material breach of or otherwise not a material violation of the Environmental
Laws and except for those matters, if any, which are being addressed under the
supervision of an Official Body with jurisdiction over such matters.
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(iv) There are no aboveground storage tanks, underground
storage tanks or underground piping associated with such tanks, used for the
management of Regulated Substances at, on or under any of the Property that (a)
do not have, to the extent required by Environmental Laws, a full operational
secondary containment system in place, and (b) are not otherwise in material
compliance with all Environmental Laws. There are no abandoned underground
storage tanks or underground piping associated with such tanks known to the Loan
Parties and previously used for the management of Regulated Substances at, on or
under any of the Property that have not either been closed in place in material
accordance with Environmental Laws or removed in material compliance with all
applicable Environmental Laws and no known contamination associated with the use
of such tanks exists on any of the Property that is not in material compliance
with Environmental Laws.
(v) Each Loan Party and each Subsidiary of any Loan Party
has all material permits, licenses, authorizations, plans and approvals
necessary under the Environmental Laws for the conduct of the business of such
Loan Party or Subsidiary as presently conducted. Each Loan Party and each
Subsidiary of any Loan Party has submitted all material notices, reports and
other filings required by the Environmental Laws to be submitted to an Official
Body which pertain to current operations on any of the Property.
(vi) All present and to any Loan Party's knowledge all past
on-site generation, storage, processing, treatment, recycling, reclamation,
disposal or other use or management of Regulated Substances at, on, or under any
of the Property and all off-site transportation, storage, processing, treatment,
recycling, reclamation, disposal or other use or management of Regulated
Substances to the extent done by the Loan Parties, have been done in material
compliance with Environmental Laws; and to the extent done by other Persons on
behalf of the Loan Parties, the Loan Parties have no actual knowledge that such
activities have not been done by such other Persons in material accordance with
the Environmental Laws.
For purposes of this Section 6.1.24 with respect to any fines, penalties
or remediation activities (other than those identified in the Loan Party's
most recent budget as submitted to the Agent and the Banks during the fall of
each year) the term "material" shall mean in the aggregate any events or
occurrences which either result in the actual expenditure of funds by any
Loan Party or based upon reasonably determined cost estimates are likely to
result in the expenditure of funds by any Loan Party in excess of $1,000,0000
within a single calendar year.
6.1.25 SENIOR DEBT STATUS.
The Obligations of each Loan Party under this
Agreement, the Notes, the Guaranty Agreement and each of the other Loan
Documents to which it is a party do rank and will rank at least PARI PASSU in
priority of payment with all other Indebtedness of such Loan Party except
Indebtedness of such Loan Party to the extent secured by Permitted Liens. There
is no Lien upon or with respect to any of the properties or income of any Loan
Party or Subsidiary of any Loan Party which secures indebtedness or other
obligations of any Person except for Permitted Liens.
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6.2 UPDATES TO SCHEDULES.
Should any of the information or disclosures on any of the following
Schedules attached hereto be outdated or incorrect in any material respect as
of the date on which Borrower delivers its compliance certificate for each
fiscal quarter end pursuant to Section 8.3.3. Borrower shall deliver an
amended and restated form of such Schedule together with such compliance
certificate:
Schedule 6.1.1 - Qualifications to do Business
Schedule 6.1.2(A) - Capitalization (List)
Schedule 6.1.3(A) - Subsidiaries (List)
Schedule 6.1.8(A) - Owned and Leased Real Property (List)
Schedule 6.1.15(B) - Patents, Trademarks, Copyrights, Licenses, etc.
(List)
Schedule 6.1.17 - Patents, Trademarks, Copyrights, Licenses, etc.
Schedule 6.1.18(A) - Insurance Policies (List)
Schedule 6.1.20 - Material Contracts
Should any of the information or disclosures provided on any of the
Schedules listed below become outdated or incorrect in any material respect
at any time during the term of this Agreement, the Borrower shall promptly
provide the Agent in writing with such revisions or updates to such Schedule
as may be necessary or appropriate to update or correct same; PROVIDED,
however that no Schedule shall be deemed to have been amended, modified or
superseded by any such correction or update, nor shall any breach of warranty
or representation resulting from the inaccuracy or incompleteness of any such
Schedule be deemed to have been cured thereby, unless and until the Required
Banks, in their sole and absolute discretion, shall have accepted in writing
such revisions or updates to such Schedule:
Schedule 6.1.2(B) - Capitalization (Exception)
Schedule 6.1.3(B) - Subsidiaries (Exception)
Schedule 6.1.7 - Litigation
Schedule 6.1.8(B) - Owned and Leased Real Property (Exception)
Schedule 6.1.12 - Taxes
Schedule 6.1.13 - Consents and Approvals
Schedule6.1.15(A) - Patents, Trademarks, Copyrights, Licenses, etc.
(Exception)
Schedule 6.1.18(A) - Insurance Policies (Exception)
Schedule 6. 1.22 - Employee Benefit Plan Disclosures
Schedule 6. 1.24 - Environmental Disclosures
Should any of the information or disclosures provided on Schedule A to
the Security Agreement become outdated or incorrect at any time during the
term of this Agreement, the Borrower shall provide the Agent in writing with
such revision or update to such Schedule as may be necessary or appropriate
to update or correct same in accordance with Section 8.3.6(ii).
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7. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT
The obligation of each Bank to make Loans and of the Agent to issue
Letters of Credit hereunder is subject to the performance by each of the Loan
Parties of its Obligations to be performed hereunder at or prior to the
making of any such Loans or issuance of such Letters of Credit and to the
satisfaction of the following further conditions:
7.1 FIRST LOANS AND LETTERS OF CREDIT.
On the Closing Date:
7.1.1 OFFICER'S CERTIFICATE.
The representations and warranties of each of the
Loan Parties contained in Section 6 and in each of the other Loan Documents
shall be true and accurate on and as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date (except representations and warranties which relate solely to an earlier
date or time, which representations and warranties shall be true and correct
on and as of the specific dates or times referred to therein), and each of
the Loan Parties shall have performed and complied with all covenants and
conditions hereof and thereof, no Event of Default or Potential Default shall
have occurred and be continuing or shall exist; and there shall be delivered
to the Agent for the benefit of each Bank a certificate of each of the Loan
Parties, dated the Closing Date and signed by the Chief Executive Officer,
President or Chief Financial Officer of each of the Loan Parties, to each
such effect.
7.1.2 SECRETARY'S CERTIFICATE.
There shall be delivered to the Agent for the
benefit of each Bank a certificate dated the Closing Date and signed by the
Secretary or an Assistant Secretary of each of the Loan Parties, certifying
as appropriate as to:
(i) the directors' resolutions or similar
action taken by each Loan Party in connection with this Agreement and the
other Loan Documents;
(ii) the names of the officer or officers
authorized to sign this Agreement and the other Loan Documents and the true
signatures of such officer or officers and specifying the Authorized Officers
permitted to act on behalf of each Loan Party for purposes of this Agreement
and the true signatures of such officers, on which the Agent and each Bank
may conclusively rely; and
(iii) copies of its organizational
documents, including its certificate of incorporation, bylaws, certificate of
limited partnership, partnership agreement, certificate of formation, and
limited liability company agreement as in effect on the Closing Date
certified by the appropriate state official where such documents are filed in
a state office together with reasonably current certificates from the
appropriate state officials as to the continued
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existence and good standing of each Loan Party in each state where organized
or qualified to do business.
7.1.3 DELIVERY OF LOAN DOCUMENTS.
The Guaranty Agreement, the Notes, the Patent, the Trademark and
Copyright Assignment, the Intercompany Subordination Agreement, the Pledge
Agreement and the Security Agreement shall have been duly executed by all of
the appropriate parties and delivered to the Agent for the benefit of the
Banks, together with all appropriate financing statements.
7.1.4 OPINION OF COUNSEL.
There shall be delivered to the Agent for the benefit of each Bank
written opinions of Thompson and Knight, P.C., and Robert F. Spears, Esq.,
counsel for the Loan Parties and Lone Star Technologies (relating to the
Intercompany Subordination Agreement) (who may rely on the opinions of such
other counsel as may be acceptable to the Agent), dated the Closing Date and
in form and substance satisfactory to the Agent and its counsel:
(i) as to the matters set forth in EXHIBIT 7.1.4; and
(ii) as to such other matters incident to the transactions
contemplated herein as the Agent may reasonably request.
7.1.5 LEGAL DETAILS.
All legal details and proceedings in connection with the
transactions contemplated by this Agreement and the other Loan Documents
shall be in form and substance satisfactory to the Agent and counsel for the
Agent, and the Agent shall have received all such other counterpart originals
or certified or other copies of such documents and proceedings in connection
with such transactions, in form and substance satisfactory to the Agent and
said counsel, as the Agent or said counsel may reasonably request.
7.1.6 PAYMENT OF FEES.
The Borrower shall have paid or caused to be paid to the Agent for
itself and for the account of the Banks to the extent not previously paid all
fees accrued through the Closing Date and the costs and expenses for which
the Agent and the Banks are entitled to be reimbursed and submitted bills for
reimbursement, if applicable.
7.1.7 CONSENTS.
All material consents required to effectuate the transactions
contemplated hereby as set forth on SCHEDULE 6.1.13 shall have been obtained.
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7.1.8 OFFICER'S CERTIFICATE REGARDING MACs.
Since December 31, 1996 no Material Adverse Change shall have
occurred; prior to the Closing Date, there shall have been no material change
in the management of any Loan Party or Subsidiary of any Loan Party (other
than promotions of officers and transfers of officers from one or more Loan
Parties to the other Loan Parties or to Loan Star Technologies); and there
shall have been delivered to the Agent for the benefit of each Bank a
certificate dated the Closing Date and signed by the Chief Executive Officer,
President or Chief Financial Officer of each Loan Party to each such effect.
7.1.9 NO VIOLATION OF LAWS.
The making of the Loans and the issuance of the Letters of
Credit shall not contravene any Law applicable to any Loan Party or Lone Star
Technologies or any of the Banks.
7.1.10 NO ACTIONS OR PROCEEDINGS.
No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain or
prohibit, or to obtain damages in respect of, this Agreement, the other Loan
Documents or the consummation of the transactions contemplated hereby or
thereby or which, in the Agent's sole discretion, would make it inadvisable
to consummate the transactions contemplated by this Agreement or any of the
other Loan Documents.
7.1.11 INSURANCE POLICIES; CERTIFICATES OF INSURANCE;
ENDORSEMENTS.
The Loan Parties shall have delivered evidence acceptable to
the Agent that adequate insurance in compliance with Section 8.1.3
[Maintenance of Insurance] is in full force and effect and that all premiums
then due thereon have been paid, together with a copy of each Loan Party's
casualty insurance policy or policies evidencing coverage satisfactory to the
Agent, with additional insured and lender loss payable special endorsements
attached thereto in form and substance satisfactory to the Agent and its
counsel naming the Agent as additional insured and lender loss payee.
7.1.12 FILING RECEIPTS; LIEN SEARCHES.
The Agent shall have received (1) signed originals of all
documents to be recorded in order to perfect the Lien of the Banks on the
Collateral and (2) results of lien searches evidencing to the Agent's
satisfaction that there exist no Liens other than Permitted Liens on the
assets of the Loan Parties and the Liens in favor of the Agent constitute a
Prior Security Interest in favor of the Agent for the benefit of the Banks.
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7.1.13 ADMINISTRATIVE QUESTIONNAIRE.
Each of the Banks and the Borrower shall have completed and
delivered to the Agent the Agent's form of administrative questionnaire.
7.1.14 REPAYMENT OF EXISTING INDEBTEDNESS; PAYOFF LETTERS.
The Borrower shall have repaid all obligations owed to the
lenders under the Existing Credit Agreement and shall have delivered a
satisfactory payoff letter to the Agent evidencing the same. It is
acknowledged that the Borrower may request from the Agent a Letter Credit
hereunder in favor of CITBC securing payment by Borrower of Borrower's
reimbursement obligations under a letter of credit which is outstanding under
the Existing Credit Agreement for the period between the Closing Date and the
date on which such letter of credit has been either terminated or replaced.
7.1.15 PROCESSOR AND WAREHOUSEMAN'S AGREEMENTS.
Each Loan Party shall request from each Processor or
Warehouseman to which such Loan Party as of the Closing Date has delivered
possession of $1,000,000 or more of its inventory for processing by such
Processor or holding by such Warehouseman, as applicable, the Processor
Agreement or Warehouseman's Agreement referred to in Section 8.1.13 provided
that the failure to obtain such Processor Agreement or Warehouseman's
Agreement shall not constitute a Potential Default or an Event of Default,
except to the extent provided in Section 8.1.13.2.
7.2 EACH ADDITIONAL LOAN OR LETTER OF CREDIT.
At the time of making any Loans or issuing any Letters of Credit other
than Loans made or Letters of Credit issued on the Closing Date and after
giving effect to the proposed extensions of credit: the representations and
warranties of the Loan Parties contained in Section 6 and in the other Loan
Documents shall be true on and as of the date of such additional Loan or
Letter of Credit with the same effect as though such representations and
warranties had been made on and as of such date (except (a) representations
and warranties which expressly relate solely to an earlier date or time,
which representations and warranties shall be true and correct on and as of
the specific dates or times referred to therein, and (b) if the Loan Parties
update any Schedule listed in the first (but not the second) paragraph of
Section 6.2 on or before the time that the Borrower is required to deliver
its compliance certificate for one of its fiscal quarters, then such Schedule
shall be deemed to have been updated at such time (or times) within such
fiscal quarter as the event (or events) giving rise to such update occurred
or at the beginning of such fiscal quarter if such event (or events) occurred
(assuming that such events occurred within such quarter)) and the Loan
Parties shall have performed and complied with all covenants and conditions
hereof; no Event of Default or Potential Default shall have occurred and be
continuing or shall exist; the making of the Loans or issuance of such Letter
of Credit shall not contravene any Law applicable to any Loan Party or
Subsidiary of any Loan Party or any of the
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Banks; and the Borrower shall have delivered to the Agent a duly executed and
completed Loan Request or application for a Letter of Credit as the case may
be.
8. COVENANTS
8.1 AFFIRMATIVE COVENANTS.
The Loan Parties, jointly and severally, covenant and agree that until
payment in full of the Loans, Reimbursement Obligations and Reimbursement
Borrowings, and interest thereon, expiration or termination of all Letters of
Credit, satisfaction of all of the Loan Parties' other Obligations hereunder
and under the other Loan Documents and termination of the Commitments, the
Loan Parties shall comply at all times with the following affirmative
covenants:
8.1.1 PRESERVATION OF EXISTENCE, ETC.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, maintain its legal existence as a corporation, limited
partnership or limited liability company and its license or qualification and
good standing in each jurisdiction in which its ownership or lease of
property or the nature of its business makes such license or qualification
necessary, except as otherwise expressly permitted in Section 8.2.6
[Liquidations, Mergers, Etc.].
8.1.2 PAYMENT OF LIABILITIES, INCLUDING TAXES, ETC.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, duly pay and discharge all liabilities to which it is
subject or which are asserted against it, promptly as and when the same shall
become due and payable, including all taxes, assessments and governmental
charges upon it or any of its properties, assets, income or profits, prior to
the date on which penalties attach thereto, except to the extent that such
liabilities, including taxes, assessments or charges, are being contested in
good faith and by appropriate and lawful proceedings diligently conducted and
for which such reserve or other appropriate provisions, if any, as shall be
required by GAAP shall have been made, but only to the extent that failure to
discharge any such liabilities would not result in a Material Adverse Change,
PROVIDED that the Loan Parties and their Subsidiaries will pay all such
liabilities (which have not promptly been stayed or enjoined) forthwith upon
the commencement of proceedings to foreclose any Lien which may have attached
as security therefor.
8.1.3 MAINTENANCE OF INSURANCE.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, insure its properties and assets against loss or damage by
fire and such other insurable hazards as such assets are commonly insured
(including fire, extended coverage, property damage, workers' compensation,
public liability and business interruption insurance) and against other risks
(including errors and omissions) in such amounts as similar properties and
assets are insured by prudent companies in similar circumstances carrying on
similar businesses, and with reputable
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and financially sound insurers, including self-insurance to the extent
customary, all as reasonably determined by the Agent. At the request of the
Agent, the Loan Parties shall deliver to the Agent (x) on the Closing Date
and annually thereafter an original certificate of insurance signed by the
Loan Parties' independent insurance broker describing and certifying as to
the existence of the insurance on the Collateral required to be maintained by
this Agreement and the other Loan Documents, together with a copy of the
endorsement described in the next sentence attached to such certificate and
(y) from time to time a summary schedule indicating all insurance then in
force with respect to each of the Loan Parties. Such policies of insurance
shall contain special endorsements, in form and substance acceptable to the
Agent, which shall (i) specify the Agent as an additional insured, mortgagee
and lender loss payee as its interests may appear, with the understanding
that any obligation imposed upon the insured (including the liability to pay
premiums) shall be the sole obligation of the applicable Loan Parties and not
that of the insured, (ii) provide that the interest of the Banks shall be
insured regardless of any breach or violation by the applicable Loan Parties
of any warranties, declarations or conditions contained in such policies or
any action or inaction of the applicable Loan Parties or others insured under
such policies, (iii) provide a waiver of any right of the insurers to set off
or counterclaim or any other deduction, whether by attachment or otherwise,
(iv) provide that any and all rights of subrogation which the insurers may
have or acquire shall be, at all times and in all respects, junior and
subordinate to the prior payment in full of the Indebtedness hereunder and
that no insurer shall exercise or assert any right of subrogation until such
time as the Indebtedness hereunder has been paid in full and the Commitments
have terminated, (v) provide, except in the case of public liability
insurance and workmen's compensation insurance, that all insurance proceeds
for losses of less than $1,000,000 shall be adjusted with and payable to the
applicable Loan Parties and that all insurance proceeds for losses of
$1,000,000 or more shall be adjusted with and payable to the Agent, (vi)
include effective waivers by the insurer of all claims for insurance premiums
against the Agent, (vii) provide that no cancellation of such policies for
any reason (including non-payment of premium) nor any change therein shall be
effective until at least thirty (30) days after receipt by the Agent of
written notice of such cancellation or change, (viii) be primary without
right of contribution of any other insurance carried by or on behalf of any
additional insureds with respect to their respective interests in the
Collateral, and (ix) provide that inasmuch as the policy covers more than one
insured, all terms, conditions, insuring agreements and endorsements (except
limits of liability) shall operate as if there were a separate policy
covering each insured. The applicable Loan Parties shall notify the Agent
promptly of any occurrence causing a material loss or decline in value of the
Collateral and the estimated (or actual, if available) amount of such loss or
decline.
