<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1994
REGISTRATION NO. 33-72486
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
BAYOU STEEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 3312 72-1125783
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL(I.R.S. EMPLOYER IDENTI-
JURISDICTION OF CLASSIFICATION CODE NUMBER) FICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
RIVER ROAD
P.O. BOX 5000
LAPLACE, LOUISIANA 70069
(504) 652-4900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
RICHARD J. GONZALEZ
VICE PRESIDENT, TREASURER
AND CHIEF FINANCIAL OFFICER
BAYOU STEEL CORPORATION
RIVER ROAD
P.O. BOX 5000
LAPLACE, LOUISIANA 70069
(504) 652-4900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
RORY A. GREISS GARY L. SELLERS
KAYE, SCHOLER, FIERMAN, SIMPSON THACHER & BARTLETT
HAYS & HANDLER 425 LEXINGTON AVENUE
425 PARK AVENUE NEW YORK, NEW YORK 10017
NEW YORK, NEW YORK 10022 (212) 455-2000
(212) 836-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION ACTING
PURSUANT TO SAID SECTION 8(A) MAY DETERMINE.
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<PAGE>
BAYOU STEEL CORPORATION
CROSS-REFERENCE SHEET SHOWING LOCATION
IN THE PROSPECTUS OF INFORMATION REQUIRED BY
ITEMS ON FORM S-1 REGISTRATION STATEMENT
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
----------------------- ---------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................ Cover of the Registration Statement;
Cross Reference Sheet; and Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus............... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges........................... Prospectus Summary; Investment
Considerations; and Selected
Financial Data
4. Use of Proceeds.................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.... Underwriting
6. Dilution........................... *
7. Selling Security Holders........... *
8. Plan of Distribution............... Outside Front Cover Page of
Prospectus; and Underwriting
9. Description of Securities to be
Registered........................ Outside Front Cover Page of
Prospectus; Prospectus Summary; and
Description of the First Mortgage
Notes
10. Interests of Named Experts and
Counsel........................... *
11. Information With Respect to the
Registrant........................ Cover of the Registration Statement;
Prospectus Summary; Investment
Considerations; Capitalization;
Selected Financial Data;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Principal Stockholders;
Certain Related Party Transactions;
Description of the First Mortgage
Notes; Description of Certain
Indebtedness; and Financial
Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................... *
</TABLE>
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* Not Applicable
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated February 11, 1994
BAYOU STEEL CORPORATION
$75,000,000
% FIRST MORTGAGE NOTES DUE 2001
Bayou Steel Corporation (the "Company") is offering (the "Offering")
$75,000,000 aggregate principal amount of % First Mortgage Notes due 2001 (the
"First Mortgage Notes"). Interest on the First Mortgage Notes is payable semi-
annually on 15 and 15 of each year, commencing 15, 1994, at the
rate of % per annum. The First Mortgage Notes are redeemable, in whole or in
part, at the option of the Company on and after 15, 1998, at the
redemption prices set forth herein, plus accrued interest.
The First Mortgage Notes will rank pari passu in right of payment with all
senior Indebtedness (as defined herein) of the Company, including obligations
of the Company arising in connection with the Credit Facility (as defined
herein), and will rank senior to all subordinated Indebtedness of the Company.
After giving effect to the Offering, as of December 31, 1993, the Company had
approximately $1.3 million of total Indebtedness in addition to the First
Mortgage Notes, all of which would rank pari passu with the First Mortgage
Notes. The First Mortgage Notes will be secured by a first priority security
interest, subject to certain exceptions, in substantially all unencumbered
existing and future real and personal property, fixtures, machinery and
equipment (including certain operating equipment classified as inventory) of
the Company and the proceeds thereof, whether existing or hereafter acquired,
but excluding inventory and accounts receivable.
In the event of a Change of Control (as defined herein), the Company is
obligated to make an offer to purchase all outstanding First Mortgage Notes
from the holders thereof (the "Holders") at a redemption price of 101% of the
principal amount thereof plus accrued interest. Under certain circumstances,
the Company is obligated to apply the net cash proceeds of asset sales to the
purchase of substitute property for use in the Company's business or to make
offers to purchase a portion (calculated as set forth herein) of the First
Mortgage Notes at a redemption price of 100% of the principal amount thereof
plus accrued interest with the net cash proceeds from such asset sales.
--------------------------------
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED
WITH AN INVESTMENT IN THE FIRST MORTGAGE NOTES.
--------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
--------------------------------
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (/1/) DISCOUNT (/2/) COMPANY (/1/) (/3/)
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<S> <C> <C> <C>
PER FIRST MORTGAGE NOTE % % %
TOTAL $ $ $
</TABLE>
(1) Plus accrued interest, if any, from , 1994.
(2) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
--------------------------------
The First Mortgage Notes are offered by Chemical Securities Inc. (the
"Underwriter"), subject to prior sale, when, as and if issued by the Company
and accepted by the Underwriter, and subject to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that the delivery of the
First Mortgage Notes will be made in book-entry form through the facilities of
The Depository Trust Company on or about , 1994.
CHEMICAL SECURITIES INC.
The date of this Prospectus is February , 1994
<PAGE>
[Graphics to appear here.]
2
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE FIRST MORTGAGE
NOTES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Company with the Securities and Exchange Commission
may be inspected and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549, and at the following regional offices of the Commission: 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such materials can be
obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed
rates. In addition, reports, proxy statements and other information concerning
the Company may be inspected at the offices of the American Stock Exchange, on
which shares of the Company's Class A Common Stock are listed, at 86 Trinity
Place, New York, New York.
The Company has filed with the Commission a Registration Statement on Form S-
1 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the securities offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in schedules and exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to such exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement,
including the exhibits thereto, may be inspected and copied in the manner and
at the sources described above.
----------------
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
See "Investment Considerations" for certain factors that should be considered
in connection with an investment in the First Mortgage Notes offered hereby.
Unless the context otherwise requires, all references to "the Company" mean the
Company and its subsidiaries and all references to a fiscal year refer to the
fiscal year of the Company which ends September 30 (for example, references to
"fiscal 1993" mean the fiscal year ended September 30, 1993).
THE COMPANY
The Company is a leading producer of light structural steel products. The
Company owns and operates a steel minimill strategically located on the
Mississippi River in LaPlace, Louisiana, 35 miles northwest of New Orleans. The
minimill, constructed at a cost of $243 million in 1981, is one of the most
modern facilities in the world in its product line and utilizes state-of-the-
art equipment and technology. The Company produces a variety of light
structural steel products including angles, flats, channels, standard beams and
wide-flange beams (collectively, "shapes"). The shapes produced by the Company
have a wide range of commercial and industrial applications, including the
construction and manufacturing of petrochemical plants, barges and light ships,
railcars, trucks and trailers, rack systems, tunnel and mine support products,
joists, sign and guardrail posts for highways, power and radio transmission
towers, and bridges. The Company sells its products to approximately 600
customers, most of which are steel service centers, in 44 states, Canada,
Mexico and overseas. The Company also sells excess billets (which have not been
rolled into shapes) on a worldwide basis to other steel producers for their own
rolling or forging applications. In fiscal 1993, the Company sold 403,274 tons
of shapes and 59,604 tons of billets.
According to the American Iron and Steel Institute ("AISI"), the domestic
market demand for all structural steel shape products in 1992 was 5.1 million
tons. The Company estimates that its share of the total domestic shapes market
was approximately 8% in 1992. The Company believes that its share of the light
structural steel shapes market (the primary market in which the Company
competes) is much higher, and that it is one of the five largest producers of
light structural steel shapes in the U.S.
The term "minimill" refers to a relatively low-cost steel production facility
which uses steel scrap, rather than iron ore, as its basic raw material. In
general, minimills recycle scrap using electric arc furnaces, continuous
casters and rolling mills. The Company's minimill, which was owned and operated
by Voest-Alpine A.G. (a state-owned Austrian industrial company) ("Voest-
Alpine") until it was purchased by the Company in September 1986, includes a
Krupp computer-controlled, electric arc furnace utilizing water-cooled
sidewalls and roofs, two Voest-Alpine four-strand continuous casters, a
computer supervised, Italimpianti reheat furnace and a 15-stand Danieli rolling
mill (a second Krupp furnace is currently not in operation, but is available
for additional production).
The Company's steelmaking facility, which includes a deep-water dock, is
strategically located on the Mississippi River, which the Company believes
gives it certain transportation cost advantages because it can ship its product
by barge, the least costly method of transportation in the steel industry. In
addition, the Company operates three inventory stocking warehouses in Chicago,
Tulsa and Pittsburgh which supplement its operations in Louisiana. These
facilities, each of which includes an inland waterway dock, enable the Company
to significantly increase its marketing territory by providing storage capacity
for its finished products in three additional markets and by allowing the
Company to meet customer demand far from its minimill facility on a timely
basis. The Company believes that the location of its minimill on the
Mississippi River, and its network of inland waterway warehouses, enable it to
access markets for its products that would otherwise be unavailable to the
Company.
4
<PAGE>
The Company believes that the Mississippi River location of its minimill also
gives it advantages over other minimills in the purchase of steel scrap, which
accounts for nearly 42% of total production costs. The Company is able to
efficiently transport scrap from suppliers throughout the inland waterway
system and through the Gulf of Mexico, permitting it to take advantage of scrap
purchasing opportunities far from its minimill facility, and to protect itself
from supply imbalances that develop from time to time in specific local
markets. In addition, unlike most other minimills, the Company, through its own
scrap purchasing staff, buys scrap directly from scrap dealers and contractors
rather than through brokers. The Company believes that its enhanced knowledge
of scrap market conditions gained by being directly involved in scrap
procurement on a daily basis, coupled with management's long experience in
metals recycling markets, gives the Company a competitive advantage.
In March 1993, following the expiration of its existing labor contract, the
United Steelworkers of America Local 9121 (the "Union") initiated a strike
against the Company after the Company and the Union failed to reach agreement
on a new labor contract. The Company is negotiating a settlement agreement with
the National Labor Relations Board ("NLRB") with respect to unfair labor
practice charges filed by the Union. The Company is currently operating at full
capacity, utilizing a combination of temporary replacement workers, Union
employees who have returned to work and salaried employees, and since July 1993
overall production and productivity have been near pre-strike levels. The
Company believes it can maintain and continue to improve its current production
and productivity levels even if the strike continues indefinitely.
During the initial phases of the strike, however, the Company had to curtail
its operations (which resulted in reduced production of approximately 27,000
tons in the melt shop and approximately 30,000 tons in the rolling mill, higher
fixed costs per ton produced during such period, higher per ton conversion
costs--the cost of converting raw materials into shapes--and lost sales due to
lower inventory levels resulting from reduced production) and productivity was
impacted by retraining of new employees and higher consumption of materials for
several months, all of which adversely affected the Company's profitability,
particularly in the early weeks of the strike. As of December 31, 1993, the
Company has incurred approximately $3.6 million in out-of-pocket costs for
security, legal matters and other services related to the strike ($2.5 million
of which was incurred during the first three months of the strike). Although
uncertainties inherent in strikes generally make it impossible to predict the
duration or ultimate cost of the strike to the Company, the Company expects
that future strike-related costs will not exceed $100,000 per month.
The Company's principal operating strategy is to improve operating results by
reducing costs and increasing sales of higher margin shape products. The
Company believes that it can lower its labor costs by as much as $7 per ton
from fiscal 1993 levels by making operational changes and operating the
minimill with fewer workers. The Company began to implement many operational
changes in fiscal 1993, but their impact is not fully reflected in fiscal 1993
results since these changes were implemented over the course of the year. In
connection with the foregoing, the Company recently increased its melt shop
operations by changing from three to four shifts (and by operating seven days a
week rather than six) as part of its cost savings program. Labor costs per ton
in fiscal 1993 also were somewhat distorted by the effects of the strike, which
resulted in periods of lower production and productivity, periods of
substantially increased overtime and the Company's need to temporarily use
outside contractors.
In addition, if the Company is able to implement the proposals in its last
contract offer to the Union, the Company would realize an additional savings in
average labor costs of approximately $2 per ton, primarily through benefit cost
reductions. The Company also expects to achieve further labor productivity
gains when its proposed incentive compensation plan is put into effect.
Although the Company believes it will be able to implement its basic proposals
in some form, there can be no assurance that such proposals will be accepted by
the Union or that the proposals can be implemented.
The Company also intends to implement a two-year, $8.6 million capital
expenditure program upon completion of the Offering to reduce its production
and operating costs and increase its rolling mill capacity.
5
<PAGE>
The principal elements of this program are (i) an automobile shredder to enable
the Company to shred car bodies on-site and reduce scrap costs, (ii) a steel
straightener to improve production capacity in the rolling mill, (iii) an off-
line sawing system and conveyor to further improve production capacity in the
rolling mill, (iv) a second overhead crane to reduce product changeover time in
the rolling mill and (v) a shipping bay rail spur to reduce the handling of
finished products. The Company believes that these capital projects, when fully
implemented, would result in annual operating cost savings of approximately
$7.10 per ton.
The Company believes that the aggregate annual operating cost savings
resulting from its labor initiatives and proposed capital expenditure program,
when fully implemented, would approximate $6.5 million. Although these savings
estimates are based upon historical data and assumptions that management
believes are reasonable, there can be no assurance that the Company will be
able to achieve these cost savings. Furthermore, these anticipated cost savings
could be offset by increases in raw material costs (the largest component of
which is the cost of scrap), recessionary conditions in the steel industry,
decreased demand for the Company's products, oversupply of shape products and
competition, each of which have had, or in the future could have, a material
impact on the Company's costs.
THE OFFERING
Securities.............. $75,000,000 aggregate principal amount of % First
Mortgage Notes due 2001.
Interest Payment Dates.. Interest will accrue from the date of issuance and
will be payable semi-annually on each 15 and
15, commencing 15, 1994.
Optional Redemption..... The First Mortgage Notes will be redeemable, in whole
or in part, at any time on and after 15, 1998,
initially at % of their principal amount, plus ac-
crued interest to the date of redemption, and declin-
ing ratably to par at maturity.
Ranking................. The First Mortgage Notes will rank pari passu in
right of payment with any existing and future senior
Indebtedness of the Company, including obligations of
the Company arising in connection with the Credit Fa-
cility, and will rank senior to all subordinated In-
debtedness of the Company.
Security................ As security for the First Mortgage Notes, the Company
will grant a first priority security interest, sub-
ject to certain exceptions, in substantially all un-
encumbered existing and future real and personal
property, fixtures, machinery and equipment (includ-
ing certain operating equipment classified as inven-
tory) and the proceeds thereof, whether existing or
hereafter acquired. The Credit Facility and a pur-
chase money facility relating to the Tulsa stocking
location are secured by a lien on the inventory and
accounts receivable of the Company.
Change of Control....... In the event of a Change of Control, Holders will
have the right to require the Company to purchase all
First Mortgage Notes then outstanding at a purchase
price equal to 101% of the principal amount thereof,
plus accrued interest to the date of repurchase.
6
<PAGE>
Change of Control generally means that control of the
Company (whether through stock ownership or control
of the Company's assets) is held by persons other
than controlling persons of the Company as of the
date of the Indenture.
A Change of Control could constitute a default under
the Credit Facility. If a Change of Control were to
occur, the Company might be unable to repay all of
its obligations under the Credit Facility, to pur-
chase all of the First Mortgage Notes tendered and to
repay other indebtedness that may become payable upon
the occurrence of a Change of Control.
Asset Sale Offers....... The net cash proceeds of sales or other dispositions
of Collateral (as defined herein) by the Company
shall become subject to the lien of the Indenture and
the Security Documents. In the event the net cash
proceeds of asset sales (excluding the sale of cer-
tain obsolete assets) equal or exceed $5 million, the
Company shall elect, within six months of such date,
to either apply such net cash proceeds to the acqui-
sition of assets that, upon purchase, shall become
subject to the lien of the Security Documents if the
net cash proceeds represent Collateral Proceeds, or
to make offers to purchase a portion (calculated as
set forth herein) of the First Mortgage Notes at a
purchase price equal to 100% of the principal amount
thereof, plus accrued interest to the date of repur-
chase. Notwithstanding the foregoing, the Company and
its Subsidiaries, in the aggregate, shall be permit-
ted to retain $1,000,000 of the net cash proceeds
from asset sales.
Covenants............... The Indenture under which the First Mortgage Notes
will be issued will contain certain restrictive cove-
nants that, among other things, will limit the abil-
ity of the Company to incur additional indebtedness;
create liens; make certain restricted payments; en-
gage in certain transactions with affiliates; engage
in sale and leaseback transactions; dispose of as-
sets; issue preferred stock of its subsidiaries;
transfer assets to its subsidiaries; enter into
agreements that restrict the ability of its subsidi-
aries to make dividends and distributions; engage in
mergers, consolidations and transfers of substan-
tially all of the Company's assets; make certain in-
vestments, loans and advances; and create non-re-
course subsidiaries.
For a more detailed description of the First Mortgage Notes, see "Description
of the First Mortgage Notes."
USE OF PROCEEDS
The net proceeds of this Offering will be used for the repayment of
outstanding indebtedness, implementation of capital projects and general
working capital purposes. See "Use of Proceeds."
INVESTMENT CONSIDERATIONS
Prospective investors should carefully consider the matters set forth under
"Investment Considerations."
7
<PAGE>
Set forth below is summary financial information for the Company since 1987,
the Company's first full year of operations following the acquisition of the
Company from Voest-Alpine.
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT RATIO AND PER TON DATA)
<TABLE>
<CAPTION>
AS OF AND FOR YEARS ENDED SEPTEMBER 30,
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1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales.............. $136,008 $119,772 $131,271(1) $183,563 $208,962 $189,849 $134,729
Cost of Sales.......... 128,033 109,116 124,436 170,998 187,132 152,148 117,997
-------- -------- -------- -------- -------- -------- --------
Gross Profit........... 7,975 10,656 6,835 12,565 21,830 37,701 16,732
Selling, General and
Administrative........ 3,986 4,071 4,125 4,582 4,323 4,409 4,249
Non-Production Strike
Expenses.............. 3,162(2) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating Income....... 827 6,585 2,710 7,983 17,507 33,292 12,484
Interest Expense....... (8,261) (8,977) (8,821) (9,514) (11,131) (9,639) (9,445)
Interest Income........ 193 486 638 1,850 1,540 649 61
Miscellaneous.......... 502 554 902 1,380(3) 421 (734) 88
-------- -------- -------- -------- -------- -------- --------
Income (Loss) Before
Taxes................. (6,739) (1,352) (4,571) 1,699 8,337 23,568 3,188
Provision (Benefit) for
Income Taxes.......... -- -- -- (116) 281 237 --
-------- -------- -------- -------- -------- -------- --------
Income (Loss) Before
Cumulative Effect of
Accounting Change and
Extraordinary Gain.... (6,739) (1,352) (4,571) 1,815 8,056 23,331 3,188
Cumulative Effect on
Prior Years of
Accounting Change..... -- -- -- (1,572) -- -- --
Extraordinary Gain..... 585 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income (Loss)...... $ (6,154) $ (1,352) $ (4,571) $ 243 $ 8,056 $ 23,331(4) $ 3,188(4)
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working Capital........ $ 32,389 $ 57,167 $ 57,532 $ 64,386 $ 77,266 $ 74,478 $ 34,142
Total Assets........... 138,280 149,381 148,669 162,411 165,518 162,098 110,867
Total Debt............. 54,817 62,057 62,355 67,440 66,364 66,021 61,020
Stockholders' Equity... $ 61,231 $ 67,385 $ 68,737 $ 73,308 $ 73,064 $ 65,008 $ 274
OTHER PERTINENT DATA:
EBITDA:
Actual(5).............. $ 6,530 $ 11,448 $ 7,415 $ 11,767 $ 21,548 $ 36,071 $ 15,348
Adjusted............... 9,694(6) 11,047(7) 8,503(7) 14,324(7) 21,548 36,071 15,348
Ratio of Earnings to
Fixed Charges(8)...... 0.22(9) 0.85(9) 0.49(9) 1.15 1.66 3.28 1.32
Ratio of EBITDA to Net
Interest Expense...... 0.80 1.33 0.88 1.50 2.14 3.92 1.64
Ratio of Adjusted
EBITDA to Net Interest
Expense............... 1.18 1.28 1.01 1.83 2.14 3.92 1.64
Ratio of EBITDA to
Proforma Interest
Expense............... 0.80
Ratio of Adjusted
EBITDA to Pro Forma
Net Interest Expense.. 1.19(10)
Sources and Uses of Cash Flow:
Net Cash (Used in)
Provided by
Operations............ (867) 3,659 5,614 11,559 (1,866) 15,743 (5,601)
Net Cash (Used in)
Provided by Investing
Activities............ (3,184) (3,235) (7,374) (11,519) (9,001) (9,728) (3,795)
Net Cash (Used in)
Provided by Financing
Activities............ (6,580) (299) (5,126) 1,087 211 21,320 2,786
Net Tons Shipped:
Shapes................. 403,274 372,943 381,069 411,660 425,376 504,228 405,425
Billets................ 59,604 31,962 43,557(1) 216,790 247,815 93,645 102,361
Average Selling Price
Per Ton:
Shapes................. $ 300 $ 296 $ 307 $ 320 $ 345 $ 333 $ 271
Billets................ 209 204 210 226 235 216 200
Capital Expenditures... $ 3,184 $ 3,235 $ 7,374 $ 11,519 $ 9,001 $ 9,728 $ 3,795
Depreciation and
Amortization.......... $ 4,616 $ 4,309 $ 3,803 $ 3,976 $ 3,620 $ 3,513 $ 2,776
Average Number of
Employees............. 455(11) 495 547 654 685 673 636
Tons Shipped Per
Employee.............. 1,017 818 776 961 983 888 798
</TABLE>
(footnotes on following page)
8
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE
FIRST QUARTER
ENDED DECEMBER
31,
--------------------
1993 1992
-------- --------
<S> <C> <C>
INCOME STATEMENT DATA:
Net Sales............................................... $ 36,778 $ 31,833
Cost of Sales........................................... 34,558 28,199
-------- --------
Gross Profit............................................ 2,220 3,634
Selling, General and Administrative..................... 890 1,081
Non-Production Strike Expenses.......................... 399(2) --
-------- --------
Operating Income........................................ 931 2,554
Interest Expense........................................ (1,885) (2,225)
Interest Income......................................... 20 52
Miscellaneous........................................... (40) (35)
-------- --------
Income (Loss) Before Taxes.............................. (973) 347
Provision (Benefit) for Income Taxes.................... -- --
-------- --------
Income (Loss) Before Cumulative Effect of Accounting
Change and Extraordinary Gain.......................... (973) 347
Cumulative Effect on Prior Years of Accounting Change... -- --
Extraordinary Gain...................................... -- 755
-------- --------
Net Income (Loss)....................................... $ (973) $ 1,102
======== ========
BALANCE SHEET DATA:
Working Capital......................................... $ 31,198 $ 53,874
Total Assets............................................ 142,411 142,431
Total Debt.............................................. 56,144 57,514
Stockholders' Equity.................................... $ 60,258 $ 68,487
</TABLE>
- --------
(1) In fiscal 1991 the Company decided to reduce its melting capacity by
discontinuing the operation of one of its two electric furnaces and
ceasing the practice of exporting large quantities of billets. In prior
years, billet sales contributed small margins; however, the margins on
billets sales virtually disappeared as a result of worldwide market
conditions in late 1990. The Company believes its decision to stop
producing large quantities of billets for export resulted in a decline in
sales of approximately $40 million.
(2) In the first quarter of fiscal 1994 and in fiscal 1993, Non-Production
Strike Expenses includes $0.4 million and $3.2 million, respectively, in
expenses for security, legal matters and other services related to the
strike.
(3) In fiscal 1990, Miscellaneous includes income in connection with a
favorable settlement of a lawsuit for $1.3 million.
(4) In fiscal 1988 and 1987, income applicable to common shares after
accretion and dividends accrued on preferred stock was $19.8 million and
$0.5 million, respectively.
(5) EBITDA represents earnings before interest, taxes, depreciation and
amortization, and is calculated as net income plus interest, taxes,
depreciation and amortization. EBITDA provides additional information for
determining the Company's ability to meet debt service requirements.
EBITDA does not represent and should not be considered as an alternative
to net income, any other measure of performance as determined by generally
accepted accounting principles, as an indicator of operating performance
or as an alternative to cash flows from operating, investing or financing
activities as a measure of liquidity. Each of the Indenture and the Credit
Facility include covenants that are identical to the Ratio of EBITDA to
Net Interest Expense and restrict the Company's level of indebtedness. See
"Description of the First Mortgage Notes--Certain Covenants--Limitations
on Indebtedness" and "Description of Certain Indebtedness--Credit
Facility." See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of liquidity and
operating results.
9
<PAGE>
(6) The adjustment to fiscal 1993 EBITDA relates to production and non-
production strike expenses, as well as an extraordinary gain. First,
reduced production affected the fixed charge component of the inventory
produced during the initial phases of the strike. Since the Company
produced approximately 27,000 fewer tons in the melt shop and
approximately 30,000 fewer tons in the rolling mill than it normally
produced in comparable prior periods, the cost of each ton of inventory
produced during that period included a higher amount of fixed costs. As
the inventory produced during this period was sold, the allocation of
fixed charges to the cost of that inventory resulted in higher cost of
sales for fiscal 1993 of $1.2 million, which increased cost has been
eliminated in the Adjusted EBITDA. This adjustment does not reflect
increased consumption of materials during the period of training new
employees nor does it reflect lost sales attributable to a lack of
inventory caused by the temporary decrease in production, both of which
the Company believes were significant. Second, the Company incurred $3.2
million in Non-Production Strike Expenses in fiscal 1993. The Company has
eliminated $2.6 million of the $3.2 million of Non-Production Strike
Expenses in the Adjusted EBITDA. The Company has not eliminated $0.6
million of Non-Production Strike Expenses which represents the recurring
portion of such expenses for the six-month period commencing April 1, 1993
(approximately the date of the strike's commencement) at the rate of
$100,000 per month. Third, the Company's extraordinary gain of $0.6
million (which arose principally from the repurchase of the Company's
Senior Secured Notes due 1998 at favorable prices) has similarly been
eliminated in the Adjusted EBITDA.
(7) The adjustment relates to the write-down to market of various shape
inventories and costs associated with remedying customer complaints
related to products with rust. The rust problem was eliminated in 1992
with the construction of the Company's warehouse and by the implementation
of certain product spraying techniques. In fiscal 1992, 1991 and 1990, the
adjustments to EBITDA for the rust problem were ($0.4) million, $1.1
million, and $1.0 million, respectively. The adjustments to fiscal 1992,
1991 and 1990 EBITDA do not include the effect on EBITDA of lost sales due
to surface rust, which the Company believes was significant. In fiscal
1990, the adjustment to EBITDA includes the elimination of the $1.6
million charge relating to Cumulative Effect on Prior Years of Accounting
Change.
(8) For purposes of computing the ratio of earnings to fixed charges (a)
earnings consist of income before the cumulative effect of an accounting
change, and income taxes plus fixed charges (excluding capitalized
interest) and (b) fixed charges consist of interest expense, including
capitalized interest, and amortization of debt expense.
(9) In fiscal 1993, 1992 and 1991, earnings were inadequate to cover fixed
charges by $6.9 million, $1.5 million, and $4.8 million, respectively.
(10) The ratio of Adjusted EBITDA to Pro Forma Net Interest Expense has been
calculated assuming the completion of the Offering and the application of
the proceeds therefrom on the first day of fiscal 1993 and at an assumed
interest rate of 11%. The effect on earnings or net income of a 1/8
percent variance in the interest rate would be approximately $94,000.
(11) In fiscal 1993, the Company utilized approximately 60 outside contractors
working for six months who were not employees of the Company but which are
included in the weighted average number of employees.
10
<PAGE>
INVESTMENT CONSIDERATIONS
In addition to the other information set forth in this Prospectus,
prospective investors should carefully consider the following information in
evaluating the Company and its business before making an investment in the
First Mortgage Notes.
LEVERAGE; CERTAIN RESTRICTIONS; DEFICIENCY OF EARNINGS TO FIXED CHARGES
The Company currently has, and after the Offering will continue to have, a
substantial amount of long-term debt in relation to stockholders' equity. As of
September 30, 1993, the Company had total debt of $54.8 million compared to
$62.1 million as of September 30, 1992. The Company repurchased $11.1 million
of its Senior Secured Notes due 1998 (the "14.75% Notes") during fiscal 1993.
After giving effect to the Offering and the use of proceeds therefrom, the
Company will have $76.3 million of total debt, including the $75 million
aggregate principal amount of the First Mortgage Notes. For the first quarter
of fiscal 1994 and the comparable period in fiscal 1993, and for fiscal 1993,
the Company's total interest expense was $1.9 million, $2.2 million and $8.3
million, respectively, and is not expected to materially change after giving
effect to the Offering and the application of the proceeds therefrom. For the
first quarter of fiscal 1994, the Company's earnings were insufficient to cover
fixed charges by $1.0 million as compared to earnings being sufficient to cover
fixed charges by $0.3 million in the comparable period in fiscal 1993. For
fiscal 1993, 1992 and 1991, the Company's earnings were insufficient to cover
fixed charges by $6.9 million, $1.5 million and $4.8 million, respectively. On
a pro forma basis for the first quarter of 1994 and for fiscal 1993, assuming
the completion of the Offering (at an assumed interest rate of 11%) on the
first day of such period and the application of the proceeds of the Offering
applied on the first day of such period, fixed charges would have been in
excess of earnings by $1.2 million and $6.8 million, respectively. The
Company's ability to make interest payments on and to repay the principal of
the First Mortgage Notes will depend upon the Company's ability to generate
cash sufficient to meet such required payments or to refinance its debt. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company's level of indebtedness, together with the restrictive covenants
included in the Indenture, the Credit Facility and one of the Company's
mortgages, may have the effect of limiting the Company's ability to incur
additional indebtedness, sell assets or acquire other entities, and may
otherwise limit the operational and financial flexibility of the Company. The
effect of these restrictions may be to place the Company at a competitive
disadvantage in relation to less leveraged competitors.
The Company's access to working capital lines under the Credit Facility is
dependent on the Company's compliance with certain financial and other
covenants, including, among others, an interest expense coverage ratio test,
which, if breached, could result in the termination of the commitments of the
lenders under the Credit Facility or a default, and possible acceleration, with
respect to the amounts due thereunder. During fiscal 1994 and the first quarter
of fiscal 1995, the Interest Expense Coverage Ratio (as defined herein)
covenant contained in the Credit Facility is applied solely on the results for
the prior quarter. Thus, a single event which has a negative impact on the
Company's earnings in a particular quarter could result in a default under the
Credit Facility even if the longer term effects of such event or condition were
insignificant. Under the Credit Facility, the Interest Expense Coverage Ratio
for the quarter ending September 30, 1994 is 1.25 to 1.00 and becomes
increasingly more restrictive for the quarters thereafter. For the quarter
ended December 31, 1993, the Company's Interest Expense Coverage Ratio on a pro
forma basis (assuming completion of the Offering) would have been 1.15 to 1.00.
The Company is currently in compliance with all of the financial covenants
under the Credit Facility entered into in November 1993. The loans made under
the Credit Facility are floating rate obligations and, consequently, the
interest rates thereunder may be revised upward or downward depending on
movements in the relevant funding option. See "Description of Certain
Indebtedness--Credit Facility."
EFFECTS OF THE STRIKE
In March 1993, following the expiration of their existing labor contract, the
Union initiated a strike against the Company. For approximately six weeks after
the strike began, the Company operated at
11
<PAGE>
approximately 50% of capacity. The Company has since resumed operating at full
capacity (with a combination of temporary replacement workers, Union employees
who have returned to work and salaried employees), and production and
productivity since July 1993 have been near pre-strike levels. The Company
believes it can maintain and continue to improve its current production and
productivity levels even if the strike continues indefinitely. While the
Company has incurred approximately $3.6 million in strike-related expenses as
of December 31, 1993 ($2.5 million of which was incurred during the first three
months of the strike), it expects that future strike-related costs will not
exceed $100,000 per month, although uncertainties inherent in strikes generally
make it impossible to predict the duration or ultimate cost of the strike to
the Company. There can be no assurance that the Company will be able to
continue to increase production and improve productivity or that the Company
will not incur significant strike-related costs again if the strike continues
indefinitely.