8.1.4 MAINTENANCE OF PROPERTIES AND LEASES.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, maintain in good repair, working order and condition
(ordinary wear and tear excepted) in accordance with the general practice of
other businesses of similar character and size, all of those properties
useful or necessary to its business, and from time to time, such Loan Party
will make or cause to be made all appropriate repairs, renewals or
replacements thereof.
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8.1.5 MAINTENANCE OF PATENTS, TRADEMARKS, ETC.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, maintain in full force and effect all patents, trademarks,
service marks, trade names, copyrights, licenses, franchises, permits and
other authorizations necessary for the ownership and operation of its
properties and business if the failure so to maintain the same would
constitute a Material Adverse Change.
8.1.6 VISITATION RIGHTS.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, permit any of the officers or authorized employees or
representatives of the Agent or any of the Banks to visit and inspect any of
its properties and to examine and make excerpts from its books and records
and discuss its business affairs, finances and accounts with its officers,
all in such detail and at such times and as often as any of the Banks may
reasonably request, PROVIDED that each Bank shall provide the Borrower and
the Agent with reasonable notice prior to any visit or inspection. In the
event any Bank desires to conduct an audit of any Loan Party, such Bank shall
make a reasonable effort to conduct such audit contemporaneously with any
audit to be performed by the Agent.
8.1.7 KEEPING OF RECORDS AND BOOKS OF ACCOUNT.
The Borrower shall, and shall cause each Subsidiary of the
Borrower to, maintain and keep proper books of record and account which
enable the Borrower and its Subsidiaries to issue financial statements in
accordance with GAAP and as otherwise required by applicable Laws of any
Official Body having jurisdiction over the Borrower or any Subsidiary of the
Borrower, and in which full, true and correct entries shall be made in all
material respects of all its dealings and business and financial affairs.
8.1.8 PLANS AND BENEFIT ARRANGEMENTS.
The Borrower shall, and shall cause each other member of the
ERISA Group to, comply with ERISA, the Internal Revenue Code and other
applicable Laws applicable to Plans and Benefit Arrangements (including
provisions relating to the qualification of Plans and Benefit Arrangements
under Section 401 of the Internal Revenue Code), except where such failure,
alone or in conjunction with any other failure, would not result in a
Material Adverse Change. Without limiting the generality of the foregoing,
the Borrower shall cause all of its Plans and all Plans maintained by any
member of the ERISA Group to be funded in accordance with the minimum funding
requirements of ERISA and shall make, and cause each member of the ERISA
Group to make, in a timely manner, all contributions due to Plans, Benefit
Arrangements and Multiemployer Plans.
8.1.9 COMPLIANCE WITH LAWS.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, comply with all applicable Laws, including all Environmental
Laws, in all respects, PROVIDED that
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it shall not be deemed to be a violation of this Section 8.1.9 if any failure
to comply with any Law would not result in fines, penalties, remediation
costs, other similar liabilities or injunctive relief which in the aggregate
would constitute a Material Adverse Change.
8.1.10 USE OF PROCEEDS.
The Loan Parties will use the Letters of Credit and the
proceeds of the Loans only for general corporate purposes, including (i) for
working capital, (ii) to fund redemptions of Preferred Stock permitted
hereunder, (iii) to finance Permitted Acquisitions, or (iv) to repay and
terminate Indebtedness outstanding under the Existing Credit Agreement. The
Loan Parties will not use the Letters of Credit and the proceeds of the Loans
for any purposes which contravenes any applicable Law or any provision hereof.
8.1.11 FURTHER ASSURANCES.
Each Loan Party shall, from time to time, at its expense,
faithfully preserve and protect the Agent's Lien on and Prior Security
Interest in the Collateral as a continuing first priority perfected Lien,
subject only to Permitted Liens, and shall do such other acts and things as
the Agent may deem necessary or advisable from time to time in order to
preserve, perfect and protect the Liens granted under the Loan Documents and
to exercise and enforce its rights and remedies thereunder with respect to
the Collateral.
8.1.12 SUBORDINATION OF INTERCOMPANY LOANS.
8.1.12.1 BY LONE STAR TECHNOLOGIES.
Lone Star Technologies shall subordinate any intercompany
Indebtedness, loans or advances owed by any Loan Party to Lone Star
Technologies pursuant to the terms of the Subordination Agreement in the form
of EXHIBIT 1.1(I)(2).
8.1.12.2 BY LOAN PARTIES.
Each Loan Party shall cause any intercompany Indebtedness,
loans or advances owed by any Loan Party to any other Loan Party to be
subordinated pursuant to the terms of the Intercompany Subordination
Agreement in the form of EXHIBIT 1.1(I)(1).
8.1.13 PROCESSORS AND WAREHOUSEMEN'S AGREEMENTS.
8.1.13.1 INDIVIDUAL PROCESSOR OR WAREHOUSEMAN'S LIMIT.
Each Loan Party shall request from each processor (each a
"Processor") or warehouseman (each a "Warehouseman") to which such Loan Party
shall at any time deliver possession of $1,000,000 or more of its inventory
for processing by such Processor or Warehouseman the documents listed in (i)
and (ii) below and deliver such documents to the Agent (collectively such
documents are referred to as the "Collateral Package"):
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(i) an agreement in the form of EXHIBIT 8.1.13(A)(1)
executed by such Processor or in the form of EXHIBIT 8.1.13(A)(2) FROM EACH
Warehouseman; and
(ii) a financing statement in the form of Exhibit
8.1.13(B) acknowledging the rights of the applicable Loan Party and the Agent
in such inventory.
8.1.13.2 AGGREGATE LIMIT ON OFF-SITE INVENTORY.
The Loan Parties shall not at any time permit the aggregate
amount of Non-Qualified Inventory of the Loan Parties to exceed 20% of the
total Inventory of the Loan Parties.
8.2 NEGATIVE COVENANTS.
The Loan Parties, jointly and severally, covenant and agree that until
payment in full of the Loans, Reimbursement Obligations and Reimbursement
Borrowings and interest thereon, expiration or termination of all Letters of
Credit, satisfaction of all of the Loan Parties' other Obligations hereunder
and under the other Loan Documents and termination of the Commitments, the
Loan Parties shall comply with the following negative covenants:
8.2.1 INDEBTEDNESS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, at any time create, incur, assume or suffer to exist
any Indebtedness, except:
(i) Indebtedness under the Loan Documents;
(ii) Existing Indebtedness as set forth on SCHEDULE
8.2.1 (including any extensions or renewals thereof, PROVIDED there is no
increase in the amount thereof or other significant change in the terms
thereof unless otherwise specified on SCHEDULE 8.2.1;
(iii) Indebtedness secured by Purchase Money Security
Interests not exceeding $1,000,000 in the aggregate;
(iv) Indebtedness of a Loan Party to another Loan Party
which is subordinated in accordance with the provisions of Section 8.1.12
[Subordination of Intercompany Loans];
(v) Indebtedness of a Loan Party to Lone Star
Technologies provided that
(a) such Indebtedness shall be subordinated in
accordance with the provisions of Section 8.1.12 [Subordination of Intercompany
Loans];
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(b) no Potential Default or Event of Default shall
exist immediately prior to and after giving effect to the incurrence of such
Indebtedness; and
(c) the Borrower shall demonstrate that it shall be
in compliance with the covenant contained in Section 8.2.16[Maximum Leverage
Ratio], provided that (i) Borrower shall compute the numerator of such Leverage
Ratio (Indebtedness) as of the date on which Borrower incurs such Indebtedness
and the denominator of Leverage Ratio as of the four quarters ending on the
last day of the quarter preceding such date of incurrence. Borrower shall
deliver to the Agent and the Banks at least five (5) Business Days prior to
the date on which Borrower incurs such Indebtedness a certificate in the form
of EXHIBIT 8.2.5 evidencing such compliance; and
(vi) Indebtedness under (A) hedging agreements for the
sole purpose of protecting against risks associated with the fluctuations in
the price of natural gas, electricity and other fuels or feedstocks
reasonably expected to be owned or consumed by the Loan Parties in the
ordinary course of business (and not for speculative purposes) and (B) an
Interest rate protection agreement protecting against interest rate risk
associated with the Borrower's Obligations hereunder, in either case (of (A)
or (B)) with a financial institution reasonably acceptable to the Agent.
8.2.2 LIENS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, at any time create, incur, assume or suffer to exist
any Lien on any of its property or assets, tangible or intangible, now owned
or hereafter acquired, or agree or become liable to do so, except Permitted
Liens.
8.2.3 GUARANTIES.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, at any time, directly or indirectly, become or be
liable in respect of any Guaranty, except for Guaranties of Indebtedness of
the Loan Parties which is permitted under Section 8.2.1.
8.2.4 LOANS AND INVESTMENTS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, at any time make or suffer to remain outstanding any
loan or advance to, or purchase, acquire or own any stock, bonds, notes or
securities of or any partnership interest (whether general or limited) or
limited liability company interest in, or any other investment or interest
in, or make any capital contribution to, any other Person, or agree, become
or remain liable to do any of the foregoing, except:
(i) trade credit extended on usual and customary terms
in the ordinary course of business;
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(ii) advances to employees to meet expenses incurred by
such employees in the ordinary course of business;
(iii) Permitted Investments and Permitted Acquisitions;
(iv) loans, advances and investments in other Loan
Parties; and
(v) other investments not described above, provided that
the total cash and other property given or Indebtedness incurred in
connection therewith does not exceed $5,000,000 in the aggregate at any time
outstanding.
8.2.5 DIVIDENDS AND RELATED DISTRIBUTIONS.
Except as provided in this Section 8.2.5 below, each of the
Loan Parties shall not, and shall not permit any of its Subsidiaries to:
(A) make or pay, or agree to become or remain liable to make
or pay, any dividend or other distribution of any nature (whether in cash,
property, securities or otherwise) on account of or in respect of its shares
of capital stock, partnership interests or limited liability company
interests or make any payments on account of the purchase, redemption,
retirement or acquisition of its shares of capital stock (or warrants,
options or rights therefor), partnership interests or limited liability
company interests, or
(B) make or pay any amounts, whether principal, interest or
otherwise, on or in respect of loans or other obligations of a Loan Party to
Lone Star Technologies or otherwise make payments, transfer assets or pay or
provide any consideration (including incurring or assuming debt or other
obligations) to Lone Star Technologies or any Affiliates of Lone Star
Technologies other than the Loan Parties.
Notwithstanding the preceding sentence, the Loan Parties may
(i) make regularly scheduled payments of principal or
interest under the Slab Financing Arrangement provided that no Potential
Default or Event of Default shall exist immediately prior to and after giving
effect to such payment; or
(i) pay dividends or make other distributions or payments to
another Loan Party, or
(ii) pay a dividend or make a payment on Indebtedness incurred in
accordance with Section 8.2.1(v) to Lone Star Technologies, provided that
(a) no Potential Default or Event of Default shall exist
immediately prior to and after giving effect to such dividend;
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(b) the Borrower shall demonstrate that it shall be in
compliance with the covenants contained in the sections listed in the grid
below computed as of the dates and subject to the adjustments set forth in
such grid. Borrower shall deliver to the Agent and the Banks at least five
(5) Business Days prior to the date on which Borrower pays such dividend (the
"Dividend Payment Date") a certificate in the form of EXHIBIT 8.2.5
evidencing such compliance.
Covenant - Section Covenant - Title Date of Computation; Adjustments
- ------------------
Section 8.2.15 Minimum Interest Four quarters ending on the
Coverage Ratio quarter preceding the Dividend
Payment Date, except that the
denominator (clause (ii) in the
definition of "Interest Coverage
Ratio") shall be increased by
the amount of such dividend
Section 8.2.16 Maximum Leverage Numerator (Indebtedness)--As of
Ratio the Dividend Payment Date after
giving effect to any
Indebtedness incurred on such
Dividend Payment Date
Denominator--Four quarters
ending on the quarter preceding
the Dividend Payment Date
Section 8.2.17 Minimum Tangible Net Base Net Worth--computed as of
Worth the end of the quarter preceding
the date of the dividend
Consolidated Tangible Net Worth-
-computed as of the end of the
quarter preceding the Dividend
Payment Date, but decreased by
the amount of such dividend
Section 8.2.18 Minimum Working Computed as of the Dividend
Capital Payment Date after giving effect
thereto
(iii) make reimbursements to Lone Star Technologies for costs
and expenses, including payroll expenses for employees of Lone Star
Technologies, incurred by Lone Star Technologies provided that the aggregate
amount per year shall not exceed $4,000,000 and provided that one of the
following ((A), (B) or (C) below) is true:
(A) If Lone Star Technologies has not formed or acquired
any Subsidiaries (each an "Affiliate Subsidiary") other than the Borrower and
the Loan Parties, and is not undertaking to form or acquire, or investigating
the formation or acquisition of, an Affiliate Subsidiary, then all such costs
and expenses incurred shall be for the benefit of the Loan Parties, or
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(B) If Lone Star Technologies has not formed or acquired
any Affiliate Subsidiary but is undertaking to form or acquire, or
investigating the formation or acquisition of, an Affiliate Subsidiary, then
all such costs and expenses shall either be for the benefit of the Loan
Parties or for such undertaking or investigation and for no other purpose
(including the making of a dividend to the shareholders of Lone Star
Technologies) and shall be allocated to the Loan Parties and to such
undertaking or investigation in a reasonable and customary manner, or
(C) if Lone Star Technologies has formed or acquired any
Affiliate Subsidiaries, then Lone Star Technologies may allocate such costs
and expenses between such Affiliate Subsidiaries and the Loan Parties
pursuant to a cost sharing agreement provided that
(1) such agreement is reasonable as determined by
the Agent prior to such time as such agreement is entered into, and
(2) all such costs and expenses so incurred and
allocated to the Loan Parties and the Affiliate Subsidiaries shall be for the
benefit of the Loan Parties or such Affiliate Subsidiaries and for no other
purpose.
(iv) redeem by cash payment the Borrower's Preferred Stock
(including cash dividends payable on such Preferred Stock that are accrued
but not paid on the date of such redemption), provided that:
(a) no Potential Default or Event of Default shall exist
immediately prior to and after giving effect to such redemption;
(b) the Borrower shall demonstrate that it shall be in
compliance with the covenants contained in the sections listed in the grid
below computed as of the dates and subject to the adjustments set forth in
such grid. Borrower shall deliver at least five (5) Business Days prior to
the date on which Borrower makes such redemption payment (the "Redemption
Payment Date") a certificate in the form of EXHIBIT 8.2.5 evidencing such
compliance.
Covenant - Section Covenant - Title Date of Computation; Adjustments
------------------
Section 8.2.15 Minimum Interest Four quarters ending on the
(applies only if the Coverage Ratio quarter preceding the Redemption
Borrower shall pay Payment Date, except that the
accrued cash denominator (clause (ii) in the
dividends in definition of "Interest Coverage
connection with the Ratio") shall be increased by
redemption) the amount of such cash
dividend.
Section 8.2.16 Maximum Leverage Numerator (Indebtedness)--As of
Ratio the Redemption Payment Date
after giving effect to any
Indebtedness incurred on such
Redemption
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Payment Date
Denominator--Four quarters
ending on the quarter preceding
the Redemption Payment Date
Section 8.2.17 Minimum Tangible Base Net Worth--computed as of
Net Worth the end of the quarter preceding
the date of such redemption
payment, but decreased by the
amount of such redemption
payment
Consolidated Tangible Net Worth-
-computed as of the end of the
quarter preceding the Redemption
Payment Date, but decreased by
the amount of such redemption
payment
Section 8.2.18 Minimum Working Computed as of the Redemption
Capital Payment Date after giving effect
thereto
(v) pay dividends in the form of Borrower's common stock or
the Borrower's Preferred Stock.