The Union has filed charges against the Company with the regional office of
the NLRB alleging a number of unfair labor practices in connection with
negotiations with the Union. These charges have been amended a number of times
to include additional alleged unfair labor practices. The Company is
negotiating a settlement agreement with the NLRB which proposes to settle most
of these charges. Although the Company does not expect a settlement agreement
to require the Company to admit any violations of the National Labor Relations
Act (the "NLRA"), the Company does expect that any settlement agreement will
require the Company to post, for a period of sixty days, a notice which will
recite the protections afforded employees pursuant to the NLRA, and have the
Company make affirmative statements that it will refrain from taking certain
actions which would infringe those employee rights, including that the Company
will not take certain of the actions alleged in the unfair labor practice
charges, that it will, on request, bargain collectively and in good faith with
the Union, and accord all eligible striking employees, upon their unconditional
offer to return to work, immediate and full reinstatement to their former jobs
or substantially equivalent jobs without loss of seniority. A settlement
agreement is not expected to cover two separate charges filed on December 30,
1993 and January 14, 1994, respectively. These outstanding charges include
allegations that the Company bargained in bad faith by not reducing to writing
a specific alleged agreement concerning job security for those employees
adversely affected by contracting out proposals of the Company, that it failed
to provide certain employee safety and health documents, and that the Company
denied the Union access to the minimill. The Company believes that it possesses
meritorious defenses to such unfair labor practice charges. A settlement
agreement, or a finding by the NLRB that the Company engaged in unfair labor
practices with respect to any charges not covered by a settlement agreement,
may result in the strengthening of the strikers' commitment to their
negotiating position, the work stoppage and the corporate campaign. Any
hardening of the strikers' positions could affect the length of the strike and
the resolution of the labor contract disputes. A settlement agreement or an
adverse decision by the NLRB on the outstanding charges could also delay and
impair the Company's labor initiatives because the Company would be unable to
implement all or part of its last proposed labor agreement until it returned to
the bargaining process and remedied the unfair labor practices, and until such
time as either an agreement with the Union was ratified or impasse in the
bargaining process was reached. The determination of impasse is strictly
dependent on the facts of each individual case. The Company has not made a
determination that it is at impasse and any such determination would be subject
to review by the NLRB. If the Company were to implement its last proposed labor
agreement and the NLRB were to subsequently find that the Company had engaged
in unfair labor practices, the Company would be liable to make employees
economically whole with respect to those labor agreement provisions that
adversely affected such workers since the Company could not have been at
impasse if it were found to have bargained in bad faith.
Under current Federal labor law, a company is not subject to back-pay
liabilities even if the NLRB determines that the company has engaged in an
unfair labor practice, unless the company has failed to reemploy striking
workers who have made an unconditional offer to return to work. The Company has
not hired permanent replacements for the striking workers and could let the
striking workers return to their jobs if the workers make an unconditional
offer to return to work. If the striking workers were to make such an
unconditional offer and resume their jobs, the Company's operations could be
temporarily disrupted as those
12
<PAGE>
workers are absorbed back into the work force. Although the Company does not
believe that any disruption from the introduction of returning workers would be
lengthy, the Company cannot predict how long any such disruption could last.
In August 1993 the Union announced a corporate campaign designed to bring
pressure on the Company from individuals and institutions with direct financial
or other interests in the Company. Although the Company believes the corporate
campaign has not had, and is not expected to have, an effect on its operations,
the potential impact of such a campaign is difficult to assess. See "Business--
Strike and Impact Upon the Company."
RECENT LOSSES
The Company reported net losses of $6.2 million for fiscal 1993, $1.4 million
for fiscal 1992 and $4.6 million for fiscal 1991. These net losses are
primarily due to recessionary declines in demand for and the selling prices of
shapes, customer resistance to surface rust on the Company's product (which
affected fiscal 1990 to 1992 results) and the recent labor strike by the Union
(which affected fiscal 1993 results). The Company reported a loss of $1.0
million for the first quarter of fiscal 1994, compared to net income before
extraordinary gain of $0.3 million for the first quarter of fiscal 1993, as a
result of shape prices lagging the increases in the price of scrap. The Company
has net operating loss carryforwards ("NOLs") totalling $310 million which will
expire in varying amounts through fiscal 2008. In addition, the Company has
$30.2 million of future tax benefits attributable to its tax benefit transfer
lease (the "Tax Lease Agreement") which may, to the extent of taxable income in
the year such tax benefit is produced, be utilized prior to the NOLs. Although
the Company believes it will be profitable in the future and will be able to
realize the benefit of a portion of the NOLs, under the method of accounting
for income taxes for financial reporting purposes adopted by the Company in the
first quarter of fiscal 1994, the Company has established a valuation allowance
for all of these net deferred tax assets due to its cumulative losses in recent
years. The Company believes that a combination of economic recovery, the
elimination of the surface rust problem, and the diminishing impact of the
strike will improve the Company's results of operations; however, there can be
no assurance that the Company will return to profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DECLINING STEEL SALES
From fiscal 1989 through fiscal 1992, the Company experienced year to year
decreases in net sales. In fiscal 1991 the Company decided to reduce its
melting capacity by discontinuing the operation of one of its two electric
furnaces and ceasing the practice of exporting large quantities of billets. In
prior years, billet sales contributed small margins; however, the margins on
billet sales virtually disappeared as a result of worldwide market conditions
in late 1990. The Company's decision to stop producing billets for export
resulted in a decline in sales of approximately $40 million. The idled electric
furnace affords the Company significant additional melting capacity in the
event the Company improves or expands its rolling mill operations or the
Company elects to re-enter the billet market as a major producer; however, the
Company has no immediate plans to do so.
Shape shipments and selling prices decreased from 1989 through 1992.
Shipments decreased due to the decline in the economy and customer resistance
to excessive surface rust on the Company's products. In addition to the effect
of a declining economy, selling prices also fell in response to declining scrap
prices (the principal raw material used by the Company), and as a result of
discounts offered by the Company to sell products that had excessive surface
rust. Due to an improving economy and the Company's elimination of excessive
surface rust from its products, shape shipments improved in fiscal 1993. Shape
shipments increased 11.5% in the first fiscal quarter of fiscal 1994 compared
to the same period of fiscal 1993. If a declining trend were to resume, the
Company's results of operations, liquidity and capital resources would be
adversely affected, particularly if the Company were unable to offset the
decrease in sales with scrap and operating cost reductions. Furthermore, since
the Company's plans to reduce its costs through labor savings and capital
13
<PAGE>
expenditures are partly dependent on increased levels of production, a decline
in steel sales could affect the Company's ability to fully realize such cost
savings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Sales."
CYCLICAL INDUSTRY AND SENSITIVITY TO ECONOMIC CONDITIONS
The demand for steel is cyclical in nature and is sensitive to trends in
commercial and industrial construction and general economic conditions. In
addition, excess production in the structural steel industry has resulted in
pressure on industry profit margins. Future economic downturns may adversely
affect the Company.
COMPETITION
The Company competes with a number of domestic minimills in each of its four
stocking locations. The domestic minimill steel industry is characterized by
vigorous competition with respect to price, quality and service, as well as
competition to achieve technological advancements that would allow a minimill
to produce higher quality products or lower its production costs. In addition,
excess production capacity in the domestic minimill steel industry has resulted
in competitive product pricing and continued pressures on industry profit
margins. As of the date of this Prospectus, the domestic minimill steel
industry's capacity utilization rate is approximately 90%. The high fixed costs
of operating a steel minimill encourage minimill operators to maintain high
levels of output, regardless of levels of demand, which exacerbates the
pressures on industry profit margins. Several domestic minimills which are
competitors of the Company have financial resources substantially greater than
those available to the Company.
The domestic steel industry has historically faced significant competition
from foreign steel producers, particularly in the 1980's when exchange rates
and the domestic demand for steel products made the United States an attractive
market for such producers. Although domestic minimills have experienced little
competition from foreign producers in recent years due to the cost
competitiveness of domestic minimills, there can be no assurance that foreign
competition will not increase in the future, which could adversely affect the
Company's operating results. See "Business--Competition."
VOLATILITY IN RAW MATERIAL COSTS AND FLUCTUATIONS IN ENERGY COSTS
The market for steel scrap, the principal raw material used in the Company's
operations, is highly competitive and subject to price volatility influenced by
periodic shortages (due to increased demand by foreign and domestic users),
freight costs, speculation by scrap brokers and other market conditions largely
beyond the Company's control. Although the domestic minimill industry attempts
to maintain its profit margin by increasing the price of its finished products
in response to fluctuations in scrap costs, increases in the prices of finished
products often do not fully compensate for such scrap price increases and
generally lag several months behind increases in steel scrap prices, thereby
restricting the ability of minimill producers to recover higher raw material
costs. While the Company was able to increase shape prices several times during
fiscal 1993 and the first quarter of fiscal 1994, these price increases still
lagged the increases in scrap prices. For fiscal 1993, metal margin (the
difference between shape selling price and scrap cost) was at its lowest level
since fiscal 1986. The Company has not experienced any improvement in metal
margin in early fiscal 1994 as scrap prices have continued to increase. During
periods of declining steel prices, declines in scrap prices may not be as
significant as declines in steel prices and, likewise, a decline in scrap
prices may cause a decline in shape and billet prices. See "Business--Raw
Materials."
The Company's manufacturing process consumes large amounts of electricity and
natural gas. A significant increase in the Company's electricity costs or in
the price of natural gas would have an adverse impact on the Company's cost
structure. The Company's energy costs, including electricity and natural gas,
increased by $2.0 million in fiscal 1993 compared to fiscal 1992, but are
expected to increase by approximately $0.6 million in fiscal 1994 compared to
fiscal 1993. The Company's operating results would be adversely
14
<PAGE>
affected to the extent it is unable to pass such higher energy costs on to its
customers. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Other Comments--Inflation" and "Business--Energy."
ABSENCE OF A PUBLIC MARKET FOR THE FIRST MORTGAGE NOTES
The First Mortgage Notes comprise a new issue of securities for which there
is currently no market. The Underwriter has informed the Company that it
currently intends to make a market in the First Mortgage Notes. However, the
Underwriter is not obligated to do so, and any such market making may be
discontinued at any time without notice. If the First Mortgage Notes are traded
after their initial issuance, they may trade at a discount from their initial
offering price, depending upon prevailing interest rates, the market for
similar securities, the performance of the Company and other factors.
Therefore, no assurance can be given as to whether an active trading market
will develop or be maintained for the First Mortgage Notes or at what prices
the First Mortgage Notes will trade.
CERTAIN LIMITATIONS ON THE SECURITY FOR THE FIRST MORTGAGE NOTES
The First Mortgage Notes will be secured by a first priority security
interest, subject to certain exceptions, in substantially all unencumbered
existing and future real and personal property, fixtures, machinery and
equipment (including certain operating equipment classified as inventory) of
the Company and the proceeds thereof, whether existing or hereafter acquired,
but excluding inventory and accounts receivable which have been pledged to
secure the Credit Facility and a purchase money facility relating to the Tulsa
stocking location (the "Collateral"). No appraisals of any of the Collateral
have been prepared by or on behalf of the Company. At December 31, 1993, the
net book value of the Collateral was approximately $80.4 million. There can be
no assurance that the proceeds of any sale of the Collateral pursuant to the
Indenture and the Security Documents following an acceleration after an Event
of Default under the Indenture would be sufficient with respect to amounts owed
with respect to the First Mortgage Notes. By its nature, some or all of the
Collateral will be illiquid and may have no readily ascertainable market value.
Accordingly, there can be no assurance that the Collateral will be able to be
sold in a short period of time, even if it is saleable. In addition, the
ability of the Collateral Agent to realize upon the Collateral may be subject
to certain bankruptcy law and fraudulent conveyance limitations in the event of
a bankruptcy. See "Description of the First Mortgage Notes--Security" and "--
Certain Bankruptcy Limitations." In addition, the Trustee for the First
Mortgage Notes will enter into an intercreditor agreement with Chemical Bank,
the agent for the lenders under the Credit Facility, that may delay the sale of
the property subject to the lien of the Indenture and the Security Documents in
order to permit the orderly sale of the property securing the Credit Facility
and the purchase money facility relating to the Tulsa stocking location.
Certain of the Company's property comprising the Collateral under the
Security Documents is subject to the Tax Lease Agreement. Pursuant to the Tax
Lease Agreement, the Company effectively transferred in 1981 the Federal income
tax benefits normally associated with the ownership of such property to an
unaffiliated third party. Pursuant to a separate agreement, the Trustee under
the Indenture (i) will release the Federal income tax ownership of such
property from the security interest and lien created by the Indenture and the
Security Documents until the expiration of the Tax Lease Agreement in 1996,
(ii) will agree to take or refrain from taking certain actions in an attempt to
ensure that any disposition upon a foreclosure of the property would not
constitute a "disqualifying event" within the meaning of the regulations
promulgated under the applicable section of the Internal Revenue Code as in
effect prior to the enactment of the Tax Equity and Fiscal Responsibility Act
of 1982 (the "Old Code") and (iii) will agree that subsequent transferees shall
be required to consent to similar limitations. As a consequence, the Tax Lease
Agreement and such release agreement may have the effect of reducing the value
of the property, restricting the number of persons eligible to purchase the
property and delaying the sale of the property if it were to be sold in a
foreclosure proceeding. The Tax Lease Agreement expires on November 11, 1996.
Voest-Alpine International Corporation ("V.A.I.C."), a wholly-owned subsidiary
of Voest-Alpine, through its ownership of Class C Common Stock, and Howard M.
Meyers, through his voting control of the Class B Common Stock, each have the
right to
15
<PAGE>
prevent certain transactions affecting the Collateral, including, among others,
liquidation, certain mergers and the sale of the assets subject to the Tax
Lease Agreement which, in each case, could result in the loss of tax benefits
by the unaffiliated third party under the Tax Lease Agreement. See "Certain
Related Party Transactions--Tax Benefit Transfer Lease Agreement" and
"Description of the First Mortgage Notes."
The real and chattel mortgages securing the 14.75% Notes were filed under
then applicable Louisiana law in the public records of three parishes of the
State of Louisiana. It is the practice of one or more of such parishes to
require physical delivery of cancelled notes to evidence payment. Since the
Company's obligations under the 14.75% Notes and the related real and chattel
mortgages are being satisfied and discharged through defeasance, the cancelled
14.75% Notes will not be available on the closing date of the Offering to
record a release in those parishes. Although the real and chattel mortgages
securing the 14.75% Notes on file in such parishes will not secure any
obligations of the Company after defeasance, the trustee for the 14.75% Notes
will file in such parishes on the closing date acts of subordination to
subordinate for the public record such mortgages to a junior status relative to
the mortgages securing the First Mortgage Notes. At the completion of the
redemption process for the 14.75% Notes, the cancelled notes will be delivered
to the clerks of such parishes for the recordation of releases of such defeased
mortgages.
LIMITATIONS ON ABILITY TO PURCHASE THE FIRST MORTGAGE NOTES FOLLOWING A CHANGE
OF CONTROL
A Change of Control could constitute a default under the Credit Facility. If
a Change of Control were to occur, the Company might be unable to repay all of
its obligations under the Credit Facility, to purchase all of the First
Mortgage Notes tendered and to repay other indebtedness that may become payable
upon the occurrence of a Change of Control. See "Description of the First
Mortgage Notes--Change of Control."
COST OF COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The Company is subject to various Federal, state and local laws and
regulations, including, among others, the Clean Air Act, the 1990 amendments to
the Clean Air Act (the "1990 Amendments"), the Resource Conservation and
Recovery Act, the Clean Water Act and the Louisiana Environmental Quality Act,
and the regulations promulgated in connection therewith, concerning the
discharge of contaminants which may be emitted into the air and discharged into
the waterways, and the disposal of solid and/or hazardous waste such as
electric arc furnace dust. The Company has spent substantial amounts to comply
with these requirements, and the 1990 Amendments may require significant
additional expenditures for air pollution control.
The Company's minimill is classified, in the same manner as similar steel
mills in the industry, as generating hazardous waste due to the production of
dust that contains lead, cadmium and chromium in the melting operation. In the
event of a release of a hazardous substance generated by the Company, the
Company could be potentially responsible for the remediation of contamination
associated with such a release.
In the past, the Company's operations in some respects have not met all of
the applicable standards promulgated pursuant to such environmental laws and
regulations. Although the Company believes that it is presently in compliance
in all material respects with the requirements of all relevant governmental
agencies in respect of environmental matters, there can be no assurance that
environmental requirements will not change in the future or that the Company
will not incur significant costs in the future to comply with such
requirements. See "Business--Environmental Matters."
VOTING CONTROL
Bayou Steel Properties Limited ("BSPL"), formerly RSR Steel Corporation, owns
100% of the Class B Common Stock of the Company and currently has the voting
power to elect approximately 60% of the Company's Board of Directors, entitling
BSPL to elect four of the seven directors on the Board of Directors, and to
cast a maximum of 60% of the votes on all other matters, subject to certain
class voting rights in favor of the holders of Class C Common Stock. Howard M.
Meyers, Chairman of the Board and Chief
16
<PAGE>
Executive Officer of the Company, owns a majority of the common stock of BSPL
and thus, through BSPL, controls the Company. As a result of this voting power,
the holder of the Class B Common Stock can determine or significantly influence
the outcome of various matters submitted to stockholders for approval,
including, among others, mergers, sales and acquisitions involving the issuance
of additional shares of the Company's capital stock. The Board of Directors of
the Company has approved the merger of BSPL with and into the Company pursuant
to which the number of shares of the Company's Class B Common Stock currently
held by BSPL will be issued to the shareholders of BSPL in the same proportion
as they currently hold the shares of BSPL. The merger is subject to stockholder
approval. See "Principal Stockholders."
USE OF PROCEEDS
The net proceeds from the sale of the First Mortgage Notes offered hereby are
estimated at approximately $72.8 million. The Company intends to apply the net
proceeds from the sale of the First Mortgage Notes as follows: (i)
approximately $55.8 million to redeem or defease the $48.9 million principal
amount of 14.75% Notes outstanding (which bear interest at a rate of 14.75% per
annum with a final principal installment due March 15, 1998) including the
premium of approximately $4.0 million and interest of approximately $3.0
million thereon; (ii) approximately $4.9 million to pay borrowings under the
Credit Facility (which are floating rate obligations and bear interest at a
rate of 5.26% per annum as of December 31, 1993 and mature on November 30,
1996); (iii) to implement a two-year, $8.6 million capital expenditure program;
and (iv) the remainder for general corporate purposes, including working
capital, other capital improvements and possible acquisitions. The Company has
from time to time considered acquisitions of other businesses and may in the
future continue to explore acquisition opportunities. However, the Company is
not presently engaged in negotiations regarding any acquisition. Until used for
the purposes set forth in clause (iv), the Company will invest the remaining
net proceeds in short-term, interest-bearing securities. $39.9 million
principal amount of the 14.75% Notes outstanding will be redeemed shortly after
the date of this Offering; the remaining $9.0 million principal payment will be
redeemed at a scheduled mandatory redemption date in March 1994. All of the
14.75% Notes outstanding will be legally defeased upon consummation of the sale
of the First Mortgage Notes offered hereby.
As set forth in clause (iii) above, the Company intends to use $8.6 million
of the proceeds of the Offering to implement the construction of the following
projects over the next two years: (a) an automobile shredder, (b) a steel
straightener, (c) an off-line sawing system and conveyor, (d) a second overhead
crane and (e) a shipping bay rail spur. For a more detailed description of the
Company's capital expenditure program, see "Business--Strategy--Capital
Improvements."
17
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, current
maturities of long-term debt and capitalization of the Company as of September
30, 1993, and as adjusted to reflect the sale of the First Mortgage Notes
offered hereby and the application of the net proceeds as described under "Use
of Proceeds." This information should be read in conjunction with the Company's
Financial Statements and Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................. $ 518(1) $ 14,639
======== ========
Current maturities:
14.75% Notes........................................ $ 9,000(2) $ 0
Revolving credit facility........................... 4,000(3) 0
Other notes payable................................. 282(4) 282
-------- --------
Total current maturities.......................... $ 13,282 $ 282
======== ========
Long-term debt, less current maturities:
First Mortgage Notes................................ $ 0 $ 75,000
14.75% Notes........................................ 39,900(2) 0
Other notes payable................................. 1,635(4) 1,635
-------- --------
Total long-term debt.............................. $ 41,535 $ 76,635
-------- --------
Stockholders' equity:
Common stock, $.01 par value--
Class A, 24,271,127 authorized and 10,613,380
outstanding....................................... $ 106 $ 106
Class B, 4,302,347 authorized and 2,271,127
outstanding....................................... 23 23
Class C, 100 authorized and outstanding............ 0 0
-------- --------
Total common stock................................ $ 129 $ 129
Paid-in capital....................................... 44,891 44,891
Retained earnings..................................... 16,212 10,181(5)
-------- --------
Total stockholders' equity.......................... $ 61,231 $ 55,201
-------- --------
Total Capitalization.................................. $102,766 $131,836
======== ========
</TABLE>
- --------
(1) As of December 31, 1993, the Company had $3.1 million of cash.
(2) As of December 31, 1993, there were $48.9 million of the 14.75% Notes
outstanding, of which $39.9 million was classified as long-term debt.
During fiscal 1993, the Company repurchased $11.1 million principal amount
of 14.75% Notes at an aggregate cost of $10.4 million.
(3) The Credit Facility provides for a revolving credit commitment until
November 30, 1996 in the amount of $30.0 million. As of December 31, 1993,
$5.9 million was outstanding under the Credit Facility.
(4) As of December 31, 1993, outstanding amounts under other notes payable
(current and long-term) was $1.3 million.
(5) The reduction in retained earnings reflects the $3.99 million prepayment
cost to redeem $39.9 million of the 14.75% Notes, the write-off of the $1.0
million unamortized debt issuance costs related thereto and $1.0 million of
interest charges relating to the 14.75% Notes.
18
<PAGE>
SELECTED FINANCIAL DATA
Set forth below is selected financial information for the Company since 1987,
the Company's first full year of operations following the acquisition of the
Company from Voest-Alpine. The following selected financial data is qualified
by reference to and should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Company's Financial Statements and Notes thereto included elsewhere herein. The
financial data as of and for each of the years in the seven-year period ended
September 30, 1993 have been derived from the Company's audited Financial
Statements. The financial data for interim periods presented have been derived
from financial statements which are unaudited. Results for the interim periods
are not necessarily indicative of results for a full year.
<TABLE>
<CAPTION>
AS OF AND FOR YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT RATIO AND PER TON DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales.............. $136,008 $119,772 $131,271(1) $183,563 $208,962 $189,849 $134,729
Cost of Sales.......... 128,033 109,116 124,436 170,998 187,132 152,148 117,997
-------- -------- -------- -------- -------- -------- --------
Gross Profit........... 7,975 10,656 6,835 12,565 21,830 37,701 16,732
Selling, General and
Administrative........ 3,986 4,071 4,125 4,582 4,323 4,409 4,249
Non-Production Strike
Expenses.............. 3,162(2) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating Income....... 827 6,585 2,710 7,983 17,507 33,292 12,484
Interest Expense....... (8,261) (8,977) (8,821) (9,514) (11,131) (9,639) (9,445)
Interest Income........ 193 486 638 1,850 1,540 649 61
Miscellaneous.......... 502 554 902 1,380(3) 421 (734) 88
-------- -------- -------- -------- -------- -------- --------
Income (Loss) Before
Taxes................. (6,739) (1,352) (4,571) 1,699 8,337 23,568 3,188
Provision (Benefit) for
Income Taxes.......... -- -- -- (116) 281 237 --
-------- -------- -------- -------- -------- -------- --------
Income (Loss) Before
Cumulative Effect of
Accounting Change and
Extraordinary Gain.... (6,739) (1,352) (4,571) 1,815 8,056 23,331 3,188
Cumulative Effect on
Prior Years of
Accounting Change..... -- -- -- (1,572) -- -- --
Extraordinary Gain..... 585 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income (Loss)...... $ (6,154) $ (1,352) $ (4,571) $ 243 $ 8,056 $ 23,331(4) $ 3,188(4)
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working Capital........ $ 32,389 $ 57,167 $ 57,532 $ 64,386 $ 77,266 $ 74,478 $ 34,142
Total Assets........... 138,280 149,381 148,669 162,411 165,518 162,098 110,867
Total Debt............. 54,817 62,057 62,355 67,440 66,364 66,021 61,020
Stockholders' Equity... $ 61,231 $ 67,385 $ 68,737 $ 73,308 $ 73,064 $ 65,008 $ 274
OTHER PERTINENT DATA:
EBITDA:
Actual(5).............. $ 6,530 $ 11,448 $ 7,415 $ 11,767 $ 21,548 $ 36,071 $ 15,348
Adjusted............... 9,694(6) 11,047(7) 8,503(7) 14,324(7) 21,548 36,071 15,348
Ratio of Earnings to
Fixed Charges(8)...... 0.22(9) 0.85(9) 0.49(9) 1.15 1.66 3.28 1.32
Ratio of EBITDA to Net
Interest Expense...... 0.80 1.33 0.88 1.50 2.14 3.92 1.64
Ratio of Adjusted
EBITDA to Net Interest
Expense............... 1.18 1.28 1.01 1.83 2.14 3.92 1.64
Ratio of EBITDA to
Proforma Interest
Expense............... 0.80
Ratio of Adjusted
EBITDA to Pro Forma
Net Interest Expense.. 1.19(10)
Sources and Uses of
Cash Flows:
Net Cash (Used in)
Provided by
Operations............ (867) 3,659 5,614 11,559 (1,866) 15,743 (5,601)
Net Cash (Used in)
Investing Activities.. (3,184) (3,235) (7,374) (11,519) (9,001) (9,728) (3,795)
Net Cash (Used in)
Provided by Financing
Activities............ (6,580) (299) (5,126) 1,087 211 21,320 2,786
Net Tons Shipped:
Shapes................. 403,274 372,943 381,069 411,660 425,376 504,228 405,425
Billets................ 59,604 31,962 43,557(1) 216,790 247,815 93,645 102,361
Average Selling Price
Per Ton:
Shapes................. $ 300 $ 296 $ 307 $ 320 $ 345 $ 333 $ 271
Billets................ 209 204 210 226 235 216 200
Capital Expenditures... $ 3,184 $ 3,235 $ 7,374 $ 11,519 $ 9,001 $ 9,728 $ 3,795
Depreciation and
Amortization.......... $ 4,616 $ 4,309 $ 3,803 $ 3,976 $ 3,620 $ 3,513 $ 2,776
Average Number of
Employees............. 455(11) 495 547 654 685 673 636
Tons Shipped Per
Employee.............. 1,017 818 776 961 983 888 798
</TABLE>
(footnotes on following page)
19
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE
FIRST QUARTER
ENDED DECEMBER
31,
--------------------
1993 1992
-------- --------
<S> <C> <C>
INCOME STATEMENT DATA:
Net Sales............................................... $ 36,778 $ 31,833
Cost of Sales........................................... 34,558 28,199
-------- --------
Gross Profit............................................ 2,220 3,634
Selling, General and Administrative..................... 890 1,081
Non-Production Strike Expenses.......................... 399(2) --
-------- --------
Operating Income........................................ 931 2,554
Interest Expense........................................ (1,885) (2,225)
Interest Income......................................... 20 52
Miscellaneous........................................... (40) (35)
-------- --------
Income (Loss) Before Taxes.............................. (973) 347
Provision (Benefit) for Income Taxes.................... -- --
-------- --------
Income (Loss) Before Cumulative Effect of Accounting
Change and Extraordinary Gain.......................... (973) 347
Cumulative Effect on Prior Years of Accounting Change... -- --
Extraordinary Gain...................................... -- 755
-------- --------
Net Income (Loss)....................................... $ (973) $ 1,102
======== ========
BALANCE SHEET DATA:
Working Capital......................................... $ 31,198 $ 53,874
Total Assets............................................ 142,411 142,431
Total Debt.............................................. 56,144 57,514
Stockholders' Equity.................................... $ 60,258 $ 68,487
</TABLE>
- --------
(1) In fiscal 1991 the Company decided to reduce its melting capacity by
discontinuing the operation of one of its two electric furnaces and
ceasing the practice of exporting large quantities of billets. In prior
years, billet sales contributed small margins; however, the margins on
billets sales virtually disappeared as a result of worldwide market
conditions in late 1990. The Company believes its decision to stop
producing large quantities of billets for export resulted in a decline in
sales of approximately $40 million.
(2) In the first quarter of fiscal 1994 and in fiscal 1993, Non-Production
Strike Expenses includes $0.4 million and $3.2 million, respectively, in
expenses for security, legal matters and other services related to the
strike.
(3) In fiscal 1990, Miscellaneous includes income in connection with a
favorable settlement of a lawsuit for $1.3 million.
(4) In fiscal 1988 and 1987, income applicable to common shares after
accretion and dividends accrued on preferred stock was $19.8 million and
$0.5 million, respectively.
(5) EBITDA represents earnings before interest, taxes, depreciation and
amortization, and is calculated as net income plus interest, taxes,
depreciation and amortization. EBITDA provides additional information for
determining the Company's ability to meet debt service requirements.
EBITDA does not represent and should not be considered as an alternative
to net income, any other measure of performance as determined by generally
accepted accounting principles, as an indicator of operating performance
or as an alternative to cash flows from operating, investing or financing
activities as a measure of liquidity. Each of the Indenture and the Credit
Facility include covenants that are identical to the Ratio of EBITDA to
Net Interest Expense and restrict the Company's level of indebtedness. See
"Description of the First Mortgage Notes--Certain Covenants--Limitations
on Indebtedness" and "Description of Certain Indebtedness--Credit
Facility." See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of liquidity and
operating results.
(6) The adjustment to fiscal 1993 EBITDA relates to production and non-
production strike expenses, as well as an extraordinary gain. First,
reduced production affected the fixed charge component of the inventory
produced during the initial phases of the strike. Since the Company
produced approximately 27,000 fewer tons in the melt shop and
approximately 30,000 fewer tons in the rolling mill than it
20
<PAGE>
normally produced in comparable prior periods, the cost of each ton of
inventory produced during that period included a higher amount of fixed
costs. As the inventory produced during this period was sold, the
allocation of fixed charges to the cost of that inventory resulted in
higher cost of sales for fiscal 1993 of $1.2 million, which increased
cost has been eliminated in the Adjusted EBITDA. This adjustment does not
reflect increased consumption of materials during the period of training
new employees nor does it reflect lost sales attributable to a lack of
inventory caused by the temporary decrease in production, both of which
the Company believes were significant. Second, the Company incurred $3.2
million in Non-Production Strike Expenses in fiscal 1993. The Company has
eliminated $2.6 million of the $3.2 million of Non-Production Strike
Expenses in the Adjusted EBITDA. The Company has not eliminated $0.6
million of Non-Production Strike Expenses which represents the recurring
portion of such expenses for the six-month period commencing April 1,
1993 (approximately the date of the strike's commencement) at the rate of
$100,000 per month. Third, the Company's extraordinary gain of $0.6
million (which arose principally from the repurchase of the Company's
14.75% Notes at favorable prices) has similarly been eliminated in
Adjusted EBITDA.
(7) The adjustment relates to the write-down to market of various shape
inventories and costs associated with remedying customer complaints
related to products with rust. The rust problem was eliminated in 1992
with the construction of the Company's warehouse and by the
implementation of certain product spraying techniques. In fiscal 1992,
1991 and 1990, the adjustments to EBITDA for the rust problem were ($0.4)
million, $1.1 million, and $1.0 million, respectively. The adjustments to
fiscal 1992, 1991 and 1990 EBITDA do not include the effect on EBITDA of
lost sales due to surface rust, which the Company believes was
significant. In fiscal 1990, the adjustment to EBITDA includes the
elimination of the $1.6 million charge relating to Cumulative Effect on
Prior Years of Accounting Change.
(8) For purposes of computing the ratio of earnings to fixed charges (a)
earnings consist of income before the cumulative effect of an accounting
change, and income taxes plus fixed charges (excluding capitalized
interest) and (b) fixed charges consist of interest expense, including
capitalized interest, and amortization of debt expense.
(9) In fiscal 1993, 1992 and 1991, earnings were inadequate to cover fixed
charges by $6.9 million, $1.5 million, and $4.8 million, respectively.
(10) The ratio of Adjusted EBITDA to Pro Forma Net Interest Expense has been
calculated assuming the completion of the Offering and the application of
the proceeds therefrom on the first day of fiscal 1993 and at an assumed
interest rate of 11%. The effect on earnings or net income of a 1/8
percent variance in the interest rate would be approximately $94,000.
(11) In fiscal 1993, the Company utilized approximately 60 outside contractors
working for six months who were not employees of the Company but which are
included in the weighted average number of employees.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER FISCAL 1994 COMPARED TO FIRST QUARTER FISCAL 1993
The Company's net sales increased by 15.5% in the first quarter of fiscal
1994 as compared to the first quarter of fiscal 1993 due primarily to an 11.5%
increase in shape shipments. Nonetheless, the Company's results were affected
by a reduction in the metal margin for the period. Metal margin is the spread
between the selling price of the Company's products and the cost of scrap
metal, the Company's principal raw material. The average shape metal margin was
$14 per ton lower in the first quarter of fiscal 1994 than the comparable prior
year quarter. Consequently, the Company reported a net loss of $1.0 million in
the first quarter of fiscal 1994 and $0.3 million net income before
extraordinary gain in the comparable prior year quarter. The $14 decline in
average shape metal margin since the first quarter of fiscal 1993 is the result
of rapid increases in the price of scrap metal, which the Company was unable to
offset completely with price increases in its finished steel products. By the
end of the first quarter of fiscal 1994, however, the Company had implemented
price increases to increase the metal margin by $6 per ton over the average
metal margin for the first quarter of fiscal 1994. As a result of the price
increases that occurred in the first quarter of fiscal 1994, the metal margin
was close to the Company's ten-year historical average. The Company's
conversion costs--the cost of converting scrap metal into finished products--
decreased by $6 per ton in the first quarter of fiscal 1994 compared to the
same period of fiscal 1993. Non-production strike expenses, which related to
security and legal expenses associated with the strike, amounted to $0.4
million in the first quarter in fiscal 1994.
The following table sets forth shipment and sales data for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER
31,
----------------
1993 1992
-------- -------
<S> <C> <C>
Shape Shipment Tons........................................ 103,168 92,487
Average Shape Selling Price Per Ton........................ $ 321 $ 295
Billet Shipment Tons....................................... 13,375 18,488
Average Billet Selling Price Per Ton....................... $ 224 $ 202
Net Sales (in thousands)................................... $ 36,778 $31,833
</TABLE>
SALES
Net sales increased in the first quarter of fiscal 1994 by 15.5% compared to
the same period of fiscal 1993. The increases were the result of increasing
shape shipments and prices.
Shapes. The 11.5% increase in shape shipments in the first quarter of fiscal
1994 compared to the same period of fiscal 1993 is attributable to an improving
economy and improved product mix and availability. Export shipments accounted
for 6.8% and 7.1% of shape sales in the first quarters of fiscal 1994 and 1993,
respectively. The first quarter is normally the slowest shipping period.
Backlog of orders at December 31, 1993 is 42% higher than a year earlier.
Shape prices increased by 8.8% in the first quarter of fiscal 1994 compared
to the same period of fiscal 1993. These higher prices were primarily in
response to sharp increases in raw material costs; however, the price increases
only partially offset the raw material increases. While the Company was able to
increase shape prices several times during the most recent fiscal quarter, the
shape price increases lagged the increases in scrap prices. However, by
December 31, 1993 the increases in selling prices exceeded the scrap price
increases during the quarter by $2 per ton. The Company's efforts to replenish
the inventories used during the early stage of the strike had a positive impact
on price realization. The Company has announced another price increase
effective February 1, 1994 of $10 per ton. Although it is uncertain that this
increase will be accepted in the market, several competitors have supported the
proposed increase.
22
<PAGE>
Billets. Shipments of billets, the Company's semi-finished product, decreased
5,113 tons in the first quarter period of fiscal 1994 compared to the same
period of fiscal 1993 due to lack of availability of billets for sale. More
billets were used in the Company's rolling mill due to higher production
levels, resulting in fewer billets available for customers. The overall selling
price of billets increased in the first quarter of fiscal 1994 compared to the
same period of fiscal 1993 by 10.9%, or $22 per ton, due to increasing raw
material costs. However, the average billet metal margin was $18 per ton lower
in the first quarter of fiscal 1994 than the comparable quarter in fiscal 1993.
Since billet prices for a major billet customer are related to prior month's
scrap prices, the Company expects margins to improve once scrap prices
stabilize or decrease.
COST OF SALES
The major component of cost of sales is scrap. In the first quarter of fiscal
1994, average steel scrap cost was approximately $40 per ton higher than
average steel scrap cost for the first quarter of fiscal 1993. Increases in
foreign and domestic demand, due to an improving economy and increased steel
mill utilization, caused the scrap prices to increase. The average shape metal
margin for the first quarter of fiscal 1994 was $14 per ton lower than the same
period of fiscal 1993.
Another significant portion of cost of sales is conversion costs, which
include labor, energy, maintenance materials and supplies used to convert raw
materials into billets and billets into shapes. Conversion costs per ton in the
first quarter of fiscal 1994 compared to the same period of fiscal 1993
decreased by $6 per ton. The primary decrease in conversion costs was due to
the reduced per ton fixed costs resulting from increased production. In the
first quarter of fiscal 1993, the Company's melt shop was operating six days
per week. In the first quarter of fiscal 1994, the Company's melt shop was
operating seven days per week. The Company's productivity in the first quarter
of fiscal 1994 was 98% and 108% of the prior year comparable quarter in the
melt shop and rolling mill, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses decreased by 17.6% or $191,000
in the first quarter of fiscal 1994 compared to the first period of fiscal 1993
due to reductions in collection expenses, travel, legal and consulting fees.
NON-PRODUCTION STRIKE EXPENSES
Strike related expenses were $399,000 for the first quarter of fiscal 1994.
December strike expenses were $79,000. Given the same level of strike related
activity, the Company expects that future strike-related costs will not exceed
$100,000 per month in subsequent periods. Most of these expenses are directed
towards legal and security costs.
OTHER INCOME (EXPENSE)
Interest expense decreased in the first quarter of fiscal 1994 compared to
the same periods of fiscal 1993 due to the Company purchasing $11.1 million of
its 14.75% Notes in fiscal 1993. The Company accrued interest on the remainder
of the 14.75% Notes in the first quarter of fiscal 1994 at a rate of 14.75%. In
the first quarter of fiscal 1993, interest was accrued at a rate of 15.29%
which was subsequently adjusted down to an annual rate of 14.75%. Interest
income decreased in the first quarter of fiscal 1994 compared to the same
period of fiscal 1993 due to lower cash balances and lower interest rates on
investments. Miscellaneous expenses were approximately the same in both
quarters.
NET LOSS
The net loss of $1.0 million for the first quarter of fiscal 1994 was
primarily due to the increases in shape selling prices lagging behind the
increases in scrap cost, and, to a lesser extent, the non-production strike
23
<PAGE>
expenses. By the end of the first quarter, increases in shape prices exceeded
the increases in scrap prices which occurred during the quarter; however, the
metal margin is still lower than the prior year comparable quarter.
FISCAL 1993, 1992 AND 1991 YEAR TO YEAR COMPARISONS
The Company reported a net loss of $6.2 million in fiscal 1993. The 1993 net
loss was primarily caused by the strike and by sharp increases in scrap costs.
The strike has adversely affected the Company in four ways. First, as of
November 30, 1993, the Company has incurred approximately $3.5 million in out-
of-pocket expenses for security, legal, and other services related to the
strike ($2.5 million of which was incurred during the first three months of the
strike). Second, a reduction in production of approximately 27,000 tons in the
melt shop and approximately 30,000 tons in the rolling mill during the initial
phases of the strike resulted in higher fixed costs per ton produced during
that period. As the inventory produced during this period was sold, the
allocation of fixed charges to the cost of that inventory resulted in higher
cost of sales for fiscal 1993 of $1.2 million. Third, the impact of training
new employees affected productivity and led to higher consumption of materials
for several months. Fourth, reduced production during the early weeks of the
strike resulted in lost sales due to reduced inventory levels. The increase in
scrap costs during the year was only partially offset by increases in selling
prices, resulting in reduced metal margins.
In fiscal 1992, the net loss of $1.4 million was $3.2 million less than the
loss incurred in fiscal 1991. This improvement, despite fewer shipments and
lower selling prices, was accomplished by a reduction in operating costs per
ton.
The following table sets forth shipment and sales data for the fiscal years
indicated.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Shape Shipment Tons.................................. 403,274 372,943 381,069
Average Shape Selling Price Per Ton.................. $300 $296 $307
Billet Shipment Tons................................. 59,604 31,962 43,557
Average Billet Selling Price Per Ton................. $209 $204 $210
Net Sales (in thousands)............................. $136,008 $119,772 $131,271
</TABLE>
SALES
Net sales increased in fiscal 1993 compared to fiscal 1992 due to an increase
in shipments and selling prices for both shapes and billets, whereas net sales
decreased in fiscal 1992 compared to fiscal 1991 for the same reasons.
Shapes. In 1993, the improvement in domestic shape shipments was mainly due
to an improving economy and the Company's efforts to recapture market share
which had been lost in prior years due to the presence of excessive surface
rust on the Company's products. The Company lost some sales in fiscal 1993 due
to a temporary disruption in shipments out of LaPlace and the stocking
locations and curtailed production due to the strike. Despite these factors,
the Company's total shipments increased in fiscal 1993 compared to fiscal 1992.
Export shape shipments in fiscal 1993 were 11.1% of shape shipments as compared
to 9.7% for the previous year. Export shipments to Canada and the Far East
improved while shipments to Mexico declined. Even though there were extreme
pressures on prices in the form of rebates and discounting, the average selling
price for the Company's shape products rose approximately $4 per ton in fiscal
1993. These higher prices were primarily in response to sharp increases in raw
material costs; however, the price increases only partially offset the raw
material increases. The Company anticipates a slight improvement in the economy
in fiscal 1994 which should result in increased sales. In 1992, the prevailing
recessionary conditions, decreased demand, and the reluctance of steel mills to
reduce rolling capacity, caused an oversupply of shape products relative to
demand, resulting in continued competitive pricing and reductions in shipments.
Even though demand for shape products was weak, the Company continued to
improve its position with customers
24
<PAGE>
because of the improved surface condition of its products; however, the Company
did not completely regain in fiscal 1992 the market share it lost in fiscal
1991 and fiscal 1990. Export shape shipments were 9.7% of shape shipments in
fiscal 1992 and 10% in fiscal 1991.
Billets. In fiscal 1990, foreign governments resumed the practice of heavily
subsidizing their steel-making industries, precipitating a sharp decline in
worldwide billet prices as foreign steel-making companies produced more billets
for export. Unable to sell billets at acceptable margins, the Company curtailed
excess billet production by discontinuing the operation of one of its two
furnaces. Since that time, the Company has increased the productivity of its
one-furnace melt shop, including a 7% increase in 1993. As a result of this
increased productivity, the Company was able to take advantage of several
seasonal export opportunities in the last half of fiscal 1991 and the first
half of fiscal 1992. In fiscal 1993, the Company increased shipped tons of
billets by 86% as compared to fiscal 1992. The average selling price of billets
improved in fiscal 1993 compared to fiscal 1992 due to an increase in domestic
shipments, which carry a higher selling price than export shipments, and
increasing raw material prices which were partially passed on to billet
customers. In fiscal 1994, the Company will continue to ship billets on a
supply contract or on an occasional and selective basis to domestic and export
customers.
COST OF SALES
Cost of sales was 94.1% of sales in fiscal 1993 compared to 91.1% in fiscal
1992 and 94.8% in fiscal 1991. The significant decrease in fiscal 1992 compared
to fiscal 1991 was due to lower scrap costs and conversion costs (the cost of
converting raw materials into shapes). The cost of sales increase in fiscal
1993 compared to fiscal 1992 was primarily due to increases in the same two
factors. Also contributing to the increase in cost of sales as a percentage of
sales were higher per ton production costs caused by the curtailment of
operations during the initial phases of the strike and higher costs for
electricity, natural gas and electrodes.
The major component of cost of sales is scrap. In fiscal 1992, scrap cost
decreased 8.4% compared to fiscal 1991, but shape prices dropped $2 per ton
more than scrap prices, reducing margins. In the first quarter of fiscal 1993,
scrap prices bottomed out and began rising sharply over the remainder of the
fiscal year. Scrap costs increased an average of 14.6% in fiscal 1993 compared
to fiscal 1992. Overall, in fiscal 1993, scrap cost per ton increased $10 more
than the increase in the shape selling prices, further reducing margins. For
fiscal 1993, the average metal margin was 4.0% below the average metal margin
in fiscal 1992.
Another significant portion of cost of sales is conversion costs, which
include the labor, energy, maintenance material, and supplies used to convert
raw materials into billets and billets into shapes. Conversion costs per ton,
which include fixed and variable costs, decreased 9.0% in fiscal 1992 compared
to fiscal 1991, but increased by 3.0% in fiscal 1993 compared to fiscal 1992.
The decrease in conversion costs per ton for fiscal 1992 was due to the
Company's cost reduction efforts. The Company reduced conversion costs by
operating at a higher level of capacity, implementing capital improvements,
reducing overhead, and renegotiating several major supply contracts. Also,
during the later part of fiscal 1992, the rolling mill operation went from a
six day per week operation to operating at full capacity without additional
staff.
The increase in per ton conversion costs in fiscal 1993 was due to the strike
and increased energy costs. The inability to operate at full capacity during
the initial phases of the strike resulted in reduced production of
approximately 27,000 tons in the melt shop and approximately 30,000 tons in the
rolling mill. As a result, each ton produced during this period included a
higher level of fixed costs than in comparable periods. Conversion costs per
ton also increased due to overtime wages paid to workers as a result of reduced
staffing and training new employees during the strike period. The Company
believes that, without the effect of the strike, conversion costs per ton would
have declined in fiscal 1993 compared to fiscal 1992. Compared to fiscal 1992,
the price of the fuel adjustment component of power increased 28% and the
prices of natural gas and electrodes increased 32% and 9%, respectively,
further increasing conversion costs. Increased consumption of certain supplies
and materials, particularly as new employees were trained, also contributed to
higher per ton conversion costs. The Company is currently operating at full
capacity and since July 1993
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overall production and productivity have been near pre-strike levels. With only
a slight improvement in the economy expected in fiscal 1994, the Company will
continue to emphasize cost reductions to be achieved through operating
efficiencies and capital projects.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were relatively stable for
fiscal 1993, 1992, and 1991.
NON-PRODUCTION STRIKE EXPENSES
In fiscal 1993, the Company incurred $3.2 million ($2.5 million of which was
incurred during the first three months of the strike) of non-production strike
expenses, such as legal, security, and other services during the strike. The
Company expects that future strike-related costs will not exceed $100,000 per
month. See "Investment Considerations--Effect of the Strike" and "Business--
Strike and Impact Upon the Company."
INTEREST EXPENSE & MISCELLANEOUS
Interest expense decreased in fiscal 1993 compared to fiscal 1992 by $0.7
million as the Company purchased $11.1 million aggregate principal of its
14.75% Notes at a purchase price of $10.4 million. Interest expense for fiscal
1992 and 1991 was relatively stable.
Interest income decreased in fiscal 1993 compared to fiscal 1992 and did not
significantly change in fiscal 1992 compared to fiscal 1991. In fiscal 1993,
the Company had less cash to invest following its purchases of the 14.75% Notes
and interest rates were lower compared to fiscal 1992.
Miscellaneous income in fiscal 1993 and 1992 was approximately $0.5 million.
Miscellaneous income in fiscal 1991 of $0.9 million included a favorable
adjustment due to the execution of a renewal contract with the State of
Louisiana to abate state franchise taxes and state sales and use taxes. The
agreement applied retroactively to the prior fiscal year. This contract
agreement, from which the Company derives a benefit of approximately $0.9
million per year, expires in 1995.
The Louisiana Board of Commerce and Industry will consider on February 23 the
renewal of one of the Company's ten property tax exemption contracts with the
State of Louisiana. Each of these contracts, which reduce the Company's
property taxes by varying amounts, is renewable for one additional term of five
years. The Company believes that the renewal of such property tax exemption
contract will be granted, although no assurances can be given.
INCOME TAX
The Company has not incurred income tax expense for fiscal 1993, 1992 and
1991 due to a net loss in each of these years. See "--Other Comments."
NET LOSS
The net loss increased by $4.8 million in fiscal 1993 compared to fiscal
1992. The primary reasons for the increase are strike-related matters, lower
average metal margin and higher prices for energy compared to fiscal 1992.
The net loss in fiscal 1992 decreased by $3.2 million from fiscal 1991 due to
reductions in per ton conversion costs resulting from operational improvements.
Cost of goods sold as a percentage of sales was 91.1% in fiscal 1992 compared
to 94.8% in fiscal 1991 largely due to lower scrap costs and conversion costs.
26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased by $1.2 million to $31.2 million in the first
quarter of fiscal 1994. Working capital decreased by $24.8 million to $32.4
million in fiscal 1993. The decrease in fiscal 1993 was due to the
reclassification of $9.0 million of the 14.75% Notes from long-term debt to a
current liability, the decrease in inventories as a result of reduced
production during the strike and reductions in cash caused by the purchase of
$11.1 million in principal of the 14.75% Notes, offset partially by an increase
of $6.2 million in receivables.
In the first three months of fiscal 1994, cash flow from operations increased
cash by $2.2 million. The increase was due to the decrease in accounts
receivable due to collection of sales from September 1993 which were higher
than December 1993 (normally the slowest shipment month in the year). Accounts
payable increased by $1.5 million due to extending payment terms of selected
vendors. This was partially offset by an increase in inventories. The Company
has been rebuilding its inventories, which were depleted due to lower
production in the early phases of the strike, to normal operating levels. In
addition, the Company expects inventories to increase in the second fiscal
quarter of 1994. A two-week planned shutdown of the production facilities late
in the third quarter will reduce inventories by $4 to $5 million. Net cash used
in operations was $0.9 million in fiscal 1993 mainly due to the net loss and
the increase in receivables. The increase in receivables was primarily due to
the increased billet and shape sales in August and September 1993 as compared
to the prior year. This was partially offset by the decrease in inventories and
increase in accounts payable. Despite higher accounts receivable at year end,
based on a better aging profile of the Company's outstanding accounts and
reductions in the number of accounts older than 60 days, the Company's
allowance for doubtful accounts has decreased compared to prior periods.
Capital expenditures amounted to $0.4 million and $3.2 million in the first
quarter of fiscal 1994 and in fiscal year 1993, respectively. These
expenditures were used for minor upgrades to the plant and major maintenance
projects. The Company intends to implement a two-year, $8.6 million capital
expenditure program.
Cash from financing activities of $0.8 million in the first three months of
fiscal 1994 was due to short-term borrowings from the line of credit of $1.9
million. This was partially offset by principal payments on a mortgage and
increases in other assets due to expenses for the amended and restated line of
credit and the First Mortgage Notes. Cash flow from financing activities
decreased cash by $6.6 million in fiscal 1993 due to a purchase of $11.1
million aggregate principal amount of the 14.75% Notes for $10.4 million. This
was partially offset by $4.0 million of short-term borrowings.
On November 23, 1993, the Company entered into an amendment and restatement
of the Credit Facility, which is a three-year line of credit that permits loans
to be made to the Company thereunder, on a secured basis, of up to $30 million.
As of December 31, 1993, there was $5.9 million borrowed under the Credit
Facility. Interest rates under the Credit Facility are prime plus 1% or LIBOR
plus 2% at the Company's option. The Company's Credit Facility contains certain
covenants, such as the Interest Expense Coverage Ratio, which become more
restrictive over time. Under the Credit Facility, the Interest Expense Coverage
Ratio for the quarter ending September 30, 1994 is 1.25 to 1.00 and becomes
increasingly more restrictive for the quarters thereafter. For the quarter
ended December 31, 1993, the Company's Interest Expense Coverage Ratio on a pro
forma basis (assuming completion of the Offering) would have been 1.15 to 1.00.
In the event of a default under the Credit Facility, the Company would not be
permitted to borrow under the Credit Facility and the lenders thereunder may
accelerate payment of all amounts then outstanding and terminate their
commitments. A default under the Credit Facility may cause a default under the
Indenture. However, the Company believes that its normal operations (assuming a
3% improvement in shipments over the next 15 months and metal margins equal to
their historical average) will be sufficient to satisfy these covenants,
although there can be no assurance that other events will not occur that will
affect the Company's ability to satisfy such covenants. See "Description of
Certain Indebtedness--Credit Facility." The Company will use the proceeds of
this Offering to defease and redeem the $48.9 million of outstanding 14.75%
Notes and repay the then outstanding loans under the Credit Facility. The
Company believes that current cash balances,
27
<PAGE>
internally generated funds, the Credit Facility and additional purchase money
mortgages will provide adequate funds for the Company's operating requirements.
In addition, the Indenture contains a covenant which restricts the Company's
ability to incur additional indebtedness. Under the Indenture, the Company may
not incur additional indebtedness unless its EBITDA Ratio would be greater than
2.00 to 1.00 after giving effect to such incurrence. See "Description of the
First Mortgage Notes--Certain Covenants--Limitations on Indebtedness."
There are no financial obligations with respect to post-employment or post-
retirement benefits.
OTHER COMMENTS
ENVIRONMENTAL MATTERS
See "Business--Environmental Matters" and "Investment Considerations--Cost of
Compliance with Environmental Regulations" for a description of the Company's
environmental matters.
STRIKE
See "Business--Strike and Impact Upon the Company" and "Investment
Considerations--Effects of the Strike" for a description of the strike.
INFLATION
The Company is subject to increases in the cost of energy, supplies, salaries
and benefits, additives, alloy and scrap due to inflation. Shape prices are
influenced by supply, which varies with steel mill capacity and utilization,
and market demand.
ACCOUNTING FOR INCOME TAXES
The Company has $310 million of NOLs to offset against regular taxes. The
NOLs expire in varying amounts through fiscal 2008. A substantial portion of
the available NOLs, approximately $200 million, expires by fiscal 2000. In
addition, the Company has $30.2 million of future tax benefits attributable to
the Tax Lease Agreement which expires in 1996 (see Note 8 to the Financial
Statements) and which may, to the extent of taxable income in the year such tax
benefit is produced, be utilized prior to the NOLs. Even though management
believes the Company will be profitable in the future and will be able to
utilize a portion of the NOLs, management does not believe that it is likely
that all of the NOLs will be utilized. In February 1992, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("FAS 109"), which will require the
Company to change its method of accounting for income taxes for financial
reporting purposes for the fiscal year beginning October 1, 1993. FAS 109
requires, among other things, recognition of future tax benefits, subject to a
valuation allowance based on the likelihood of realizing such benefits.
Preliminary calculations indicate that deferred tax assets of approximately
$118 million (NOLs and other temporary timing differences multiplied by the
federal income tax rate) and deferred tax liabilities of approximately $8
million will be recorded upon adoption of FAS 109 in fiscal 1994. However, in
recording these deferred assets, FAS 109 requires the Company to determine
whether it is "more-likely-than-not" that the Company will realize such
benefits and that all negative and positive evidence be considered (with more
weight given to evidence that is "objective and verifiable") in making the
determination. FAS 109 indicates that "forming a conclusion that a valuation
allowance is not needed is difficult when there is negative evidence such as
cumulative losses in recent years"; therefore, the Company has determined that
it will be required by the provisions of FAS 109 to establish a valuation
allowance for all of the recorded net deferred tax assets at the time the
standard is adopted. In view of the fact that this determination was based
primarily on historical losses with no regard for the impact of proposed
capital expenditures and business plans, future favorable adjustments to the
valuation allowance may be
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<PAGE>
required if and when circumstances change and the Company returns to
profitability. Adoption of FAS 109 will have no material adverse impact on
income for financial reporting or tax purposes.
QUARTERLY RESULTS
The following table provides certain summary financial information for the
eight quarters of fiscal 1993 and 1992:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED FISCAL YEAR ENDED SEPTEMBER 30, 1993 FISCAL YEAR ENDED SEPTEMBER 30, 1992
DECEMBER 31, ----------------------------------------------------- ----------------------------------------------
1993 4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER 4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTE
------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT RATIO AND PER TON DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales........ $36,778 $ 36,282 $ 34,485(1) $ 33,408(1) $ 31,833 $ 30,474 $ 31,050 $29,037 $29,211
Gross Profit..... 2,220 1,556(2) 745(2) 2,040(2) 3,634 2,893 2,618 2,759 2,386
Net Income
(Loss).......... (973) (1,481) (4,078) (1,697) 1,102 203 (504) (352) (699)
Gross Profit
Margin.......... 6.0% 4.3% 2.2% 6.1% 11.4% 9.5% 8.4% 9.5% 8.2%
Net Tons Shipped:
Shapes.......... 103,168 100,494 105,541 104,752 92,487 95,195 97,318 95,560 84,871
Billets......... 13,375 20,493 13,129 7,494 18,488 7,133 9,387 1,465 13,979
------- -------- -------- -------- -------- -------- -------- ------- -------
Total............ 116,543 120,987 118,670 112,246 110,975 102,328 106,705 97,025 98,850
Average Selling
Price per Ton:
Shapes.......... $ 321 $ 311 $ 297 $ 298 $ 295 $ 297 $ 294 $ 292 $ 301
Billets......... 224 214 210 207 202 210 204 218 199
</TABLE>
- --------
(1) The Company believes that it lost approximately 27,000 tons of production
in the melt shop and approximately 30,000 tons of production in the rolling
mill and some sales during the second and third quarters due to the strike.
(2) The Company believes that the strike significantly impacted its operating
results in the second, third and fourth quarters of fiscal 1993.
BUSINESS
GENERAL
The Company is a leading producer of light structural steel products. The
Company owns and operates a steel minimill strategically located on the
Mississippi River in LaPlace, Louisiana, 35 miles northwest of New Orleans. The
minimill, constructed at a cost of $243 million in 1981, is one of the most
modern facilities in the world in its product line and utilizes state-of-the-
art equipment and technology. The Company produces a variety of shapes,
including angles, flats, channels, standard beams and wide flange beams. The
shapes produced by the Company have a wide range of commercial and industrial
applications, including the construction and manufacturing of petrochemical
plants, barges and light ships, railcars, trucks and trailers, rack systems,
tunnel and mine support products, joists, sign and guardrail posts for
highways, power and radio transmission towers, and bridges. The Company sells
its products to approximately 600 customers, most of which are steel service
centers, in 44 states, Canada, Mexico and overseas. The Company also sells
excess billets (which have not been rolled into shapes) on a worldwide basis to
other steel producers for their own rolling or forging applications. In fiscal
1993, the Company sold 403,274 tons of shapes and 59,604 tons of billets.
According to the AISI, the domestic market demand for all structural steel
shapes products in 1992 was 5.1 million tons. The Company estimates that its
share of the total domestic shapes market was approximately 8% in 1992. The
Company also believes that its share of the light structural steel shapes
market (the primary
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<PAGE>
market in which the Company competes) is much higher, and that it is one of the
five largest producers of light structural steel shapes in the U.S.
The term "minimill" refers to a relatively low-cost steel production facility
which uses steel scrap, rather than iron ore, as its basic raw material. In
general, minimills recycle scrap using electric arc furnaces, continuous
casters and rolling mills. The Company's minimill, which was owned and operated
by Voest-Alpine until it was purchased by the Company in September 1986,
includes a Krupp computer-controlled, electric arc furnace utilizing water-
cooled sidewalls and roofs, two Voest-Alpine four-strand continuous casters, a
computer supervised, Italimpianti reheat furnace and a 15-stand Danieli rolling
mill (a second Krupp furnace is currently not in operation, but is available
for additional production).
In August 1988, the Company completed an initial public offering of its Class
A Common Stock which shares are traded on the American Stock Exchange. The
Company was incorporated under the laws of the State of Louisiana in 1979 and
was reincorporated in Delaware in 1988 in connection with its public offering.
The address of the Company's principal place of business is River Road, P.O.
Box 5000, LaPlace, Louisiana 70069 and its telephone number is (504) 652-4900.
MANUFACTURING PROCESS AND FACILITIES
In its production process, the Company uses steel scrap which is received by
barge, rail, and truck, and then stored in a scrap receiving yard. The scrap is
transported to the Company's melt shop by rail car or truck and loaded into its
furnace. The steel scrap is melted with electricity in a 75-ton capacity
electric arc furnace which heats the scrap to approximately 3100(degrees)F.
During the scrap melting and refining process, impurities are removed from the
molten steel. After the scrap reaches a molten state, it is poured from the
furnace into ladles, where adjustments of alloying elements and carbon are made
to obtain the desired chemistry. The ladles of steel are then transported to
one of two four-strand continuous casters in which the molten steel is
solidified in water-cooled molds. The casters produce long strands of steel
which are cut by torch into billets and moved to a cooling bed and marked for
identification. After cooling, the billets are transferred to the rolling mill
for further processing. In the rolling mill, the billets are reheated in a
walking beam furnace with recuperative burners. Once the billets are heated to
approximately 2000(degrees)F, they are rolled through up to fifteen mill stands
which mold the billets into the dimensions and sizes of the finished products.
The heated finished shapes are placed on a cooling bed and then straightened
and cut into the appropriate customer lengths. The shapes are sprayed to
prevent surface rust and then bundled into 2 1/2- to 5-ton stacks and placed in
a climate controlled warehouse where they are subsequently shipped to the
Company's stocking locations via barge, or to customers directly via truck,
rail, or barge.
The Company is currently able, using only one of its two furnaces, to produce
more billets than it can consume in its rolling mill. Prior to 1991, the
Company operated both of its furnaces and produced a much greater tonnage of
billets for sale in the billet market than it currently produces. The Company
discontinued this practice in 1991 due to declining margins on such products
and has been operating only one of its two furnaces since then. The Company
believes that it could restart its other furnace with an expenditure of less
than $1 million. As a result, the Company believes that it has significant
additional capacity to produce more billets if conditions in the worldwide
billet market improve or if the Company obtains additional rolling mill
capacity.
PRODUCTS
Finished Steel. The Company produces a variety of light structural steel
products (including angles, flats, channels, standard beams and wide-flange
beams) that are collectively referred to as "shapes." The Company currently
produces and sells shapes in the forms of equal leg angles (2"x 2" through
6"x 6"), unequal leg angles (4"x 3" through 7"x 4"), channels (3" through 8"),
flats (3" through 8"), standard beams (3" through 6"), and wide flange beams
(4" through 8"). The shapes produced by the Company have a wide
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<PAGE>
range of commercial and industrial applications, including the construction and
manufacturing of petrochemical plants, barges and light ships, railcars, trucks
and trailers, rack systems, tunnel and mine support products, joists, sign and
guardrail posts for highways, power and radio transmission towers, and bridges.
The Company's shapes are produced to various national specifications, such as
those set by the American Society for Testing and Materials ("ASTM"). In
addition, the Company is one of a few minimills that is approved by the
American Bureau of Shipping ("ABS") and certified for nuclear applications. The
Company's products are also certified for state highway and bridge structures.
The Company is currently in the approval process for ISO-9000 certification,
the new international steel standard.
The Company's shape products are distinguishable from bar mill products which
include hot rolled bars, cold finished bars and reinforcing bars. The
manufacture of structural steel products is generally more labor intensive and
technically demanding than the manufacture of steel bar mill products.
Semi-finished Steel. The Company sells its excess billets on a worldwide
basis to other steel producers for their own rolling or forging applications.
The billets are sold both domestically and worldwide through supply contracts
or on an occasional and selective basis. During fiscal 1993, the Company
produced in excess of 25 grades and 5 sizes (120 mm to 200 mm square or
rectangle) of billets.
CUSTOMERS
The Company has approximately 600 customers in 44 states, Canada, Mexico and
overseas. The majority of the Company's shape products (approximately 74% in
fiscal 1993) are sold to steel service centers, while the remainder are sold to
original equipment manufacturers (approximately 15% in fiscal 1993) and export
customers (approximately 11% in fiscal 1993). Steel service centers purchase
nearly 30% of all carbon industrial steel products produced in the United
States. Steel service centers warehouse steel products from various minimills
and integrated mills and sell combinations of products from different mills to
their customers. Some steel service centers also provide additional labor
intensive value added services such as fabricating, cutting or selling steel by
the piece rather than by the bundle.
In fiscal 1993, the Company's top ten customers accounted for approximately
30% of total sales, and no one customer accounted for more than 6% of total
sales. The Company believes that it is not dependent on any customer and that
it could, over time, replace lost sales attributable to any one customer.
DISTRIBUTION
The Company's steelmaking facility, which includes a deep-water dock, is
strategically located on the Mississippi River, which the Company believes
gives it transportation cost advantages because it can ship its product by
barge, the least costly method of transportation in the steel industry.
Furthermore, the Company operates three inventory stocking warehouses in
Chicago, Tulsa and Pittsburgh, which supplement its operations in Louisiana.
These facilities, each of which includes an inland waterway dock, enable the
Company to significantly increase its marketing territory by providing storage
capacity for its finished products in three additional markets and by allowing
the Company to meet customer demand far from its minimill facility on a timely
basis. The Company believes that the location of its minimill on the
Mississippi River, and its network of inland waterway warehouses, enable it to
access markets for its products that would otherwise be unavailable to the
Company.
The Company's deep-water dock at its manufacturing facility enables the
Company to load vessels or ocean-going barges for overseas shipments, giving
the Company low cost access to overseas markets. Since the minimill is only 35
miles from the Port of New Orleans, smaller quantities of shapes or billets can
be shipped overseas on cargo ships from that port. In addition, the Company
makes rail shipments to some customers, primarily those on the West Coast and
in Mexico. Relative to its domestic competitors, the
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<PAGE>
Company believes it has a $25 per ton or more freight cost advantage over land-
locked minimills in serving the export market. This advantage permits the
Company to compete with foreign minimills in certain export markets.
The Company believes that the elimination of current duties in Canada and
Mexico as a result of the passage of the North American Free Trade Agreement
("NAFTA") will increase the competitiveness of the Company's products compared
to locally produced products in such countries. During fiscal 1993 and 1992,
2.9% and 3.4%, respectively, of the Company's tons shipped were exported to
Canada and Mexico. There can be no assurance, however, that there will be an
increase in the Company's shipments to Canada and Mexico as a result of the
passage of NAFTA.
MARKETS AND SALES
According to the AISI, the domestic market demand for all structural steel
shape products in 1992 was 5.1 million tons. The Company estimates that its
share of the total domestic shapes market was approximately 8% in 1992. The
Company believes that its share of the light structural steel shapes market
(the primary market in which the Company competes) is much higher, and that it
is one of the five largest producers in this market of light structural steel
shapes in the U.S.
The Company's shape products are sold domestically and in Canada, Mexico and
overseas on the basis of price, availability, quality and service. The Company
maintains a real-time computer information system, which tracks prices offered
by competitors, as well as freight rates from its customers to both the
Company's stocking locations and the nearest competitive facilities. In
addition, the Company maintains a full product assortment at its stocking
locations to ensure availability of its product and operates on a predetermined
production schedule that is provided to customers to assist customers in
scheduling their purchases.
Although sales of shapes tend to be slower during the winter months due to
the impact of winter weather on construction and transportation, and during the
late summer due to planned plant shutdowns of end-users, seasonality has not
been a material factor in the Company's business. The Company's backlog of
unfilled cancelable purchase orders for shapes, which typically are filled in
approximately three months, totaled $24.3 million as of September 30, 1993 as
compared to $14.3 million as of September 30, 1992. As of December 31, 1993,
the Company's backlog totaled $25.2 million.