8.2.6 LIQUIDATIONS, MERGERS, CONSOLIDATIONS, ACQUISITIONS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, dissolve, liquidate or wind-up its affairs, or become
a party to any merger or consolidation, or (except as provided under Section
8.2.7) acquire by purchase, lease or otherwise all or substantially all of
the assets or capital stock of any other Person, PROVIDED that
(1) any Loan Party or Subsidiary other than the Borrower may
consolidate or merge into or be dissolved into the Borrower or another Loan
Party which is wholly-owned by one or more of the other Loan Parties, and
(2) any Loan Party may acquire, whether by purchase or by
merger, whether accounted for as a purchase or a pooling or otherwise (A)
ownership interests of another Person or (B) substantially all of the assets
of another Person or of a business or division of another Person (each a
"Permitted Acquisition"), PROVIDED that each of the following requirements is
met:
(i) if the Loan Parties are acquiring the ownership
interests in such Person, such interest shall include a majority of each
class of voting securities and the power to elect a majority of the directors
or other equivalent governing individuals with respect to such Person;
(ii) if the Loan Parties are acquiring the ownership
interests in such Person, such Person shall execute a Guarantor Joinder and
join this Agreement
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as a Guarantor pursuant to Section 11.18 [Joinder of Guarantors] on or
before the date of such Permitted Acquisition;
(iii) the Loan Parties, such Person and its owners, as
applicable, shall grant Liens in the assets of or acquired from and stock or
other ownership interests in such Person and otherwise comply with Section
11.18 [Joinder of Guarantors] on or before the date of such Permitted
Acquisition;
(iv) the board of directors or other equivalent
governing body of such Person shall have approved such Permitted Acquisition
and, if the Loan Parties shall use any portion of the Loans to fund such
Permitted Acquisition, the Loan Parties also shall have delivered to the
Banks written evidence of the approval of the board of directors (or
equivalent body) of such Person for such Permitted Acquisition;
(v) the business acquired, or the business conducted by
the Person whose ownership interests are being acquired, as applicable, shall
be substantially the same as one or more line or lines of business conducted
by the Loan Parties and shall comply with Section 8.2.10 [Continuation of or
Change in Business], EXCEPT that the Loan Parties may make an acquisition of
assets or stock of a Person in another line of business provided that total
Consideration paid or incurred in connection therewith does not exceed
$5,000,000 (the "Permitted Other Line of Business Acquisition");
(vi) no Potential Default or Event of Default shall exist
immediately prior to and after giving effect to such Permitted Acquisition;
(vii) the Borrower shall demonstrate that it shall be in
compliance with the covenants contained in the sections listed in the grid
below computed as of the dates and subject to the adjustments set forth in
such grid. Borrower shall deliver at least five (5) Business Days prior to
the date on which Borrower makes such Permitted Acquisition payment (the
"Acquisition Date") a certificate in the form of EXHIBIT 8.2.6 evidencing
such compliance.
Covenant - Section Covenant - Title Date of Computation; Adjustments
- ------------------
Section 8.2.16 Maximum Leverage Numerator (Indebtedness)--As of
Ratio the Acquisition Date after
giving effect to any
Indebtedness incurred on such
Acquisition Date
Denominator--Four quarters
ending on the last day of the
quarter preceding the
Acquisition Date
Section 8.2.17 Minimum Tangible Net Base Net Worth--computed as of
Worth the end of the quarter preceding
the date of such Permitted
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Acquisition,
Consolidated Tangible Net Worth-
-computed as of the end of the
quarter preceding the
Acquisition Date, but adjusted
for transactions on the
Acquisition Date
Section 8.2.18 Minimum Working Computed as of the Acquisition
Capital Date after giving effect thereto
(viii) the Loan Parties shall deliver to the Agent at
least five (5) Business Days before such Permitted Acquisition then current
drafts (with the executed versions to be delivered promptly after their
execution) of any agreements entered into or proposed to be entered into by
such Loan Parties in connection with such Permitted Acquisition and shall
deliver to the Agent such other information about such Person or its assets
as any Loan Party may reasonably require.
8.2.7 DISPOSITIONS OF ASSETS OR SUBSIDIARIES.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, sell, convey, assign, lease, abandon or otherwise
transfer or dispose of voluntarily or involuntarily, any of its properties or
assets, tangible or intangible (including sale, assignment, discount or other
disposition of accounts, contract rights, chattel paper, equipment or general
intangibles with or without recourse or of capital stock, shares of
beneficial interest, partnership interests or limited liability company
interests of a Subsidiary of such Loan Party), except:
(i) transactions involving the sale of Inventory of the Loan
Parties or Consigned Inventory in the ordinary course of business;
(ii) any sale, transfer, lease or other disposition of assets
in the ordinary course of business which are no longer necessary or required
in the conduct of such Loan Party's or such Subsidiary's business;
(iii) any sale, transfer or lease of assets by a Loan Party or
its Subsidiary to another Loan Party; provided that the Loan Parties shall on
or before such transfer deliver and record all documents necessary or
appropriate, as determined by the Agent, to perfect or otherwise establish
first priority Liens in all such personal property in favor of the Agent for
the benefit of the Banks following such transfer;
(iv) any sale, transfer, lease or other disposition of assets
in the ordinary course of business which are replaced by substitute assets
acquired or leased, PROVIDED such substitute assets (if personal property)
are subject to the Banks' Prior Security Interest; or
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(v) any sale of accounts receivable of the Borrower to a
purchaser or any assignment of such accounts to a lender provided that (i)
the amount of the proceeds from such sale or loan, as the case may be, shall
be an integral multiple of $5,000,000, (ii) the Revolving Credit Commitments
shall be reduced by the amount of such proceeds (such reduction shall be
allocated ratably among the Banks) and the Borrower shall otherwise comply
with Section 2.1.3.2, (iii) the Borrower shall apply such proceeds to repay
the Loans to the extent the Revolving Facility Usage exceeds the amount of
the Revolving Credit Commitments as so reduced, and (iv) the purchaser or
lender, as applicable, shall not have any recourse against any Loan Party or
any Subsidiary of any Loan Party for payment of any portion of the purchase
price or loan, as the case may be, or for any interest thereon or other
obligations related to such sale or loan.
8.2.8 AFFILIATE TRANSACTIONS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, enter into or carry out any transaction (including
purchasing property or services from or selling property or services to) any
of its Affiliates that is not a Loan Party, unless such transaction is not
otherwise prohibited by this Agreement, is entered into upon fair and
reasonable arm's length terms and conditions (or terms and conditions more
favorable to the Loan Parties) which are fully disclosed to the Agent, and is
in accordance with all applicable Law. The Banks acknowledge that
transactions under the Borrower's present cost sharing agreement (provided
that such transactions meet the requirements of Section 8.2.5(iii)) and under
the Slab Financing Arrangement satisfy the foregoing requirements.
8.2.9 SUBSIDIARIES, PARTNERSHIPS AND JOINT VENTURES.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, own or create directly or indirectly any Subsidiaries
other than (i) any Subsidiary which has joined this Agreement as Guarantor on
the Closing Date; (ii) the Inactive Subsidiaries, and (iii) any Subsidiary
formed after the Closing Date which joins this Agreement as a Guarantor
pursuant to Section 11.18 [Joinder of Guarantors], provided that (A) such
Subsidiary and the Loan Parties, as applicable, shall grant and cause to be
perfected first priority Liens to the Agent for the benefit of the Banks in
all personal property held by, and stock of or other ownership interests in,
such Subsidiary, and (B) any Inactive Subsidiary shall at all times have no
assets other than immaterial assets consisting of receivables from Affiliates
in amounts not exceeding $10,000 in the aggregate (i.e. for all Inactive
Subsidiaries), voluntarily incur no liabilities and conduct no business,
unless and until it joins this Agreement as a Guarantor pursuant to Section
11.18 (at which time it shall cease to be an Inactive Subsidiary). Each of
the Loan Parties shall not become or agree to (1) become a general partner in
any general or limited partnership, except that the Loan Parties may be
general partners in other Loan Parties, or (2) become a joint venturer or
hold a joint venture interest in any joint venture.
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8.2.10 CONTINUATION OF OR CHANGE IN BUSINESS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, engage in any business other than Oilfield products,
specialty tubing and flat rolled steel and other tubular products and
services, including tubular processing and fabrication, and such Loan Party
or Subsidiary shall not permit any material change in such business, except
that the Loan Parties may make a Permitted Other Line of Business
Acquisition, subject to Section 8.2.6.
8.2.11 PLANS AND BENEFIT ARRANGEMENTS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to:
(i) fail to satisfy the minimum funding requirements of
ERISA and the Internal Revenue Code with respect to any Plan;
(ii) request a minimum funding waiver from the Internal
Revenue Service with respect to any Plan;
(iii) engage in a Prohibited Transaction with any Plan,
Benefit Arrangement or Multiemployer Plan which, alone or in conjunction with
any other circumstances or set of circumstances resulting in liability under
ERISA, would constitute a Material Adverse Change;
(iv) fail to make when due any contribution to any
Multiemployer Plan that the Borrower or any member of the ERISA Group may be
required to make under any agreement relating to such Multiemployer Plan, or
any Law pertaining thereto;
(v) withdraw (completely or partially) from any
Multiemployer Plan or withdraw (or be deemed under Section 4062(e) of ERISA
to withdraw) from any Multiple Employer Plan, where any such withdrawal is
likely to result in a material liability of the Borrower or any member of the
ERISA Group;
(vi) terminate, or institute proceedings to terminate,
any Plan, where such termination is likely to result in a material liability
to the Borrower or any member of the ERISA Group;
(vii) make any amendment to any Plan with respect to which
security is required under Section 307 of ERISA;
(viii) fail to give any and all notices and make all
disclosures and governmental filings required under ERISA or the Internal
Revenue Code, where such failure is likely to result in a Material Adverse
Change; or
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(ix) permit any Plan or Benefit Arrangement which has
been qualified under Section 401 of the Internal Revenue Code to cease to be
so qualified.
8.2.12 FISCAL YEAR.
The Borrower shall not, and shall not permit any Subsidiary of
the Borrower to, change its fiscal year from the twelve-month period
beginning January l and ending December 31
8.2.13 ISSUANCE OF STOCK.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, issue any additional shares of its capital stock or
any options, warrants or other rights in respect thereof except for (i)
shares of Loan Parties other than the Borrower issued to another Loan Party
and pledged to the Agent and (ii) shares of the Borrower issued to Lone Star
Technologies.
8.2.14 CHANGES IN ORGANIZATIONAL DOCUMENTS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, amend in any respect its certificate of incorporation
(including any provisions or resolutions relating to capital stock), by-laws,
certificate of limited partnership, partnership agreement, certificate of
formation, limited liability company agreement or other organizational
documents without providing at least ten (10) calendar days' prior written
notice to the Agent and the Banks and, in the event such change would be
adverse to the Banks as determined by the Agent in its sole discretion,
obtaining the prior written consent of the Required Banks.
8.2.15 MINIMUM INTEREST COVERAGE RATIO.
The Loan Parties shall not permit the Interest Coverage Ratio,
calculated as of the end of each fiscal quarter for the period of four (4)
fiscal quarters then ended, to be less than 4.0 to 1.0.
8.2.16 MAXIMUM LEVERAGE RATIO.
The Loan Parties shall not at permit the Leverage Ratio to
exceed 3.0 to 1.0 at the end of any fiscal quarter.
8.2.17 MINIMUM TANGIBLE NET WORTH.
The Borrower shall not at any time permit Consolidated
Tangible Net Worth to be less than Base Net Worth.
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8.2.18 MINIMUM WORKING CAPITAL.
The Loan Parties shall not at any time permit the difference
between the amounts in the following clauses (i) and (ii) to be less than
$75,000,000: (i) consolidated current assets (excluding cash and marketable
securities to the extent that the amount thereof does not exceed the amount
of the Revolving Credit Loans outstanding at such time) of the Borrower and
its Subsidiaries and (ii) consolidated current liabilities of the Borrower
and its Subsidiaries (excluding from current liabilities the amount of the
Revolving Credit Loans outstanding, whether or not normally required to be
included or excluded under GAAP).
8.2.19 NEGATIVE PLEDGES-- ASSETS OF THE LOAN PARTIES.
Each of the Loan Parties covenants and agrees that it shall
not, and shall not permit any of its Subsidiaries to, enter into any
agreement with any Person which prohibits, or limits in any manner the right
of any of the Loan Parties from granting any Liens on any of their assets
(other than assets subject to Permitted Liens) to the Agent or the Banks.
8.2.20 SLAB FINANCING AGREEMENT.
The Borrower shall not amend or modify the Slab Financing
Arrangement without the prior consent of the Required Banks.
8.3 REPORTING REQUIREMENTS.
The Loan Parties, jointly and severally, covenant and agree that until
payment in full of the Loans, Reimbursement Obligations and Reimbursement
Borrowings and interest thereon, expiration or termination of all Letters of
Credit, satisfaction of all of the Loan Parties' other Obligations hereunder
and under the other Loan Documents and termination of the Commitments, the
Loan Parties will furnish or cause to be furnished to the Agent and each of
the Banks:
8.3.1 QUARTERLY FINANCIAL STATEMENTS.
As soon as available and in any event within forty-five (45)
calendar days after the end of each of the first three fiscal quarters in
each fiscal year, financial statements of the Borrower, consisting of a
consolidating and consolidated balance sheet as of the end of such fiscal
quarter and related consolidating and consolidated statements of income,
stockholders' equity and cash flows for the fiscal quarter then ended and the
fiscal year through that date, all in reasonable detail and certified
(subject to normal year-end audit adjustments) by the Chief Executive
Officer, President or Chief Financial Officer of the Borrower as having been
prepared in accordance with GAAP, consistently applied, and setting forth in
comparative form the respective financial statements for the corresponding
date and period in the previous fiscal year.
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8.3.2 ANNUAL FINANCIAL STATEMENTS.
As soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Borrower, financial statements of
the Borrower consisting of a consolidating and consolidated balance sheet as
of the end of such fiscal year, and related consolidating and consolidated
statements of income, stockholders' equity and cash flows for the fiscal year
then ended, all in reasonable detail and setting forth in comparative form
the financial statements as of the end of and for the preceding fiscal year,
and certified by independent certified public accountants of nationally
recognized standing satisfactory to the Agent. The certificate or report of
accountants shall be free of qualifications (other than any consistency
qualification that may result from a change in the method used to prepare the
financial statements as to which such accountants concur) and shall not
indicate the occurrence or existence of any event, condition or contingency
which would materially impair the prospect of payment or performance of any
covenant, agreement or duty of any Loan Party under any of the Loan
Documents. The Loan Parties shall deliver with such financial statements and
certification by their accountants a letter of such accountants to the Agent
and the Banks substantially to the effect that, in connection with their
audit, nothing came to their attention that caused them to believe that (i)
the Loan Parties were was not in compliance with (or any Event of Default
existed under) Section 9. l of this Agreement, insofar as such compliance (or
Event of Default) relates to accounting matters; and (ii) the calculations by
Borrower in its compliance certificate of its covenants set forth in Section
8.2 are not fairly stated, in all material respects, in relation to the
audited financial statements from which they were derived. If the independent
public accountants believe that the Loan Parties were not in compliance with
any of the terms, covenants, provisions, or conditions or the calculations
are not fairly stated in relation to the financial statements the accountants
letter should state such and the nature thereof.
8.3.3 CERTIFICATE OF THE BORROWER.
Concurrently with the financial statements of the Borrower
furnished to the Agent and to the Banks pursuant to Sections 8.3.1
[Quarterly Financial Statements] and 8.3.2 [Annual Financial Statements], a
certificate of the Borrower signed by the Chief Executive Officer, President
or Chief Financial Officer of the Borrower, in the form of EXHIBIT 8.3.3, to
the effect that, except as described pursuant to Section 8.3.4
[Notice of Default] or as otherwise specified in such certificate, (i) the
representations and warranties of the Borrower contained in Section 6 and in
the other Loan Documents are true on and as of the date of such certificate
with the same effect as though such representations and warranties had been
made on and as of such date (except representations and warranties which
expressly relate solely to an earlier date or time) and the Loan Parties have
performed and complied with all covenants and conditions hereof (ii) no Event
of Default or Potential Default exists and is continuing on the date of such
certificate and (iii) containing calculations in sufficient detail to
demonstrate compliance as of the date of such financial statements with all
financial covenants contained in Section 8.2 [Negative Covenants].
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8.3.4 NOTICE OF DEFAULT.
Promptly after any officer of any Loan Party has learned of
the occurrence of an Event of Default or Potential Default, a certificate
signed by the Chief Executive Officer, President or Chief Financial Officer
of such Loan Party setting forth the details of such Event of Default or
Potential Default.
8.3.5 NOTICE OF LITIGATION.
Promptly after the commencement thereof; notice of all
actions, suits or proceedings, and promptly after any Loan Party becomes
aware thereof, notice of any investigations, before or by any Official Body
or any other Person against any Loan Party or Subsidiary of any Loan Party
which involve a claim to the Collateral worth $100,000 or more or involve a
claim or series of claims in excess of $5,000,000 in the aggregate or which
if adversely determined would constitute a Material Adverse Change.
8.3.6 CERTAIN EVENTS.
Written notice to the Agent:
(i) within the time limits set forth in Section 8.2.14
[Changes in Organizational Documents], any amendment to the organizational
documents of any Loan Party; and
(ii) at least fifteen (15) calendar days prior thereto,
with respect to any change in any Loan Party's locations from the locations
set forth in Schedule A to the Security Agreement.
8.3.7 BUDGETS. FORECASTS. OTHER REPORTS AND INFORMATION.
Promptly upon their becoming available to the Borrower:
(i) the annual budget and any forecasts or projections
of the Borrower, to be supplied prior to commencement of the fiscal year to
which any of the foregoing may be applicable,
(ii) any press releases relating to the Borrower or any
other Loan Party;
(iii) any management letters submitted to the Borrower by
independent accountants in connection with any annual, interim or special
audit,
(iv) any reports, notices or proxy statements generally
distributed by Lone Star Technologies to its stockholders on a date no later
than the date supplied to such stockholders,
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(v) regular or periodic reports, including Forms 10-K,
10-Q and 8-K, registration statements and prospectuses, filed by Lone Star
Technologies with the Securities and Exchange Commission,
(vi) a copy of any final order or judgment in any
proceeding to which the Borrower or any of its Subsidiaries is a party issued
by any Official Body, and
(vii) such other reports and information as any of the
Banks may from time to time reasonably request.