The level of billet sales to third parties is dependent on the Company's
internal billet requirements and worldwide market conditions, which may vary
greatly from year to year. In the past three fiscal years, shipments of billets
to third parties have ranged from 8% to 13% of the Company's total tonnage
sales, as compared to 35% in fiscal 1990. The Company is currently able, using
only one of its two furnaces, to produce more billets than it can consume in
its rolling mill. Prior to 1991, the Company operated both of its furnaces and
produced a much greater tonnage of billets for sale in the billet market than
it currently produces. The Company discontinued this practice in 1991 in
response to a decision by foreign governments to resume the practice of heavily
subsidizing their steel-making industries. This decision precipitated a sharp
decline in worldwide billet prices, as foreign steel-making companies produced
more billets for export. Due to current margins, the Company has chosen to sell
its excess billets through supply contracts or on an occasional and selective
basis. If the market for billets were to improve, the Company could increase
its billet production by restarting its idled second furnace.
STRATEGY
The Company's principal operating strategy is to improve operating results by
reducing labor costs and increasing sales of higher margin shape products. In
addition, upon completion of the Offering the Company intends to implement a
two-year, $8.6 million capital expenditure program to reduce its production
costs and increase its rolling mill capacity. The Company may also consider
strategic acquisitions which complement
32
<PAGE>
or expand the Company's current operations, such as businesses engaged in the
metals field or recycling operations.
Operating Efficiencies. The Company believes that it can lower its labor
costs by as much as $7 per ton from fiscal 1993 levels by making
operational changes and operating the minimill with fewer workers. The
Company began to implement many operational changes in fiscal 1993, but
their impact is not fully reflected in fiscal 1993 results since these
changes were implemented over the course of the year. In connection with
the foregoing, the Company recently increased its melt shop operations by
changing from three to four shifts (and by operating seven days a week
rather than six) as part of its cost savings program. Labor costs per ton
in fiscal 1993 also were somewhat distorted by the effects of the strike,
which resulted in periods of lower production and productivity, periods of
substantially increased overtime and the Company's need to temporarily use
outside contractors.
The Company also believes that the adoption of a labor contract
comparable to its last proposal to the Union would reduce labor costs an
additional $2 per ton. If implemented, the Company believes the proposed
contract would reduce the Company's benefit costs by approximately $750,000
annually through employee contributions for health and dental coverage and
the benefits of a proposed managed care program (which would still provide
comprehensive benefits to employees). The Company has also proposed several
changes which would reduce the quantity of overtime. For instance, the
Company has proposed that it be given the right to buy back certain
vacation time of employees. Flexibility in using contractors and
supervisors, another element of the proposed contract, would also
contribute to lowering costs.
Moreover, the Company believes that its labor costs per ton can be
reduced even further through the adoption of its proposed incentive
compensation plan. The incentive plan, which is similar to incentive plans
employed by other minimills which have achieved lower labor costs per ton
than the Company, would compensate production workers and supervisors for
improvements in productivity, with the costs of the incentive payments
offset by the benefits of increased productivity. This improved
productivity would have the additional benefit of reducing per ton
conversion costs. Due to the continuing strike, the Company may be
precluded from implementing any or all of its labor initiatives. See "--
Strike and Impact Upon the Company--Unfair Labor Practice Charge and--
Status of Negotiations."
In the event the Company is able to sustain the labor cost savings
already achieved through operational changes implemented in fiscal 1993,
the Company achieves its anticipated labor cost savings and the Company
implements its additional labor initiatives, the Company believes that its
labor costs per ton will be comparable to those of the Company's leading
competitors. However, no assurance can be given that the ultimate labor
contract will permit the Company to realize significant labor cost savings.
The Company has committed to developing a Total Quality Management work
culture. Through extensive training and individual development efforts, the
Company will attempt to reinforce its basic values of employee improvement,
teamwork, and increased individual accountability. The Company believes
that the workforce, through this program, will have an impact in achieving
operational and productivity improvements. The Total Quality Management
program does not involve the terms and conditions of the workplace and is
therefore not subject to the collective bargaining process. As a result,
the Company has begun implementing the Total Quality Management Program
with its supervisory personnel and intends to begin implementing the
program with the remainder of its workforce in the near-term.
Capital Improvements. From fiscal 1987 through fiscal 1993, the Company
spent an aggregate of approximately $48 million on capital projects. Most
of these expenditures were directed toward establishing its stocking
location distribution system, establishing a controlled warehouse
environment to minimize surface rust, extending its product line by adding
equipment to roll wide-flange beams and complying with changing
environmental regulations.
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In contrast to prior years, capital expenditures in the next three years
will primarily be directed toward efficiency and cost reduction within its
manufacturing facility. In addition to normal maintenance programs, the
Company intends to implement a two-year, $8.6 million capital expenditure
program to reduce its production and operating costs and increase its
rolling mill capacity. The principal elements of this program are (i) an
automobile shredder to enable the Company to shred car bodies on-site and
reduce scrap costs, (ii) a steel straightener to improve production
capacity in the rolling mill, (iii) an off-line sawing system and conveyor
to further improve production capacity in the rolling mill, (iv) a second
overhead crane to reduce product changeover time in the rolling mill and
(v) a shipping bay rail spur to reduce the handling of finished products.
The Company believes that these capital projects, when fully implemented,
would result in annual operating cost savings of approximately $7.10 per
ton.
The following table summarizes the capital expenditures and estimated
production cost savings (excluding depreciation and additional interest
expense) associated with the Company's capital expenditure program.
<TABLE>
<CAPTION>
ESTIMATED
TOTAL PRODUCTION
ESTIMATED COST
CAPITAL ANNUAL SAVINGS
PROJECT EXPENDITURE SAVINGS(1) (PER TON)(2)
------- ------------ ------------ -------------
(IN MILLIONS, EXCEPT PER TON AMOUNTS)
<S> <C> <C> <C>
Automobile Shredder...... $ 4.2 $ 1.7 $ 3.70
Steel Straightener....... 1.9 0.7 1.50
Off-Line Sawing
System/Conveyor......... 1.3 0.5 1.10
Overhead Crane........... 0.6 0.2 0.40
Shipping Bay Rail Spur... 0.6 0.2 0.40
------------ ------------ -------------
Total.................. $ 8.6 $ 3.3 $ 7.10
============ ============ =============
</TABLE>
- --------
(1) Assumes production and sales of 433,000 tons of shapes and 30,000 tons of
billets, for an aggregate of 463,000 tons. In fiscal 1993, the Company
produced and sold 462,878 tons, which included 403,274 tons of shapes and
59,604 tons of billets. The annual savings include increases in gross
profits relating to a shift to higher margin shape sales. The assumption
does not include any increased production that might result from
implementation of the Company's capital expenditure projects.
(2) Estimated cost savings per ton are based on certain estimates of historical
operating data. Estimated savings related to the automobile shredder may
vary depending on fluctuations in the market price for scrap.
Automobile Shredder. The proposed automobile shredder, which would
operate at the LaPlace site, would enable the Company to prepare car
bodies and sheet material into shredded material ready for the melting
process, thereby providing the Company with shredded scrap at a lower cost
than it currently procures such scrap. In addition, the Company believes
that the automobile shredder would produce scrap of a consistently higher
quality than purchased shredded scrap. The Company believes that on-site
preparation of scrap would enhance the efficiency of the dock in handling
finished goods since fewer shipments of scrap by barge would arrive. The
Company estimates that the purchase and installation of the on-site
shredder would require $4.2 million of capital expenditures. Assuming
production and sales levels of 463,000 tons per year, the estimated annual
cost savings will be approximately $1.7 million or $3.70 per ton.
Steel Straightener. The proposed steel straightener would replace the
Company's existing steel straightener and would contain enhanced features
which would allow it to operate more rapidly, thereby eliminating the
bottleneck caused by the existing straightener in the rolling mill. The
steel straightener, together with the off-line sawing system and conveyor,
would expand the capacity of the rolling mill and permit the production of
light bar shape products (2"x2" angles), which historically are products
with a strong demand, but which the Company previously dropped from its
production schedule due to
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the rolling mill's inability to produce such products efficiently. The
Company estimates that the purchase and installation of the steel
straightener would require $1.9 million of capital expenditures. Assuming
production and sales levels of 463,000 tons per year, the estimated annual
cost savings relating to the steel straightener will be approximately $0.7
million or $1.50 per ton.
Off-Line Sawing System and Conveyor. The proposed off-line sawing
system would allow the rolling mill to operate more rapidly by removing
the bottleneck that currently exists when shape products are cut into
lengths less than 40 feet. The off-line sawing system will include a
conveyor to move shapes from the last rolling mill operation to shipping
bays. The off-line sawing system and conveyor, together with the steel
straightener, would expand the capacity of the rolling mill and permit the
production of light bar shape products. The Company estimates that the
purchase and installation of the off-line sawing system and conveyor would
require $1.3 million of capital expenditures. Assuming production and
sales levels of 463,000 tons per year, the estimated annual cost savings
relating to the off-line sawing system and conveyor will be approximately
$0.5 million or $1.10 per ton.
Overhead Crane. The proposed overhead crane, along with the existing
overhead crane in the rolling mill, would allow both product changeovers
and routine maintenance to occur simultaneously, thereby reducing
changeover time between production runs. The Company estimates that the
purchase and installation of an additional overhead crane would require
capital expenditures of $0.6 million. Assuming production and sales levels
of 463,000 tons per year, the estimated annual cost savings will be
approximately $0.2 million or $0.40 per ton.
Shipping Bay Rail Spur. The proposed rail spur in the shipping bay
would move finished products from the Company's warehouse to the rail
lines adjacent to the minimill without loading and unloading such products
into and from trucks. The Company believes that its labor costs and
operating and capital costs of mobile equipment would be reduced by
installation of the shipping bay rail spur, as well as reduce damage to
its finished products. The Company estimates that the installation of the
shipping bay rail spur would require $0.6 million of capital expenditures.
Assuming production and sales levels of 463,000 tons per year, the
estimated annual costs savings will be approximately $0.2 million or $0.40
per ton.
Other Projects. The Company is currently evaluating the construction
of a rail system that would permit the movement of scrap from the
Company's deep-water dock, which is located approximately 500 yards from
the minimill, to the scrap inventory area and the movement of finished
goods from the warehouse to the dock without loading and unloading the
scrap and finished goods into and from trucks. The Company believes that
its labor costs, contracted services, truck and crane rentals and fuel
requirements would be reduced by the implementation of the rail system.
After preliminary review, the Company estimates that construction of the
rail system would require $11.0 million of capital expenditures. The
Company will continue to analyze the feasibility and potential cost
savings of this project. In addition, the Company is considering
modification of the furnace shell and tapping hole to increase
productivity and reduce consumption of refractory material. The Company is
currently considering various designs for such modifications. After
preliminary review, the Company estimates that it may be able to effect
such modifications for less than $1.0 million of capital expenditures. The
Company believes that the potential cost savings of such project could be
significant relative to the capital expenditures required.
Since the estimated operating cost savings from the Company's expected
operating efficiencies and planned capital improvements are based upon a
number of assumptions, estimated operating cost savings are not necessarily
indicative of the Company's expected financial performance and increases in
the cost of raw materials and other conversion costs may offset any operating
cost savings to cause actual results to vary significantly. There can be no
assurance that the ultimate labor contract will permit the Company to realize
significant labor cost savings. In addition, although the Company believes its
assumptions with respect to its planned capital expenditure program to be
reasonable, there can be no assurance that the estimated production cost
savings of the Company's capital expenditure program will actually be
achieved, sufficient demand for structural steel products will exist for the
additional capacity, or other difficulties will not be
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<PAGE>
encountered in completing the capital expenditure program, or that the projects
can be installed or constructed at the estimated prices.
Acquisition Program and Tax Benefits. The Company may, from time to time,
seek strategic acquisitions in order to accelerate its growth, focusing on
businesses which complement or expand the Company's current operations, such as
businesses in the metals field or involving recycling operations. The Company
is not presently engaged in negotiations with respect to any acquisition. As of
September 30, 1993, the Company had approximately $310 million of NOLs which
could be used to offset taxable earnings of the Company, including the earnings
of acquired entities, subject to certain limitations imposed by the Internal
Revenue Code of 1986, as amended (the "Tax Code"). See "Investment
Considerations--Recent Losses," "Certain Related Party Transactions--Tax
Benefit Transfer Lease Agreement and Release Agreement" and the Notes to the
Financial Statements.
COMPETITION
The Company's location on the Mississippi River, as well as its stocking
locations in three additional regions of the country, provide it with access to
vast markets in the eastern, midwestern, southern, and central portions of the
United States. As a result, the Company competes in the shape market with
several major domestic minimills in each of these regions. Depending on the
region and product, the Company competes with, among others, Nucor Corporation,
Structural Metals, Inc., North Star Steel Co., Northwestern Steel and Wire
Company, and Lake Ontario Steel Corporation. The Company does not currently
compete with minimills producing flat rolled or rebar products, nor does it
compete with any domestic integrated steel producers.
Foreign steel producers historically have not competed significantly with the
Company in the domestic market for shape sales due to higher freight costs in
the relatively low priced shape market. Foreign competition could increase,
however, as a result of changes in currency exchange rates and increased steel
subsidies by foreign governments.
The Company is currently able, using only one of its two furnaces, to produce
more billets than it can consume in its rolling mill. Prior to 1991, the
Company operated both of its furnaces and produced a much greater tonnage of
billets for sale in the billet market than it currently produces. The Company
discontinued this practice in 1991 in response to a decision by foreign
governments to resume the practice of heavily subsidizing their steel-making
industries. This decision precipitated a sharp decline in worldwide billet
prices, as foreign steel-making companies produced more billets for export. Due
to current margins, the Company has chosen to sell its excess billets on a
supply contract or on an occasional and selective basis. Since most steel
companies produce billets, the Company competes with steel companies that may
also have an excess billet supply at any particular time.
RAW MATERIALS
The Company's major raw material is steel scrap, which is generated
principally from industrial, automotive, demolition, railroad and other scrap
sources and is primarily purchased directly by the Company in the open market
through a large number of steel scrap dealers. The Company is able to
efficiently transport scrap from suppliers throughout the inland waterway
system and through the Gulf of Mexico, permitting it to take advantage of scrap
purchasing opportunities far from its minimill, and to protect itself from
supply imbalances that develop from time to time in specific local markets. In
addition, unlike many other minimills, the Company, through its own scrap
purchasing staff, buys scrap directly from scrap dealers and contractors rather
than through brokers. The Company believes that its enhanced knowledge of scrap
market conditions gained by being directly involved in scrap procurement on a
daily basis, coupled with management's long experience in metals recycling
markets, gives the Company a competitive advantage. The Company does not
currently depend upon any single supplier for its scrap. The Company, on
average, maintains a 25-day inventory of steel scrap.
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<PAGE>
The Company has initiated a program of buying directly from local scrap
peddlers and small dealers for cash. Through this program, the Company has
procured approximately 20% of its scrap at prices lower than those of large
scrap dealers.
The cost of steel scrap is subject to market forces, including demand by
other steel producers. The cost of steel scrap to the Company can vary
significantly, and product prices generally cannot be adjusted in the short-
term to recover large increases in steel scrap costs. Over longer periods of
time, however, product prices and steel scrap prices have tended to move in the
same direction.
The long-term demand for steel scrap and its importance to the domestic steel
industry may be expected to increase as steel makers continue to expand steel
scrap-based electric arc furnace capacity. For the foreseeable future, however,
the Company believes that supplies of steel scrap will continue to be available
in sufficient quantities at competitive prices. In addition, a number of
technologies exist for the processing of iron ore into forms which may be
substituted for steel scrap in electric arc furnace-based steelmaking. Such
forms include direct-reduced iron, iron carbide and hot-briquetted iron. While
such forms may not be cost competitive with steel scrap at present, a sustained
increase in the price of steel scrap could result in increased implementation
of these alternative technologies.
In addition to steel scrap, the Company consumes smaller quantities of
additives, alloys and flux ("AAF"), a substantial portion of which is imported
through the Port of New Orleans. As a result of its proximity to the port, the
Company believes it has a freight advantage over competitors when procuring
alloys. The Company does not currently depend upon a single supplier for its
AAF requirements.
The Company has not experienced any shortages or significant delays in
delivery of these materials. The Company believes that an adequate supply of
raw materials will continue to be available.
ENERGY
The Company's manufacturing process consumes large amounts of electrical
energy. The Company purchases its electrical service needs from Louisiana Power
and Light ("LPL") pursuant to a contract originally executed in 1980 and
extended in 1991 for a five year period. The base contract is supplemented to
provide lower cost off-peak power and known maximums in higher cost firm demand
power. In addition, the Company receives discounted peak power rates in return
for LPL's right to periodically curtail service during periods of peak demand.
These curtailments are generally limited to a few hours and during the last
several years have had negligible impact on operations. Although the
supplemental contract with LPL expires February 1, 1996, the Company has no
reason to believe that this contract will not be renewed upon substantially
similar terms. To a lesser extent, the Company's manufacturing facility
consumes quantities of natural gas. The Company purchases its natural gas on a
month-to-month basis from a variety of suppliers. Due to the effect of a fuel
adjustment provision in the contract with LPL and price increases in natural
gas, the Company's energy expense increased by $2.0 million in fiscal 1993
compared to fiscal 1992. Historically, the Company has been adequately supplied
with electricity and natural gas and does not anticipate any curtailment in its
operations resulting from energy shortages.
The Company believes that its utility rates are very competitive in the
domestic minimill steel industry. As one of LPL's largest customers, the
Company is able to obtain competitive rates from LPL.
ENVIRONMENTAL MATTERS
The Company is subject to various Federal, state and local laws and
regulations, including, among others, the Clean Air Act, the 1990 amendments to
the Clean Air Act (the "1990 Amendments"), the Resource Conservation and
Recovery Act, the Clean Water Act and the Louisiana Environmental Quality Act,
and the regulations promulgated in connection therewith, concerning the
discharge of contaminants which may be emitted into the air and discharged into
the waterways, and the disposal of solid and/or hazardous waste such as
electric arc furnace dust.
37
<PAGE>
In addition, in the event of a release of a hazardous substance generated by
the Company, the Company could be potentially responsible for the remediation
of contamination associated with such a release. In the last five years, the
only environmental penalty assessed to the Company was a fine in the amount of
$43,000 levied in 1989 in conjunction with a Hazardous Waste Compliance Order
issued by the Louisiana Department of Environmental Quality with respect to
hazardous waste management violations. At this time, the Company is in
compliance in all material respects with applicable environmental requirements.
The Company has a full-time compliance officer who is responsible for
monitoring the Company's procedures for compliance with such rules and
regulations. The Company does not anticipate any substantial increase in its
costs for environmental remediation or that such costs will have a material
adverse effect on the Company's competitive position, operations or financial
condition. The Company has proposed a sampling plan to the Louisiana Department
of Environmental Quality to analyze the contents of two storm-water retention
ponds at the LaPlace minimill in connection with plans to close the ponds.
Depending upon the results of such sampling, some level of clean-up may be
appropriate; however, the Company does not anticipate that such expenditures,
if needed, would be material.
The Company's minimill is classified, in the same manner as similar steel
mills in the industry, as generating hazardous waste due to the production of
dust that contains lead, cadmium and chromium. The Resource Conservation and
Recovery Act regulates the management of such emission dust from electric arc
furnaces. The Company currently collects the dust resulting from its melting
operation through an emissions control system and disposes of it through an
approved waste recycling firm. The dust disposal costs were approximately $1.5
million in fiscal 1993, and are estimated to be approximately the same for
fiscal 1994. In fiscal 1990, a small quantity of dust containing very low
emissions of radioactive material inadvertently entered the scrap stream on one
occasion. All of the dust containing such material was captured by the
emissions control system and is being held pending decision as to appropriate
disposal. The Company has estimated that the ultimate cost of disposal of such
dust will be approximately $500,000.
The Company's future expenditures for installation of environmental control
facilities are difficult to predict. Environmental legislation, regulations and
related administrative policies are constantly changing. Environmental issues
are also subject to differing interpretations by the regulated community, the
regulating authorities and the courts. Consequently, it is difficult to
forecast expenditures needed to comply with future regulations, such as those
forthcoming as a result of the 1990 Amendments. Comprehensive regulations
applicable to the Company have yet to be promulgated under the authority of the
1990 Amendments. Therefore, at this time, the Company cannot estimate those
costs associated with compliance and the effect the upcoming regulations will
have on the Company's competitive position, operations or financial condition.
In fiscal 1994, the Company intends to spend approximately $300,000 on various
environmental capital projects, including those related to the 1990 Amendments.
STRIKE AND IMPACT UPON THE COMPANY
General. The Company's six-year labor contract with the Union expired on
February 28, 1993. On March 21, 1993, after three short contract extensions,
the Union initiated a strike by its 338 bargaining unit employees after the
parties failed to reach agreement on a new labor contract due to differences on
economic issues. Initially, the Company had to curtail its operations (for six
weeks the Company operated at 50% capacity), which resulted in reduced
production, higher per ton conversion costs and lost sales, all of which
adversely affected the Company's profitability, particularly in the early weeks
of the strike.
During its negotiations with the Union, the Company developed a strategic
contingency plan to maintain continued operation of the plant in the event of a
work stoppage. As a result of such planning, the Company was able to avoid
complete suspension of operations by operating the minimill with fewer workers
and by utilizing a combination of temporary replacement workers, Union
employees who returned to work and salaried employees. As a result of such
measures, the Company is currently operating at full capacity and since July
1993 overall production and productivity have been near pre-strike levels.
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<PAGE>
As of December 31, 1993, the Company has incurred approximately $3.6 million
in out-of-pocket costs for security, legal matters and other services related
to the strike ($2.5 million of which was incurred during the first three months
of the strike). Although uncertainties inherent in the strike generally make it
impossible to predict the duration or ultimate cost of the strike to the
Company, the Company expects that future strike-related costs will not exceed
$100,000 per month.
Injunction. The Company obtained an injunction from a Louisiana state court
on April 1, 1993 imposing constraints on the number of picketers and regulating
conduct on the picket line. As a result of violations of the injunction, the
Company has obtained contempt orders against the violators, as well as
additional injunctive relief to further regulate picketing activity. Assault
and battery charges have been filed against several striking Union members, as
well as non-striking Company employees. Access to the minimill has been
generally unimpaired since the injunction was issued (with the exception of a
court imposed 90-second per vehicle waiting time) and the Company has been
allowed by the court to open additional gates to its facility. The injunctive
relief has also permitted the Company to significantly reduce its out-of-pocket
expenses for security and housing of temporary replacement workers.
Unfair Labor Practice Charge. On May 4, 1993, the Union filed unfair labor
practice charges against the Company with the regional office of the NLRB,
which charges were amended on May 20, 1993 and July 15, 1993 to contain twenty-
two specific allegations, including allegations that the Company had failed to
provide the Union with a fully developed incentive plan, that the Company
maintained its position that the incentive plan (which could be unilaterally
changed), would not be subject to the arbitration and grievance procedure and
that the Company had made regressive offers prior to the strike. The Union is
seeking a finding that the Company negotiated in bad faith which, under the
NLRA, could convert the strike from an "economic" strike to an "unfair labor
practice" strike. If the Company were found to have engaged in an "unfair labor
practice" strike, the Company would be precluded from hiring permanent
replacement workers and from declaring an impasse. If the Company were to hire
permanent replacement workers or declare an impasse prior to the time of such
decision, the NLRB could reverse such actions. Furthermore, if the strike was
deemed an "unfair labor practice" strike and the Company refused to re-employ
striking workers who made an unconditional offer to return to work, the Company
could be subject to exposure for back-pay.
The Company is negotiating a settlement agreement with the NLRB which
proposes to settle most of these charges. Although the Company does not expect
a settlement agreement to require the Company to admit any violations of the
NLRA, the Company does expect that any settlement agreement will require the
Company to post, for a period of sixty days, a notice which will recite the
protections afforded employees pursuant to the NLRA, and have the Company make
affirmative statements that it will refrain from taking certain actions which
would infringe those employee rights, including that the Company will not take
certain of the actions alleged in the unfair labor practice charges, that it
will, on request, bargain collectively and in good faith with the Union, and
accord all eligible striking employees, upon their unconditional offer to
return to work, immediate and full reinstatement to their former jobs or
substantially equivalent jobs without loss of seniority. A settlement agreement
is not expected to cover two separate charges filed on December 30, 1993 and
January 14, 1994, respectively. These outstanding charges include allegations
that the Company bargained in bad faith by not reducing to writing a specific
alleged agreement concerning job security for those employees adversely
affected by contracting out proposals of the Company, that it failed to provide
certain employee safety and health documents, and that the Company denied the
Union access to the minimill. The Company believes that it possesses
meritorious defenses to such unfair labor practice charges. A settlement
agreement, or a finding by the NLRB that the Company engaged in unfair labor
practices with respect to any charges not covered by a settlement agreement,
may result in the strengthening of the strikers' commitment to their
negotiating position, the work stoppage and the corporate campaign. Any
hardening of the strikers' positions could affect the length of the strike and
the resolution of the labor contract disputes. A settlement agreement or an
adverse decision by the NLRB on the outstanding charges could also delay and
impair the Company's labor initiatives because the Company would be unable to
implement all or part of its last proposed labor agreement until it returned to
the bargaining process and remedied the unfair labor
39
<PAGE>
practices, and until such time as either an agreement with the Union was
ratified or impasse in the bargaining process was reached.
The Company does not expect a settlement agreement or an adverse decision by
the NLRB on the outstanding charges to have a material long-term effect on the
Company. Since the Company has not hired permanent replacement workers, the
Company would not be liable for any back-pay under any settlement agreement or
in the event that the NLRB reached an adverse decision with respect to the
outstanding charges. In addition, if the striking workers made an unconditional
offer to return to work, it is expected that disruptions to the Company's
business caused by the return of such workers would be temporary.
Status of Negotiations. Union and Company representatives have continued to
hold negotiating meetings since March 21, 1993 in attempts to reach a
resolution of the outstanding issues. However, no progress has been made since
August 11, 1993. The Company made a contract proposal to the Union on November
22, 1993 which was rejected by the Union. The NLRA provides that a company, in
the absence of unfair labor practices in connection with the negotiations, may
implement all or individual parts of its last labor agreement proposal in the
event that the bargaining process reaches impasse. The determination of impasse
is strictly dependent on the facts of each individual case. The Company has not
made a determination that it is at an impasse and any such determination would
be subject to review by the NLRB. If the Company were to implement its last
proposed labor agreement and the NLRB were to subsequently find that the
Company had engaged in unfair labor practices, the Company would be liable to
make the employees economically whole with respect to those labor agreement
provisions that adversely affected such workers since the Company could not
have been at impasse if it were found to have bargained in bad faith.
While the Company and the Union currently remain apart on several issues with
respect to the proposed labor contract, the Company believes that the following
issues are significant in reaching agreement on a new labor contract:
Health Benefits. The Company has proposed a managed health care plan
which would require employees to contribute $20 per week to the plan for
family coverage. In addition, any future increases in the cost of the plan
would be shared equally by the Company and employees. The Union
alternatively has proposed that employees be required to contribute only
$6.92 per week, that employees bear no responsibility for future increases
in the cost of the plan and that the obligation to make contributions not
become effective until three years from the date of adoption of the
contract.
Incentive Plan. The Company has proposed an incentive plan and profit
sharing plan for its employees as the primary basis for increases in
compensation, the components of which would be subject to change at the
discretion of the Company. The Union is proposing that these plans be
subject to the grievance and arbitration procedure under the contract (and
therefore not subject to amendment at the Company's discretion).
Contract Labor. The Company has proposed a provision granting the Company
the right to utilize contract labor and outside contractors, although no
employee directly affected would be terminated or suffer a loss of pay rate
as a result of using contract labor. The Union is seeking a more
restrictive provision limiting the Company's ability to utilize such
contractors.
Bargaining Unit Work. The Company has proposed reduced limitations on
non-bargaining unit employees, primarily supervisors, from performing
bargaining unit work. The Union's proposal maintains past restrictions
contained in the expired contract, in addition to more severe penalties in
the event of future violations.
Union Representatives. The Company and the Union disagree as to which
party should be responsible for the compensation of union representatives
for the performance of Union duties during Company hours.
Picket Line Misconduct. The Company maintains that it has a right to
subject picketers who have engaged in picket line misconduct (meeting the
criteria established by the NLRB as behavior not
40
<PAGE>
protected by the NLRA) to disciplinary action, including termination of
employment. The Union demands that all striking employees, even those who
have engaged in such misconduct, be returned to their positions at the
cessation of the strike.
Corporate Campaign. In August 1993 the Union announced a corporate campaign
designed to bring pressure on the Company from individuals and institutions
with direct financial or other interests in the Company. After the public
announcement that the Company was negotiating a settlement agreement with the
NLRB with respect to unfair labor practice charges filed by the Union, the
intensity of the corporate campaign strengthened. Although the Company believes
the corporate campaign has not had, and is not expected to have, an effect on
its operations, the potential impact of such a campaign is difficult to assess.
As part of its corporate campaign the Union engaged a consulting company
which conducted what was characterized as an environmental audit of the
Company's facilities. The Union's consultant did not visit the minimill, speak
with any officer of the Company or review any corporate records. The Union
consultant's report states that it was based on a review of the Louisiana
Department of Environmental Quality files, Company internal memoranda that were
available to it and the Company's written operating procedures. The report also
states that the consulting company interviewed Union members employed by the
Company. Based on this review, the Union consultant issued a report which
states that its purpose was to identify areas of concern regarding the
Company's environmental compliance. The report alleges that the Company, among
other things, impermissibly manages hazardous waste, bypasses its air emissions
control systems, violates its wastewater discharge permit and violates various
reporting requirements. The Company believes that the Union has submitted this
report to the Louisiana Department of Environmental Quality and the Louisiana
Board of Commerce and Industry and perhaps to other government agencies.
The Company believes the Union consultant's allegations are without merit and
were made to further the efforts of the Union in the strike. The Company
believes it is in compliance in all material respects with applicable
environmental requirements. See "Business-Environmental Matters."
EMPLOYEES
As of September 30, 1992, the Company had 491 employees, of whom 153 were
salaried office, supervisory, and sales personnel, and 338 were hourly
employees. 20 salaried non-exempt employees and 329 hourly employees were
covered by a collective bargaining contract which expired on February 28, 1993
between the Company and the Union. 9 hourly employees are covered by a
collective bargaining contract which expires on July 31, 1994 between the
Company and the Union. As of December 31, 1993, the Company had 418 non-
striking employees, of whom 148 were salaried office, supervisory, and sales
personnel, and 270 were hourly employees. As of December 31, 1993, the Company
had utilized 196 temporary replacement workers to perform certain of the
services of striking workers. Of the original 337 bargaining unit employees, 98
have returned to work, nine have resigned and 230 remain on strike.
The strike has not prevented the Company from committing to develop a Total
Quality Management work culture, which is a managerial philosophy that
encourages employee participation, employee empowerment, teamwork and increased
individual accountability. The Company intends to accomplish this through
extensive training and individual development efforts. The Total Quality
Management program does not involve the terms and conditions of the workplace
and is therefore not subject to the collective bargaining process. As a result,
the Company has begun implementing the Total Quality Management Program with
its supervisory personnel and intends to begin implementing the program with
the remainder of its workforce in the near-term.
PROPERTIES
The Company's principal operating properties are listed in the table below.
The Company believes that its properties and warehouse facilities are suitable
and adequate to meet its needs and that the size of its warehouse facilities is
sufficient to store the level of inventory necessary to support its level of
distribution.
41
<PAGE>
<TABLE>
<CAPTION>
LOCATION PROPERTY
-------- --------
<S> <C>
LaPlace, Louisiana Approximately 287 acres of land, including a melt
shop, rolling mill, related equipment, a new 75,000
square foot warehouse, and dock facilities situated
on state-leased waterbottom in the Mississippi Riv-
er.
Chicago, Illinois Approximately 7 acres of land, a dock on the Calumet
River and buildings, including a recently renovated
100,000 square foot warehouse.
Tulsa, Oklahoma 63,500 square foot warehouse facility with a dock on
the Arkansas River system. Located on land under a
long-term lease. The original term of the lease is
from April 1, 1989 through March 31, 1999; the Com-
pany has two 10-year renewal options through March
31, 2019.
Pittsburgh, Pennsylvania 112,000 square foot leased warehouse facility with a
dock on the Ohio River. The original term of the
lease was from January 1, 1987 through June 30,
1992; the Company is in the first of three 5-year
renewal options through June 30, 2007.
Knoxville, Tennessee Approximately 25 acres of undeveloped land along the
Tennessee River, available for future use as a
stocking location.
</TABLE>
LEGAL PROCEEDINGS
See "--Strike and Impact Upon the Company" for a description of the NLRB
proceedings. The Company is not involved in any pending legal proceedings which
involve claims for damages exceeding 10% of its current assets. The Company is
not a party to any material pending litigation which, if decided adversely,
would have a significant impact on the business, income, assets or operation of
the Company, and the Company is not aware of any material threatened litigation
which might involve the Company.
42
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------------------------------------
<S> <C> <C>
Howard M. Meyers...................... 51 Director, Chairman of the Board,
President, and Chief Executive
Officer
Jerry M. Pitts........................ 42 Executive Vice President and Chief
Operating Officer
Richard J. Gonzalez................... 46 Vice President, Treasurer, and Chief
Financial Officer
Rodger A. Malehorn.................... 51 Vice President of Commercial
Operations
Timothy R. Postlewait................. 43 Vice President of Plant Operations
Henry S. Vasquez...................... 43 Vice President of Human Resources
John A. Canning, Jr. ................. 49 Director
Lawrence E. Golub..................... 34 Director
Melvyn N. Klein....................... 52 Director
Albert P. Lospinoso................... 57 Director
Alan J. Patricof...................... 59 Director
Stanley S. Shuman..................... 58 Director
</TABLE>
All of the directors, except Alan J. Patricof, served from September 5, 1986
through July 19, 1988 as directors of Bayou Steel Corporation (of LaPlace) (the
Company's predecessor), and thereafter as a director of the Company. Alan J.
Patricof has been a director since February 21, 1991.
BUSINESS BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
Howard M. Meyers has been a director, Chairman of the Board, President and
Chief Executive Officer of the Company since September 5, 1986. He has also
been a director, Chairman of the Board, Chief Executive Officer and President
of Quexco Incorporated ("Quexco") since 1984. Quexco, through its wholly-owned
subsidiary, RSR Corporation ("RSR"), is a privately owned, non-ferrous metals
recycle smelting and refining company located in Dallas, Texas. Mr. Meyers has
also been President and a director of BSPL since its inception. Mr. Meyers is a
former co-president and current member of the Board of Directors of the
Institute of Scrap Recycling Industries Inc. He also serves on the Boards of
Directors of the Steel Manufacturers Association and the Lead Industries
Association. Mr. Meyers was formerly employed as a scrap metal buyer at AMAX
Copper Corporation.
Jerry M. Pitts was elected Executive Vice President and Chief Operating
Officer of the Company on June 7, 1991. He had been Executive General Manager
of the Company since July 1, 1987 and has worked in the steel industry since
1974. From 1986 to 1987, he served the Company as General Manager of
Operations; from 1984 to 1986, he was Superintendent of Melting Operations; and
from 1980 to 1984, he was General Foreman of Melting. Mr. Pitts worked in
various management capacities related to production and process engineering at
U.S. Steel Corporation from 1974 to 1980.
Richard J. Gonzalez was elected Vice President, Treasurer, and Chief
Financial Officer of the Company on June 7, 1991. He had been General Manager,
Finance of the Company since July 1, 1987. He has served the Company since
October 1983 in the capacities of Data Processing Manager and Assistant to the
Vice President of Finance and Controller. From 1982 to 1983, he was Vice
President and Chief Financial Officer of Jimco, Incorporated. Prior to that,
Mr. Gonzalez was a Manager in the Consulting Division of the accounting firm of
Arthur Andersen & Co. for nine years. Mr. Gonzalez is a certified public
accountant.
43
<PAGE>
Rodger A. Malehorn was elected Vice President of Commercial Operations of the
Company on June 7, 1991. He had been General Manager, Commercial Operations
since July 1, 1987. Mr. Malehorn has served in management-level positions with
the Company related to raw material supply, trades purchasing and billet sales
since April 1, 1984. From 1981 to 1984, he was Vice President and General
Manager of Louisiana Scrap Metal Inc. Prior to that, Mr. Malehorn worked for
Luria Brothers & Co., Inc., a scrap recycling operation, for three years and
Lukens Steel Company for thirteen years in various management positions
relating to melt shop operations.
Timothy R. Postlewait was elected Vice President of Plant Operations of the
Company on June 7, 1991. He had been General Manager, Plant Operations of the
Company since July 1, 1987. He has served in management positions with the
Company as Superintendent, Melt Shop Operations from 1986 to 1987 and
Superintendent, Quality Assurance from 1981 to 1986. From 1977 to 1981, Mr.
Postlewait worked in management positions with Chaparral Steel Company, and
from 1972 to 1977, he worked with United Nuclear Corporation as a Senior
Engineer.
Henry S. Vasquez was elected Vice President of Human Resources of the Company
on September 24, 1992 after joining the Company on April 27, 1992. He had been
employed in various executive Human Resource positions with Lyondell
Petrochemical Co. from April 1989 to April 1992; with Frito Lay Company from
August 1983 to April 1989; with Hydril Co. from May 1977 to August 1983; and
with Stanco Industries from April 1975 to May 1977.
John A. Canning, Jr. has been President of Madison Dearborn Partners Inc.,
which is the management company for a private equity investment fund, Madison
Dearborn Capital Partners L.P., and a limited partnership, Madison Dearborn
Advisers, L.P., which provides venture capital advisory services to First
Chicago Corporation since January 1993. For more than five years prior to that,
Mr. Canning was President of First Capital Corporation of Chicago and First
Chicago Investment Corporation, both subsidiaries of First Chicago Corporation,
engaged in venture capital projects. He is a director of Tyco Toys, Inc. and
the Interlake Corporation.
Lawrence E. Golub has been a Managing Director of Bankers Trust Company in
New York, New York since September 1993. From September 1992 to August 1993,
Mr. Golub was a White House Fellow. Mr. Golub was Managing Director of
Wasserstein Perella Capital Markets from February 1990 to August 1992 and an
officer of Allen & Company Incorporated, an investment banking firm, from 1984
to February 1990. He is Chairman of Mosholu Preservation Corporation.
Melvyn N. Klein has been, for more than the past five years, a practicing
attorney and private investor in Corpus Christi, Texas. He has been a Director
of Quexco since 1984. He is the sole shareholder, sole director and the
President of JAKK Holding Corporation, a General Partner of GKH Partners, L.P.,
which is the sole General Partner of GKH Investments, L.P., an investment fund;
President of Rockwood Holding Company; and a director of Itel Corporation,
American Medical International, Inc., Santa Fe Energy Resources and Savoy
Pictures Entertainment, Inc.
Albert P. Lospinoso has been the President of RSR since July 1992 and is a
director of RSR and Quexco. For more than five years prior to that, he was the
Executive Vice President, Chief Operating Officer and a director of RSR and its
predecessor companies.
Alan J. Patricof has been, for more than five years, Chairman of Patricof &
Co. Ventures, Inc. (formerly Alan Patricof Associates, Inc.), a venture capital
firm. He is also a director of Cellular Communications, Inc., Cellular
International, Cellular Communications of Puerto Rico, Creative Biomolecules,
Datascope Corporation, Harman International Industries, Inc. and Ocom
Corporation.
Stanley S. Shuman has been, for more than the past five years, Executive Vice
President, Managing Director and member of the executive committee of Allen &
Company Incorporated. He is a director of The
44
<PAGE>
News Corporation Limited, Hudson General Corporation, Global Asset Management,
U.S.A., Sesac Inc. and Knight Corp.
There are no family relationships among the directors and executive officers
of the Company.
The Company pays each outside director $30,000 per year, payable in quarterly
installments, for serving as a director, plus expenses, for each meeting of the
Board of Directors that a director attends. The Company does not compensate
directors who are officers of the Company for services as directors. Mr. Meyers
is the only director who is an officer of the Company.
EXECUTIVE COMPENSATION
The following table sets forth the compensation received by the Company's
Chief Executive Officer and the four other most highly-compensated executive
officers for fiscal years 1993, 1992, and 1991.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
(A)
NAME AND (I)
PRINCIPAL (B) (C) (D) ALL OTHER
POSITION YEAR SALARY BONUS(1) COMPENSATION(2)(3)
--------- ---- -------- -------- ------------------
<S> <C> <C> <C> <C>
Howard M. Meyers..................... 1993 $437,990 $ -0- $ -0-
Chairman, Chief Executive 1992 435,041 -0- -0-
Officer, and President 1991 420,053 -0- -0-
Jerry M. Pitts....................... 1993 225,000 9,750 1,316
Executive Vice President and 1992 225,000 9,750 1,702
Chief Operating Officer 1991 210,417 9,750 1,312
Timothy R. Postlewait................ 1993 150,000 6,000 1,560
Vice President of 1992 150,000 6,000 1,560
Plant Operations 1991 148,250 6,000 875
Richard J. Gonzalez.................. 1993 147,000 5,313 1,462
Vice President, Treasurer, 1992 147,000 5,313 1,498
and Chief Financial Officer 1991 143,249 5,313 875
Rodger A. Malehorn................... 1993 120,000 5,313 1,253
Vice President of 1992 120,000 5,313 1,253
Commercial Operations 1991 120,000 5,313 700
</TABLE>
- --------
(1) Bonus includes incentive compensation paid pursuant to the Company's
Incentive Compensation Plan and reflects awards made in 1988, half of which
was paid in 1989 and the remainder of which was paid from 1990 to 1993. No
awards were made in fiscal 1993, 1992 or 1991. See "Employee Benefit
Plans--Incentive Compensation Plan."
(2) Includes amounts contributed by the Company to the Company's Savings Plan
in respect of matching contributions. See "Employee Benefit Plans--Savings
Plan." Also includes the dollar value of term life insurance premiums paid
by the Company for the benefit of these officers. The value of this premium
is approximately $125 for each officer per year.
(3) The aggregate amount of non-cash compensation received by each such
executive officer did not exceed the lesser of $50,000 or 10% of the total
of annual salary and bonus reported for the named executive officer.
45
<PAGE>
EMPLOYEE BENEFIT PLANS
Savings Plan
The Bayou Steel Corporation Savings Plan (the "Savings Plan") was adopted,
effective March 1, 1991 and is intended to qualify for approval under Sections
401 and 410 through 417 of the Tax Code and comply with the provisions of the
Employee Retirement Income Security Act of 1974, as amended. The Savings Plan
is designed to allow all eligible employees to accumulate savings for
retirement.
Employees of the Company eligible to participate in the Savings Plan are
those employees who are at least age 21, have completed one year of service,
and are not employed under a collective bargaining agreement. Savings Plan
participation is voluntary. To join the Savings Plan, an eligible employee must
agree to defer from 1% to 15% of the employee's total pay, subject to annual
limitations imposed by the Tax Code; the deferral amount is then invested in
his or her Savings Plan account. The Company may make matching discretionary
contributions to the employee's account. In 1993 the Company matched 25% of the
employee's deferred amount up to 4% of total pay contributed in respect of each
participant's payroll deferral election.
Under the Savings Plan, assets are held in a trust fund (the "Trust Fund") by
an independent trustee appointed by the Company. The Trust Fund has been
divided into four investment funds, to which an employee may periodically make
allocations of existing account balances and future contributions. All of the
discretionary Company contributions are invested by the Trustee in the purchase
on the open market of the Company's Class A Common Stock.
Participants are always 100% vested in the contributions made as a result of
their payroll deferral elections. A participant's interest in his Company
matching contributions is based upon a graded vesting schedule and is fully
vested after six years of service.
Retirement Plan
The following table specifies the estimated annual benefits upon retirement
under the Retirement Plan to eligible employees of the Company of various
levels of average annual compensation and for the years of service
classifications specified:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE ANNUAL ---------------------------------------------------------
COMPENSATION 10 20 30 45
-------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
$ 20,000 $1,200 $2,400 $3,600 $3,600
50,000 4,360 8,730 13,090 13,090
100,000 9,860 19,730 29,590 29,590
150,000 15,360 30,730 46,090 46,090
200,000 20,860 41,730 62,590 62,590
250,000 24,810 49,610 74,420 74,420
300,000 24,810 49,610 74,420 74,420
</TABLE>
The Company has adopted the Bayou Steel Corporation Retirement Plan (the
"Retirement Plan") and will file a request for approval by the Internal Revenue
Service. The Retirement Plan became effective October 1, 1991. The Retirement
Plan is a defined benefit plan for eligible employees of the Company not
covered by a collective bargaining agreement (the Company adopted a separate
retirement plan for Union employees that also became effective October 1,
1991). Employees are automatically eligible to participate on the October 1 or
April 1 following the completion of one year of service. Service before the
effective date of the Retirement Plan is credited to participants for purposes
of retirement benefit calculation. Contributions to the Retirement Plan are
provided solely from the Company contributions; employees are unable to make
contributions. A participant's benefits under the Retirement Plan are vested
after five years of service. Under the terms of the
46
<PAGE>
Retirement Plan the monthly retirement benefits of a participant payable at the
participant's normal retirement date are equal to (i) .6% of average monthly
compensation, multiplied by years of credited service (not to exceed 30 years),
plus (ii) .5% of that portion, if any, of average monthly compensation which is
in excess of the participant's average social security taxable wage base,
multiplied by years of credited service (not to exceed 30 years). Normal
retirement under the Retirement Plan is age 65 with at least five years of
service. The Tax Code limits the amount of annual compensation that may be
counted for the purpose of calculating pension benefits, as well as the annual
pension benefits that may be paid, under the Retirement Plan. For 1993, these
amounts are $235,840 and $115,641, respectively. The Retirement Plan also
limits the amount of annual compensation that may be counted for the purpose of
calculating pension benefits to $250,000.
The figures for estimated annual retirement benefits are computed on a
straight life annuity basis and are payable to an employee who attains age 65
in 1993 and are exclusive of retirement benefits from Social Security.
Earnings of executive officers included in the Summary Compensation Table,
for purposes of calculating pension benefits, approximate the aggregate amounts
shown in the columns (c) and (d) of such Summary Compensation Table, except for
Mr. Meyers whose earnings for purposes of such calculation are subject to the
$250,000 limitation discussed above.
The years of credited service under the Retirement Plan as of October 1, 1993
for each of the five most highly compensated officers of the Company are:
Howard M. Meyers, 7.1 years; Jerry M. Pitts, 12.8 years; Richard J. Gonzalez,
10 years; Rodger A. Malehorn, 9.5 years; and Timothy R. Postlewait, 12.3 years.
Incentive Compensation Plan
The Company has instituted an Incentive Compensation Plan (the "ICP") to
provide incentives for the attainment of corporate financial objectives to
those key employees of the Company (including all executive officers, except
Mr. Meyers), as selected by the ICP's Administrative Committee, who have the
responsibility and authority to affect the operating results of the Company.
Each year the Board of Directors may, in its sole discretion, cause to be
credited to the ICP any amount not to exceed fifty percent of the aggregate of
the base salaries of the participants in the ICP for such year. The
Administrative Committee, composed of one or all of the Company's officers,
including Howard M. Meyers, as appointed by the Compensation Committee,
determines the amounts awarded to each participant based on quantitative
measures of performance relating to financial or other indicators of
performance for the Company and achievement of measurable individual goals of
participants established prior to the commencement of each year. One-half of a
participant's award is paid in the February following the year to which the
award relates. The balance of such award is divided into fourths and paid to
each participant during the February of each of the four years next succeeding
the year in which the initial payment was made. If a participant is not
employed by the Company on February 1 following the year to which an award
relates or on the February 1 of any of the succeeding four years, such
participant shall forfeit all awards or installments thereof which have been
accrued but not actually paid. No awards have been made since 1988.
1991 Plan
On February 21, 1992 the stockholders of the Company approved the 1991
Employees' Stock Option Plan (the "1991 Plan") for the purpose of attracting
and retaining key employees including officers, managers and supervisory
employees. The Board of Directors has authorized the reservation of 600,000
shares of Class A Common Stock of the Company for issuance in accordance with
the 1991 Plan. Shares of Class A Common Stock to be issued under the provisions
of the 1991 Plan may be issued by the Company from its authorized and unissued
shares of Class A Common Stock or from shares of treasury stock held by the
Company. (There are presently no such treasury shares.) The 1991 Plan is
administered by the Company's Board of Directors
47
<PAGE>
or a committee appointed by the Board comprised of three disinterested persons.
The Board or the committee, as the case may be, is referred to as the
"Administrator."
The Administrator of the 1991 Plan, at its sole discretion, designates such
options granted under the 1991 Plan as (a) "Incentive Stock Options" as defined
in Section 422 of the Tax Code, (b) other stock options subject to the terms
and conditions set forth in the 1991 Plan ("Nonqualified Stock Options"), or
(c) any combination of Incentive Stock Options and Nonqualified Stock Options.
In the event that a portion of an option cannot be exercised as an Incentive
Stock Option by reason of the limitation contained in Section 422(d) of the Tax
Code (which limits the treatment as Incentive Stock Options during any calendar
year to those options, which, when they become exercisable, entitle the holder
to purchase stock having a fair market value of not more than $100,000), such
portion shall be treated as a Nonqualified Stock Option.
Options granted under the 1991 Plan may not be exercised more than ten years
from the date such option is granted, or earlier than six months from the date
such option is granted. Within such limitations, the Administrator of the 1991
Plan will establish the time or times at which options may be exercised and
whether all of the options may be exercisable at one time or in increments over
time.
The exercise price of any option granted under the 1991 Plan is the closing
price of the Company's Class A Common Stock on the American Stock Exchange on
the day the option is granted. The Administrator may in its discretion set such
other exercise price for Nonqualified Stock Options as it may deem appropriate.
Upon exercise, the price is payable in cash, or if the Administrator deems
appropriate, in shares of Class A Common Stock of the Company valued at fair
market value. At the discretion of the Administrator, the Company may loan
funds to an optionee in connection with the exercise of options. The initial
term of any loan under the 1991 Plan cannot exceed five years, but any such
loan may be renewable at the discretion of the Administrator. All such loans
must comply with the applicable regulations of the Board of Governors of the
Federal Reserve Board or any other governmental agency having jurisdiction over
the Company.
Options may not be exercised unless the optionee has been an employee of the
Company or its subsidiaries at all times from the date of grant of the option
to the date of exercise, unless the option is exercised within the time periods
specified in the 1991 Plan after employment is terminated by reason of
retirement, disability, death or other reason otherwise than for cause. No
option is transferable by the optionee except by will or by the laws of descent
and distribution.
The 1991 Plan may be modified, amended, or terminated by the Board of
Directors, except no such action, without the approval of stockholders, may (a)
increase the total amount of Class A Common Stock on which options may be
granted, (b) change the manner of determining the option price, or (c) change
the class of employees eligible to receive options; and no such action may
affect any option previously granted under the 1991 Plan without the consent of
the then holder of the option.
As of September 30, 1993, no options have been granted under the 1991 Plan.
There are no prior stock option plans.
EMPLOYMENT ARRANGEMENT
Howard M. Meyers serves as Chief Executive Officer of the Company and in
connection therewith has signed a letter agreement dated July 26, 1988,
containing a provision included in his prior employment agreement (which has
terminated in accordance with its terms), which provides that all steel-related
acquisition activities undertaken by Mr. Meyers must be through the Company and
that all other acquisition activities undertaken by Mr. Meyers must be through
the Company to the extent required by any fiduciary duty of Mr. Meyers as a
direct or indirect controlling shareholder and/or director of the Company,
giving effect to the principles embodied in the legal doctrine of "corporate
opportunity," which requires that directors, officers and other persons with a
fiduciary duty towards a corporation not appropriate for their own benefit and
advantage a business opportunity properly belonging to the corporation.
48
<PAGE>
The compensation payable to Mr. Meyers for all services performed on behalf
of the Company in any capacity is limited by the terms of the letter agreement
and a Stock Purchase Agreement, dated as of August 28, 1986, between the
Company and certain original purchasers of the Company's Class A Common Stock
which provides that Mr. Meyers may not earn more than the greater of (x)
$350,000 multiplied by a fraction the numerator of which is the consumer price
index with respect to the December immediately preceding the year in question
and the denominator of which is the consumer price index for December 1985 or
(y) 2% of the Company's pretax net income earned in the previous fiscal year
(or 1% if Mr. Meyers is no longer both the Chairman and Chief Executive Officer
of the Company with substantial day-to-day managerial responsibilities).
The Company's Second Restated Certificate of Incorporation provides that the
Class B Common Stock which Mr. Meyers controls through his ownership interest
in BSPL, loses its power to control the Company if Mr. Meyers resigns, retires,
is permanently disabled or is removed for cause as Chief Executive Officer of
the Company, or if 1,362,676 shares (as adjusted) of Class B Common Stock have
been converted into Class A Common Stock.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of December 31, 1993
with respect to the beneficial ownership of each class of Common Stock of the
Company by (a) each person known by the Company to own beneficially more than
5% of the Class A, Class B or Class C Common Stock of the Company, (b) each
director or officer of the Company, and (c) all directors and officers of the
Company as a group.
Except as to certain matters on which holders of the Class B Common Stock and
the holders of the Class C Common Stock have class voting rights, the holders
of the Class A Common Stock, together with the holders of the Class C Common
Stock, are entitled to one vote per share and in the aggregate 40% of the votes
eligible to be cast for all matters other than the election of directors. The
holders of the Class B Common Stock are entitled to 60% of the votes eligible
to be cast for all matters other than the election of directors. Certain
transactions, such as the sale or acquisition of assets that exceed 20% of the
Company's consolidated net worth (as determined in accordance with the
Company's certificate of incorporation) require the consent of stockholders
representing 80% of the votes that may be cast. In addition, the Class B Common
Stock and the Class C Common Stock have voting rights that enable each class to
block certain corporate actions which could result in liability to Voest-Alpine
and V.A.I.C. under the Tax Lease Agreement or to the Company and Howard M.
Meyers under certain indemnities in favor of Voest-Alpine and V.A.I.C. entered
into at the time of the acquisition of the Company from Voest-Alpine and
V.A.I.C. See "Certain Related Party Transactions--Tax Benefit Transfer Lease
Agreement and Release Agreement."
The holders of the Class A Common Stock have the right to elect, as a class,
that number of directors which represents 40% of the number of directors then
comprising the Board of Directors and the holders of the Class B Common Stock
have the right to elect, as a class, that number of directors which represents
60% of the number of directors then comprising the Board of Directors. Except
as set forth below, the holders of the Class C Common Stock are not entitled to
elect directors. So long as the Class A Common Stock is listed on the American
Stock Exchange, if the number of shares of Class B Common Stock outstanding is
less than 12.5% of the aggregate number of outstanding shares of Common Stock,
the holders of the Class A Common Stock will, in addition to the voting rights
discussed above, be entitled to vote as a class with the Class B Common Stock
for the election of the remaining 60% of the Board of Directors, with the
holders of the Class A Common Stock entitled to one vote per share and the
holders of the Class B Common Stock entitled to ten votes per share. In the
event that Howard M. Meyers is no longer Chief Executive Officer of the Company
or more than 1,362,676 shares (as adjusted) of Class B Common Stock have been
converted into Class A Common Stock, the holders of the Class A, Class B and
Class C Common Stock will vote together, as a single class, in the election of
directors and will be entitled to one vote per share. The holders of Class B
49
<PAGE>
Common Stock have the option to convert all or any portion of their shares of
Class B Common Stock into shares of Class A Common Stock at any time at the
rate of one share of Class A Common Stock for one share of Class B Common
Stock.
With certain limited exceptions, in the absence of the full approval of the
Board of Directors of the Company and the delivery of an opinion of counsel to
the effect that the Company will not lose the benefits of its NOLs, until
December 31, 2003, transfers of shares of Class A Common Stock or Class B
Common Stock shall be null and void insofar as such transaction would cause the
transferee to attain 5% ownership of the fair market value of the Company's
Class A Common Stock or if such transferee owned Class A or Class B Common
Stock with a fair market value equal to 5% or more of the fair market value of
the Company's Class A Common Stock. In addition, except for transfers to or for
the benefit of direct or indirect beneficial owners of Class B Common Stock, or
the immediate family thereof, or transactions approved by the holders of 75% of
the then outstanding Class A Common Stock, shares of Class B Common Stock are
transferable only upon conversion of such shares into shares of Class A Common
Stock. Moreover, pursuant to an agreement executed between the Company, BSPL
and Howard M. Meyers immediately prior to the 1988 public offering of the Class
A Common Stock, if any entity acquires within a four-year period a percentage
of the voting power of BSPL in excess of 50% (the "Percentage"), such entity
shall agree to purchase through a public tender offer a number of shares of
Class A Common Stock equal to the total number of outstanding shares of Class A
Common Stock multiplied by the Percentage, subject to certain exceptions.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
TITLE AS OF DECEMBER 31, 1993
OF DIRECTORS, EXECUTIVE -------------------------
CLASS OFFICERS, AND 5% STOCKHOLDERS AMOUNT PERCENTAGE
----- ----------------------------- ------------- -----------
<C> <S> <C> <C>
A First Capital Corporation of Chicago.......... 1,755,000 16.54
#3 First National Place
Suite 1330
Chicago, IL 60602
A Stanley S. Shuman(1).......................... 817,880 7.69
711 Fifth Avenue
New York, NY 10022
A Alan J. Patricof(2)........................... 739,059 6.97
445 Park Avenue
New York, NY 10022
A How & Company................................. 600,000 5.65
c/o The Northern Trust Co.
P.O. Box 92303
Chicago, IL 60675-0002
A Allen & Company Holding, Inc.(1) ............. 522,528 4.92
711 Fifth Avenue
New York, NY 10022-4207
A Howard M. Meyers(3)........................... 300,000 2.82
1111 W. Mockingbird Lane
Dallas, TX 75247
A John A. Canning, Jr.(4)....................... 195,000 1.83
#3 First National Plaza
Suite 1330
Chicago, IL 60670
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
TITLE AS OF DECEMBER 31, 1993
OF DIRECTORS, EXECUTIVE ---------------------------
CLASS OFFICERS, AND 5% STOCKHOLDERS AMOUNT PERCENTAGE
----- ----------------------------- ------------- -------------
<C> <S> <C> <C>
A Lawrence E. Golub............................ 80,800 .76
2101 Connecticut Ave. N.W.
Apt. 73
Washington, D.C. 20008
A Melvin N. Klein.............................. 60,000 .56
1940 First City Bank Tower
Corpus Christi, TX 78477
A Albert P. Lospinoso.......................... 10,000 .09
1111 W. Mockingbird Lane
Dallas, TX 75247
A Jerry M. Pitts............................... 1,521 *
P.O. Box 5000
LaPlace, LA 70069-1156
A Timothy R. Postlewait........................ 1,073 *
P.O. Box 5000
LaPlace, LA 70069-1156
A Richard J Gonzalez........................... 1,021 *
P.O. Box 5000
LaPlace, LA 70069-1156
A Rodger A. Malehorn........................... 861 *
P.O. Box 5000
LaPlace, LA 70069-1156
A Henry S. Vasquez............................. 0 *
P.O. Box 5000
LaPlace, LA 70069-1156
A All directors and officers as a group (12 2,207,215 20.79
persons)....................................
B Bayou Steel Properties Limited(3)............ 2,271,127 100.00
B Howard M. Meyers(3)(5)....................... 2,271,127 100.00
1111 W. Mockingbird Lane
Dallas, TX 75247
B Melvyn N. Klein(3)........................... 62,910 2.77
1940 First City Bank Tower
Corpus Christi, TX 78477
B Allen & Company Incorporated(3).............. 47,239 2.08
711 Fifth Avenue
New York NY 10022
B Stanley S. Shuman(3)......................... 26,572 1.17
711 Fifth Avenue
New York, NY 10022
B Albert Lospinoso(3).......................... 17,261 .76
1111 W. Mockingbird Lane
Dallas, TX 75247
C Voest-Alpine International Corporation(6).... 100 100.00
</TABLE>
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- --------
* Less than .01 percent.
(1) Includes 522,528 shares of Class A Common Stock owned by Allen & Company
Holding, Inc., which owns all of the outstanding shares of Allen & Company
Incorporated; Mr. Shuman is an Executive Vice President and Managing
Director of Allen & Company Incorporated. Mr. Shuman disclaims beneficial
ownership of such shares. Includes an aggregate of 60,000 shares of Class A
Common Stock owned by trusts for the benefit of Mr. Shuman's children, of
which Mr. Shuman disclaims beneficial ownership. Mr. Shuman has no voting
or investment power, shared or otherwise, in the foregoing shares.
(2) Includes 520,500 shares of Class A Common Stock owned by a partnership of
which Mr. Patricof is a general partner and an aggregate of 216,000 shares
of Class A Common Stock held by two corporations to which a third
corporation, of which Mr. Patricof is Chairman, serves as investment
advisor, and as to which Mr. Patricof disclaims beneficial ownership. Mr.
Patricof has sole voting and investment power with respect to 2,559 shares
and has shared voting power and investment power with respect to 736,500
shares.
(3) Through his ownership of 60% of the common stock of BSPL, Howard M. Meyers
controls BSPL's voting power. Since BSPL owns 100% of the Company's Class B
Common Stock, Howard M. Meyers has voting control of Class B Common Stock
which accounts for a maximum of 60% of the voting control of the Company.
Howard M. Meyers may be deemed to "control" the Company. Allen & Company
Incorporated and Messrs. Klein, Lospinoso, and Shuman are minority
stockholders of BSPL and Messrs. Lospinoso and Meyers are directors. The
number of shares of Class B Common Stock held by BSPL has been apportioned
to each of Allen & Company Incorporated, Messrs. Klein, Lospinoso and
Shuman based on their percentage ownership in BSPL.
(4) Includes 195,000 shares of Class A Common Stock owned by a partnership of
which Mr. Canning is a general partner, and as to which he has shared
voting and investment power.
(5) Howard M. Meyers has voting control of the Class B Common Stock.
(6) Holders of Class C Common Stock have a vote on all matters, except for the
election of directors. See Note 13 to the Financial Statements.
CERTAIN RELATED PARTY TRANSACTIONS
SERVICE AGREEMENT
The Company, RSR and Quexco are parties to a Service Agreement dated
September 5, 1986 (the "Service Agreement"), pursuant to which RSR and Quexco
provide the Company advice with respect to legal and environmental matters, as
well as other services enumerated in the agreement and such other services as
to which the parties mutually may agree. The Company pays to RSR and/or Quexco
a fee equal to the costs of performing such services (including direct salary,
fringe benefits, general and administrative overhead and other charges incurred
directly in connection with the provision thereof). The Service Agreement will
remain in effect until terminated by any party on 90 days' prior written notice
to the other parties. Messrs. Klein, Lospinoso and Meyers are directors of
Quexco and each of Messrs. Meyers and Lospinoso is President of Quexco and RSR,
respectively. The fees paid by the Company to RSR and/or Quexco for the first
quarter of fiscal 1994 and for fiscal 1993 for services rendered amounted to
approximately $13,000 and $87,000, respectively. The Company believes that the
terms of the Service Agreement are fair and reasonable.
TAX BENEFIT TRANSFER LEASE AGREEMENT AND RELEASE AGREEMENT
Pursuant to the Tax Lease Agreement, the Company has transferred the Federal
income tax benefits that would normally be associated with the ownership of
certain of its property, including the melt shop facility (consisting of rail
and dock facilities, a furnace charging system, two electric melting furnaces,
two continuous casters and billet handling facilities), located at the LaPlace
facility to an unaffiliated third party. These assets comprise a significant
portion of the Company's assets. Under the Tax Lease Agreement, the Company
recognizes rental expense and interest income on its Federal income tax books
each year until its expiration in 1996. As of September 30, 1993, the Company's
unrecognized rental expense exceeded
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unrecognized interest income by $30.2 million. Such excess constitutes a net
deduction that will be available to offset future taxable earnings. At the time
of the Tax Lease Agreement, Voest-Alpine and V.A.I.C. agreed to indemnify such
unaffiliated third party for certain potential losses under the Tax Lease
Agreement. Pursuant to the acquisition agreement for the purchase of the
Company from Voest-Alpine and V.A.I.C., the Company agreed to comply with the
terms of the Tax Lease Agreement. In addition, the Company and Mr. Meyers
agreed to indemnify Voest-Alpine and V.A.I.C. for any payments required to be
made by Voest-Alpine and V.A.I.C. to the unaffiliated third party caused by a
failure to comply with the Tax Lease Agreement. The Company also agreed (a)
that any mortgage covering the property would be subject to such Tax Lease
Agreement and (b) to require any purchaser of the property to take the property
subject to such Tax Lease Agreement and to execute certain consents and
statements to ensure that any disposition of the property upon a foreclosure of
the mortgage would not constitute a "disqualifying event" within the meaning of
the regulations promulgated under the Old Code.
The Company entered into the Release of Federal Income Tax Ownership and
Agreement dated September 5, 1986 (the "Release Agreement") with the trustee
under the indenture for the 14.75% Notes, Voest-Alpine and Mr. Meyers. Pursuant
to the Release Agreement, the trustee (i) released the United States Federal
income tax ownership of the property subject to the Tax Lease Agreement from
the security interest and lien created by the indenture and security documents
related to the 14.75% Notes, (ii) agreed to take or refrain from taking certain
actions in an attempt to ensure that any disposition of the property upon a
foreclosure of the property would not constitute a "disqualifying event" within
the meaning of the regulations promulgated under the applicable section of the
Old Code and (iii) agreed that subsequent transferees would be required to
consent to similar limitations. As a consequence, the Tax Lease Agreement and
any release agreement may have the effect of reducing the value of the
property, restricting the number of persons eligible to purchase the property
and delaying the sale of the property if it were to be sold in a foreclosure
proceeding. The result of such Release Agreement may be to limit the
marketability of the subject property upon a foreclosure. In connection with
the sale of the First Mortgage Notes offered hereby, the Trustee will enter
into a release agreement substantially similar to the Release Agreement.
V.A.I.C. owns all of the outstanding shares of Class C Common Stock of the
Company, which shares contain certain limited voting rights. Through V.A.I.C.'s
ownership of the Class C Common Stock and Howard M. Meyers' control of the
Class B Common Stock, each has the right to prevent certain transactions, i.e.,
liquidation, certain mergers and certain sales of the property subject to the
Tax Lease Agreement which, in each case, could result in the loss of tax
benefits by the unaffiliated third party under the Tax Lease Agreement. In the
event of such a loss Voest-Alpine and V.A.I.C. may be required to indemnify the
unaffiliated third party, and the Company and Howard M. Meyers in turn may be
obligated to indemnify Voest-Alpine and V.A.I.C.
AGREEMENTS WITH ALLEN & COMPANY INCORPORATED
The Company entered into an agreement with Allen & Company Incorporated on
May 28, 1987 pursuant to which the Company granted Allen & Company Incorporated
a right of first refusal, on competitive terms, to perform investment banking
services for the Company in connection with all Company initiated investment
banking transactions until September 4, 1996. "Competitive terms" is defined to
include considerations of costs and expenses, services rendered and ability to
perform. No compensation was paid to Allen & Company Incorporated during fiscal
1992 and 1993. Stanley S. Shuman, a director of the Company, is Executive Vice
President and Managing Director of Allen & Company Incorporated and Lawrence E.