8.3.8 NOTICES REGARDING PLANS AND BENEFIT ARRANGEMENTS.
8.3.8.1 CERTAIN EVENTS.
Promptly upon becoming aware of the occurrence thereof, notice
(including the nature of the event and, when known, any action taken or
threatened by the Internal Revenue Service or the PBGC with respect thereto)
of:
(i) any Reportable Event with respect to the Borrower
or any other member of the ERISA Group (other than any for which the
obligation to report said Reportable Event to the PBGC has been waived),
(ii) any Prohibited Transaction which could subject the
Borrower or any other member of the ERISA Group to a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Internal Revenue Code in connection with any Plan, any Benefit Arrangement or
any trust created thereunder,
(iii) any assertion of material withdrawal liability
with respect to any Multiemployer Plan,
(iv) any partial or complete withdrawal from a
Multiemployer Plan by the Borrower or any other member of the ERISA Group
under Title IV of ERISA (or assertion thereof, where such withdrawal is
likely to result in material withdrawal liability,
(v) any cessation of operations (by the Borrower or
any other member of the ERISA Group) at a facility in the circumstances
described in Section 4062(e) of ERISA,
(vi) withdrawal by the Borrower or any other member of
the ERISA Group from a Multiple Employer Plan,
(vii) a failure by the Borrower or any other member of
the ERISA Group to make a payment to a Plan required to avoid imposition of a
Lien under Section 302(f) of ERISA,
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(viii) the adoption of an amendment to a Plan requiring
the provision of security to such Plan pursuant to Section 307 of ERISA,
(ix) any change in the actuarial assumptions or funding
methods used for any Plan, where the effect of such change is to materially
increase or materially reduce the unfunded benefit liability or obligation to
make periodic contributions, or
(x) the assertion by the Internal Revenue Service that
any Plan or Benefit Arrangement which has been qualified under Section 401 of
the Internal Revenue Code has ceased to be so qualified.
8.3.8.2 NOTICES OF INVOLUNTARY TERMINATION AND ANNUAL
REPORTS.
Promptly (a) after receipt thereof copies of all notices
received by the Borrower or any other member of the ERISA Group of the PBGC's
intent to terminate any Plan administered or maintained by the Borrower or
any member of the ERISA Group, or to have a trustee appointed to administer
any such Plan; and (b) at the request of the Agent or any Bank each annual
report (IRS Form 5500 series) and all accompanying schedules, the most recent
actuarial reports, the most recent financial information concerning the
financial status of each Plan administered or maintained by the Borrower or
any other member of the ERISA Group, and schedules showing the amounts
contributed to each such Plan by or on behalf of the Borrower or any other
member of the ERISA Group in which any of their personnel participate or from
which such personnel may derive a benefit, and each Schedule B (Actuarial
Information) to the annual report filed by the Borrower or any other member
of the ERISA Group with the Internal Revenue Service with respect to each
such Plan.
8.3.8.3 NOTICE OF VOLUNTARY TERMINATION.
Promptly upon the filing thereof copies of any Form 5310, or
any successor or equivalent form to Form 5310, filed with the Internal
Revenue Service or Form 600, or any successor or equivalent form to Form 600,
filed with the PBGC in connection with the termination of any Plan.
9. DEFAULT
9.1 EVENTS OF DEFAULT.
An Event of Default shall mean the occurrence or existence of any one or
more of the following events or conditions (whatever the reason therefor and
whether voluntary, involuntary or effected by operation of Law):
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9.1.1 PAYMENTS UNDER LOAN DOCUMENTS.
The Borrower shall fail to pay on the due date thereof any
principal of any Loan (including scheduled installments, mandatory
prepayments or the payment due at maturity), Reimbursement Obligation or
Reimbursement Borrowing or shall fail to pay within one (1) Business Day of
the due date thereof any interest on any Loan , Reimbursement Obligation or
Reimbursement Borrowing or any other amount owing hereunder or under the
other Loan Documents;
9.1.2 BREACH OF REPRESENTATION OR WARRANTY.
Any representation or warranty made at any time by any of the
Loan Parties herein or by any of the Loan Parties in any other Loan Document,
or in any certificate, other instrument or statement furnished pursuant to
the provisions hereof or thereof shall prove to have been false or misleading
in any material respect as of the time it was made or furnished;
9.1.3 BREACH OF NEGATIVE COVENANTS OR VISITATION RIGHTS.
Any of the Loan Parties shall default in the observance or
performance of any covenant contained in Section 8.1.6 [Visitation Rights] or
Section 8.2 [Negative Covenants];
9.1.4 BREACH OF OTHER COVENANTS.
Any of the Loan Parties shall default in the observance or
performance of any other covenant, condition or provision hereof or of any
other Loan Document and such default shall continue unremedied for a period
of fifteen (15) Business Days after any Senior Officer of any Loan Party
becomes aware of the occurrence thereof (such grace period to be applicable
only in the event such default can be remedied by corrective action of the
Loan Parties as determined by the Agent in its sole discretion);
9.1.5 DEFAULTS IN OTHER AGREEMENTS OR INDEBTEDNESS.
A default or event of default shall occur at any time under
the terms of any other agreement involving borrowed money or any other
Indebtedness under which any Loan Party or Subsidiary of any Loan Party may
be obligated as a borrower or guarantor in excess of $5,000,000 in the
aggregate, and such breach, default or event of default consists of the
failure to pay (beyond any period of grace permitted with respect thereto,
whether waived or not) any indebtedness when due (whether at stated maturity,
by acceleration or otherwise) or if such breach or default permits or causes
the acceleration of any indebtedness (whether or not such right shall have
been waived) or the termination of any commitment to lend;
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9.1.6 FINAL JUDGMENTS OR ORDERS.
Any final judgments or orders for the payment of money in
excess of $5,000,000 in the aggregate shall be entered against any Loan Party
by a court having jurisdiction in the premises, which judgment is not
discharged, vacated, bonded or stayed pending appeal within a period of
thirty (30) days from the date of entry;
9.1.7 LOAN DOCUMENT UNENFORCEABLE.
Any of the Loan Documents shall cease to be legal, valid and
binding agreements enforceable against the party executing the same or such
party's successors and assigns (as permitted under the Loan Documents) in any
material respect or shall in any way be terminated (except in accordance with
its terms) or become or be declared ineffective or inoperative or shall in
any material respect be challenged or contested or cease to give or provide
the respective Liens, security interests, rights, titles, interests,
remedies, powers or privileges intended to be created thereby;
9.1.8 UNINSURED LOSSES: PROCEEDINGS AGAINST ASSETS.
There shall occur any material uninsured damage to or loss,
theft or destruction of any of the Collateral in excess of $100,000 or the
Collateral in excess of $100,000 or any other of the Loan Parties' material
assets are attached, seized, levied upon or subjected to a writ or distress
warrant,; or come within the possession of any receiver, trustee, custodian
or assignee for the benefit of creditors, and the same is not cured within
thirty (30) days thereafter. For the purpose of this Section 9.1.8: (i) any
loss shall be deemed to be insured to the extent that it is covered by
insurance but the Loan Parties do not receive compensation therefor because
the amount recoverable (or portion thereof) is less than or equal to the
deductible amount under such policy, and (ii) Collateral shall be valued at
using a method other than replacement cost;
9. 1.9 NOTICE OF LIEN OR ASSESSMENT.
A notice of Lien or assessment in excess of $1,000,000 which
is not a Permitted Lien is filed of record with respect to all or any part of
any of the Loan Parties' assets in excess of $1,000,000 by the United States,
or any department, agency or instrumentality thereof or by any state, county,
municipal or other governmental agency, including the PBGC, or any taxes or
debts owing at any time or times hereafter to any one of these becomes
payable and the same is not paid as required under Section 8.1.2;
9.1.10 INSOLVENCY.
Any Loan Party ceases to be solvent or admits in writing its
inability to pay its debts as they mature;
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9.1.11 EVENTS RELATING TO PLANS AND BENEFIT ARRANGEMENTS.
Any of the following occurs: (i) any Reportable Event, which
the Agent determines in good faith constitutes grounds for the termination of
any Plan by the PBGC or the appointment of a trustee to administer or
liquidate any Plan, shall have occurred and be continuing; (ii) proceedings
shall have been instituted or other action taken to terminate any Plan, or a
termination notice shall have been filed with respect to any Plan; (iii) a
trustee shall be appointed to administer or liquidate any Plan; (iv) the PBGC
shall give notice of its intent to institute proceedings to terminate any
Plan or Plans or to appoint a trustee to administer or liquidate any Plan;
and, in the case of the occurrence of(i), (ii), (iii) or (iv) above, the
Agent determines in good faith that the amount of the Borrower's liability is
likely to exceed 10% of its Consolidated Tangible Net Worth; (v) the Borrower
or any member of the ERISA Group shall fail to make any contributions when
due to a Plan or a Multiemployer Plan; (vi) the Borrower or any other member
of the ERISA Group shall make any amendment to a Plan with respect to which
security is required under Section 307 of ERISA; (vii) the Borrower or any
other member of the ERISA Group shall withdraw completely or partially from a
Multiemployer Plan; or (viii) the Borrower or any other member of the ERISA
Group shall withdraw (or shall be deemed under Section 4062(e) of ERISA to
withdraw) from a Multiple Employer Plan; and, with respect to any of the
events specified in (v), (vi), (vii) or (viii), the Agent determines in good
faith that any such occurrence would be reasonably likely to materially and
adversely affect the total enterprise represented by the Borrower and the
other members of the ERISA Group;
9.1.12 CESSATION OF BUSINESS.
Any Loan Party ceases to conduct its business as contemplated,
except as expressly permitted under Section 8.2.6 [Liquidations, Mergers, Etc.]
or Section 8.2.7 [Dispositions of Assets or Subsidiaries], or any Loan Party
is enjoined, restrained or in any -way prevented by court order from conducting
all or a substantial part of its business and such injunction, restraint or
other preventive order is not dismissed within thirty (30) days after the entry
thereof;
9.1.13 CHANGE OF CONTROL.
(i) Lone Star Technologies shall cease to own 100% of
the capital stock of the Borrower or shall pledge, transfer, hypothecate or
grant a Lien on any such capital stock; or (ii) within a period of twelve
(12) consecutive calendar months, individuals who constituted a majority of
the Borrower's Board of Directors at the beginning of such period (together
with any new directors whose election by the Borrower's Board of Directors or
whose nomination for election by the Borrower's shareholders was approved by
a majority of the director s still in office who either were directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason (other than death or disability)
to constitute a majority of the Borrower's Board of Directors then in office.;
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9.1.14 INVOLUNTARY PROCEEDINGS.
A proceeding shall have been instituted in a court having
jurisdiction in the premises seeking a decree or order for relief in respect
of any Loan Party without such Loan Party's consent or acquiescence in an
involuntary case under any applicable bankruptcy, insolvency, reorganization
or other similar law now or hereafter in effect, or for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator
(or similar official) of any Loan Party for any substantial part of its
property, or for the winding-up or liquidation of its affairs, and such
proceeding shall remain undismissed or unstayed and in effect for a period of
sixty (60) consecutive days or such court shall enter a decree or order
granting any of the relief sought in such proceeding; or
9.1.15 VOLUNTARY PROCEEDINGS.
Any Loan Party shall commence a voluntary case under any
applicable bankruptcy, insolvency, reorganization or other similar law now or
hereafter in effect, shall consent or acquiesce to the entry of an order for
relief in an involuntary case under any such law, or shall consent or
acquiesce to the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator, conservator (or other similar
official) of itself or for any substantial part of its property or shall make
a general assignment for the benefit of creditors, or shall fail generally to
pay its debts as they become due, or shall take any action in furtherance of
any of the foregoing.
9.2 CONSEQUENCES OF EVENT OF DEFAULT.
9.2.1 EVENTS OF DEFAULT OTHER THAN BANKRUPTCY. INSOLVENCY OR
REORGANIZATION PROCEEDINGS.
If an Event of Default specified under Sections 9. 1.1 through
9.1.13 shall occur and be continuing, the obligation of the Banks and the
Agent to make Loans or issue Letters of Credit, as the case may be, shall be
suspended and the Agent may, and upon the request of the Required Banks,
shall (i) by written notice to the Borrower, declare the unpaid principal
amount of the Notes then outstanding and all interest accrued thereon, any
unpaid fees and all other Indebtedness of the Borrower to the Banks hereunder
and thereunder to be forthwith due and payable, and the same shall thereupon
become and be immediately due and payable to the Agent for the benefit of
each Bank without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived and the Commitments shall then
be terminated, and (ii) require the Borrower to, and the Borrower shall
thereupon, deposit in a non-interest-bearing account with the Agent, as cash
collateral for its Obligations under the Loan Documents, an amount equal to
the maximum amount currently or at any time thereafter available to be drawn
on all outstanding Letters of Credit, and the Borrower hereby pledges to the
Agent and the Banks, and grants to the Agent and the Banks a security
interest in, all such cash as security for such Obligations. Upon the curing
of all existing Events of Default to the satisfaction of the Required Banks,
the Agent shall return such cash collateral to the Borrower;
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9.2.2 BANKRUPTCY, INSOLVENCY OR REORGANIZATION PROCEEDINGS.
If an Event of Default specified under Section 9. 1.14
[Involuntary Proceedings] or Section 9.1.15 [Voluntary Proceedings] shall
occur, the Banks shall be under no further obligations to make Loans
hereunder and the unpaid principal amount of the Loans then outstanding and
all interest accrued thereon, any unpaid fees and all other Indebtedness of
the Borrower to the Banks hereunder and thereunder shall be immediately due
and payable, without presentment, demand, protest or notice of any kind, all
of which are hereby expressly waived; and
9.2.3 SET-OFF
If an Event of Default shall occur and be continuing, any Bank
to whom any Obligation is owed by any Loan Party hereunder or under any other
Loan Document or any participant of such Bank which has agreed in writing to
be bound by the provisions of Section 10.13 [Equalization of Banks] and any
branch, Subsidiary or Affiliate of such Bank or participant anywhere in the
world shall have the right, in addition to all other rights and remedies
available to it, without notice to such Loan Party, to set-off against and
apply to the then unpaid balance of all the Loans and all other Obligations
of the Borrower and the other Loan Parties hereunder or under any other Loan
Document any debt owing to, and any other funds held in any manner for the
account of, the Borrower or such other Loan Party by such Bank or participant
or by such branch, Subsidiary or Affiliate, including all funds in all
deposit accounts (whether time or demand, general or special, provisionally
credited or finally credited, or otherwise) now or hereafter maintained by
the Borrower or such other Loan Party for its own account (but not including
funds held in custodian or trust accounts) with such Bank or participant or
such branch, Subsidiary or Affiliate. Such right shall exist whether or not
any Bank or the Agent shall have made any demand under this Agreement or any
other Loan Document, whether or not such debt owing to or funds held for the
account of the Borrower or such other Loan Party is or are matured or
unmatured and regardless of the existence or adequacy of any Collateral,
Guaranty or any other security, right or remedy available to any Bank or the
Agent; and
9.2.4 SUITS, ACTIONS, PROCEEDINGS.
If an Event of Default shall occur and be continuing, and
whether or not the Agent shall have accelerated the maturity of Loans
pursuant to any of the foregoing provisions of this Section 9.2, the Agent or
any Bank, if owed any amount with respect to the Loans, may proceed to
protect and enforce its rights by suit in equity, action at law and/or other
appropriate proceeding, whether for the specific performance of any covenant
or agreement contained in this Agreement or the other Loan Documents,
including as permitted by applicable Law the obtaining of the EX PARTE
appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of the Agent or such Bank; and
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9.2.5 APPLICATION OF PROCEEDS.
From and after the date on which the Agent has taken any
action pursuant to this Section 9.2 and until all Obligations of the Loan
Parties have been paid in full, any and all proceeds received by the Agent
from any sale or other disposition of the Collateral, or any part thereof or
the exercise of any other remedy by the Agent, shall be applied as follows:
(i) first, to reimburse the Agent and the Banks for
out-of-pocket costs, expenses and disbursements, including reasonable
attorneys' and paralegals' fees and legal expenses, incurred by the Agent or
the Banks in connection with realizing on the Collateral or collection of any
Obligations of any of the Loan Parties under any of the Loan Documents,
including advances made by the Banks or any one of them or the Agent for the
reasonable maintenance, preservation, protection or enforcement of, or
realization Upon, the Collateral, including advances for taxes, insurance,
repairs and the like and reasonable expenses incurred to sell or otherwise
realize on, or prepare for sale or other realization on, any of the
Collateral;
(ii) second, to the repayment of all Indebtedness then
due and unpaid of the Loan Parties to the Banks incurred under this Agreement
or any of the other Loan Documents, whether of principal, interest, fees,
expenses or otherwise, in such manner as the Agent may determine in its
discretion; and
(iii) the balance, if any, as required by Law.
9.2.6 OTHER RIGHTS AND REMEDIES.
In addition to all of the rights and remedies contained in
this Agreement or in any of the other Loan Documents, the Agent shall have
all of the rights and remedies of a secured party under the Uniform
Commercial Code or other applicable Law, all of which rights and remedies
shall be cumulative and non-exclusive, to the extent permitted by Law. The
Agent may, and upon the request of the Required Banks shall, exercise all
post-default rights granted to the Agent and the Banks under the Loan
Documents or applicable Law.
9.3 NOTICE OF SALE.
Any notice required to be given by the Agent of a sale, lease, or other
disposition of the Collateral or any other intended action by the Agent, if
given ten (10) days prior to such proposed action, shall constitute
commercially reasonable and fair notice thereof to the Borrower.