Golub, also a director of the Company, was a Vice President of Allen & Company
Incorporated until February 1990. See "Management."
AGREEMENTS WITH MMG PATRICOF & CO.
On June 20, 1991, MMG Patricof & Co. Inc. and MMG Placement Corp. entered
into an agreement with the Company with respect to merger and acquisition
advisory and private placement services in
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<PAGE>
connection with a proposed corporate acquisition by the Company which existed
at that time. Alan J. Patricof, a director of the Company, is a minority
shareholder in the investment banking firm of Patricof & Co. Capital Corp.
("Patricof") and its affiliate MMG Placement Corp. ("Placement"), successors to
MMG Patricof & Co. No compensation was paid during fiscal 1991 and 1992;
$25,000 was paid during fiscal 1992 for out-of-pocket expenses. On December 16,
1992, Patricof entered into a second arrangement with the Company to provide
merger and acquisition advisory services in connection with a proposed
corporate acquisition by the Company. The agreement provided for a retainer not
to exceed $25,000. By its terms, the agreement terminated on December 16, 1993.
Patricof was paid $25,000 for services provided under the terms of such
agreement during fiscal 1993. Each of the foregoing agreements includes certain
indemnification provisions which survive termination.
DESCRIPTION OF THE FIRST MORTGAGE NOTES
The First Mortgage Notes will be issued under an indenture (the "Indenture"),
between the Company and First National Bank of Commerce, New Orleans,
Louisiana, as trustee (the "Trustee"), a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
following summary of certain provisions of the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Trust Indenture Act of 1939, as amended ("TIA"), as in effect on the date
of the Indenture. The definitions of certain capitalized terms used in the
following summary are set forth below under "Certain Definitions."
PRINCIPAL, MATURITY AND INTEREST
The First Mortgage Notes will be senior secured obligations of the Company
limited to $75,000,000 aggregate principal amount and will mature on ,
2001. Interest on the First Mortgage Notes will accrue at the rate of % per
annum and will be payable semi-annually on each 15 and 15,
commencing 15, 1994, to the Holders of record of First Mortgage Notes at
the close of business on the 1 and 1 immediately preceding such
interest payment date. Interest on the First Mortgage Notes will accrue from
the most recent date to which interest has been paid or, if no interest has
been paid, from the original date of issuance (the "Issue Date"). Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
Interest on overdue principal and (to the extent permitted by law) on overdue
installments of interest will accrue at a rate equal to the stated rate of
interest.
As discussed below, payment of principal of, and interest on, First Mortgage
Notes represented by one or more permanent global First Mortgage Notes
registered in the name of or held by The Depository Trust Company (the
"Depositary") or its nominee will be made in immediately available funds to the
Depositary or its nominee, as the case may be, as the registered owner and
holder of such permanent global First Mortgage Note or Notes. See "--Same-Day
Settlement and Payment."
OPTIONAL REDEMPTION
The First Mortgage Notes may not be redeemed prior to , 1998. On and
after , 1998, the Company may, at its option, redeem the First Mortgage
Notes, in whole or in part, from time to time, at the redemption prices set
forth below (expressed as a percentage of the principal amount thereof), in
each case together with accrued interest, if any, to the date of redemption, if
redeemed during the twelve-month period beginning of the years indicated
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1998.............................. %
1999.............................. %
2000.............................. %
</TABLE>
54
<PAGE>
; provided, that if the date fixed for redemption is 15 or 15, then
the interest payable on such date shall be paid to the Holder of record on the
next preceding 1 or 1.
In the event that less than all of the First Mortgage Notes are to be
redeemed at any time, selection of First Mortgage Notes for redemption will be
made by the Trustee on a pro rata basis, by lot or by such method as the
Trustee shall deem fair and appropriate; provided, however, that no First
Mortgage Notes of $1,000 or less shall be redeemed in part. Notice of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder to be redeemed at its registered
address. If any First Mortgage Note is to be redeemed in part only, the notice
of redemption that relates to such First Mortgage Note shall state the portion
of the principal amount thereof to be redeemed. A new First Mortgage Note in a
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original First Mortgage
Note. On and after the redemption date, interest will cease to accrue on First
Mortgage Notes or the portion thereof called for redemption unless the Company
defaults in the payment of the redemption price or accrued interest. First
Mortgage Notes that are optionally redeemed by the Company or that are
purchased by the Company pursuant to an Asset Sale Offer as described under "--
Certain Covenants--Restrictions on Asset Sales" or pursuant to a Change of
Control Offer as described under "--Change of Control" will be surrendered to
the Trustee for cancellation.
The Credit Facility contains certain financial covenants that may restrict
the ability of the Company to redeem the First Mortgage Notes without the prior
written consent of the Lenders. See "Description of Certain Indebtedness--
Credit Facility."
CHANGE OF CONTROL
The Indenture provides that upon a Change of Control, each Holder shall have
the right to require the Company to repurchase all or any part of such Holder's
First Mortgage Notes at a cash purchase price equal to 101% of the principal
amount plus accrued interest to the date of repurchase pursuant to the
procedures set forth in the Indenture (a "Change of Control Offer"). As more
fully described below, if the Company recapitalizes or enters into a
transaction with management which results in control of the Company being held
by persons other than the controlling persons as of the date of the Indenture,
a Change of Control may be deemed to occur.
Within 30 days following any Change of Control, the Company shall send, by
first class mail, a notice to each Holder, with a copy to the Trustee, which
notice will govern the terms of the Change of Control Offer. This notice will
state, among other things, the repurchase date (which shall not be earlier than
30 days or later than 60 days from the date such notice is mailed) and the
circumstance and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control). Holders electing
to have a First Mortgage Note repurchased will be required to surrender the
First Mortgage Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the First Mortgage Note completed, to the paying
agent at the address specified in the notice prior to the close of business on
the date of repurchase. Holders will be entitled to withdraw their election if
the paying agent receives, not later than the close of business on the third
business day (or such shorter period as may be required by applicable law)
preceding the date of repurchase, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the First
Mortgage Notes the Holder delivered for repurchase, and a statement that such
Holder is withdrawing his election to have such First Mortgage Notes
repurchased. Failure to make a Change of Control Offer as required will
constitute a covenant Default under the Indenture.
In the event a Change of Control occurs and the Holders exercise their right
to require the Company to repurchase the First Mortgage Notes, and assuming
that such repurchase constitutes a "tender offer" for purposes of rule 14e-1
under the Exchange Act at the time it is required, the Company will comply with
the requirements of Rule 14e-1 as then in effect with respect to such
repurchase.
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<PAGE>
A Change of Control under the Indenture could constitute a default under the
Credit Facility. Therefore, upon the occurrence of a Change of Control, the
Lenders may accelerate their loans and the Company may be required to prepay
all of its outstanding obligations under the Credit Facility simultaneously
with the payment of the principal of any of the First Mortgage Notes that the
Company is required to repurchase pursuant to the Indenture. See "Description
of Certain Indebtedness--Credit Facility."
The definition of "Change of Control," and the other components of this
covenant, generally mean that the Company will be obligated to repurchase First
Mortgage Notes from tendering Holders if control of the Company (whether
through stock ownership or control of the Company's assets) is held by Persons
other than the controlling Persons of the Company. With respect to the
disposition of assets, the phrase "all or substantially all" as used in the
Indenture (including as set forth under "Certain Covenants--Limitations on
Investments, Loans and Advances") varies according to the facts and
circumstances of the subject transaction, has no clearly established meaning
under New York law (which governs the Indenture) and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of the Company, and
therefore it may be unclear as to whether a Change of Control has occurred and
whether the Holders have the right to require the Company to repurchase First
Mortgage Notes. None of the provisions relating to a repurchase upon a Change
of Control are waivable by the Board of Directors of the Company.
If a Change of Control were to occur, the Company may be unable to repay all
of its obligations under the Credit Facility, to purchase all of the First
Mortgage Notes tendered and to repay other indebtedness that may become payable
upon the occurrence of such Change of Control. Accordingly, it is possible that
a prospective acquiror would, in order to avoid the occurrence of an Event of
Default under the Credit Facility, either fund the Company's purchase of the
First Mortgage Notes tendered in the Change of Control Offer following such
acquisition or seek to refinance the First Mortgage Notes, which funding or
refinancing may have the effect of delaying, discouraging or preventing such an
acquisition. Consequently, the obligation of the Company to make a Change of
Control Offer and repurchase tendered First Mortgage Notes upon a Change of
Control could have the effect of preventing or delaying the ability of other
persons or entities to acquire control of the Company.
RANKING
The First Mortgage Notes will rank pari passu with respect to the payment in
full of the principal and interest on all existing and future senior
Indebtedness of the Company, including obligations of the Company arising in
connection with the Credit Facility, and will rank senior to all subordinated
Indebtedness of the Company.
SECURITY
For the benefit of the Trustee and the Holders, the Company and its
Subsidiaries (with the exception of Non-Recourse Subsidiaries) will assign and
pledge and grant a security interest in the following property and assets: (a)
the real property interests in the minimill and the stocking location in
LaPlace, Louisiana, the stocking location in Chicago, Illinois, and all future
real property interests and all extensions, additions or improvements thereto;
(b) all existing or future fixtures, machinery, tools, equipment (including
certain operating equipment classified as inventory) and similar property
(except such personal property located at the stocking location in Tulsa,
Oklahoma); and (c) all proceeds and products of any and all of the foregoing,
except as described under "Possession, Use and Release of Property" (the
property and assets described under clauses (a), (b), and (c) are collectively
referred to as "Collateral"). The security interest will not extend to the
inventory and accounts receivable of the Company as these assets secure the
obligations of the Company under the Credit Facility and a purchase money
facility relating to the Tulsa stocking location (the "Lender Secured
Property"). The security interest in the Collateral will be a first priority
interest (to the extent attainable by filing or possession) subject to certain
permitted encumbrances or Liens that, in the judgment
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<PAGE>
of the Company, will not adversely affect the value of the Collateral. The
Subsidiaries of the Company (with the exception of Non-Recourse Subsidiaries)
shall execute a guarantee of the Company's obligations with respect to the
First Mortgage Notes (the "Subsidiary Guarantee"). The guarantee of each
Subsidiary shall be limited to the amount which can be guaranteed by such
Subsidiary under applicable Federal and state laws relating to insolvency of
debtors. The obligations of a Subsidiary under the Subsidiary Guarantee will be
secured by the Collateral assigned by such Subsidiary.
The real property Collateral will be pledged pursuant to first mortgages or
deeds of trust (the "Mortgages"), subject to the Liens permitted by the
Indenture. See "--Certain Covenants--Limitation on Liens." Each Mortgage
executed by the Company will secure the full amount payable arising in
connection with the First Mortgage Notes. Each Mortgage executed by a
Subsidiary will secure all obligations arising under its Subsidiary Guarantee.
Upon issuance of the First Mortgage Notes, the Collateral Agent will receive
mortgagee's title insurance policies in satisfactory form. The personal
property to be included within the Collateral will be pledged pursuant to
security agreements (the "Security Agreements") and will constitute a first
priority Lien, subject to the Liens permitted by the Indenture (the "Security
Documents"). See""--Certain Covenants--Limitation on Liens." Upon the
occurrence of an Event of Default under the Indenture, the First Mortgage Notes
or the Security Documents, the Collateral Agent will have the customary rights
and remedies of a secured party with respect to the Collateral assigned by the
Company, and to the Collateral assigned by a Subsidiary upon a default under
the Subsidiary Guarantee.
The real and chattel mortgages securing the 14.75% Notes were filed under
then applicable Louisiana law in the public records of three parishes of the
State of Louisiana. It is the practice of one or more of such parishes to
require physical delivery of cancelled notes to evidence payment. Since the
Company's obligations under the 14.75% Notes and the related real and chattel
mortgages are being satisfied and discharged through defeasance, the cancelled
14.75% Notes will not be available on the closing date of the Offering to
record a release in those parishes. Although the real and chattel mortgages
securing the 14.75% Notes on file in such parishes will not secure any
obligations of the Company after defeasance, the trustee for the 14.75% Notes
will file in such parishes on the closing date acts of subordination to
subordinate for the public record such mortgages to a junior status relative to
the mortgage relating to the First Mortgage Notes. At the completion of the
redemption process for the 14.75% Notes, the cancelled notes will be delivered
to the clerks of such parishes for the recordation of releases of such defeased
mortgages.
No appraisals of any of the Collateral have been prepared by or on behalf of
the Company in connection with the issuance and sale of the First Mortgage
Notes. In addition, the fair market value of the Collateral is subject to
fluctuations based on factors that include, among others, the condition of the
steel industry, the ability to sell the Collateral in an orderly sale, the
condition of the national and local economy, the availability of buyers and
similar factors. The net book value of the Collateral as of December 31, 1993
was approximately $80.4 million. There can be no assurance that the proceeds of
any sale of the Collateral, in whole or in part, pursuant to the Indenture and
the Security Documents following an Event of Default would be sufficient to
satisfy payments due on the First Mortgage Notes. To the extent that Liens have
been granted to third parties pursuant to clauses (iv) and (v) of "Certain
Covenants--Limitation on Liens," such third parties have or may exercise rights
and remedies with respect to the property subject to such Lien that could
adversely affect the value of such Collateral and the ability of the Collateral
Agent, Trustee or the Holders to realize or foreclose on such Collateral. In
addition, the ability of the Trustee to realize upon the Collateral may be
subject to certain bankruptcy law limitations in the event of a bankruptcy. See
"Certain Bankruptcy Limitations" below.
The following sets forth certain information with respect to the real and
personal property included in the Collateral:
LaPlace Minimill. The principal asset comprising the Collateral is the
Company's steel minimill located in LaPlace, Louisiana which was completed
in 1981 at a cost of $243 million. The minimill is approximately 472,000
square feet and includes a 75,000 square foot warehouse facility. The
minimill
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<PAGE>
and the warehouse are located on approximately 287 acres of land adjacent
to the Mississippi River with a 280-foot deep river loading dock. At
December 31, 1993, the net book value of the land, land improvements and
building improvements with respect to this facility was approximately $8.9
million, the net book value of certain operating equipment classified as
inventory was approximately $15.0 million and the net book value of the
other property and equipment located at this facility was approximately
$52.5 million.
Chicago Stocking Location. The Chicago stocking location is located
outside Chicago, Illinois on approximately 7 acres of land. This stocking
location is approximately 100,000 square feet and was renovated in 1992. At
December 31, 1993, the net book value of the land, land improvements and
building improvements with respect to this facility was approximately $3.6
million and the net book value of the other property and equipment located
at this facility was approximately $0.4 million.
The collateral release provisions of the Indenture permit the release of
Collateral in connection with Asset Sales of Collateral. See "--Possession, Use
and Release of Collateral." As described under "--Certain Covenants--
Restrictions on Asset Sales," the Net Cash Proceeds of such Asset Sales, above
prescribed amounts and subject to certain exceptions, are required to be
deposited in the Collateral Account prior to the making of an offer to purchase
First Mortgage Notes in an Asset Sale Offer or a Permitted Related Acquisition
(each as defined below). To the extent an Asset Sale Offer is not subscribed to
by Holders, the unutilized Net Cash Proceeds may be retained by the Company
free of the Lien of the Indenture and the Security Documents. In addition, the
Collateral release provisions of the Indenture permit the sale, lease, transfer
or other disposition of tangible personal property that, in the reasonable
judgement of the Company, has become worn out, obsolete or no longer necessary
to the operation of the Company's or its Subsidiaries' business and which is
disposed in the ordinary course of business, subject to certain limitations.
If an Event of Default has occurred and is continuing and the Trustee has
been directed by the Holders of at least 25% in aggregate principal amount of
First Mortgage Notes to foreclose upon all or any part of the Collateral
(including the Collateral pledged by the Subsidiaries upon a default under the
Subsidiary Guarantee), the Collateral Agent will take such action to foreclose
upon the Collateral as is consistent with such directions. The Collateral Agent
will thereupon foreclose upon the Collateral in accordance with instructions
from such representatives, unless Holders of a majority in aggregate principal
amount of the First Mortgage Notes shall have given contrary instructions, in
each case as provided in the Security Documents. The proceeds received by the
Collateral Agent will be applied by the Collateral Agent first to pay the
expenses of such foreclosure and fees and other amounts then payable to the
Trustee under the Indenture, and thereafter to pay, pro rata, the principal of,
premium, if any, and interest on the First Mortgage Notes.
Dispositions of real property Collateral may be subject to delay pursuant to
an intercreditor agreement to be entered into with the Lenders (the "Collateral
Agency and Intercreditor Agreement"). The Collateral Agency and Intercreditor
Agreement will provide that the Collateral Agent will provide access to and use
of the real property and, under certain circumstances, may delay liquidation of
the real property for a period of time to permit the agent for the Lenders to
conduct an orderly liquidation of the Lender Secured Property located on the
real property (including, without limitation, the processing of work in
progress inventory).
Pursuant to the Tax Lease Agreement, the Company has transferred the Federal
income tax benefits that would normally be associated with the ownership of
certain of its property, including the melt shop facility (consisting of rail
and dock facilities, a furnace charging system, two electric melting furnaces,
two continuous casters and billet handling facilities), located at the LaPlace
facility to an unaffiliated third party. The Trustee will enter into a release
agreement pursuant to which it will release the United States Federal income
tax ownership of such property from the Lien created by the Indenture or the
Security Documents for the term of the Tax Lease Agreement (the "New Release
Agreement"). In addition, under the New Release Agreement, the Trustee will
agree to take or refrain from taking certain actions in an attempt to ensure
that certain dispositions of the property subject to the Tax Lease Agreement do
not constitute a "disqualifying event" within the meaning of the regulations
promulgated under Section 168(f)(8) of the Old
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<PAGE>
Code. Furthermore, the Company and Howard M. Meyers, the Chairman of the Board,
Chief Executive Officer and President of the Company and the beneficial owner
of 60% of the voting power of the Company, have each agreed to indemnify Voest-
Alpine and its affiliate, V.A.I.C., for liabilities to the purchaser of the
Federal income tax benefits from the loss of such benefits upon a disqualifying
event such as destruction of the underlying assets or the improper sale of
legal title thereto. The practical effect of the New Release Agreement and the
indemnification agreements, individually or in the aggregate, may be to limit
the marketability of the property upon a foreclosure.
Real property pledged as security may be subject to known and unforeseen
environmental risks. Under the Comprehensive Environmental Compensation and
Liability Act, as amended ("CERCLA"), a secured party may be held liable, in
certain limited circumstances, for the costs of remediating or preventing
releases or threatened releases of hazardous substances at a mortgaged
property. There may be similar risks under various other Federal laws, state
laws and common law theories. Such liability has seldom been imposed, and
finding a secured party liable generally has been based on the secured party
having become sufficiently involved in the operations of the borrower so that
its "participation in the management" of the borrower meets the test set out in
CERCLA and elaborated in a number of court decisions and a recent Environmental
Protection Agency regulation.
If a secured party takes title to property by foreclosure, it may, under
certain circumstances, lose the security interest exclusion contained in CERCLA
and may therefore be held liable for cleanup costs. Additionally, foreclosure
may result in a lender becoming subject to substantial requirements, including
permitting obligations, under environmental laws. A recent Environmental
Protection Agency regulation allows a secured party to exercise some control
over a borrower's enterprise following foreclosure without incurring CERCLA
liability, so long as the secured party's actions are consistent with the
limitations set forth in the regulation. The regulation's protection of
foreclosing secured parties from CERCLA liability is subject to challenge, and
the protection that the regulation provides in private actions directed at
secured parties to recover cleanup costs is unclear at this time.
Under the Indenture, the Trustee may, prior to taking certain actions,
request Holders to provide an indemnification against its costs, expenses, and
liabilities. It is possible that CERCLA (or analogous) cleanup costs could
become a liability of the Trustee and cause a loss to any Holders that provided
an indemnification. In addition, such Holders may act directly rather than
through the Trustee, in specified circumstances, in order to pursue a remedy
under the Indenture. If Holders exercise that right, they could be deemed to be
secured parties that are subject to the risks discussed above.
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Collateral Agent to repossess and dispose of the Collateral
upon the occurrence of an Event of Default would be significantly impaired by
applicable Bankruptcy Law in the event that a bankruptcy proceeding were to be
commenced by or against the Company and its Subsidiaries prior to the
Collateral Agent having repossessed and disposed of the Collateral. Upon the
commencement of a case for relief under Title 11 of the United States Code, as
amended (the "Bankruptcy Code"), a secured creditor such as the Collateral
Agent is prohibited from repossessing its security from a debtor in a
bankruptcy case, or from disposing of security repossessed from such debtor,
without bankruptcy court approval. Moreover, the Bankruptcy Code permits the
debtor to continue to retain and use collateral even though the debtor is in
default under the applicable debt instruments provided that the secured
creditor is given "adequate protection." The meaning of the term "adequate
protection" may vary according to circumstances, but it is intended in general
to protect the value of the secured creditor's interest in the collateral and
may include cash payments or the granting of additional security, if and at
such times as the court in its discretion determines, for any diminution in the
value of the collateral as a result of the stay of repossession or disposition
or any use of the collateral by the debtor during the pendency of the
bankruptcy case. A bankruptcy court may determine that a secured creditor may
not require compensation for a diminution in the value of the collateral if the
value of the collateral exceeds the debt it secures.
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In view of the broad equitable powers of a bankruptcy court, it is impossible
to predict how long payments under the First Mortgage Notes could be delayed
following commencement of a bankruptcy case, whether or when the Collateral
Agent could repossess or dispose of the Collateral, the value of the Collateral
at the time of a bankruptcy petition or whether or to what extent Holders would
be compensated for any delay in payment or loss of value of the Collateral
through the requirement of "adequate protection." Any disposition of the
Collateral would also require approval of the bankruptcy court. Furthermore, in
the event a bankruptcy court determines the value of the Collateral is not
sufficient to repay all amounts due on the First Mortgage Notes, the Holders
would hold secured claims to the extent of the value of the Collateral to which
the Holders are entitled, and unsecured claims with respect to such shortfall.
The Bankruptcy Code only permits the payment and/or accrual of post-petition
interest, costs and attorney's fees to a secured creditor during a debtor's
bankruptcy case to the extent the value of the Collateral is determined by the
bankruptcy court to exceed the aggregate outstanding principal amount of the
First Mortgage Notes.
POSSESSION, USE AND RELEASE OF COLLATERAL
Unless an Event of Default shall have occurred and be continuing, the Company
and its Subsidiaries will have the right to remain in possession and retain
exclusive control of the Collateral securing the First Mortgage Notes (other
than Trust Moneys and other personal property held by, or required to be
deposited or pledged with, the Collateral Agent under the Indenture or any
Security Document), to freely operate the Collateral and to collect, invest and
dispose of any income thereon. In case a Default or an Event of Default shall
have occurred and be continuing, the Company and its Subsidiaries, while in
possession of the Collateral (other than cash and other personal property held
by, or required to be deposited or pledged with, the Collateral Agent under the
Indenture or any Security Document or with any trustee, mortgagee or other
holder of a prior Lien permitted under the Security Documents), may do any of
the things enumerated in the "Release of Collateral" provisions only if the
Trustee, in its discretion, or the Holders of a majority in aggregate principal
amount of the outstanding First Mortgage Notes, shall consent to such action.
Release of Collateral. The Company and its Subsidiaries will have the right
to sell, exchange or otherwise dispose of any of the Collateral (excluding
Trust Moneys) (the "Released Collateral") upon delivery to the Trustee of
certain documents that may include, among others, a Company Order, an Officers'
Certificate, all documentation required by the TIA prior to the release of the
Released Collateral by the Collateral Agent, and an Opinion of Counsel. Subject
to certain exceptions for obsolete assets and certain amounts the Company and
its Subsidiaries are permitted to retain pursuant to "--Certain Covenants--
Restrictions on Asset Sales," all cash or Cash Equivalents received by the
Collateral Agent upon an Asset Sale with respect to Collateral will be held by
the Collateral Agent as Trust Moneys under the Indenture prior to application
as provided in "Use of Trust Moneys" below and "--Certain Covenants--
Restrictions on Asset Sales." All purchase money and other obligations received
as part of the Net Proceeds by the Collateral Agent pursuant to these "Release
of Collateral" provisions shall be held by the Collateral Agent.
As long as no Event of Default shall have occurred and be continuing, the
Company and its Subsidiaries, collectively, may, without any release or consent
by the Collateral Agent, sell or otherwise dispose of any machinery, equipment,
furniture, apparatus, tools or implements or other similar property subject to
the Lien of the Security Documents, which may have become worn out, obsolete or
no longer necessary to the operation of the Company's or its Subsidiaries'
business ("Obsolete Assets"), not exceeding individually, in fair market value,
$25,000.
Use of Trust Moneys. All Trust Moneys shall be held by the Collateral Agent
as a part of the Collateral securing the First Mortgage Notes or the
obligations of the Subsidiaries of the Company under the Subsidiary Guarantee,
and, so long as no Event of Default shall have occurred and be continuing, may
either, at the direction of the Company, upon delivery to the Trustee of
certain documents that may include, among others, a Company Order, an Officer's
Certificate, all documentation required by the TIA and an Opinion of Counsel,
be applied by the Collateral Agent from time to time to a Permitted Related
Acquisition or to the payment of the principal, premium, if any, and interest
on any First Mortgage Notes at maturity or to the repurchase
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of First Mortgage Notes in an Asset Sale Offer, each of the foregoing being
performed by the Company in accordance with the Indenture.
CERTAIN COVENANTS
The following is a summary of certain covenants that will be contained in the
Indenture. Such covenants will be applicable (unless waived or amended) so long
as any of the First Mortgage Notes are outstanding.
Limitations on Indebtedness. The Indenture provides that the Company will
not, and will not permit any of its Subsidiaries, directly or indirectly, to
incur, create, assume, suffer to exist, guarantee, become liable, contingently
or otherwise, with respect to, or otherwise become responsible for the payment
of (each event, an "incurrence") any Indebtedness unless (a) the pro forma
EBITDA Ratio of the Company and its Recourse Subsidiaries for the Reference
Period prior to the incurrence of such Indebtedness (taken as a whole and
calculated on the assumptions that such Indebtedness had been incurred and the
proceeds thereof had been applied on the first day of the Reference Period)
would have been greater than (i) 2.00 to 1.00 and (b) no Default or Event of
Default shall have occurred and be continuing at the time of, or after giving
effect to, the incurrence of such Indebtedness.
The foregoing limitation will not apply to: (i) Indebtedness evidenced by the
First Mortgage Notes and the obligations of the Company and its Subsidiaries
under the Indenture and the Security Documents; (ii) Indebtedness of the
Company issued to any Wholly-Owned Recourse Subsidiary; provided, that (a) any
such Indebtedness is unsecured and is subordinated to the First Mortgage Notes
and (b) that any subsequent issuance or transfer of any Capital Stock which
results in any such Wholly-Owned Recourse Subsidiary ceasing to be a Wholly-
Owned Recourse Subsidiary or any transfer of such Indebtedness by any Wholly-
Owned Recourse Subsidiary to someone not a Wholly-Owned Recourse Subsidiary
will, in each case, be deemed an incurrence of Indebtedness under the
Indenture; (iii) Indebtedness of the Company which is existing immediately
following the issuance of the First Mortgage Notes and the application of the
proceeds of the First Mortgage Notes in the manner set forth under "Use of
Proceeds"; (iv) Indebtedness arising in connection with the Credit Facility at
any time outstanding not to exceed the lesser of (1) $30,000,000 and (2)
amounts available to be borrowed under the Credit Facility without causing a
mandatory prepayment thereunder in the absence of a waiver or consent; (v)
Indebtedness incurred with respect to Interest Rate Agreements covering
floating rate Indebtedness of the Company that is permitted under this covenant
to the extent the notional principal amount of such Interest Rate Agreements
does not exceed the principal amount of the Indebtedness to which such Interest
Rate Agreements relate; (vi) Indebtedness incurred in connection with
Industrial Development Bonds (including Pollution Control Bonds) as such terms
are defined under the Tax Code, in an aggregate principal amount not to exceed
$5,000,000; (vii) Indebtedness incurred with respect to the deferred purchase
price of machinery and equipment related to the business of the Company or its
Subsidiaries at the time of purchase and other purchase money obligations
(including Capitalized Lease Obligations) not to exceed, in the aggregate,
$5,000,000; provided, that the maturity of any such obligation does not exceed
the anticipated useful life of the asset being financed; and (viii) any
renewal, extension or refinancing (and subsequent renewals, extensions or
refinancings) of any Indebtedness of the Company permitted under the Indenture,
in an amount not in excess of the amount permitted under the Indenture at the
time of such renewal, extension or refinancing; provided, that Indebtedness
which constitutes a renewal, extension or refinancing of Indebtedness of the
Company shall be pari passu or subordinated in right of payment to the First
Mortgage Notes; and provided, further, that in no event may Indebtedness of the
Company be renewed, extended or refinanced by means of Indebtedness of any
Subsidiary of the Company pursuant to this clause (viii). See "Prospectus
Summary--Summary Financial Information" and "Selected Financial Data" for the
Ratio of EBITDA to Net Interest Expense.
The foregoing limitation will not apply to: (i) Indebtedness of a Wholly-
Owned Recourse Subsidiary issued to and held by the Company or any Wholly-Owned
Recourse Subsidiary of the Company; provided, that any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly-Owned Recourse
Subsidiary ceasing to be a Wholly-Owned Recourse Subsidiary or any transfer of
such Indebtedness
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by the Company or any Wholly-Owned Recourse Subsidiary to someone not a Wholly-
Owned Recourse Subsidiary will, in each case, be deemed an incurrence of
Indebtedness under the Indenture; (ii) Indebtedness of the Company's
Subsidiaries which is existing immediately following the issuance of the First
Mortgage Notes and the application of the proceeds of the First Mortgage Notes
in the manner set forth under "Use of Proceeds"; (iii) Non-Recourse
Indebtedness incurred by Non-Recourse Subsidiaries; and (iv) any renewal,
extension or refinancing (and subsequent renewals, extensions or refinancings)
of any Indebtedness of the Company's Subsidiaries permitted under the
Indenture, in an amount not in excess of the amount permitted under the
Indenture at the time of such renewal, extension or refinancing; provided, that
Indebtedness which constitutes a renewal, extension or refinancing of
Indebtedness of a Subsidiary of the Company shall be pari passu or subordinated
in right of payment to the obligations under the Subsidiary Guarantee.
The foregoing limitation on Indebtedness and the provisions relating to
Changes of Control provide certain protection to Holders against the occurrence
of a highly leveraged transaction, although no assurance may be given that a
highly leveraged transaction may not occur that could adversely affect the
interests of Holders.
Limitation on Liens. The Indenture provides that the Company shall not, and
shall not permit, cause or suffer any of its Subsidiaries to, create, incur,
assume or suffer to exist any Liens of any kind upon any property or assets of
the Company or any Subsidiary, whether now owned or hereafter acquired, except
for (i) Liens in favor of the Collateral Agent or the Holders, including Liens
created by the First Mortgage Notes, the Indenture and the Security Documents;
(ii) Liens on the Lender Secured Property to secure the Credit Facility and the
purchase money facility relating to the Tulsa stocking location; (iii)
Permitted Liens; (iv) Liens on the property of the Company or any of its
Subsidiaries created solely for the purpose of securing purchase money
obligations for property acquired in the ordinary course of business; provided,
that (a) such property so acquired for use in the ordinary course of business
is for use in lines of business related to the Company's or its Subsidiaries'
business as it exists immediately prior to the issuance of the related debt and
(b) no such Lien shall extend to or cover other property or assets of the
Company and its Subsidiaries other than the respective property or assets so
acquired and the principal amount of Indebtedness secured by any such Lien
shall at no time exceed the original purchase price of such property or assets;
(v) Liens on the assets of any entity existing at the time such entity or
assets are acquired by the Company or any of its Subsidiaries, whether by
merger, consolidation, purchase of assets or otherwise; provided, that such
Liens (a) are not created, incurred or assumed in connection with, or in
contemplation of, such assets being acquired by the Company or any of its
Subsidiaries and (b) do not extend to any other property of the Company or any
of its Subsidiaries; (vi) Liens in existence on the date of the Indenture
(excluding Liens relating to all or any portion of the 14.75% Notes); (vii)
Liens relating to the real and chattel mortgages on record in certain parishes
of the State of Louisiana with respect to the Indenture dated September 5, 1986
between the Company and First National Bank of Commerce, as trustee; provided,
that such Liens (a) shall not secure any Indebtedness of the Company and (b)
the Company shall use its best efforts to record the release of such Liens as
soon as practicable; (viii) Liens securing Industrial Development Bonds
(including Pollution Control Bonds) as such terms are defined in the Tax Code;
provided, that any Lien permitted by this clause (viii) shall not extend to any
other property of the Company or any of its Subsidiaries; and (ix) any
extension, renewal or replacement (or successive extensions, renewals or
replacements), in whole or in part, of any Lien referred to in the foregoing
clauses; provided, that the principal amount of Indebtedness secured thereby
shall not exceed the principal amount of Indebtedness so secured immediately
prior to the time of such extension, renewal or replacement, and that such
extension, renewal, or replacement Lien shall be limited to all or a part of
the property which secured the Lien so extended, renewed or replaced (plus
improvements on such property).
Limitation on Preferred Stock of Subsidiaries. The Indenture provides that
the Company will not permit any of its Subsidiaries to issue, directly or
indirectly, any Preferred Stock, except: (i) Preferred Stock issued to and held
by the Company or a Wholly-Owned Recourse Subsidiary, except that any
subsequent issuance or transfer of any Capital Stock which results in any
Wholly-Owned Recourse Subsidiary ceasing to
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be a Wholly-Owned Recourse Subsidiary or any transfer of such Preferred Stock
by any Wholly-Owned Recourse Subsidiary will, in each case, be deemed an
issuance of Preferred Stock under the Indenture; (ii) Preferred Stock issued by
a Person prior to the time (a) such Person became a Subsidiary, (b) such Person
merges with or into a Subsidiary or (c) another Subsidiary merges with or into
such Person (in a transaction in which such Person becomes a Subsidiary), in
each case if such Preferred Stock was not incurred in anticipation of such
transaction; and (iii) Preferred Stock (other than Disqualified Stock) which is
exchanged for Preferred Stock permitted to be outstanding pursuant to clauses
(i) and (ii) or which are used to refinance Indebtedness (or any extension,
renewal or refinancing thereof), having a liquidation preference not to exceed
the liquidation preference of the Preferred Stock or the principal amount of
the Indebtedness so exchanged or refinanced.
Transfer of Assets to Subsidiaries. The Indenture provides that
notwithstanding the covenant restricting Asset Sales, the Company shall not,
and shall not permit any of its Subsidiaries to, make any sale, transfer or
other disposition (including by way of Sale and Leaseback Transaction) to any
of its Subsidiaries (other than in the ordinary course of business) of (i) any
assets of the Company or its Subsidiaries or (ii) any shares of Capital Stock
of any of the Company's Subsidiaries directly owned by the Company, in either
case with an aggregate fair market value in excess of $250,000 (as determined
in good faith by an Independent Appraiser or Independent Financial Adviser, as
the circumstances dictate) unless the Company or its Subsidiaries shall receive
consideration from the Subsidiary acquiring such assets or Capital Stock by way
of any such sale, transfer or otherwise from the Company in cash or Cash
Equivalents equal to the amount in excess of $250,000.
Limitations on Restricted Payments. The Indenture provides that neither the
Company nor any of its Subsidiaries shall, directly or indirectly, declare, pay
or set apart for payment, any Restricted Payment, if after giving effect
thereto: (i) a Default or an Event of Default shall have occurred and be
continuing; (ii) the Company or its Subsidiaries would not be permitted to
incur or become liable with respect to at least $1.00 of additional
Indebtedness as determined in accordance with the covenant "--Limitations on
Indebtedness"; or (iii) the aggregate amount of all Restricted Payments made by
the Company or any of its Subsidiaries (the amount expended or distributed for
such purposes, if other than in cash, to be valued at its fair market value as
determined in good faith by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a Board Resolution delivered
to the Trustee) from and after the date of the Indenture, through and including
the date on which such Restricted Payment is made, would exceed the sum of:
(a) the aggregate of 50% of the Company's Consolidated Net Income accrued
for the period (taken as one accounting period) (or if such aggregate
Consolidated Net Income shall be less than zero, minus 100% of the amount
of such loss) commencing with the first full fiscal quarter after the Issue
Date to and including the fiscal quarter ended immediately prior to the
date of such calculation; and
(b) the aggregate net cash proceeds received by the Company after the
Issue Date from the issuance or sale (other than to a Subsidiary) by the
Company of its Capital Stock (excluding Disqualified Stock, but including
Capital Stock other than Disqualified Stock issued upon conversion of, or
exchange for, Disqualified Stock or securities other than its Capital
Stock), and upon the exercise of warrants and rights to purchase such
Capital Stock. For purposes of clause (b), the aggregate net cash proceeds
received by the Company (x) from the issuance of its Capital Stock upon the
conversion of, or exchange for, securities evidencing Indebtedness of the
Company, shall be calculated on the assumption that the gross proceeds from
such issuance are equal to the aggregate principal amount (or, if
discounted Indebtedness, the accreted principal amount) of Indebtedness
evidenced by such securities converted or exchanged and (y) upon the
conversion or exchange of other securities of the Company shall be equal to
the aggregate net proceeds of the original sale of the securities so
converted or exchanged if such proceeds of such original sale were not
previously included in any calculation for the purposes of clause (b) of
the preceding sentence, plus any additional sums payable upon conversion or
exchange.
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Notwithstanding the foregoing, this provision shall not prevent (i) the
payment of any dividend within 60 days after the date of its declaration (if
the declaration of such dividend was permitted by the foregoing provision at
the time of such declaration); or (ii) the repurchase, retirement or other
acquisition of any shares of the Company's Capital Stock, or any option,
warrant or other right to purchase shares of the Company's Capital Stock, or
the repayment of any Indebtedness of the Company solely in exchange for shares
of, or out of the proceeds of a substantially contemporaneous issuance of,
Capital Stock (other than Disqualified Stock).
Limitations on Transactions with Stockholders and Affiliates. The Indenture
provides that the Company shall not, and shall not permit any of its
Subsidiaries to, enter into or permit to exist any transaction (or series of
related transactions), including, without limitation, any loan, advance,
guarantee or capital contribution to, or for the benefit of, or any sale,
purchase, lease, exchange or other disposition of any property or the
rendering of any service, or any other direct or indirect payment, transfer or
other disposition (a "Transaction"), involving payments, with any holder of 5%
or more of any class of Capital Stock of the Company or with any Affiliate of
such holder or with any Affiliate of the Company (other than a Wholly-Owned
Recourse Subsidiary of the Company), on terms and conditions less favorable to
the Company or such Subsidiary, as the case may be, than would be available at
such time in a comparable Transaction in arm's length dealings with an
unrelated Person as determined by the Board of Directors of the Company or a
Subsidiary, such approval to be evidenced by a Board Resolution.
The provisions of the foregoing paragraph will not apply to (i) Restricted
Payments otherwise permitted pursuant to the Indenture; (ii) transactions
between the Company and one or more of its Recourse Subsidiaries; provided,
that such transactions are not otherwise prohibited by the Indenture; (iii)
reasonable and customary fees and compensation (including amounts paid
pursuant to employee benefit plans) paid to, and indemnity provided on behalf
of, officers, directors, employees or consultants of the Company or any
Subsidiary, as determined by the Board of Directors of the Company or any
Subsidiary; (iv) annual payments in an aggregate amount not to exceed $150,000
under the Service Agreement, dated as of September 5, 1986, between the
Company, RSR and Quexco; and (v) payments for goods and services purchased in
the ordinary course of business on an arms-length basis.
Restrictions on Asset Sales. The Indenture provides that the Company will
not, and will not permit any of its Recourse Subsidiaries to, make any Asset
Sale, unless (a) the Company (or its Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the Capital Stock or assets to be sold (as determined in good faith
by its Board of Directors); (b) at least 85% of the consideration therefor is
received by the Company or such Subsidiary in the form of cash or Cash
Equivalents; and (c) 100% of the consideration therefor is received by the
Company or such Subsidiary in the form of cash, Cash Equivalents or
instruments with respect to which a security interest therein may be perfected
by possession.
Within six months of the date that the sum of the Net Cash Proceeds of Asset
Sales (less the sum of the Net Cash Proceeds (i) previously applied to the
acquisition of property and assets used in lines of business related to the
Company's or the Subsidiaries' business at such time (each a "Permitted
Related Acquisition") and (ii) from the sale of Obsolete Assets not exceeding
an aggregate fair market value of $1,000,000 in any year), together with
Condemnation Proceeds and Net Insurance Awards (the "Available Amount"),
equals or exceeds $5,000,000, the Company will elect to either (a) apply or
cause to be applied the Available Amount to a Permitted Related Acquisition or
the commencement thereof (provided that such project is completed within a
reasonable time of the commencement thereof), (b) make an offer to purchase
First Mortgage Notes (an "Asset Sale Offer") from all Holders up to an amount
equal to the Available Amount (rounded to the next lowest multiple of $1,000)
at a purchase price equal to 100% of the principal amount thereof plus accrued
interest thereon, if any, to the date of purchase or (c) any combination of
clauses (a) and (b) above; provided, that (i) property acquired at any time as
a Permitted Related Acquisition that has been acquired with Collateral
Proceeds shall be subject to a first priority Lien in favor of the Collateral
Agent for the benefit of the Trustee and the Holders; (ii) pending application
to a Permitted Related Acquisition or an Asset Sale Offer, the Collateral
Proceeds, together with all Condemnation Proceeds and Net Insurance Awards
received
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by the Collateral Agent, will be retained by the Collateral Agent in the
Collateral Account; and (iii) notwithstanding the foregoing, the Company and
its Subsidiaries, in the aggregate, shall be permitted to retain $1,000,000 of
Net Cash Proceeds from Asset Sales. To the extent that Holders do not subscribe
to an Asset Sale Offer, the Company may retain the unutilized Available Amount
free of the Lien of the Security Documents. The Company and its Subsidiaries
collectively may retain the Net Cash Proceeds from the sale of Obsolete Assets
in an aggregate amount not to exceed $1,000,000 in any year.
Each Asset Sale Offer will be mailed to the Holders not more than 195 days
after the Available Amount equals or exceeds $5,000,000, with a copy to the
Trustee, will specify the purchase date (which will be no earlier than 30 days
nor more than 60 days from the date such notice is mailed) and will otherwise
comply with the procedures set forth in the Indenture and the Security
Documents. The Company will comply, to the extent applicable, with the
requirements of Section 14(e) under the Exchange Act and any other securities
laws or regulations in connection with the purchase of the First Mortgage Notes
pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this covenant, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under this covenant by
virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create, assume or
otherwise cause or suffer to exist or enter into any agreement with any Person
that would cause any consensual encumbrance or restriction of any kind on the
ability of any such Subsidiary to (a) pay dividends, in cash or otherwise, or
make any other distributions on its Capital Stock; (b) make payments in respect
of any Indebtedness owed to the Company or any of the Company's Subsidiaries;
(c) make loans or advances to the Company or any of the Company's Subsidiaries;
or (d) transfer any of its assets to the Company or any of the Company's
Subsidiaries, other than by reason of (i) the First Mortgage Notes, the
Indenture and the Security Documents; (ii) restrictions existing under
agreements in effect on the Issue Date, including, without limitation,
restrictions under the Credit Facility as in effect on the Issue Date; (iii)
consensual encumbrances or restrictions binding upon any Person at the time
such Person becomes a Subsidiary of the Company so long as such encumbrances or
restrictions are not created, incurred or assumed in contemplation of such
Person becoming a Subsidiary of the Company; (iv) restrictions existing under
any agreement which refinances or replaces any of the agreements containing the
restrictions in (ii) or (iii); provided, that the terms and conditions of any
such restrictions are not materially less favorable to the Company or such
Subsidiary than those under the agreement evidencing the refinanced
Indebtedness; (v) customary non-assignment or sublease provisions of any lease
governing a leasehold interest of the Company or any of its Subsidiaries; (vi)
customary restrictions relating to assets acquired with the proceeds of a
purchase money obligation; (vii) customary non-assignment provisions
restricting subletting or assignment of any lease or assignment entered into by
a Subsidiary; and (viii) any restrictions with respect to a Subsidiary of the
Company imposed pursuant to an agreement which has been entered into for the
sale or disposition of all or substantially all of the Capital Stock or assets
of such Subsidiary.
Merger and Consolidation. The Indenture provides that the Company may not
consolidate with or merge into any other Person or convey, sell, assign,
transfer or lease all or substantially all of its properties and assets
(determined on a consolidated basis for the Company and its Subsidiaries taken
as a whole) in one transaction or a series of transactions to any other Person
or Persons, or permit any Person to consolidate with or merge into the Company,
or convey, sell, assign, transfer or lease all or substantially all of such
Person's properties and assets in one transaction or a series of transactions
to the Company, unless: (i) such Person is a solvent corporation, partnership
or trust organized under the laws of the United States, one of the States
thereof or the District of Columbia; (ii) the resulting, surviving or
transferee corporation, partnership or trust (if other than the Company)
assumes by a supplemental indenture executed and delivered to the Trustee, in
form satisfactory to the Trustee, all of the Company's obligations under the
First Mortgage Notes, the Indenture and the Security Documents; (iii)
immediately before and after giving effect to such transaction or series of
transactions, no Default or Event of Default shall have occurred and be
continuing;
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(iv) immediately after giving effect to such transaction or series of
transactions (including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of the transaction
or series of transactions), the Company, or the successor or transferee
corporation, would be permitted to incur an additional $1.00 of Indebtedness
pursuant to the Indenture; (v) the Person formed by or surviving any such
consolidation or merger (if other than the Company), or the Person to whom such
sale or conveyance shall have been made, shall have a Consolidated Net Worth
immediately after the transaction or series of transactions (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of the transaction or series of transactions)
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction; and (vi) the Company or the surviving entity shall
have delivered to the Trustee an Officer's Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, conveyance, sale,
transfer or lease and, if a supplemental indenture has been executed in
connection with such transaction or series of transactions, such supplemental
indenture complies with this covenant and that all conditions precedent in the
Indenture relating to the transaction or series of transactions have been
satisfied. Notwithstanding the foregoing, clause (iv) of the preceding sentence
shall not prohibit a transaction, the principal purpose of which is (as
determined in good faith by the Board of Directors of the Company and evidenced
by the resolution or resolutions thereof) to change the state of incorporation
of the Company, and such transaction does not have as one of its purposes the
evasion of the limitation on merger, consolidations and sales of assets.
Nothing contained in this section should be deemed to prevent the Company or
any Subsidiary from granting a security interest in, or a mortgage or Lien
upon, or otherwise encumbering, any of its assets, subject to the limitations
on Liens set forth in the Indenture. Notwithstanding the foregoing, the Company
and its Recourse Subsidiaries may not consolidate with or merge into a Non-
Recourse Subsidiary or convey, sell, assign, transfer or lease all or
substantially all of their properties and assets (determined, with respect to
the Company, on a consolidated basis for the Company and its Subsidiaries taken
as a whole) in one transaction or a series of transactions to any Non-Recourse
Subsidiary, or permit any Non-Recourse Subsidiary to consolidate with or merge
into the Company or any of its Recourse Subsidiaries or convey, sell, assign,
transfer or lease all or substantially all of such Non-Recourse Subsidiary's
properties and assets in one transaction or a series of transactions to the
Company or any of its Recourse Subsidiaries.
Limitation on Sale and Leaseback Transactions. The Indenture provides that
the Company will not, and will not permit any of its Subsidiaries to, enter
into, directly or indirectly, any Sale and Leaseback Transaction, with respect
to any real or tangible personal property, other than (i) a Sale and Leaseback
Transaction entered into between the Company and any of its Wholly-Owned
Recourse Subsidiaries or between Wholly-Owned Recourse Subsidiaries of the
Company, as the case may be; and (ii) Capitalized Lease Obligations permitted
to be incurred by the Company or any of its Subsidiaries pursuant to the
limitations on Indebtedness set forth in the Indenture.
Limitations on Investments, Loans and Advances. The Indenture provides that
the Company will not, and will not permit any of its Subsidiaries to, make any
advances or loans to, or Investments (by way of
transfers of property, contributions to capital, acquisitions of stock,
securities or evidences of indebtedness, or otherwise) in any other Person,
except (i) the Company may make advances and loans to, and Investments in, any
Wholly-Owned Recourse Subsidiary and any Subsidiary may make advances or loans
to, and Investments in, the Company or any Wholly-Owned Recourse Subsidiary of
the Company; (ii) the Company and its Subsidiaries may acquire and hold cash
and Cash Equivalents; (iii) the Company and its Subsidiaries may make advances
and loans to officers and employees in the ordinary course of business not to
exceed $50,000 to any one officer or employee or $100,000 in the aggregate at
any one time outstanding; (iv) the Company and its Subsidiaries may make
payroll advances in the ordinary course of business; (v) the Company may make
advances or loans in connection with Currency Agreements provided such
agreements are made in the ordinary course of business; (vi) the Company may
make advances or loans in connection with Interest Rate Agreements provided
such agreements are made in the ordinary course of business; (vii) the Company
and its Subsidiaries may make loans to, or Investments in, any Person,
including Non-Recourse Subsidiaries, not to exceed at any time outstanding an
aggregate amount equal to $250,000 with respect to loans to, and
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Investments in, all such Persons (the value of any such loans and Investments
shall be the original cost less the amount returned in cash); (viii) the
Company and its Subsidiaries may make Investments in exchange for assets sold
or otherwise disposed of in accordance with the provisions described under "--
Restrictions on Asset Sales"; (ix) the Company and its Subsidiaries may make
Investments in the form of advances, extensions of credit, progress payments
and prepayments for asset purchases by it in the ordinary course of business;
and (x) accounts receivable arising and trade credit granted in the ordinary
course of business and any securities received in satisfaction or partial
satisfaction thereof from financially troubled account debtors to the extent
reasonably necessary in order to prevent or limit loss.
Limitations as to Non-Recourse Subsidiaries. The Indenture provides that the
Company will not permit any Non-Recourse Subsidiary to create, assume, incur,
guarantee or otherwise become liable in respect of any Indebtedness unless the
lender in respect thereof has effectively waived all claims and/or recourse on
or in respect of such Indebtedness against the Company or any other Subsidiary
of the Company, including, without limitation, a waiver by such lender of the
benefits of the provisions of Section 1111(b) of the Bankruptcy Code, and the
Company has delivered to the Trustee an Opinion of Counsel (by a law firm of
national repute) and a Board Resolution confirming the foregoing, in each case
in form and substance satisfactory to the Trustee. Neither the Company nor any
of its Subsidiaries (other than Non-Recourse Subsidiaries) will sell, lease,
convey or otherwise transfer to any Non-Recourse Subsidiary any asset which is
essential to the steelmaking operations of the Company or its Subsidiaries
(other than Non-Recourse Subsidiaries). The Company will not permit any Non-
Recourse Subsidiary to acquire any such essential asset, and the Company and
its Subsidiaries will not purchase any Non-Recourse Subsidiary, unless in the
judgment of the Board of Directors of the Company the creation and operation of
the Non-Recourse Subsidiary and its acquisition of such assets are neither
intended nor reasonably expected to adversely affect the financial condition,
business, prospects or operations of the Company and its Subsidiaries (other
than Non-Recourse Subsidiaries).
Impairment of Security Interest. The Indenture provides that the Company will
not, and will not permit any of its Subsidiaries to, take or omit to take any
action, which action or omission might or would have the result of affecting or
impairing the security interest in favor of the Collateral Agent, on behalf of
the Trustee and the Holders with respect to the Collateral, and the Company
shall not grant to any Person (other than the Collateral Agent on behalf of the
Trustee and the Holders) any interest whatsoever in the Collateral, except, in
either case, as expressly permitted by the Indenture and the Security
Documents.
Conflicting Agreements. The Indenture provides that the Company will not, and
will not permit any of its Subsidiaries to, enter into any agreement or
instrument that by its terms expressly (i) prohibits the Company from redeeming
or otherwise making any payments on or in respect of the First Mortgage Notes
in accordance with the terms thereof and of the Indenture, as in effect from
time to time, or (ii) requires that the proceeds received from the sale of any
Collateral be applied to repay, redeem or otherwise retire any Indebtedness of
any Person other than the Indebtedness represented by the First Mortgage Notes,
except as expressly permitted by the Indenture or the Security Documents.
Amendment to Security Documents. The Indenture provides that the Company will
not, and will not permit any of its other Subsidiaries to, amend, modify or
supplement, or permit or consent to any amendment, modification or supplement
of, any of the Security Documents in any way which would be adverse to the
Holders or which would constitute a Default under the Indenture or a default
under any Security Document.
EVENTS OF DEFAULT
The following events will be defined in the Indenture as "Events of Default":
(i) the Company defaults in the payment of interest on any First Mortgage
Note when due and payable and such default in the payment of interest
continues for a period of 30 days;
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(ii) the Company defaults in the payment of the principal, or premium, if
any, of any First Mortgage Note when due and payable at maturity, upon
acceleration, redemption, pursuant to an offer to purchase required under
the Indenture or otherwise (including failure to make payment pursuant to a
Change of Control Offer or Asset Sale Offer);
(iii) the Company fails to comply with any of its covenants or agreements
described under "--Certain Covenants--Restrictions on Asset Sales" or "--
Change of Control," and such failure continues for a period of five days;
(iv) the Company fails to observe or perform any covenant, condition or
agreement in the First Mortgage Notes, the Indenture or the Security
Documents (other than as described in clause (i), (ii) or (iii)) and such
failure to observe or perform continues for a period of 30 days after there
has been given to the Company by the Trustee, or has been received by the
Company and the Trustee from the Holders of at least 25% of the principal
amount of the First Mortgage Notes then outstanding, a written notice
specifying such default, demanding that it be remedied and stating that the
notice is a "Notice of Default", unless, with respect to defaults under the
Security Documents, the remedy or cure of such default requires work to be
performed, acts to be done or conditions to be removed which cannot, by
their nature, reasonably be performed, done or removed within such 30-day
period, or if such remedy or cure is prevented by causes outside of the
control or responsibility of the Company, in which case no "Event of
Default" shall be deemed until the date that is 90 days after such written
notice so long as the Company shall have commenced cure within such 90-day
period and shall diligently prosecute the same to completion;
(v) a default in the payment of principal at final maturity under any
mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness of the Company or
any of its Recourse Subsidiaries (or the payment of which is guaranteed now
or hereafter by the Company or any of its Subsidiaries), whether such
Indebtedness or Guarantee now exists or shall be created hereafter, in a
principal amount of at least $1,000,000;
(vi) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness (including any interest thereon) of the Company or its
Recourse Subsidiaries (or the payment of which is guaranteed now or
hereafter by the Company or any of its Subsidiaries), whether such
Indebtedness or Guarantee now exists or shall be created hereafter, if (i)
as a result of such event of default the maturity of such Indebtedness has
been accelerated prior to its stated maturity and (ii) the principal amount
of such Indebtedness, together with the principal amount of any other
Indebtedness of the Company and its Subsidiaries the maturity of which has
been so accelerated, aggregates $1,000,000 or more;
(vii) the Company or any Subsidiary (other than a Non-Recourse
Subsidiary, unless such action or proceeding adversely affects the
interests of the Company or any Recourse Subsidiary) pursuant to or within
the meaning of any Bankruptcy Law: (a) commences a voluntary case or
proceeding; (b) consents to the entry of an order for relief against it in
an involuntary case or proceeding; (c) consents to the appointment of a
Custodian of it or for all or substantially all of its property; (d) makes
a general assignment for the benefit of its creditors; or (e) admits in
writing its inability to pay its debts as the same become due;
(viii) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that: (a) is for relief against the Company or any
Subsidiary in an involuntary case; (b) appoints a Custodian of the Company
or any Subsidiary for all or substantially all of its property; or (c)
orders the liquidation of the Company or any Subsidiary; provided, that
clauses (a), (b) and (c) shall not apply to a Non-Recourse Subsidiary,
unless such action or proceeding adversely affects the interests of the
Company or any Recourse Subsidiary and in any such case the order or decree
remains unstayed and in effect for 60 days;
(ix) the Company or any Subsidiary shall fail to discharge any one or
more judgments not covered by insurance (from which no further appeal may
be taken) in excess of $1,500,000, and such judgments shall remain in
force, undischarged, unsatisfied, unstayed and unbonded for more than 30
days; or
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(x) the Security Documents shall cease, for any reason, to be in full
force and effect or shall cease to be effective to grant a perfected Lien
on the Collateral with the priority purported to be created thereby.
If an Event of Default (other than an Event of Default specified in
subparagraph (vii) or (viii) set forth above) occurs and is continuing, the
Trustee or the Holders of at least 25% of the principal amount of the First
Mortgage Notes then outstanding by notice to the Company (and to the Trustee if
such notice is given by the Holders) may declare the principal amount and
accrued interest on the First Mortgage Notes to be immediately due and payable.
If an Event of Default specified in section (vii) or (viii) above occurs, the
principal amount and accrued interest shall ipso facto become and be
immediately due and payable on all outstanding First Mortgage Notes without any
declaration or other act on the part of the Trustee or any Holder. The Holders
of a majority in principal amount of the then outstanding First Mortgage Notes
by notice to the Company and the Trustee may rescind an acceleration and its
consequences if all existing Events of Default, other than the nonpayment of
the principal of the First Mortgage Notes which have become due solely by such
declaration of acceleration, have been cured or waived. The Holders of a
majority in principal amount of the outstanding First Mortgage Notes also have
the right to waive certain past defaults under the Indenture except a default
in the payment of the principal of, premium, if any, or interest on any First
Mortgage Note, or in respect of a covenant or a provision which cannot be
modified or amended without the consent of all Holders.
No Holder has the right to institute any proceeding with respect to the
Indenture, the Security Documents or any remedy thereunder, unless the Holders
of at least 25% in principal amount of the outstanding First Mortgage Notes
have made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as Trustee, the Trustee has failed to institute such
proceeding within 15 days after receipt of such notice, and the Trustee has not
within such 15-day period received directions inconsistent with such written
request by Holders of a majority in principal amount of the outstanding First
Mortgage Notes^. Such limitations do not apply, however, to suits instituted by
a Holder for the enforcement of the payment of the principal of, premium, if
any, or interest on such First Mortgage Note on or after the respective due
dates expressed in such First Mortgage Note.
The Holders of a majority in principal amount of the outstanding First
Mortgage Notes will have the right, subject to certain limitations, to direct
the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee. The Indenture will provide that in case an Event of Default shall
occur and be continuing, the Trustee will exercise such of its rights and
powers under the Indenture, and use the same degree of care and skill in their
exercise, as a prudent Person would exercise or use under the circumstances in
the conduct of his or her own affairs. Subject to certain provisions of the
Indenture, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the Holders
unless they have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
compliance with such request. The Trustee may withhold from Holders notice of
any continuing default (except a default in payment) if it determines in good
faith that the withholding of such notice is in the interest of such Holders.
Under the Indenture, the Company will be required to furnish to the Trustee
annually (i) a statement by certain officers of the Company to the effect that
to the best of their knowledge the Company is not in default in the fulfillment
of any of its obligations under such Indenture or, if there has been such
default, specifying each such default and (ii) an Opinion of Counsel either
stating that action has been taken with respect to the filing, refiling,
recording or re-recording of the Indenture as is necessary to maintain the Lien
of the Indenture or that no such action is necessary to maintain such Lien.
MODIFICATION OF THE INDENTURE
From time to time, the Company, when authorized by resolutions of its Board
of Directors, and the Trustee and the Collateral Agent (if a party thereto) may
amend, waive or supplement the Indenture, the
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Security Documents or the First Mortgage Notes for certain specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies,
maintaining the qualification of the Indenture under the TIA, making any change
that does not adversely affect the rights of any Holder or mortgaging, pledging
or granting a security interest in favor of the Collateral Agent as additional
security for the payment and performance of the obligations under the
Indenture, in any property or assets, including any which are required to be
mortgaged, pledged or hypothecated, or in which a security interest is required
to be granted, to the Collateral Agent pursuant to any Security Document or
otherwise; provided, that the Company delivers to the Trustee an Opinion of
Counsel stating that such change does not adversely affect the rights of any
Holder. Other amendments and modifications of the Indenture, the First Mortgage
Notes or the Security Documents may be made by the Company, the Collateral
Agent (if a party thereto) and the Trustee with the consent of the Holders of
not less than a majority of the aggregate principal amount of the outstanding
First Mortgage Notes; provided, that no such modification or amendment may,
without the consent of the Holder of each outstanding First Mortgage Note
affected thereby, (i) reduce the principal amount of, extend the final maturity
of or alter the redemption provisions of, the First Mortgage Notes, (ii) change
the currency in which any First Mortgage Notes or any premium thereon is
payable, (iii) reduce the percentage in principal amount of outstanding First
Mortgage Notes that must consent to an amendment, supplement or waiver or
consent to take any action under the Indenture, the First Mortgage Notes or the
Security Documents, (iv) impair the right to institute suit for the enforcement
of any payment on or with respect to the First Mortgage Notes, (v) waive a
default in payment with respect to the First Mortgage Notes, (vi) reduce or
change the rate or time for payment of interest on the First Mortgage Notes, or
(vii) affect the ranking or security of the First Mortgage Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company at any time may terminate (i) all its obligations under the First
Mortgage Notes, the Indenture and the Security Documents ("legal defeasance
option") or (ii) its obligations to comply with certain restrictive covenants,
including certain of the covenants described under "--Certain Covenants" above
("covenant defeasance option"). The Company may exercise its legal defeasance
option notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the First
Mortgage Notes may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Notes may not
be accelerated because of certain Events of Default described under "Events of
Default" above (not including Events of Default relating to non-payment,
bankruptcy and insolvency events, among others) or because of the failure of
the Company to comply with certain covenants specified in the Indenture.
The Company may exercise its legal defeasance option or its covenant
defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money or
U.S. Government Obligations for the payment of principal and interest on
the First Mortgage Notes to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certain certificate from a
nationally recognized firm of independent certified public accountants
expressing their opinion that the payments of principal and interest when
due and without reinvestment on the deposited U.S. Government Obligations
plus any deposited money without investment will provide cash at such times
and in such amounts as will be sufficient to pay principal and interest
when due on all the First Mortgage Notes to maturity or redemption, as the
case may be;
(3) 123 days pass after the deposit is made and during the 123-day period
no Default relating to bankruptcy and insolvency events with respect to the
Company occurs which is continuing at the end of the period;
(4) no Default has occurred and is continuing on the date of such deposit
and after giving effect thereto;
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(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that (i) the trust resulting from the deposit does not constitute,
or is qualified as, a regulated investment company under the Investment
Company Act of 1940, (ii) the Holders have a valid first priority perfected
security interest in the trust funds, and (iii) after passage of 123 days
following the deposit (except, with respect to any trust funds for the
account of any Holder who may be deemed to be an "insider" for purposes of
the Bankruptcy Code, after one year following the deposit), the trust funds
will not be subject to the effect of Section 547 of the Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law in a case commenced by
or against the Company under either such statute, and either (A) the trust
funds will no longer remain the property of the Company (and therefore,
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally) or
(B) if a court were to rule under any such law in any case or proceeding
that the trust funds remained property of the Company, (x) assuming such
trust funds remained in the possession of the Trustee prior to such court
ruling to the extent not paid to Holders, the Trustee will hold, for the
benefit of the Holders, a valid first priority perfected security interest
in such trust funds that is not avoidable in bankruptcy or otherwise except
for the effect of Section 552(b) of the Bankruptcy Code on interest on the
trust funds accruing after the commencement of a case under such statute
and (y) the Holders will be entitled to receive adequate protection of
their interests in such trust funds if such trust funds are used in such
case or proceeding;
(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of the Indenture there has been a
change in the applicable U.S. Federal income tax law or a regulation
clarifying existing law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders will not
recognize income, gain or loss for U.S. Federal income tax purposes as a
result of such defeasance and will be subject to U.S. Federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the
Holders will not recognize income, gain or loss for U.S. Federal income tax
purposes as a result of such covenant defeasance and will be subject to
U.S. Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred; and
(8) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the First Mortgage Notes have
been complied with.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will cease to be of further effect (except as to the surviving
rights of registration of transfer or exchange of First Mortgage Notes, as
expressly provided for in the Indenture, and as otherwise expressly provided
for in the Indenture) when either (i) all such First Mortgage Notes theretofore
authenticated and issued have been delivered (except lost, stolen or destroyed
First Mortgage Notes which have been replaced or paid, or First Mortgage Notes
for whose payment money has been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Trustee or discharged from
such trust) to the Trustee for cancellation or (ii) all such First Mortgage
Notes not theretofore delivered to the Trustee for cancellation have become due
and payable or will become due and payable within one year and the Company has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay at maturity or redemption the entire indebtedness on
such First Mortgage Notes not theretofore delivered to the Trustee for
cancellation, including interest thereon, and the Company has paid all sums
payable by it under the Indenture. The Trustee is required to acknowledge
satisfaction and discharge of the Indenture on demand of the Company
accompanied by an Officers' Certificate and an Opinion of Counsel and at the
cost and expense of the Company.
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BOOK-ENTRY, DELIVERY AND FORM
Upon issuance, the First Mortgage Notes will be represented by a permanent
global First Mortgage Note or First Mortgage Notes. Each permanent global First
Mortgage Note will be deposited with, or on behalf of, the Depositary and
registered in the name of a nominee of the Depositary. Except under the limited
circumstances described below, permanent global First Mortgage Notes will not
be exchangeable for definitive certificated First Mortgage Notes.
Ownership of beneficial interests in a permanent global First Mortgage Note
will be limited to institutions that have accounts with the Depositary or its
nominee ("participants") or persons that may hold interests through
participants. In addition, ownership of beneficial interests by participants in
such permanent global First Mortgage Note will be evidenced only by, and the
transfer of that ownership interest will be effected only through, records
maintained by the Depositary or its nominee for such permanent global First
Mortgage Note. Ownership of beneficial interests in such permanent global First
Mortgage Note by persons that hold through participants will be evidenced only
by, and the transfer of that ownership interest within such participant will be
effected only through, records maintained by such participant. The Depositary
has no knowledge of the actual beneficial owners of the First Mortgage Notes.
Beneficial owners will not receive written confirmation from the Depositary of
their purchase, but beneficial owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the participants through which the
beneficial owners entered the transaction. The laws of some jurisdictions
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such laws may impair the ability to transfer
beneficial interests in such permanent global First Mortgage Note.