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10. THE AGENT
10.1 APPOINTMENT.
Each Bank hereby irrevocably designates, appoints and authorizes PNC Bank
to act as Agent for such Bank under this Agreement and to execute and deliver or
accept on behalf of each of the Banks the other Loan Documents. Each Bank hereby
irrevocably authorizes, and each holder of any Note by the acceptance of a Note
shall be deemed irrevocably to authorize, the Agent to take such action on its
behalf under the provisions of this Agreement and the other Loan Documents and
any other instruments and agreements referred to herein, and to exercise such
powers and to perform such duties hereunder as are specifically delegated to or
required of the Agent by the terms hereof, together with such powers as are
reasonably incidental thereto. PNC Bank agrees to act as the Agent on behalf of
the Banks to the extent provided in this Agreement.
10.2 DELEGATION OF DUTIES.
The Agent may perform any of its duties hereunder by or through agents or
employees (PROVIDED such delegation does not constitute a relinquishment of its
duties as Agent) and, subject to Sections 10.5 [Reimbursement and
Indemnification of Agent by the Borrower] and 10.6 [Exculpatory Provisions,
Etc.], shall be entitled to engage and pay for the advice or services of any
attorneys, accountants or other experts concerning all matters pertaining to its
duties hereunder and to rely upon any advice so obtained.
10.3 NATURE OF DUTIES; INDEPENDENT CREDIT INVESTIGATION.
The Agent shall have no duties or responsibilities except those expressly
set forth in this Agreement and no implied covenants, functions,
responsibilities, duties, obligations, or liabilities shall be read into this
Agreement or otherwise exist. The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have by reason of this Agreement a
fiduciary or trust relationship in respect of any Bank; and nothing in this
Agreement, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of this Agreement except as
expressly set forth herein. Without limiting the generality of the foregoing,
the use of the term "agent" in this Agreement with reference to the Agent is not
intended to connote any fiduciary or other implied (or express) obligations
arising under agency doctrine of any applicable Law. Instead, such term is used
merely as a matter of market custom, and is intended to create or reflect only
an administrative relationship between independent contracting parties. Each
Bank expressly acknowledges (i) that the Agent has not made any representations
or warranties to it and that no act by the Agent hereafter taken, including any
review of the affairs of any of the Loan Parties, shall be deemed to constitute
any representation or warranty by the Agent to any Bank; (ii) that it has made
and will continue to make, without reliance upon the Agent, its own independent
investigation of the financial condition and affairs and its own appraisal of
the creditworthiness of each of the Loan Parties in connection with this
Agreement and the making and continuance of the Loans hereunder; and (iii)
except as expressly provided herein, that the Agent shall have no duty or
responsibility, either initially or on a
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continuing basis, to provide any Bank with any credit or other information
with respect thereto, whether coming into its possession before the making of
any Loan or at any time or times thereafter.
10.4 ACTIONS IN DISCRETION OF AGENT; INSTRUCTIONS FROM THE BANKS.
The Agent agrees, upon the written request of the Required Banks, to take
or refrain from taking any action of the type specified as being within the
Agent's rights, powers or discretion herein, PROVIDED that the Agent shall not
be required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or any other Loan Document or applicable
Law. In the absence of a request by the Required Banks, the Agent shall have
authority, in its sole discretion, to take or not to take any such action,
unless this Agreement specifically requires the consent of the Required Banks or
all of the Banks. Any action taken or failure to act pursuant to such
instructions or discretion shall be binding on the Banks, subject to Section
10.6 [Exculpatory Provisions, Etc.]. Subject to the provisions of Section 10.6,
no Bank shall have any right of action whatsoever against the Agent as a result
of the Agent acting or refraining from acting hereunder in accordance with the
instructions of the Required Banks, or in the absence of such instructions, in
the absolute discretion of the Agent.
10.5 REIMBURSEMENT AND INDEMNIFICATION OF AGENT BY THE BORROWER.
The Borrower unconditionally agrees to pay or reimburse the Agent and hold
the Agent harmless against (a) liability for the payment of all reasonable
out-of-pocket costs, expenses and disbursements, including fees and expenses
of counsel, appraisers and environmental consultants, incurred by the Agent
(i) in connection with the development, negotiation, preparation, printing,
execution, administration, syndication, interpretation and performance of
this Agreement and the other Loan Documents, (ii) relating to any requested
amendments, waivers or consents pursuant to the provisions hereof; (iii) in
connection with the enforcement of this Agreement or any other Loan Document
or collection of amounts due hereunder or thereunder or the proof and
allowability of any claim arising under this Agreement or any other Loan
Document, whether in bankruptcy or receivership proceedings or otherwise, and
(iv) in any workout or restructuring or in connection with the protection,
preservation, exercise or enforcement of any of the terms hereof or of any
rights hereunder or under any other Loan Document or in connection with any
foreclosure, collection or bankruptcy proceedings, and (b) all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Agent, in its capacity as
such, in any way relating to or arising out of this Agreement or any other
Loan Documents or any action taken or omitted by the Agent hereunder or
thereunder, PROVIDED that the Borrower shall not be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements if the same results from
the Agent's gross negligence or willful misconduct, or if the Borrower was
not given notice of the subject claim and the opportunity to participate in
the defense thereof at its expense (except that the Borrower shall remain
liable to the extent such failure to give notice does not result in a loss to
the Borrower), or if the same results from a compromise or settlement
agreement entered into without the consent of the Borrower, which
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shall not be unreasonably withheld. In addition, the Borrower agrees to
reimburse and pay all reasonable out-of-pocket expenses of the Agent's
regular employees and agents engaged periodically to perform audits of the
Loan Parties' books, records and business properties.
10.6 EXCULPATORY PROVISIONS; LIMITATION OF LIABILITY.
Neither the Agent nor any of its directors, officers, employees, agents,
attorneys or Affiliates shall (a) be liable to any Bank for any action taken or
omitted to be taken by it or them hereunder, or in connection herewith including
pursuant to any Loan Document, unless caused by its or their own gross
negligence or willful misconduct, (b) be responsible in any manner to any of the
Banks for the effectiveness, enforceability, genuineness, validity or the due
execution of this Agreement or any other Loan Documents or for any recital,
representation, warranty, document, certificate, report or statement herein or
made or furnished under or in connection with this Agreement or any other Loan
Documents, or (c) be under any obligation to any of the Banks to ascertain or to
inquire as to the performance or observance of any of the terms, covenants or
conditions hereof or thereof on the part of the Loan Parties, or the financial
condition of the Loan Parties, or the existence or possible existence of any
Event of Default or Potential Default. No claim may be made by any of the Loan
Parties, any Bank, the Agent or any of their respective Subsidiaries against the
Agent, any Bank or any of their respective directors, officers, employees,
agents, attorneys or Affiliates, or any of them, for any special, indirect or
consequential damages or, to the fullest extent permitted by Law, for any
punitive damages in respect of any claim or cause of action (whether based on
contract, tort, statutory liability, or any other ground) based on, arising out
of or related to any Loan Document or the transactions contemplated hereby or
any act, omission or event occurring in connection therewith, including the
negotiation, documentation, administration or collection of the Loans, and each
of the Loan Parties, (for itself and on behalf of each of its Subsidiaries), the
Agent and each Bank hereby waive, releases and agree never to sue upon any claim
for any such damages, whether such claim now exists or hereafter arises and
whether or not it is now known or suspected to exist in its favor. Each Bank
agrees that, except for notices, reports and other documents expressly required
to be furnished to the Banks by the Agent hereunder or given to the Agent for
the account of or with copies for the Banks, the Agent and each of its
directors, officers, employees, agents, attorneys or Affiliates shall not have
any duty or responsibility to provide any Bank with any credit or other
information concerning the business, operations, property, condition (financial
or otherwise), prospects or creditworthiness of the Loan Parties which may come
into the possession of the Agent or any of its directors, officers, employees,
agents, attorneys or Affiliates.
10.7 REIMBURSEMENT AND INDEMNIFICATION OF AGENT BY BANKS.
Each Bank agrees to reimburse and indemnify the Agent (to the extent not
reimbursed by the Borrower and without limiting the Obligation of the Borrower
to do so) in proportion to its Ratable Share from and against all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements, including attorneys' fees and disbursements
(including the allocated costs of staff counsel), and costs of appraisers and
environmental consultants, of any kind or nature whatsoever which may be imposed
on, incurred
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by or asserted against the Agent, in its capacity as such, in any way
relating to or arising out of this Agreement or any other Loan Documents or
any action taken or omitted by the Agent hereunder or thereunder, PROVIDED
that no Bank shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements (a) if the same results from the Agent's gross
negligence or willful misconduct, or (b) if such Bank was not given notice of
the subject claim and the opportunity to participate in the defense thereof
at its expense (except that such Bank shall remain liable to the extent such
failure to give notice does not result in a loss to the Bank), or (c) if the
same results from a compromise and settlement agreement entered into without
the consent of such Bank, which shall not be unreasonably withheld. In
addition, each Bank agrees promptly upon demand to reimburse the Agent (to
the extent not reimbursed by the Borrower and without limiting the Obligation
of the Borrower to do so) in proportion to its Ratable Share for all amounts
due and payable by the Borrower to the Agent in connection with the Agent's
periodic audit of the Loan Parties' books, records and business properties.
10.8 RELIANCE BY AGENT.
The Agent shall be entitled to rely upon any writing, telegram, telex or
teletype message, resolution, notice, consent, certificate, letter, cablegram,
statement, order or other document or conversation by telephone or otherwise
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons, and upon the advice and opinions of counsel and
other professional advisers selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action hereunder unless it shall
first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
10.9 NOTICE OF DEFAULT.
The Agent shall not be deemed to have knowledge or notice of the occurrence
of any Potential Default or Event of Default unless the Agent has received
written notice from a Bank or the Borrower referring to this Agreement,
describing such Potential Default or Event of Default and stating that such
notice is a "notice of default."
10.10 NOTICES.
The Agent shall promptly send to each Bank a copy of all notices received
from the Borrower pursuant to the provisions of this Agreement or the other Loan
Documents promptly upon receipt thereof. The Agent shall promptly notify the
Borrower and the other Banks of each change in the Base Rate and the effective
date thereof.
10.11 BANKS IN THEIR INDIVIDUAL CAPACITIES.
With respect to its Revolving Credit Commitment and the Revolving Credit
Loans made by it and any other rights and powers given to it as a Bank hereunder
or under any of the other Loan Documents, the Agent shall have the same rights
and powers hereunder as any
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other Bank and may exercise the same as though it were not the Agent, and the
term "Banks" shall, unless the context otherwise indicates, include the Agent
in its individual capacity. PNC Bank and its Affiliates and each of the Banks
and their respective Affiliates may, without liability to account, except as
prohibited herein, make loans to, accept deposits from, discount drafts for,
act as trustee under indentures of, and generally engage in any kind of
banking or trust business with, the Loan Parties and their Affiliates, in the
case of the Agent, as though it were not acting as Agent hereunder and in the
case of each Bank, as though such Bank were not a Bank hereunder. The Banks
acknowledge that, pursuant to such activities, the Agent or its Affiliates
may (i) receive information regarding the Loan Parties (including information
that may be subject to confidentiality obligations in favor of the Loan
Parties) and acknowledge that the Agent shall be under no obligation to
provide such information to them, and (ii) accept fees and other
consideration from the Loan Parties for services in connection with this
Agreement and otherwise without having to account for the same to the Banks.
10.12 HOLDERS OF NOTES.
The Agent may deem and treat any payee of any Note as the owner thereof for
all purposes hereof unless and until written notice of the assignment or
transfer thereof shall have been filed with the Agent. Any request, authority or
consent of any Person who at the time of making such request or giving such
authority or consent is the holder of any Note shall be conclusive and binding
on any subsequent holder, transferee or assignee of such Note or of any Note or
Notes issued in exchange therefor.
10.13 EQUALIZATION OF BANKS.
The Banks and the holders of any participations in any Notes agree among
themselves that, with respect to all amounts received by any Bank or any such
holder for application on any Obligation hereunder or under any Note or under
any such participation, whether received by voluntary payment, by realization
upon security, by the exercise of the right of set-off or banker's lien, by
counterclaim or by any other non-pro rata source, equitable adjustment will be
made in the manner stated in the following sentence so that, in effect, all such
excess amounts will be shared ratably among the Banks and such holders in
proportion to their interests in payments under the Notes, except as otherwise
provided in Section 4.4.3 [Agent's and Bank's Rights], 5.4.2 [Replacement of a
Bank] or 5.5 [Additional Compensation in Certain Circumstances]. The Banks or
any such holder receiving any such amount shall purchase for cash from each of
the other Banks an interest in such Bank's Loans in such amount as shall result
in a ratable participation by the Banks and each such holder in the aggregate
unpaid amount under the Notes, PROVIDED that if all or any portion of such
excess amount is thereafter recovered from the Bank or the holder making such
purchase, such purchase shall be rescinded and the purchase price restored to
the extent of such recovery, together with interest or other amounts, if any,
required by law (including court order) to be paid by the Bank or the holder
making such purchase.
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10.14 SUCCESSOR AGENT.
The Agent (i) may resign as Agent or (ii) shall resign if such resignation
is requested by the Required Banks (if the Agent is a Bank, the Agent's Loans
and its Commitment shall be considered in determining whether the Required Banks
have requested such resignation) or required by Section 5.4.2 [Replacement of a
Bank], in either case of(i) or (ii) by giving not less than thirty (30) days'
prior written notice to the Borrower. If the Agent shall resign under this
Agreement, then either (a) the Required Banks shall appoint from among the Banks
a successor agent for the Banks, subject to the consent of the Borrower, such
consent not to be unreasonably withheld, or (b) if a successor agent shall not
be so appointed and approved within the thirty (30) day period following the
Agent's notice to the Banks of its resignation, then the Agent shall appoint,
with the consent of the Borrower, such consent not to be unreasonably withheld,
a successor agent who shall serve as Agent until such time as the Required Banks
appoint and the Borrower consents to the appointment of a successor agent. Upon
its appointment pursuant to either clause (a) or (b) above, such successor agent
shall succeed to the rights, powers and duties of the Agent, and the term
"Agent" shall mean such successor agent, effective upon its appointment, and the
former Agent's rights, powers and duties as Agent shall be terminated without
any other or further act or deed on the part of such former Agent or any of the
parties to this Agreement. After the resignation of any Agent hereunder, the
provisions of this Section 10 shall inure to the benefit of such former Agent
and such former Agent shall not by reason of such resignation be deemed to be
released from liability for any actions taken or not taken by it while it was an
Agent under this Agreement.
10.15 AGENT'S FEE.
The Borrower shall pay to the Agent a nonrefundable fee (the "Agent's Fee")
under the terms of a letter (the "Agent's Letter") between the Borrower and
Agent, as amended from time to time.
10.16 AVAILABILITY OF FUNDS.
The Agent may assume that each Bank has made or will make the proceeds of a
Loan available to the Agent unless the Agent shall have been notified by such
Bank on or before the later of the close of Business on the Business Day
preceding the Borrowing Date with respect to such Loan or two (2) hours before
the time on which the Agent actually funds the proceeds of such Loan to the
Borrower (whether using its own funds pursuant to this Section 10.16 or using
proceeds deposited with the Agent by the Banks and whether such funding occurs
before or after the time on which Banks are required to deposit the proceeds of
such Loan with the Agent). The Agent may, in reliance upon such assumption (but
shall not be required to), make available to the Borrower a corresponding
amount. If such corresponding amount is not in fact made available to the Agent
by such Bank, the Agent shall be entitled to recover such amount on demand from
such Bank (or, if such Bank fails to pay such amount forthwith upon such demand
from the Borrower) together with interest thereon, in respect of each day during
the period commencing on the date such amount was made available to the Borrower
and ending on the date the Agent recovers such amount, at a rate per annum equal
to (i) the Federal Funds Effective Rate during
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the first three (3) days after such interest shall begin to accrue and (ii)
the applicable interest rate in respect of such Loan after the end of such
three-day period.
10.17 CALCULATIONS.
In the absence of gross negligence or willful misconduct, the Agent shall
not be liable for any error in computing the amount payable to any Bank whether
in respect of the Loans, fees or any other amounts due to the Banks under this
Agreement. In the event an error in computing any amount payable to any Bank is
made, the Agent, the Borrower and each affected Bank shall, forthwith upon
discovery of such error, make such adjustments as shall be required to correct
such error, and any compensation therefor will be calculated at the Federal
Funds Effective Rate.
10.18 BENEFICIARIES.
Except as expressly provided herein, the provisions of this Section 10 are
solely for the benefit of the Agent and the Banks, and the Loan Parties shall
not have any rights to rely on or enforce any of the provisions hereof. In
performing its functions and duties under this Agreement, the Agent shall act
solely as agent of the Banks and does not assume and shall not be deemed to have
assumed any obligation toward or relationship of agency or trust with or for any
of the Loan Parties.
11. MISCELLANEOUS
11.1 MODIFICATIONS, AMENDMENTS OR WAIVERS.
With the written consent of the Required Banks, the Agent, acting on behalf
of all the Banks, and the Borrower, on behalf of the Loan Parties, may from time
to time enter into written agreements amending or changing any provision of this
Agreement or any other Loan Document or the rights of the Banks or the Loan
Parties hereunder or thereunder, or may grant written waivers or consents to a
departure from the due performance of the Obligations of the Loan Parties
hereunder or thereunder. Any such agreement, waiver or consent made with such
written consent shall be effective to bind all the Banks and the Loan Parties;
PROVIDED, that, without the written consent of all the Banks, no such agreement,
waiver or consent may be made which will:
11.1.1 INCREASE OF COMMITMENT; EXTENSION OR EXPIRATION DATE.
Increase the amount of the Commitment of any Bank hereunder or
extend the Expiration Date;
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11.1.2 EXTENSION OF PAYMENT; REDUCTION OF PRINCIPAL INTEREST OR
FEES; MODIFICATION OF TERMS OF PAYMENT.
Whether or not any Loans are outstanding, extend the time for
payment of principal or interest of any Loan (excluding the due date of any
mandatory prepayment of a Loan or any mandatory Commitment reduction in
connection with such a mandatory prepayment hereunder except for mandatory
reductions of the Commitments on the Expiration Date), the Commitment Fee or any
other fee payable to any Bank, or reduce the principal amount of or the rate of
interest borne by any Loan or reduce the Commitment Fee or any other fee payable
to any Bank, or otherwise affect the terms of payment of the principal of or
interest of any Loan, the Commitment Fee or any other fee payable to any Bank;
11.1.3 RELEASE OF COLLATERAL OR GUARANTOR.
Except for sales of assets permitted by Section 8.2.7
[Disposition of Assets or Subsidiaries], release any Collateral consisting of
capital stock or other ownership interests of any Loan Party or its Subsidiary
or substantially all of the assets of any Loan Party, or any Guarantor from its
Obligations under the Guaranty Agreement; or
11.1.4 MISCELLANEOUS
Amend Section 5.2 [Pro Rata Treatment of Banks], 10.6
[Exculpatory Provisions, Etc.] or 10.13 [Equalization of Banks] or this Section
11.1, alter any provision regarding the pro rata treatment of the Banks, change
the definition of Required Banks, or change any requirement providing for the
Banks or the Required Banks to authorize the taking of any action hereunder;
PROVIDED, further, that no agreement, waiver or consent which would modify the
interests, rights or obligations of the Agent in its capacity as Agent or as the
issuer of Letters of Credit shall be effective without the written consent of
the Agent.
11.2 NO IMPLIED WAIVERS; CUMULATIVE REMEDIES; WRITING REQUIRED.
No course of dealing and no delay or failure of the Agent or any Bank in
exercising any right, power, remedy or privilege under this Agreement or any
other Loan Document shall affect any other or future exercise thereof or operate
as a waiver thereof, nor shall any single or partial exercise thereof or any
abandonment or discontinuance of steps to enforce such a right, power, remedy or
privilege preclude any further exercise thereof or of any other right, power,
remedy or privilege. The rights, remedies, powers and privileges of the Agent
and the Banks under this Agreement and any other Loan Documents are cumulative
and not exclusive of any rights, remedies, powers and privileges which they
would otherwise have. Any waiver, permit, consent or approval of any kind or
character on the part of any Bank of any breach or default under this Agreement
or any such waiver of any provision or condition of this Agreement must be in
writing and shall be effective only to the extent specifically set forth in such
writing.
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11.3 REIMBURSEMENT AND INDEMNIFICATION OF BANKS BY THE BORROWER; TAXES.
The Borrower agrees unconditionally upon demand to pay or reimburse to each
Bank (other than the Agent, as to which the Borrower's Obligations are set forth
in Section 10.5 [Reimbursement and Indemnification of Agent by the Borrower])
and to save such Bank harmless against (i) liability for the payment of all
reasonable out-of-pocket costs, expenses and disbursements (including fees and
expenses of counsel), incurred by such Bank (a) in connection with the
enforcement of this Agreement or any other Loan Document, or collection of
amounts due hereunder or thereunder or the proof and allowability of any claim
arising under this Agreement or any other Loan Document, whether in bankruptcy
or receivership proceedings or otherwise, and (b) in any workout or
restructuring or in connection with the protection, preservation, exercise or
enforcement of any of the terms hereof or of any rights hereunder or under any
other Loan Document or in connection with any foreclosure, collection or
bankruptcy proceedings, or (ii) all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against such Bank, in its capacity as such, in any way relating to or arising
out of this Agreement or any other Loan Documents or any action taken or omitted
by such Bank hereunder or thereunder, PROVIDED that the Borrower shall not be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements (A) if
the same results from such Bank's gross negligence or willful misconduct, or (B)
if the Borrower was not given notice of the subject claim and the opportunity to
participate in the defense thereof, at its expense (except that the Borrower
shall remain liable to the extent such failure to give notice does not result in
a loss to the Borrower), or (C) if the same results from a compromise or
settlement agreement entered into without the consent of the Borrower, which
shall not be unreasonably withheld. The Banks will attempt to minimize the fees
and expenses of legal counsel for the Banks which are subject to reimbursement
by the Borrower hereunder by considering the usage of one law firm to represent
the Banks and the Agent if appropriate under the circumstances. The Borrower
agrees unconditionally to pay all stamp, document, transfer, recording or filing
taxes or fees and similar impositions now or hereafter determined by the Agent
or any Bank to be payable in connection with this Agreement or any other Loan
Document, and the Borrower agrees unconditionally to save the Agent and the
Banks harmless from and against any and all present or future claims,
liabilities or losses with respect to or resulting from any omission to pay or
delay in paying any such taxes, fees or impositions. For the purposes of this
Section 11.3, all references to any Bank or the Banks shall be deemed to include
Bank Of America National Trust and Savings Association, N.A. in its capacity as
the Co-Agent and Bank Of America National Trust and Savings Association, N.A. in
its capacity as the Co-Agent shall be afforded all of the rights given to any
Bank in this Section.
11.4 HOLIDAYS.
Whenever payment of a Loan to be made or taken hereunder shall be due on a
day which is not a Business Day such payment shall be due on the next Business
Day and such extension of time shall be included in computing interest and fees,
except that the Loans shall be due on the Business Day preceding the Expiration
Date if the Expiration Date is not a Business Day. Whenever any payment or
action to be made or taken hereunder (other than payment of the
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Loans) shall be stated to be due on a day which is not a Business Day, such
payment or action shall be made or taken on the next following Business Day
(except as provided in Section 4.2 [Interest Periods] with respect to
Interest Periods under the Euro-Rate Option), and such extension of time
shall not be included in computing interest or fees, if any, in connection
with such payment or action.
11.5 FUNDING BY BRANCH, SUBSIDIARY OR AFFILIATE.
11.5.1 NATIONAL FUNDING.
Each Bank shall have the right from time to time, without notice
to the Borrower, to deem any branch, Subsidiary or Affiliate (which for the
purposes of this Section 11.5 shall mean any corporation or association which is
directly or indirectly controlled by or is under direct or indirect common
control with any corporation or association which directly or indirectly
controls such Bank) of such Bank to have made, maintained or funded any Loan to
which the Euro-Rate Option applies at any time, PROVIDED that immediately
following (on the assumption that a payment were then due from the Borrower to
such other office), and as a result of such change, the Borrower would not be
under any greater financial obligation pursuant to Section 5.5 [Additional
Compensation in Certain Circumstances] than it would have been in the absence of
such change. Notional funding offices may be selected by each Bank without
regard to such Bank's actual methods of making, maintaining or funding the Loans
or any sources of funding actually used by or available to such Bank.
11.5.2 ACTUAL FUNDING.
Each Bank shall have the right from time to time to make or
maintain any Loan by arranging for a branch, Subsidiary or Affiliate of such
Bank to make or maintain such Loan subject to the last sentence of this Section
11.5.2. If any Bank causes a branch, Subsidiary or Affiliate to make or maintain
any part of the Loans hereunder, all terms and conditions of this Agreement
shall, except where the context clearly requires otherwise, be applicable to
such part of the Loans to the same extent as if such Loans were made or
maintained by such Bank, but in no event shall any Bank's use of such a branch,
Subsidiary or Affiliate to make or maintain any part of the Loans hereunder
cause such Bank or such branch, Subsidiary or Affiliate to incur any cost or
expenses payable by the Borrower hereunder or require the Borrower to pay any
other compensation to any Bank (including any expenses incurred or payable
pursuant to Section 5.5 [Additional Compensation in Certain Circumstances])
which would otherwise not be incurred.
11.6 NOTICES.
All notices, requests, demands, directions and other communications (as
used in this Section 11.6, collectively referred to as "Notices") given to or
made upon any party hereto under the provisions of this Agreement shall be by
telephone or in writing (including telex or facsimile communication) unless
otherwise expressly permitted hereunder and shall be delivered or sent by telex
or facsimile to the respective parties at the addresses and numbers set forth
under
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their respective names on SCHEDULE 1.1(B) hereof or in accordance with any
subsequent unrevoked Notice from any party to the others. All Notices shall,
except as otherwise expressly herein provided, be effective (a) in the case
of telex or facsimile, when received, (b) in the case of hand-delivered
Notice, when hand-delivered, (c) in the case of telephone, when telephoned,
PROVIDED, however, that in order to be effective, telephonic Notices must be
confirmed in writing no later than the next day by letter, facsimile or
telex, (d) if given by mail, four (4) days after such communication is
deposited in the mail with first-class postage prepaid, certified or
registered mail, return receipt requested, and (e) if given by any other
means (including by air courier), when delivered; PROVIDED, that Notices to
the Agent shall not be effective until received. Any Bank giving any Notice
to any Loan Party shall simultaneously send a copy thereof to the Agent, and
the Agent shall promptly notify the other Banks of the receipt by it of any
such Notice.
11.7 SEVERABILITY.
The provisions of this Agreement are intended to be severable. If any
provision of this Agreement shall be held invalid or unenforceable in whole or
in part in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without in any
manner affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions hereof in any jurisdiction.
11.8 GOVERNING LAW.
Each Letter of Credit and Section 2.10 [Letter of Credit Subfacility] shall
be subject to the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500, as the same
may be revised or amended from time to time, and to the extent not inconsistent
therewith, the internal laws of the Commonwealth of Pennsylvania without regard
to its conflict of laws principles, and the balance of this Agreement shall be
deemed to be a contract under the Laws of the Commonwealth of Pennsylvania and
for all purposes shall be governed by and construed and enforced in accordance
with the internal laws of the Commonwealth of Pennsylvania without regard to its
conflict of laws principles.
11.9 PRIOR UNDERSTANDING.
This Agreement and the other Loan Documents supersede all prior
understandings and agreements, whether written or oral, between the parties
hereto and thereto relating to the transactions provided for herein and therein,
including any prior confidentiality agreements and commitments.
11.10 DURATION; SURVIVAL.
All representations and warranties of the Loan Parties contained herein or
made in connection herewith shall survive the making of Loans and issuance of
Letters of Credit and shall not be waived by the execution and delivery of this
Agreement, any investigation by the
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Agent or the Banks, the making of Loans, issuance of Letters of Credit, or
payment in full of the Loans. All covenants and agreements of the Loan
Parties contained in Sections 8.1 [Affirmative Covenants], 8.2
[Negative Covenants] and 8.2.20 [Reporting Requirements] herein shall
continue in full force and effect from and after the date hereof so long as
the Borrower may borrow or request Letters of Credit hereunder and until
termination of the Commitments and payment in full of the Loans and
expiration or termination of all Letters of Credit. All covenants and
agreements of the Borrower contained herein relating to the payment of
principal, interest, premiums, additional compensation or expenses and
indemnification, including those set forth in the Notes, Section 5 [Payments]
and Sections 10.5 [Reimbursement and Indemnification of Agent by the Borrower],
10.7 [Reimbursement and Indemnification of Agent by the Banks] and 11.3
[Reimbursement and Indemnification of Banks by the Borrower, Etc.], shall
survive payment in full of the Loans, expiration or termination of the
Letters of Credit and termination of the Commitments.
11.11 SUCCESSORS AND ASSIGNS.
(i) This Agreement shall be binding upon and shall inure to
the benefit of the Banks, the Agent, the Loan Parties and their respective
successors and assigns, except that none of the Loan Parties may assign or
transfer any of its rights and Obligations hereunder or any interest herein.
Each Bank may, at its own cost, make assignments of or sell participations in
all or any part of its Commitments and the Loans made by it to one or more banks
or other entities, subject to the consent of the Borrower and the Agent with
respect to any assignee, such consent not to be unreasonably withheld, PROVIDED
that (1) no consent of the Borrower shall be required (A) if an Event of Default
exists and is continuing, or (B) in the case of an assignment by a Bank to an
Affiliate of such Bank, and (2) any assignment by a Bank to a Person other than
an Affiliate of such Bank may not be made in amounts of Revolving Credit
Commitments less than the lesser of $5,000,000 or the amount of the assigning
Bank's Revolving Credit Commitment. In the case of an assignment, upon receipt
by the Agent of the Assignment and Assumption Agreement, the assignee shall
have, to the extent of such assignment (unless otherwise provided therein), the
same rights, benefits and obligations as it would have if it had been a
signatory Bank hereunder, the Commitments shall be adjusted accordingly, and
upon surrender of any Note subject to such assignment, the Borrower shall
execute and deliver a new Note to the assignee in an amount equal to the amount
of the Revolving Credit Commitment assumed by it and a new Revolving Credit Note
to the assigning Bank in an amount equal to the Revolving Credit Commitment
retained by it hereunder. Any Bank which assigns any or all of its Commitment or
Loans to a Person other than an Affiliate of such Bank shall pay (or cause to be
paid by the assignee) to the Agent a service fee in the amount of $3,500 for
each assignment. In the case of a participation, the participant shall only have
the rights specified in Section 9.2.3 [Set-off] (the participant's rights
against such Bank in respect of such participation to be those set forth in the
agreement executed by such Bank in favor of the participant relating thereto and
not to include any voting rights except with respect to changes of the type
referenced in Sections 11.1.1 [Increase of Commitment, Etc.], 11.1.2 [Extension
of Payment, Etc.], or 11.1.3 [Release of Collateral or Guarantor], all of such
Bank's obligations under this Agreement or any
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other Loan Document shall remain unchanged, and all amounts payable by any
Loan Party hereunder or thereunder shall be determined as if such Bank had
not sold such participation.
(ii) Any assignee or participant which is not incorporated
under the Laws of the United States of America or a state thereof shall deliver
to the Borrower and the Agent the form of certificate described in Section 11.17
[Tax Withholding Clause] relating to federal income tax withholding. Each Bank
may furnish any publicly available information concerning any Loan Party or its
Subsidiaries and any other information concerning any Loan Party or its
Subsidiaries in the possession of such Bank from time to time to assignees and
participants (including prospective assignees or participants), PROVIDED that
such assignees and participants agree to be bound by the provisions of Section
11.12 [Confidentiality].
(iii) Notwithstanding any other provision in this Agreement,
any Bank may at any time pledge or grant a security interest in all or any
portion of its rights under this Agreement, its Note and the other Loan
Documents to any Federal Reserve Bank in accordance with Regulation A of the FRB
or U.S. Treasury Regulation 31 CFR Section 203.14 without notice to or consent
of the Borrower or the Agent. No such pledge or grant of a security interest
shall release the transferor Bank of its obligations hereunder or under any
other Loan Document.
11.12 CONFIDENTIALITY.
11.12.1 GENERAL.
The Agent and the Banks each agree to keep confidential all
information obtained from any Loan Party or its Subsidiaries which is nonpublic,
confidential or proprietary in nature (including any information the Borrower
specifically designates as confidential), except as provided below, and to use
such information only in connection with their respective capacities under this
Agreement and for the purposes contemplated hereby. The Agent and the Banks
shall be permitted to disclose such information (i) to outside legal counsel,
accountants and other professional advisors who need to know such information in
connection with the administration and enforcement of this Agreement, subject to
agreement of such Persons to maintain the confidentiality, (ii) to assignees and
participants as contemplated by Section 11.11 or as provided in Section 11.12.2,
(iii) to the extent requested by any bank regulatory authority or, with notice
to the Borrower, as otherwise required by applicable Law or by any subpoena or
similar legal process, or in connection with any investigation or proceeding
arising out of the transactions contemplated by this Agreement, (iv) if it
becomes publicly available other than as a result of a breach of this Agreement
or becomes available from a source not known to be subject to confidentiality
restrictions, or (v) if the Borrower shall have consented to such disclosure.
11.12.2 SHARING INFORMATION WITH AFFILIATES OF THE BANKS.
Each Loan Party acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
the Borrower or
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one or more of its Affiliates (in connection with this Agreement or
otherwise) by any Bank or by one or more Subsidiaries or Affiliates of such
Bank and each of the Loan Parties hereby authorizes each Bank to share any
information delivered to such Bank by such Loan Party and its Subsidiaries
pursuant to this Agreement, or in connection with the decision of such Bank
to enter into this Agreement, to any such Subsidiary or Affiliate of such
Bank, it being understood that any such Subsidiary or affiliate of any Bank
receiving such information shall be bound by the provisions of Section
11.12.1 as if it were a Bank hereunder. Such Authorization shall survive the
repayment of the Loans and other Obligations and the termination of the
Commitments.
11.13 COUNTERPARTS.
This Agreement may be executed by different parties hereto on any number of
separate counterparts, each of which, when so executed and delivered, shall be
an original, and all such counterparts shall together constitute one and the
same instrument.
11.14 AGENT'S OR BANK'S CONSENT.
Whenever the Agent's or any Bank's consent is required to be obtained under
this Agreement or any of the other Loan Documents as a condition to any action,
inaction, condition or event, the Agent and each Bank shall be authorized to
give or withhold such consent in its sole and absolute discretion (except when
this Agreement or such other Loan Documents expressly provide that such consent
may not be unreasonably withheld) and to condition its consent upon the giving
of additional collateral, the payment of money or any other matter.
11.15 EXCEPTIONS.
The representations, warranties and covenants contained herein shall be
independent of each other, and no exception to any representation, warranty or
covenant shall be deemed to be an exception to any other representation,
warranty or covenant contained herein unless expressly provided, nor shall any
such exceptions be deemed to permit any action or omission that would be in
contravention of applicable Law.
11.16 CONSENT TO FORUM: WAIVER OF JURY TRIAL.
EACH LOAN PARTY HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE
JURISDICTION OF THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY AND THE UNITED
STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA AND WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH LOAN
PARTY AT THE ADDRESSES PROVIDED FOR IN SECTION 11.6 AND SERVICE SO MADE SHALL BE
DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH LOAN PARTY WAIVES ANY
OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS
PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON
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LACK OF JURISDICTION OR VENUE. EACH LOAN PARTY, THE AGENT AND THE BANKS
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF
ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT
OR THE COLLATERAL TO THE FULL EXTENT PERMITTED BY LAW.
11.17 TAX WITHHOLDING CLAUSE.
Each Bank or assignee or participant of a Bank that is not incorporated
under the Laws of the United States of America or a state thereof agrees that it
will deliver to each of the Borrower and the Agent two (2) duly completed copies
of the following: (i) Internal Revenue Service Form W-9, 4224 or 1001, or other
applicable form prescribed by the Internal Revenue Service, certifying that such
Bank, assignee or participant is entitled to receive payments under this
Agreement and the other Loan Documents without deduction or withholding of any
United States federal income taxes, or is subject to such tax at a reduced rate
under an applicable tax treaty, or (ii) Internal Revenue Service Form W-8 or
other applicable form or a certificate of such Bank, assignee or participant
indicating that no such exemption or reduced rate is allowable with respect to
such payments. Each Bank, assignee or participant required to deliver to the
Borrower and the Agent a form or certificate pursuant to the preceding sentence
shall deliver such form or certificate as follows: (A) each Bank which is a
party hereto on the Closing Date shall deliver such form or certificate at least
five (5) Business Days prior to the first date on which any interest or fees are
payable by the Borrower hereunder for the account of such Bank; (B) each
assignee or participant shall deliver such form or certificate at least five (5)
Business Days before the effective date of such assignment or participation
(unless the Agent in its sole discretion shall permit such assignee or
participant to deliver such form or certificate less than five (5) Business Days
before such date in which case it shall be due on the date specified by the
Agent). Each Bank, assignee or participant which so delivers a Form W-8, W-9,
4224 or 1001 further undertakes to deliver to each of the Borrower and the Agent
two (2) additional copies of such form (or a successor form) on or before the
date that such form expires or becomes obsolete or after the occurrence of any
event requiring a change in the most recent form so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Agent, either certifying that such Bank,
assignee or participant is entitled to receive payments under this Agreement and
the other Loan Documents without deduction or withholding of any United States
federal income taxes or is subject to such tax at a reduced rate under an
applicable tax treaty or stating that no such exemption or reduced rate is
allowable. The Agent and the Borrower shall be entitled to withhold United
States federal income taxes at the full withholding rate unless the Bank,
assignee or participant establishes an exemption or that it is subject to a
reduced rate as established pursuant to the above provisions.
11.18 JOINDER OF GUARANTORS.
Any Subsidiary of the Borrower which is required to join this Agreement as
a Guarantor pursuant to Section 8.2.9 [Subsidiaries, Partnerships and Joint
Ventures] shall execute and deliver to the Agent (i) a Guarantor Joinder in
substantially the form attached hereto as EXHIBIT 1.1(G)1 pursuant to which it
shall join the Guaranty Agreement, this Agreement and
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the other Loan Documents as a Guarantor; (ii) documents in the forms
described in Section 7.1 [First Loans and Letter of Credit] (including
opinions of counsel) modified as appropriate to relate to such Subsidiary;
and (iii) documents necessary to grant and perfect Prior Security Interests
to the Agent for the benefit of the Banks in all personal property held by
such Subsidiary. The owners of the capital stock of such Subsidiary shall
execute and deliver to the a Pledge Agreement (or joinder to the Pledge
Agreement) and appropriate stock powers and certificates pledging such
capital stock to the Agent for the benefit of the Banks. The Loan Parties and
the Borrower shall deliver the foregoing documents to the Agent within five
(5) Business Days after such Subsidiary becomes a Subsidiary of the Borrower.
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IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
ATTEST: LONE STAR STEEL COMPANY
/s/ Ben S. Stiff By: /s/ R.W. Arp
- ------------------------- --------------------------------
Assistant Secretary Title: Executive Vice President
-----------------------------
PNC BANK, NATIONAL ASSOCIATION,
individually and as Agent
By: /s/ Lynn Koncz
-------------------------------
Title: Vice President
-----------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, N.A., individually and as Co-Agent
By: /s/ June Courtney
-------------------------------
Title: Vioe President
-----------------------------
THE SANWA BANK,LTD.
By: /s/ Lawrence Murphy
-------------------------------
Title: Senior Vice President
-----------------------------
BNY FINANCIAL CORPORATION
By: /s/ Frank Imperato
-------------------------------
Title: Vice President
-----------------------------
<PAGE>
GUARANTORS:
LONE STAR LOGISTICS, INC.
By: /s/ R.W. Arp
-------------------------------
Title: Chief Financial Officer
-----------------------------
T & N LONE STAR WAREHOUSE CO.
By: /s/ R.W. Arp
-------------------------------
Title: Treasurer
-----------------------------
TEXAS & NORTHERN RAILWAY COMPANY
By: /s/ R.W. Arp
-------------------------------
Title: Treasurer
-----------------------------
<PAGE>
COST SHARING AGREEMENT
Lone Star Steel Company, a Delaware corporation ("Company"), and Lone Star
Technologies, Inc., a Delaware corporation ("Parent"), are parties to that
certain Cost Sharing Agreement dated May 16, 1991 ("Old Agreement").
WITNESSETH:
WHEREAS, Company has been paying Parent approximately $127,000 per month
pursuant to the Old Agreement since its inception, without making any permitted
adjustment for inflation;
WHEREAS, whenever an employee of Company exercises an employee stock
option, Company remits cash to Parent in an amount equal to the employee's gain
upon exercise of his option, I.E., the difference between the option's exercise
price and the stock's value at the date of exercise;
WHEREAS, Parent's general and administrative expenses, which include
investor relations, tax services, public reporting, legal services and
directors' fees, are incurred for Company's benefit and are expenses that
Company would incur if Company were a public company; and
WHEREAS, Company and Parent have agreed that Company reimburse Parent for
its general and administrative expenses and that Company no longer pay Parent
amounts equal to its employees' gains upon the exercises of their employee stock
options;
NOW THEREFORE, Company and Parent agree as follows:
1. The Old Agreement is hereby terminated by Company and Parent,
effective as of July 1, 1997.
2. Parent will submit an invoice to Company after the end of each month,
commencing with the month of July, 1997, setting forth the amount of
Parent's general and administrative expenses as recorded on its financial
records for that month, and Company will promptly pay Parent the amount of
that invoice.
3. Effective as of July 1, 1997, Company will no longer pay to Parent the
amount of the gain recognized by any employee of Company upon the exercise
of his employee stock options.
<PAGE>
4. This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto and their respective successors and assigns. This Agreement
may be terminated by the mutual agreement of the parties hereto at any
time.
5. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
first day of July, 1997.
LONE STAR STEEL COMPANY
By: /s/ R.W. Arp
-------------------------------------
Name: R.W. Arp
------------------------------
Title: Executive Vice President
------------------------------
LONE STAR TECHNOLOGIES, INC.
By: /s/ John P. Harbin
-------------------------------------
Name: John P. Harbin
------------------------------
Title: Chairman and Chief Executive
Officer
------------------------------
This instrument/agreement is subject to the terms of a Subordination
Agreement dated as of October 2, 1997 in favor of PNC Bank, National
Association, as agent, which Subordination Agreement is incorporated herein
by reference. Notwithstanding any contrary statement contained in the
within instrument, no payment due Lone Star Technologies, Inc. or its
successors or assigns shall become due or payable except in accordance with
the express terms of said Subordination Agreement.
<PAGE>
TERMINATION OF TAX
ALLOCATION AND INDEMNIFICATION
AGREEMENT
Lone Star Steel Company, a Delaware corporation ("Steel"), and Lone Star
Technologies, Inc., a Delaware corporation ("LSST"), are parties to that certain
Tax Allocation and Indemnification Agreement dated as of May 16, 1991 (the "Tax
Agreement").
WITNESSETH:
WHEREAS, when Steel entered into the Tax Agreement with LSST, 80.5% of its
capital stock was owned by LSST; and
WHEREAS, since January 22, 1997, all of Steel's capital stock is owned by
LSST and there is no longer any need for a tax sharing agreement between Steel
and LSST;
NOW THEREFORE, Steel and Parent hereby terminate the Tax Agreement,
effective as of July 1, 1997.
IN WITNESS WHEREOF, Steel and LSST have executed this Agreement as of July
1, 1997.
LONE STAR STEEL COMPANY
By: /s/ R.W. Arp
-------------------------------------
Name: R.W. Arp
------------------------------
Title: Executive Vice President
------------------------------
LONE STAR TECHNOLOGIES, INC.
By: /s/ John P. Harbin
-------------------------------------
Name: John P. Harbin
------------------------------
Title: Chairman and Chief Executive
Officer
------------------------------
<PAGE>
COMPROMISE AND SETTLEMENT AGREEMENT AND RELEASE
This Compromise and Settlement Agreement and Release (the "Agreement")
is entered into by and between:
1. Guaranty Federal Bank, F.S.B., a federally chartered savings bank
with its principal place of business in Dallas, Texas ("GFB") and
2. Lone Star Technologies, Inc., a Delaware corporation with its
principal place of business in Dallas, Texas ("LST").
WHEREAS, GFB and LST are parties to that certain Stock Purchase
Agreement And Agreement And Plan Of Reorganization, dated as of February 16,
1993, as amended to date, and all agreements ancillary thereto, (collectively
referred to hereinafter as the "Stock Agreement"); and
WHEREAS pursuant to the Stock Agreement, in particular Sections 2.8 and
2.9 as amended, GFB, LST, and Bank One, Texas N.A. (The "Escrow Agent")
executed the Holdback Escrow Agreement as of November 12, 1993, to establish
a Holdback Escrow of funds to be available to satisfy GFB Claims for Sellers'
breaches of their representations and warranties and for certain
contingencies described in the Stock Agreement; and
WHEREAS the Escrow Agent continues to hold funds in the Holdback Escrow
(the "Escrow Funds"); and
WHEREAS pursuant to the Stock Agreement and the Holdback Escrow
Agreement, GFB has asserted certain claims against the Escrow Funds; and
WHEREAS LST has objected to the payment of GFB's claims against the
Escrow Funds, such claims and objections having created a controversy
concerning the Escrow Funds between GFB and LST; and
WHEREAS after extensive negotiation, the parties desire to resolve and
compromise the controversy over the Escrow Funds and all other matters
arising out of the Stock Agreement and all of the agreements ancillary
thereto;
NOW THEREFORE, the parties agree as follows:
1. All capitalized terms not specifically defined herein shall have
the definitions and meanings ascribed to them in the Stock Agreement and the
Holdback Escrow Agreement.
2. PAYMENT TO GFB. Upon execution of this Agreement, LST and GFB shall
execute
COMPROMISE AND SETTLEMENT AGREEMENT AND RELEASE - PAGE 1
<PAGE>
a certificate substantially in the form attached as Exhibit A and
incorporated herein by reference, authorizing and directing the immediate
payment of Two Million Five Hundred Fifty Thousand and no/100 Dollars
($2,550,000) to GFB from the Escrow Funds. On the same date that LST executes
this Agreement, LST shall transmit this certificate to the Escrow Agent via
telecopier and the parties shall deliver to the Escrow Agent such further
assurances as the Escrow Agent may require to act immediately on the
authorization and instruction contained in the certificate.
3. RELEASE OF BALANCE OF HOLDBACK ESCROW TO LST. Upon execution of this
Agreement, LST and GFB shall execute a certificate substantially in the form
attached as Exhibit B and incorporated herein by reference, authorizing and
directing the immediate payment to LST of the balance of the Escrow Funds,
including interest earned on the Holdback Escrow and still remaining in the
account, after the payment of $2,550,000 to GFB. On the same date that GFB
executes this Agreement, GFB shall transmit this certificate to the Escrow
Agent via telecopier and the parties shall deliver to the Escrow Agent such
further assurances as the Escrow Agent may require to act immediately on the
authorization and instruction contained in the certificate.
4. TERMINATION OF THE HOLDBACK ESCROW AGREEMENT. The Holdback Escrow
Agreement shall terminate upon the transfer of funds to GFB and to LST
required by paragraphs 2 and 3 above. The Escrow Agent shall be released from
its duties and obligations as Escrow Agent upon such termination.
5. RELEASE. This paragraph 5 shall become effective on the later of (i)
the date and at the time the Escrow Agent has transferred $2,550,000 to GFB
and GFB has received the funds so transferred and (ii) the date and time the
Escrow Agent has transferred the balance of the Escrow Funds to LST and LST
has received such funds.
a. Notwithstanding anything to the contrary in this Release, THIS
RELEASE SHALL NOT DISCHARGE OR OTHERWISE AFFECT THE OBLIGATIONS OF THE
PARTIES TO PERFORM FULLY AND COMPLETELY ALL OBLIGATIONS UNDER THIS AGREEMENT.
b. GFB together with its assigns, sureties, nominees, subrogees,
successors-in-interest, and predecessors-in-interest does hereby compromise,
settle, and fully release and forever discharge LST and its employees,
agents, shareholders, officers, directors, assigns, sureties, nominees,
subrogees, successors-in-interest, and predecessors-in-interest whether named
herein or not, from any past, present, or future claims which it asserted or
could have asserted, which claims are arising from or related to the Stock
Agreement, the Holdback Escrow Agreement, or the Escrow Funds, whether such
claims are known or unknown, save and except any cause of action or claim
based on a party's breach of any term of this Agreement.
c. LST, together with its assigns, sureties, nominees, subrogees,
successors-in-interest, and predecessors-in-interest does hereby compromise,
settle, and fully release and forever discharge GFB and its subsidiaries,
parents, affiliates, and their respective employees,
COMPROMISE AND SETTLEMENT AGREEMENT AND RELEASE - PAGE 2
<PAGE>
agents, shareholders, officers, directors, assigns, sureties, nominees,
subrogees, successors-in-interest, and predecessors-in-interest whether named
herein or not, from any past, present, or future claims which it asserted or
could have asserted, which claims are arising from or related to the Stock
Agreement, the Holdback Escrow Agreement, or the Escrow Funds, whether known
or unknown, save and except any cause of action or claim based on a party's
breach of any term of this Agreement.
d. Notwithstanding anything to the contrary contained in this
Release, nothing in this Release shall extend any statute of limitations.
e. Each of the parties expressly warrants and represents that (i)
this Agreement is a valid and legally binding agreement, (ii) such party is
the owner of all claims to be released and settled by this Agreement,
(iii) such party is legally competent to execute this Agreement, (iv) any and
all approvals necessary for the execution of this Agreement have been
obtained by the party executing this Agreement, and (v) such party has not
assigned, pledged, or otherwise in any manner whatsoever sold or transferred,
either by instrument in writing or otherwise, any right, title, or interest
in any claim being released hereby.
f. It is expressly agreed that as part of the consideration for
this Agreement, each party shall be responsible for and shall pay for its own
legal, professional, and ancillary costs and expenses incurred as result of
the claims being settled herein.
g. Each of the parties understands and agrees that this Agreement
and performance hereunder are in compromise of disputed claims. Each of the
parties hereto acknowledges and agrees that this Agreement is not evidence
of, nor an admission of, any liability or wrongdoing whatsoever on the part
of any of the parties being released.
6. TAX LIABILITIES. GFB shall be responsible for and shall pay all
taxes, penalties and interest of any nature which may become due arising from
the $2,550,000 payment to GFB from the funds in the Holdback Escrow. LST
shall be responsible for and shall pay all taxes, penalties and interest of
any nature which may become due arising from, related to, attributable to, or
in connection with the payment to LST of funds from the Holdback Escrow.
7. GOVERNING LAW. This Agreement shall be governed by and construed
according to the laws of the State of Texas.
8. MULTIPLE COUNTERPARTS. This Agreement shall be executed in multiple
counterparts, each of which shall be deemed an original for all purposes.
9. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective representatives,
successors, assigns, agents, partners, attorneys, officers, directors, equity
owners and employees.
COMPROMISE AND SETTLEMENT AGREEMENT AND RELEASE - PAGE 3
<PAGE>
10. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Exhibits
hereto contain the entire agreement between the parties with respect to the
subject matter hereof, and supersede all other agreements, written or oral,
between or among the parties with respect to such subject matter. There are
no agreements, promises, representations or warranties made by any party
other than those set forth in this Agreement and the exhibits attached
hereto. The terms of the Agreement shall not be waived, changed, modified,
extended, discharged or amended except by written instrument, specifying that
it amends this Agreement, and signed by GFB and LST.
11. NON-FRUSTRATION. All parties shall execute all such documents and
take all such actions as may be necessary to effect the consummation of the
settlement and transactions contemplated by this Agreement. Each party agrees
to take no action to hinder, delay, frustrate or avoid the consummation of
the settlement and transactions contemplated by this Agreement.
12. NOTICES. All notices required or permitted to be given pursuant to
the terms of this Agreement shall be given a) by certified mail, return
receipt requested, or b) by courier delivery, or c) by telecopier
transmission accompanied by U.S. mail postage prepaid, to the following at
the addresses set forth below or at such other address as any party may
designate in writing:
If to GFB:
Guaranty Federal Bank, F.S.B.
1300 South MoPac
Austin, Texas 78745
Attention: Mr. Ronald D. Murff
Telecopier No. 512-434-8051
with a copy to:
Guaranty Federal Bank, F.S.B.
8333 Douglas, 6th Floor
Dallas, Texas 75222
Attention: Mr. J. Bradley Johnston, Esq.
Telecopier No. 214-360-1908
If to LST:
Lone Star Technologies, Inc.
5501 LBJ Freeway, Suite 1200
Dallas, Texas 75240
Attention: Mr. John P. Harbin
COMPROMISE AND SETTLEMENT AGREEMENT AND RELEASE - PAGE 4
<PAGE>
Telecopier No. 972-770-6471
with a copy to:
Lone Star Technologies, Inc.
5501 LBJ Freeway, Suite 1200
Dallas, Texas 75240
Attention: Mr. Robert F. Spears, Esq.
Telecopier No. 972-770-6471
13. Each of the signatories to this Agreement acknowledges that he or
it has read this Agreement in its entirety, makes the release provided for
voluntarily and of his or its own free will, and has had the opportunity to
consult with counsel.
IN WITNESS WHEREOF, the parties have signed this Agreement on the date
set forth beside their respective names.
DATE: July 31, 1997 GUARANTY FEDERAL BANK, F.S.B.
----------------
By: /s/ Ronald D. Murff
----------------------------------
Ronald D. Murff
Chief Financial Office
DATE: July 31, 1997 LONE STAR TECHNOLOGIES, INC.
----------------
By: /s/ John P. Harbin
----------------------------------
John P. Harbin, Chairman and Chief
Executive Officer
COMPROMISE AND SETTLEMENT AGREEMENT AND RELEASE - PAGE 5
<PAGE>
EXHIBIT A TO
COMPROMISE AND SETTLEMENT AGREEMENT AND RELEASE
CERTIFICATE
TO: Bank One, Texas, NA, as Escrow Agent
RE: Holdback Escrow Agreement (the "Escrow Agreement") dated as of
November 12, 1993, by and among Lone Star Technologies, Inc.
("Seller"), Guaranty Federal Bank, F.S.B. ("Buyer"), and Bank One,
Texas, NA, as Escrow Agent (the "Escrow Agent")
STATE OF TEXAS )
)
COUNTY OF DALLAS )
After being duly sworn, the undersigned, the Chief Financial Officer and
Assistant Secretary, respectively, of Buyer, and the Chairman and Chief
Executive Officer, and Secretary, respectively, of Seller, hereby certify as
follows:
a. A charge against the Holdback Escrow Account in the total amount of
$2,550,000 has been agreed to by Buyer and Seller pursuant to that
Compromise and Settlement Agreement and Release of even date herewith,
a copy of which is attached as Exhibit 1 (the "Settlement Agreement");
b. The quantitative limitations and other requirements applicable to such
charge set forth in the Acquisition Agreement have been duly observed
and complied with, and the amount of such charge has been calculated
in accordance with the terms and conditions of the Acquisition
Agreement; and
c. Pursuant to the Settlement Agreement and Section 4(c) of the Escrow
Agreement, Buyer is therefore entitled to receive $2,550,000 out of
Holdback Escrow Account immediately upon the Escrow Agent's receipt of
this certificate.
Capitalized terms used and not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Escrow Agreement.
CERTIFICATE - PAGE 1
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands as of the ____ day of
__________________, 1997.
GUARANTY FEDERAL BANK, F.S.B.
By:
----------------------------------
Ronald D. Murff
Chief Financial Officer
STATE OF TEXAS )
COUNTY OF DALLAS )
SUBSCRIBED AND SWORN TO BEFORE ME, the undersigned Notary Public, by Ronald
D. Murff, Chief Financial Officer of Guaranty Federal Bank, F.S.B. this_____day
of________________, 1997.
[Seal]
-----------------------------------
Notary Public, State of Texas
By:
--------------------------
Scott A. Almy
Assistant Secretary
STATE OF TEXAS )
COUNTY OF DALLAS )
SUBSCRIBED AND SWORN TO BEFORE ME, the undersigned Notary Public,
by Scoff A. Almy, Assistant Secretary of Guaranty Federal Bank, F.S.B. this
___ day of ______________________, 1997.
[Seal]
-----------------------------------
Notary Public, State of Texas
CERTIFICATE - PAGE 2
<PAGE>
LONE STAR TECHNOLOGIES, INC.
By:
-------------------------------
John P. Harbin, Chairman and
Chief Executive Officer
STATE OF TEXAS )
COUNTY OF DALLAS )
SUBSCRIBED AND SWORN TO BEFORE ME, the undersigned Notary Public, by
John P. Harbin, Chairman and Chief Executive Officer of Lone Star
Technologies, Inc. this ____ day of__________________,1997.
[Seal]
---------------------------------------
Notary Public, State of Texas
By:
------------------------------
Robert F. Spears
Secretary
STATE OF TEXAS )
COUNTY OF DALLAS )
SUBSCRIBED AND SWORN TO BEFORE ME, the undersigned Notary Public, by
Robert F. Spears, Secretary of Lone Star Technologies, Inc. this ____ day
of__________, 1997.
[Seal]
---------------------------------------
Notary Public, State of Texas
CERTIFICATE - PAGE 3
<PAGE>
EXHIBIT B TO
COMPROMISE AND SETTLEMENT AGREEMENT AND RELEASE
CERTIFICATE
TO: Bank One, Texas, NA, as Escrow Agent
RE: Holdback Escrow Agreement (the "Escrow Agreement") dated as of
November 12, 1993, by and among Lone Star Technologies, Inc.
("Seller"), Guaranty Federal Bank, F.S.B. ("Buyer"), and Bank One,
Texas, NA, as Escrow Agent (the "Escrow Agent")
STATE OF TEXAS )
)
COUNTY OF DALLAS )
After being duly sworn, the undersigned, the Chief Financial Officer and
Assistant Secretary, respectively, of Buyer, and the Chairman and Chief
Executive Officer, and Secretary, respectively, of Seller, hereby certify as
follows:
a. All claims of Buyer against the funds held in Holdback Escrow Account
Tranche One, Tranche Two, Tranche Three, Tranche Four, and Tranche
Five (the "Holdback Escrow Accounts") after the date otherwise
specified as the release date for such funds have been resolved
pursuant to that Compromise and Settlement Agreement and Release of
even date herewith, a copy of which is attached as Exhibit 1 (the
"Settlement Agreement") in such a manner that the sum of
(i) all amounts in the Holdback Escrow Accounts
(ii) less $2,550,000
is the sum which is no longer needed to satisfy Buyer's claims; and
b. Pursuant to the Settlement Agreement and Section 4(j) of the Escrow
Agreement, Seller is thus entitled to receive the sum of
(i) all amounts in the Holdback Escrow Accounts
(ii) less $2,550,000,
which sum is to come out of the Holdback Escrow Accounts immediately
upon the Escrow Agent's receipt of this certificate.
CERTIFICATE - PAGE 1
<PAGE>
Capitalized terms used and not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Escrow Agreement.
IN WITNESS WHEREOF, we have hereunto set our hands as of the ____ day of
_______________________, 1997.
GUARANTY FEDERAL BANK, F.S.B.
By:
----------------------------------
Ronald D. Murff,
Chief Financial Officer
STATE OF TEXAS )
COUNTY OF DALLAS )
SUBSCRIBED AND SWORN TO BEFORE ME, the undersigned Notary Public, by
Ronald D. Murff Chief Financial Officer of Guaranty Federal Bank, F.S.B.
this_____day of __________ 1997.
[Seal]
--------------------------------------------
Notary Public, State of Texas
By:
-----------------------------------
Scott A. Almy
Assistant Secretary
STATE OF TEXAS )
COUNTY OF DALLAS )
SUBSCRIBED AND SWORN TO BEFORE ME, the undersigned Notary Public, by
Scott A. Almy, Assistant Secretary of Guaranty Federal Bank, F.S.B.
this_____day of __________ 1997.
[Seal]
--------------------------------------------
Notary Public, State of Texas
CERTIFICATE - PAGE 2
<PAGE>
LONE STAR TECHNOLOGIES, INC.
By:
----------------------------------------
John P. Harbin, Chairman and
Chief Executive Officer
STATE OF TEXAS )
COUNTY OF DALLAS )
SUBSCRIBED AND SWORN TO BEFORE ME, the undersigned Notary Public, by
John P. Harbin, Chairman and Chief Executive Officer of Lone Star
Technologies, Inc. this ____ day of ______________, 1997.
[Seal]
---------------------------------------
Notary Public, State of Texas
By:
------------------------------
Robert F. Spears
Secretary
STATE OF TEXAS )
COUNTY OF DALLAS )
SUBSCRIBED AND SWORN TO BEFORE ME, the undersigned Notary Public, by
Robert F. Spears, Secretary of Lone Star Technologies, Inc. this ____ day
of__________,1997.
[Seal]
---------------------------------------
Notary Public, State of Texas
CERTIFICATE - PAGE 3
<PAGE>
Exhibit 21
SUBSIDIARIES OF LONE STAR TECHNOLOGIES, INC.
I. Environmental Holdings, Inc.
A. Zinkanada, Inc.
B. Zinklahoma, Inc.
II. Lone Star Steel Company
A. Fort Collins Pipe Company
B. Lone Star Logistics, Inc.
C. Lone Star Steel International, Inc.
D. Lone Star Steel Sales Company
E. Rotac, Inc.
F. T & N Lone Star Warehouse Company
G. Texas & Northern Railway Company
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the Registration Statement on Form S-8 (No. 33-64805) of Lone Star
Technologies, Inc. of our report dated January 20, 1998 appearing elsewhere in
this Form 10-K.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Dallas, Texas
February 19, 1998
<PAGE>
Exhibit 24
Page 1 of 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned hereby irrevocably constitutes and appoints JOHN P.
HARBIN, CHARLES J. KESZLER and ROBERT F. SPEARS, or any of them, as the true
and lawful agents and attorneys-in-fact of the undersigned (the
"Attorneys-in-Fact"), each with full power to appoint a substitute or
substitutes to act hereunder, to execute and deliver for and on behalf of the
undersigned the Annual Report of Lone Star Technologies, Inc. on Form 10-K
(including any amendments thereto) to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934 for the
fiscal year ended December 31, 1997. The undersigned hereby ratifies and
confirms all that the Attorneys-in-Fact, or any substitute or substitutes,
may do by virtue of this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney at
Dallas, Texas on this 19th day of February, 1998.
/s/ Dean P. Guerin
-------------------------------------
Dean P. Guerin
STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, Sharon E. Goodrich, a Notary Public in and for the State of
Texas, on this day did personally appear Dean P. Guerin, known to me to be the
person whose name is subscribed to the foregoing Power of Attorney, and
acknowledged to me that he executed such Power of Attorney for the purposes and
consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 19th day of February, 1998.
/s/ Sharon E. Goodrich
-------------------------------------
Notary Public, State of Texas
(SEAL)
My Commission Expires: 9/14/98
<PAGE>
Exhibit 24
Page 2 of 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned hereby irrevocably constitutes and appoints JOHN P.
HARBIN, CHARLES J. KESZLER and ROBERT F. SPEARS, or any of them, as the true
and lawful agents and attorneys-in-fact of the undersigned (the
"Attorneys-in-Fact"), each with full power to appoint a substitute or
substitutes to act hereunder, to execute and deliver for and on behalf of the
undersigned the Annual Report of Lone Star Technologies, Inc. on Form 10-K
(including any amendments thereto) to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934 for the
fiscal year ended December 31, 1997. The undersigned hereby ratifies and
confirms all that the Attorneys-in-Fact, or any substitute or substitutes,
may do by virtue of this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney at
Dallas, Texas on this 19th day of February, 1998.
/s/ Rhys J. Best
-------------------------------------
Rhys J. Best
STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, Sharon E. Goodrich, a Notary Public in and for the State of
Texas, on this day did personally appear Rhys J. Best, known to me to be the
person whose name is subscribed to the foregoing Power of Attorney, and
acknowledged to me that he executed such Power of Attorney for the purposes and
consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 19th day of February, 1998.
/s/ Sharon E. Goodrich
-------------------------------------
Notary Public, State of Texas
(SEAL)
My Commission Expires: 9/14/98
<PAGE>
Exhibit 24
Page 3 of 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned hereby irrevocably constitutes and appoints JOHN P.
HARBIN, CHARLES J. KESZLER and ROBERT F. SPEARS, or any of them, as the true
and lawful agents and attorneys-in-fact of the undersigned (the
"Attorneys-in-Fact"), each with full power to appoint a substitute or
substitutes to act hereunder, to execute and deliver for and on behalf of the
undersigned the Annual Report of Lone Star Technologies, Inc. on Form 10-K
(including any amendments thereto) to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934 for the
fiscal year ended December 31, 1997. The undersigned hereby ratifies and
confirms all that the Attorneys-in-Fact, or any substitute or substitutes,
may do by virtue of this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney at
Dallas, Texas on this 19th day of February, 1998.
/s/ Charles L. Blackburn
-------------------------------------
Charles L. Blackburn
STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, Sharon E. Goodrich, a Notary Public in and for the State of
Texas, on this day did personally appear Charles L. Blackburn, known to me to be
the person whose name is subscribed to the foregoing Power of Attorney, and
acknowledged to me that he executed such Power of Attorney for the purposes and
consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 19th day of February, 1998.
/s/ Sharon E. Goodrich
-------------------------------------
Notary Public, State of Texas
(SEAL)
My Commission Expires: 9/14/98
<PAGE>
Exhibit 24
Page 4 of 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned hereby irrevocably constitutes and appoints JOHN P.
HARBIN, CHARLES J. KESZLER and ROBERT F. SPEARS, or any of them, as the true
and lawful agents and attorneys-in-fact of the undersigned (the
"Attorneys-in-Fact"), each with full power to appoint a substitute or
substitutes to act hereunder, to execute and deliver for and on behalf of the
undersigned the Annual Report of Lone Star Technologies, Inc. on Form 10-K
(including any amendments thereto) to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934 for the
fiscal year ended December 31, 1997. The undersigned hereby ratifies and
confirms all that the Attorneys-in-Fact, or any substitute or substitutes,
may do by virtue of this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney at
Dallas, Texas on this 19th day of February, 1998.
/s/ Frederick B. Hegi Jr.
-------------------------------------
Frederick B. Hegi, Jr.
STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, Sharon E. Goodrich, a Notary Public in and for the State of
Texas, on this day did personally appear Frederick B. Hegi, Jr., known to me to
be the person whose name is subscribed to the foregoing Power of Attorney, and
acknowledged to me that he executed such Power of Attorney for the purposes and
consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 19th day of February, 1998.
/s/ Sharon E. Goodrich
-------------------------------------
Notary Public, State of Texas
(SEAL)
My Commission Expires: 9/14/98
<PAGE>
Exhibit 24
Page 5 of 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned hereby irrevocably constitutes and appoints JOHN P.
HARBIN, CHARLES J. KESZLER and ROBERT F. SPEARS, or any of them, as the true
and lawful agents and attorneys-in-fact of the undersigned (the
"Attorneys-in-Fact"), each with full power to appoint a substitute or
substitutes to act hereunder, to execute and deliver for and on behalf of the
undersigned the Annual Report of Lone Star Technologies, Inc. on Form 10-K
(including any amendments thereto) to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934 for the
fiscal year ended December 31, 1997. The undersigned hereby ratifies and
confirms all that the Attorneys-in-Fact, or any substitute or substitutes,
may do by virtue of this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney at
Dallas, Texas on this 19th day of February, 1998.
/s/James E. McCormick
-------------------------------------
James E. McCormick
STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, Sharon E. Goodrich, a Notary Public in and for the State of
Texas, on this day did personally appear James E. McCormick, known to me to
be the person whose name is subscribed to the foregoing Power of Attorney,
and acknowledged to me that he executed such Power of Attorney for the
purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 19th day of February, 1998.
/s/ Sharon E. Goodrich
-------------------------------------
Notary Public, State of Texas
(SEAL)
My Commission Expires: 9/14/98
<PAGE>
Exhibit 24
Page 6 of 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned hereby irrevocably constitutes and appoints JOHN P.
HARBIN, CHARLES J. KESZLER and ROBERT F. SPEARS, or any of them, as the true
and lawful agents and attorneys-in-fact of the undersigned (the
"Attorneys-in-Fact"), each with full power to appoint a substitute or
substitutes to act hereunder, to execute and deliver for and on behalf of the
undersigned the Annual Report of Lone Star Technologies, Inc. on Form 10-K
(including any amendments thereto) to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934 for the
fiscal year ended December 31, 1997. The undersigned hereby ratifies and
confirms all that the Attorneys-in-Fact, or any substitute or substitutes,
may do by virtue of this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney at
Dallas, Texas on this 19th day of February, 1998.
/s/ Thomas M. Mercer, Jr.
-------------------------------------
Thomas M. Mercer, Jr.
STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, Sharon E. Goodrich, a Notary Public in and for the State of
Texas, on this day did personally appear Thomas M. Mercer, Jr., known to me to
be the person whose name is subscribed to the foregoing Power of Attorney, and
acknowledged to me that he executed such Power of Attorney for the purposes and
consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 19th day of February, 1998.
/s/ Sharon E. Goodrich
-------------------------------------
Notary Public, State of Texas
(SEAL)
My Commission Expires: 9/14/98
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 14
<SECURITIES> 6
<RECEIVABLES> 81
<ALLOWANCES> 1
<INVENTORY> 102
<CURRENT-ASSETS> 207
<PP&E> 343
<DEPRECIATION> 181
<TOTAL-ASSETS> 406
<CURRENT-LIABILITIES> 81
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 195
<TOTAL-LIABILITY-AND-EQUITY> 406
<SALES> 654
<TOTAL-REVENUES> 654
<CGS> 590
<TOTAL-COSTS> 610
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 41
<INCOME-TAX> 1
<INCOME-CONTINUING> 40
<DISCONTINUED> 12
<EXTRAORDINARY> 1
<CHANGES> 0
<NET-INCOME> 54
<EPS-PRIMARY> 2.50
<EPS-DILUTED> 2.44
</TABLE>