The Company has been advised by the Depositary that upon the issuance of a
permanent global First Mortgage Note and the deposit of such permanent global
First Mortgage Note with the Depositary, the Depositary will immediately
credit, on its book-entry registration and transfer system, the respective
principal amounts represented by such permanent global First Mortgage Note to
the accounts of such participants.
Payment of principal of, and interest on, First Mortgage Notes represented by
a permanent global First Mortgage Note registered in the name of or held by the
Depositary or its nominee will be made to the Depositary or its nominee, as the
case may be, as the registered owner and holder of the permanent global First
Mortgage Note representing such First Mortgage Notes. The Company has been
advised by the Depositary that upon receipt of any payment of principal of, or
interest on, a permanent global First Mortgage Note, the Depositary will
immediately credit, on its book-entry registration and transfer system,
accounts of participants with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such permanent
global First Mortgage Note as shown in the records of the Depositary. Payments
by participants to owners of beneficial interests in a permanent global First
Mortgage Note held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name,"
and will be the sole responsibility of such participants, subject to any
statutory or regulatory requirements as may be in effect from time to time.
None of the Company, the Trustee or any other agent of the Company or the
Trustee will have any responsibility or liability for any aspect of the records
of the Depositary, any nominee or any participant relating to, or payments made
on account of, beneficial interests in a permanent global First Mortgage Note
or for maintaining, supervising or reviewing any of the records of the
Depositary, any nominee or any participant relating to such beneficial
interests.
A permanent global First Mortgage Note is exchangeable for definitive First
Mortgage Notes registered in the name of, and a transfer of a permanent global
First Mortgage Note may be registered to, any person other than the Depositary
or its nominee, only if:
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(a) the Depositary notifies the Company that it is unwilling or unable to
continue as Depositary for such permanent global First Mortgage Note or if
at any time the Depositary ceases to be a clearing agency registered under
the Exchange Act;
(b) the Company in its sole discretion determines that such permanent
global First Mortgage Note shall be exchangeable for definitive First
Mortgage Notes in registered form; or
(c) there shall have occurred and be continuing an Event of Default under
the First Mortgage Notes.
Any permanent global First Mortgage Note that is exchangeable pursuant to the
preceding sentence will be exchangeable in whole for definitive First Mortgage
Notes in registered form, of like tenor and of an equal aggregate principal
amount as the permanent global First Mortgage Note, in denominations of $1,000
and integral multiples thereof. Such definitive First Mortgage Notes will be
registered in the name or names of such persons as the Depositary shall
instruct the Trustee. It is expected that such instructions may be based upon
directions received by the Depositary from its participants with respect to
ownership of beneficial interests in such permanent global First Mortgage Note.
With respect to definitive First Mortgage Notes, any principal and interest
will be payable, the transfer of the definitive First Mortgage Notes will be
registerable and the definitive First Mortgage Notes will be exchangeable at
the office of the Trustee in New Orleans, Louisiana, provided that payment of
interest may be made at the option of the Company by check mailed to the
address of the person entitled thereto and as shown on the register for the
First Mortgage Notes.
Except as provided above, owners of beneficial interests in such permanent
global First Mortgage Note will not be entitled to receive physical delivery of
First Mortgage Notes in definitive form and will not be considered the holders
thereof for any purpose under the Indenture, and no permanent global First
Mortgage Note shall be exchangeable except for another permanent global First
Mortgage Note of like denomination and tenor to be registered in the name of
the Depositary or its nominee. Accordingly, each person owning a beneficial
interest in such permanent global First Mortgage Note must rely on the
procedures of the Depositary and, if such person is not a participant, on the
procedures of the participant through which such person owns its interest, to
exercise any rights of a Holder under the permanent global First Mortgage Note.
The Company understands that, under existing industry practices, in the event
that the Company requests any action of Holders, or an owner of a beneficial
interest in such permanent global First Mortgage Note desires to give or take
any action that a Holder is entitled to give or take under the First Mortgage
Notes, the Depositary would authorize the participants holding the relevant
beneficial interests to give or take such action, and such participants would
authorize beneficial owners owning through such participants to give or take
such action or would otherwise act upon the instructions of beneficial owners
owning through them.
The Depositary has advised the Company that the Depositary is a limited
purpose trust company organized under the laws of the State of New York, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency" registered under
the Exchange Act. The Depositary was created to hold securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic book-
entry changes in accounts of the participants, thereby eliminating the need for
physical movement of securities certificates. The Depositary's participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. The Depositary is owned by a
number of its participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the Depositary's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly. The rules applicable to the Depositary and its participants are on
file with the Commission.
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SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the First Mortgage Notes will be made in immediately available
funds. So long as the First Mortgage Notes are represented by a permanent
global First Mortgage Note or Notes, all payments of principal, premium, if
any, and interest will be made by the Company in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. So long as the First
Mortgage Notes are represented by a permanent global First Mortgage Note or
Notes registered in the name of the Depositary or its nominee, the First
Mortgage Notes will trade in the Depositary's Same-Day Funds Settlement System,
and secondary market trading activity in the First Mortgage Notes will
therefore be required by the Depositary to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on the trading activity in the First Mortgage
Notes.
REGARDING THE TRUSTEE AND THE COLLATERAL AGENT
First National Bank of Commerce will serve as Trustee under the Indenture and
will act as Collateral Agent under the Security Documents.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
Directors, officers, employees or stockholders of the Company will not have
any liability for any obligations of the Company under the First Mortgage
Notes, the Indenture or the Security Documents or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder,
by accepting a First Mortgage Note, waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the First
Mortgage Notes.
REPORTS
The Company will furnish the Trustee with copies of all quarterly and annual
reports, and any other documents it is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act, within five days after it
files the same with the Commission.
GOVERNING LAW
The Indenture, the Security Documents and the First Mortgage Notes shall be
governed by, and construed in accordance with, the laws of the State of New
York.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Affiliate" means, with respect to any specific Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specific Person. For the purposes of this definition,
"control," as used with respect to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of such Person whether through the ownership of voting securities,
or by agreement or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Appraiser" means a Person who in the course of its business appraises
property and, where real property is involved, who is a member in good standing
of the American Institute of Real Estate Appraisers, recognized and licensed to
do business in the jurisdiction where the applicable real property is situated,
and who may be employed by the Company.
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"Asset Acquisition" means (i) any capital contribution (by means of transfer
of cash or other property to others or payments for property or services for
the account or use of others, or otherwise), or purchase or acquisition of
Capital Stock by the Company or any of its Subsidiaries in any other Person, in
either case pursuant to which such Person shall become a Subsidiary of the
Company or any of its Subsidiaries or shall be merged with or into the Company
or any of its Subsidiaries or (ii) any acquisition by the Company or any of its
Subsidiaries of the assets of any Person which constitute substantially all of
an operating unit or business of such Person.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
or other disposition to any Person (including any Non-Recourse Subsidiary)
other than the Company or a Wholly-Owned Subsidiary of the Company, in one
transaction or a series of related transactions, of (i) any Capital Stock of
any Subsidiary of the Company or (ii) any other property or asset of the
Company or any Subsidiary of the Company, in each case, other than in the
ordinary course of business.
"Bankruptcy Law" means Title 11, United States Code or any similar Federal or
state law for the relief of debtors, as amended.
"Board Resolution" means a copy of a resolution certified by the Secretary or
an Assistant Secretary of the Company or its Subsidiaries, as the case may be,
to have been duly adopted by the Board of Directors of the Company or its
Subsidiaries, as the case may be, and to be in full force and effect on the
date of such certification, and delivered to the Trustee.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, warrants, options or other equivalents (however
designated and whether voting or non-voting) of capital stock of a corporation
and any and all equivalent ownership interests in a Person (other than a
corporation), in each case whether outstanding on the Issue Date or thereafter
issued, including, without limitation, all common stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) the discounted present value of the
rental obligations of such Person as lessee under which, in conformity with
GAAP, is required to be capitalized on the balance sheet of that Person.
"Capitalized Lease Obligation" means the discounted present value of the
rental obligations of any Person under any Capitalized Lease.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with
a maturity of 365 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality
thereof (provided that the full faith and credit of the United States of
America is pledged in support thereof); (ii) certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $250,000,000; (iii) commercial
paper with a maturity of 180 days or less issued by a corporation (except an
Affiliate of the Company) organized under the laws of any state of the United
States or the District of Columbia and rated at least A-1 by Standard & Poor's
Corporation or at least P-1 by Moody's Investors Service, Inc.
"Change of Control" means the occurrence of one or more of the following
events:
(a) the direct or indirect sale, lease, exchange or other transfer of all
or substantially all of the assets of the Company to any Person or entity
or group of Persons or entities acting in concert as a partnership or other
group (a "Group of Persons") other than an Affiliate of the Company;
(b) the consummation of any consolidation or merger of the Company with
or into another corporation with the effect that the stockholders of the
Company as of the date of the Indenture hold less than 51% of the combined
voting power of the outstanding voting securities of the surviving entity
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of such merger or the corporation resulting from such consolidation
ordinarily having the right to vote in the election of directors (apart
from rights accruing under special circumstances) immediately after such
merger or consolidation;
(c) the stockholders of the Company shall approve any plan or proposal
for the liquidation or dissolution of the Company; and
(d) a Person or Group of Persons (other than management of the Company
and their respective Affiliates) shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases or otherwise,
have become the direct or indirect beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of securities of the Company
representing a majority of the combined voting power of the then
outstanding securities of the Company ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the
election of directors.
For purposes of this definition, the following shall not be considered a
Change of Control:
(i) Transfers among (A) Meyers; (B) any son, daughter, stepson,
stepdaughter or spouse of Meyers; (C) any lineal descendant of an
individual referred to in clause (A) or (B); and (D) any trust in which one
or more of the Persons referred to in clause (A), (B) or (C) are principal
beneficiaries; or
(ii) A merger resulting in the proportionate interest of the Class B
Common Stock held by BSPL being held by BSPL's shareholders, provided such
transaction shall have no adverse effect on the Company.
"Collateral" means, collectively, all of the property and assets (including,
without limitation, Trust Moneys) that are from time to time subject to the
Lien of the Security Documents.
"Collateral Account" means the collateral account to be established pursuant
to the Indenture.
"Collateral Proceeds" means the Net Cash Proceeds received by the Collateral
Agent from the sale of Collateral.
"Company Order" means a written request or order signed in the name of the
Company by its Chairman of the Board, its Vice Chairman of the Board, its
President or a Vice President, and by its Treasurer, an Assistant Treasurer,
its Secretary or an Assistant Secretary, and delivered to the Trustee.
"Condemnation Award" means any proceeds, award or payment paid to the
mortgagee or beneficiary under the Mortgages relating to any taking of the
Collateral subject to such Mortgage by condemnation or eminent domain or
similar action, together with interest accrued thereon, less certain expenses.
"Consolidated Domestic Income Tax Expense" of any Person for any period
means, without duplication, the aggregate amount of net U.S. taxes based on
income or profits for such period of the operations of such Person and its
Consolidated Recourse Subsidiaries, determined in accordance with GAAP (to the
extent such income or profits were included in computing Consolidated Net
Income).
"Consolidated Interest Expense" of any Person for any period means the sum of
(a) the aggregate interest expense (including amortization of original issue
discount and non-cash interest payments or accruals) of such Person and its
Consolidated Recourse Subsidiaries for such period and (b) to the extent not
included in clause (a), all commissions, discounts and other fees and charges
owed with respect to letters of credit and banker's acceptance financing, the
net cost associated with Interest Rate Agreements and Currency Agreements,
amortization of other financing fees and expenses and the interest portion of
any deferred payment obligation.
"Consolidated Interest Income" of any Person means all amounts that would be
included under interest income on a consolidated income statement of such
Person and its Consolidated Recourse Subsidiaries determined in accordance with
GAAP, less accreted amounts attributable to original issue discount securities
prior to the receipt thereof and other non-cash interest payments or accruals.
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"Consolidated Net Income" of any Person for any period means the Net Income
of such Person and its Consolidated Recourse Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP; provided, that
there shall be excluded (i) the Net Income of any Person (other than a
Consolidated Recourse Subsidiary) in which such Person or any of its
Consolidated Recourse Subsidiaries has a joint interest with a third party
except to the extent of the amount of dividends or distributions actually paid
to such Person or a Recourse Subsidiary during such period; (ii) except to the
extent includable pursuant to the foregoing clause (i), the Net Income of any
Person accrued prior to the date it becomes a Recourse Subsidiary of such
Person or is merged into or consolidated with such Person or any of its
Recourse Subsidiaries or that Person's assets are acquired by such Person or
any of its Recourse Subsidiaries; (iii) the Net Income (if positive), or any
portion thereof, of any Recourse Subsidiary of such Person to the extent that
the declaration or payment of dividends or similar distributions by that
Recourse Subsidiary to such Person or to any other Recourse Subsidiary of such
Net Income is not at the time permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Recourse Subsidiary; (iv) without
duplication, any gains or losses attributable to Asset Sales; (v) Net Income
(if positive), arising from the adoption of changes in accounting policy to
comply with GAAP or voluntarily by the Company with the consent of its
independent auditors that so qualify under Regulation S-X of the Securities
Act; (vi) Net Income arising in connection with a merger, combination or
consolidation that is accounted for as a pooling of interests; and (vii)
foreign currency translation gains and losses.
"Consolidated Net Worth" of any Person means as of any date all amounts that
would be included under stockholders' equity on a consolidated balance sheet of
such Person and its Consolidated Recourse Subsidiaries determined in accordance
with GAAP.
"Consolidated Recourse Subsidiary" of any Person means a Recourse Subsidiary
which for financial reporting purposes is or, in accordance with GAAP, should
be, accounted for by such Person as a consolidated Subsidiary.
"Credit Facility" means the Credit Agreement, dated June 28, 1989, as amended
and restated through November 23, 1993, among the Company, the Lenders named
therein and Chemical Bank, as agent and Lender, or any renewal, refinancing or
continuation thereof as each of the foregoing may be amended, supplemented or
otherwise modified from time to time.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values.
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"Default" means any event which is, or after the giving of notice or passage
of time or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder thereof, in whole or in part on, or prior to, the
final maturity date of the First Mortgage Notes.
"EBITDA" of any Person for any period means the sum of (a) Consolidated Net
Income of such Person; (b) Consolidated Domestic Income Tax Expense; (c)
Consolidated Interest Expense; and (d) depreciation and amortization expense
determined on a consolidated basis for such Person and its Consolidated
Recourse Subsidiaries in accordance with GAAP for such period; provided, that
the amounts set forth in clauses (b) through (d) will be included only to the
extent such amounts reduced Consolidated Net Income.
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"EBITDA Ratio" means the ratio, on a pro forma basis, of (a) EBITDA of any
Person for the Reference Period immediately prior to the date of the
transaction giving rise to the need to calculate the EBITDA Ratio (the
"Transaction Date") to (b) the Net Interest Expense of such Person during such
Reference Period; provided, that in making such computation, (i) the incurrence
of the Indebtedness giving rise to the need to calculate the EBITDA Ratio and
the application of the proceeds therefrom shall be assumed to have occurred on
the first day of the Reference Period; (ii) Asset Sales and Asset Acquisitions
which occur during the Reference Period or subsequent to the Reference Period
but prior to the incurrence of the Indebtedness in question (but including any
Asset Acquisition to be made with such Indebtedness) shall be assumed to occur
on the first day of the Reference Period; (iii) the issuance of any
Indebtedness during the Reference Period or subsequent to the Reference Period
but prior to the Transaction Date and the application of the proceeds therefrom
shall be assumed to have occurred on the first day of the Reference Period;
(iv) the Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being incurred) computed on a pro forma basis
and bearing a floating interest rate shall be computed as if the rate in effect
on the date of computation had been the applicable rate for the entire period,
unless such Person or any of its Recourse Subsidiaries is a party to an
Interest Rate Agreement which has the effect of reducing the interest rate
below the rate on the date of computation, in which case such lower rate shall
be used; and (v) there shall be excluded from Consolidated Interest Expense any
Consolidated Interest Expense related to any Indebtedness which was outstanding
during and subsequent to the Reference Period but is not outstanding on the
Transaction Date, except for Consolidated Interest Expense actually incurred
with respect to Indebtedness borrowed under a revolving credit or similar
arrangement to the extent the commitment thereunder remains in effect on the
Transaction Date. For the purposes of making the computation referred to in the
preceding sentence, Asset Sales and Asset Acquisitions which have been made by
any Person which has become a Recourse Subsidiary of the Company or been merged
with or into the Company or any Recourse Subsidiary of the Company during the
Reference Period or subsequent to the Reference Period and prior to the
Transaction Date shall be calculated on a pro forma basis (including all of the
calculations referred to in numbers (i) through (v) of the preceding sentence)
assuming such Asset Sales or Asset Acquisitions occurred on the first day of
the Reference Period.
"Financial Advisor" means an investment banking firm of national reputation
which (except as otherwise expressly provided in this Indenture) may be
employed by the Company.
"GAAP" means generally accepted accounting principles in the United States as
in effect from time to time, including, without limitation, those set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are applicable as of the
date of determination.
"Guarantee" means, as applied to any Indebtedness, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such Indebtedness, and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure the payment or
performance (or payment of damages in the event of nonperformance) of any part
or all of such Indebtedness, including, without limiting the foregoing, the
payment of amounts drawn under letters of credit. The amount of any Guarantee
shall be deemed to be an amount equal to the stated or determinable amount of
the primary obligation in respect of which such Guarantee is made (unless such
Guarantee shall be expressly limited to a lesser amount, in which case such
lesser amount shall apply) or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined by such
Person in good faith.
"Indebtedness" of any Person means at any date, without duplication, (a) all
obligations of such Person for borrowed money or evidenced by bonds,
debentures, notes or other similar instruments; (b) all obligations of such
Person in respect of letters of credit or other similar instruments (or
reimbursement obligations with
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respect thereto); (c) all obligations of such Person to pay the deferred
purchase price of property or services, except Trade Payables; (d) all
Capitalized Lease Obligations of such Person; (e) all Indebtedness of others
secured by a Lien on any asset of such Person, whether or not such Indebtedness
is assumed by such Person, provided that, for purposes of determining the
amount of any Indebtedness of the type described in this clause, if recourse
with respect to such Indebtedness is limited to such asset, the amount of such
Indebtedness shall be limited to the fair market value of the asset; (f) to the
extent not otherwise included, all obligations under Interest Rate Agreements
and Currency Agreements; (g) all Guarantees of such Person in respect of
Indebtedness of others; and (h) all Disqualified Stock issued by such Person
(the amount of Indebtedness represented by any Disqualified Stock will be the
greater of the voluntary or involuntary liquidation preference plus accrued and
unpaid dividends).
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future, interest rate option, interest rate swap, interest rate
cap or other interest rate hedge agreement, to or under which the Company or
any of its Subsidiaries is a party or a beneficiary on the date of the
Indenture or becomes a party or a beneficiary thereafter.
"Independent" when used with respect to any specified Person means such a
Person who (a) is in fact independent, (b) does not have any direct financial
interest or any material indirect financial interest in the Company or in any
other obligor in respect of the First Mortgage Notes or in any Affiliate of the
Company or such other obligor and (c) is not an officer, employee, promoter,
underwriter, trustee, partner, director or person performing similar functions
to any of the foregoing for the Company or such other obligor or any Affiliate
thereof. Whenever it is provided in the Indenture that any Independent Person's
opinion or certificate shall be furnished to the Trustee, such Person shall be
appointed by the Company and approved by the Trustee in the exercise of
reasonable care, and such opinion or certificate shall state that the signer
has read this definition and that the signer is Independent within the meaning
thereof.
"Investment" of any Person means all investments in other Persons in the form
of loans, advances or capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business), purchases (or other acquisitions for consideration) of Indebtedness,
Capital Stock or other securities issued by any other Person.
"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided,
that as to any such arrangement in corporate form, such corporation shall not,
as to any Person of which such corporation is a Subsidiary, be considered to be
a Joint Venture to which such Person is a party.
"Lenders" means the lenders who are from time to time parties to the Credit
Facility.
"Lien" means, with respect to any property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
property. For the purposes of the Indenture and the Security Documents, the
Company and its Subsidiaries shall be deemed to own subject to a Lien any
property which they have acquired or hold subject to the interest of a vendor
or lessor under any conditional sales agreement, capital lease or other title
retention agreement relating to such property.
"Meyers" means Howard M. Meyers, an individual with a business address on the
Issue Date at 1111 Mockingbird Lane, Dallas, Texas.
"Net Cash Proceeds" from a sale, transfer or other disposition of properties
or assets means cash payments received (including any cash payments received by
way of deferred payment of principal pursuant to a note or installment
receivable or otherwise, but only as and when received (including any cash
received upon sale or disposition of such note or receivable), excluding any
other consideration received in the form of assumption by the acquiring Person
of Indebtedness or other obligations relating to such properties or assets or
received in any other non-cash form) therefrom, in each case, net of all legal,
title and recording tax
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expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a
liability under GAAP as a consequence of such sale, transfer or other
disposition, and in each case net of appropriate amounts to be provided by the
Company or its Subsidiaries as a reserve, in accordance with GAAP, against any
liabilities associated with such assets and retained by the Company or any
Subsidiary after such sale, transfer or other disposition, including, without
limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters and the after-tax cost of any
indemnification payments (fixed and contingent) attributable to seller's
indemnities to the purchaser undertaken by the Company or any of its
Subsidiaries in connection with such sale, transfer or other disposition (but
excluding any payments, which by the terms of the indemnities will not, under
any circumstances, be made during the term of the First Mortgage Notes) and net
of all payments made on any Indebtedness which is secured by such assets, in
accordance with the terms of any Lien upon or with respect to such assets or
which must by its terms, or in order to obtain a necessary consent to such
asset disposition, or by applicable law be repaid out of the proceeds from such
sale, transfer or other disposition, and net of all distributions and other
payments made to minority interest holders in Subsidiaries or Joint Ventures as
a result of such sale, transfer or other disposition.
"Net Income" of any Person for any period means the net income (loss) of such
Person for such period, determined in accordance with GAAP, except that
extraordinary, unusual and non-recurring gains and losses as determined in
accordance with GAAP shall be excluded.
"Net Insurance Proceeds" means all proceeds paid to the Collateral Agent or
any mortgagee or beneficiary under the Security Documents relating to damage
to, or loss or destruction of, improvements on equipment constituting
Collateral, together with interest earned thereon, less certain expenses.
"Net Interest Expense" means the difference between Consolidated Interest
Expense and Consolidated Interest Income; provided, that such amount shall not
be less than zero.
"Non-Recourse Indebtedness" means Indebtedness of a Non-Recourse Subsidiary
where (a) neither the Company nor any Subsidiary (other than such Non-Recourse
Subsidiary): (i) provides any Guarantee or credit support for such Indebtedness
(including any undertaking, guaranty, indemnity, agreement or instrument which
would constitute Indebtedness); or (ii) is directly or indirectly liable for
such Indebtedness; (b) the holders of such Indebtedness expressly waive any
recourse which they may have, in law, equity or otherwise, whether based on
misrepresentation, control, ownership or otherwise, to the Company and any
Subsidiary (other than such Non-Recourse Subsidiary), including, without
limitation, a waiver of the benefits of the provisions of Section 1111(b) of
the Bankruptcy Code; and (c) no default with respect to such Indebtedness
(including any rights which the holder thereof may have to take enforcement
action against such Non-Recourse Subsidiary) would permit (upon notice, lapse
of time or both) any holder of any other Indebtedness of the Company or any
Subsidiary (other than such Non-Recourse Subsidiary) to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity.
"Non-Recourse Subsidiary" means a special purpose Subsidiary of the Company
or any of its Subsidiaries formed to acquire securities or assets of a third
party and which (i) has no Indebtedness other than Non-Recourse Indebtedness
and (ii) does not, directly or indirectly, own any Indebtedness, stock or
securities of, and has no Investment in, the Company or any Recourse
Subsidiary.
"Officers' Certificate" means, when used with respect to the Company, a
certificate signed by the Chairman of the Board, the President, a Vice Chairman
of the Board or the Chief Financial Officer of the Company (or any other
officer identified by any of the foregoing officers in an Officers' Certificate
to be an executive officer of the Company) and the Secretary, an Assistant
Secretary or the Controller of the Company.
"Opinion of Counsel" means an opinion in writing signed by legal counsel, who
may be an employee of or of counsel to the Company, or who may be other counsel
satisfactory to the Trustee.
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"Permitted Liens" means (a) Liens for taxes, assessments, governmental
charges or claims which are not yet delinquent or which are being contested in
good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor; (b) other Liens incidental to the conduct of the Company's and
its Subsidiaries' business or the ownership of its property and assets not
securing any Indebtedness, and which do not in the aggregate materially detract
from the value of the Company's and its Subsidiaries' property or assets when
taken as a whole, or materially impair the use thereof in the operation of its
business (including, without limitation, Liens securing any obligation to
landlords, vendors, carriers, warehousemen, mechanics, laborers and materialmen
and other similar obligations arising by operation of law not yet delinquent or
which are being contested in good faith by appropriate proceedings, if a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor); (c) Liens with respect to
assets of a Subsidiary granted by such Subsidiary to the Company to secure
Indebtedness owing to the Company; (d) Liens on assets owned by Non-Recourse
Subsidiaries to secure Non-Recourse Indebtedness; (e) Liens on assets not
constituting Collateral with an aggregate book value not in excess of 5% of the
book value of the Company's total assets as shown on the Company's most recent
consolidated balance sheet; (f) pledges and deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (g) deposits made to secure the
performance of tenders, bids, leases, statutory obligations, surety and appeal
bonds, government contracts, performance and return-of-money bonds and other
obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (h) zoning
restrictions, servitudes, easements, rights-of-way, restrictions and other
similar charges or encumbrances incurred in the ordinary course of business
which, in the aggregate, are not substantial in amount and which do not in any
case materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of the Company or its
Subsidiaries; (i) Liens arising out of judgments or awards against the Company
or any Subsidiary with respect to which the Company or such Subsidiary is
prosecuting an appeal or proceeding for review and the Company or such
Subsidiary is maintaining adequate reserves in accordance with GAAP; and (j)
any interest or title of a lessor in the property subject to any Capitalized
Lease Obligation or operating lease.
"Permitted Payments" means, with respect to the Company or any of its
Subsidiaries, (a) any dividend on shares of Capital Stock payable solely in
shares of Capital Stock (other than Disqualified Stock) or in options, warrants
or other rights to purchase Capital Stock (other than Disqualified Stock); (b)
any dividend, other distribution, loan or advance to the Company by any of its
Subsidiaries or by a Subsidiary to another Subsidiary (except a Non-Recourse
Subsidiary); (c) any defeasance, redemption, repurchase or other acquisition
for value of any Indebtedness of the Company with the proceeds from the
issuance of (i) Indebtedness which is subordinate to First Mortgage Notes at
least to the extent and in the manner as the Indebtedness to be defeased,
redeemed, repurchased or otherwise acquired is subordinate to the First
Mortgage Notes in right of payment to the First Mortgage Notes; provided, that
(1) such newly-issued subordinated Indebtedness provides for no payments of
principal by way of sinking fund, mandatory redemption, defeasance or otherwise
by the Company or its Subsidiaries (including, without limitation, at the
option of the holder thereof other than an option given to a holder pursuant to
a "Change of Control" covenant which (x) is no more favorable to the holders of
such Indebtedness than the provisions in favor of the Holders and (y) such
Indebtedness provides that the Company or its Subsidiaries will not repurchase
such Indebtedness pursuant to such provisions prior to the Company's repurchase
of the First Mortgage Notes required to be repurchased by the Company upon a
Change of Control) prior to the maturity of the Indebtedness being replaced and
(2) the proceeds of such new Indebtedness are utilized for such purpose within
45 days of issuance or (ii) Capital Stock (other than Disqualified Stock); and
(d) the redemption or repurchase by a Wholly-Owned Subsidiary of its Capital
Stock owned by the Company or another Wholly-Owned Subsidiary.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
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"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued after
the Issue Date, and includes, without limitation, all classes and series of
preferred or preference stock.
"Recourse Subsidiary" means any Subsidiary other than a Non-Recourse
Subsidiary.
"Reference Period" means the four fiscal quarters for which financial
information is available preceding the date of a transaction giving rise to the
need to make a financial calculation.
"Restricted Investment" means any Investment in any Person other than a
Wholly-Owned Recourse Subsidiary of the Company.
"Restricted Payment" means, with respect to any Person, (a) any dividend or
other distribution on any shares of such Person's Capital Stock (other than
dividends or distributions payable in Capital Stock that is not Disqualified
Stock); (b) any payment on account of the purchase, redemption, retirement or
other acquisition of (i) any shares of such Person's Capital Stock or (ii) any
option, warrant or other right to acquire shares of such Person's Capital
Stock; (c) any defeasance, redemption, repurchase or other acquisition or
retirement for value prior to scheduled maturity of any Indebtedness ranked
pari passu or subordinate in right of payment to the First Mortgage Notes and
having a maturity date subsequent to the maturity of the First Mortgage Notes;
(d) any investment in, loan, advance to, Guarantee on behalf of, directly or
indirectly, or other transfer of assets to (i) any Restricted Subsidiary or
(ii) any holder of 5% or more of any class of Capital Stock of the Company
(including Affiliates thereof other than Subsidiaries of the Company); and (e)
any Restricted Investment (except to the extent permitted by "Limitations on
Investments, Loans and Advances"); provided, that "Restricted Payments" shall
not include any payment described in (a), (b) or (c) above made by a Subsidiary
to the Company or to a Wholly-Owned Recourse Subsidiary of the Company.
Notwithstanding the foregoing, Restricted Payment shall not include any
Permitted Payment.
"Restricted Subsidiary" means (a) any Joint Venture in which the Company or
any of its Subsidiaries holds a 50% or less interest or (b) any Subsidiary
which is not a Wholly-Owned Recourse Subsidiary or (c) any Subsidiary subject
to consensual restrictions, other than pursuant to the Credit Facility, direct
or indirect, on the declaration or payment of dividends or similar
distributions by that Subsidiary to the Company or any other Recourse
Subsidiary of the Company.
"Sale and Leaseback Transaction" means, with respect to any Person, an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
Person or any of its Subsidiaries of any property or asset of such Person or
any of its Subsidiaries which has been or is being sold or transferred by such
Person or such Subsidiary to such lender or investor or to any person to whom
funds have been or are to be advanced by such lender or investor on the
security of such property or asset.
"Security Documents" means, collectively, (i) the Mortgages, (ii) the
Security Agreements, (iii) the Subsidiary Guarantees and (iv) the Collateral
Agency and Intercreditor Agreement.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which 50% or more of the Capital Stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person.
"Trade Payables" means accounts payable or any other indebtedness or monetary
obligations to trade creditors created or assumed by the Company or its
Subsidiaries in the ordinary course of business in connection with the
obtaining of materials or services.
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"Trust Moneys" means all cash or Cash Equivalents received by the Collateral
Agent (a) as Net Cash Proceeds received by the Company and its Subsidiaries
from Asset Sales to be subject to the Lien of the Security Documents in
accordance with "--Restrictions on Asset Sales"; or (b) as Condemnation
Proceeds with respect to all or any part of the Collateral; or (c) as Net
Insurance Proceeds with respect to all or any part of the Collateral; or (d) as
proceeds of any other sale or other disposition of all or any part of the
Collateral by or on behalf of the Collateral Agent or any collection, recovery,
receipt, appropriation or other realization of or from all or any part of the
Collateral pursuant to the Security Documents or otherwise.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America, the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case,
are not callable or redeemable at the option of the issuer thereof, and shall
also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act) as custodian with respect to any such U.S.
Government Obligation or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account of the
holder of such depository receipt; provided, that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by such
depository receipt.
"Wholly-Owned Recourse Subsidiary" means a Wholly-Owned Subsidiary that is a
Recourse Subsidiary.
"Wholly-Owned Subsidiary" means, with respect to any Person, a Subsidiary of
which at least 95% of the Capital Stock (other than any director's qualifying
stock), or in the case of a non-corporate Subsidiary, other equity interests
having ordinary voting power for the election of directors or other governing
body of such Subsidiary, is owned by such Person or another Wholly-Owned
Subsidiary of such Person.
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITY
The following summary of certain provisions of the Credit Facility is
generalized, does not purport to be complete, and is subject to and is
qualified in its entirety by reference to the provisions of the Credit
Facility, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. Capitalized terms that are used
but not otherwise defined herein have the meanings assigned to them in the
Credit Facility and those definitions are incorporated herein by reference.
General. The Company amended and restated the Credit Facility on November 23,
1993. The Credit Facility provides that at any one time, the Company may borrow
up to the lesser of $30 million and the then current Borrowing Base under the
Credit Facility. The Borrowing Base is based on a percentage of the Company's
inventory and accounts receivable which must qualify for inclusion therein
under certain tests contained in the Credit Facility. Up to $10 million of the
Credit Facility is available for the issuance of standby letters of credit,
provided that the aggregate Loans and letters of credit outstanding under the
Credit Facility do not exceed $30 million or the Borrowing Base, whichever is
less. On December 31, 1993, the Borrowing Base under the Credit Facility would
have been $30.0 million. The Credit Facility will terminate on November 30,
1996. On such termination date, all amounts outstanding under the Credit
Facility will be due and payable together with any and all accrued interest
thereon to such date. Borrowings under the Credit Facility will be used by the
Company to repay certain outstanding indebtedness, to provide working capital,
to finance investments in stock (subject to certain limitations) or
acquisitions of assets of third parties (subject to certain limitations) and
for other general corporate purposes.
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Interest. The Company will pay interest on outstanding amounts under Loans
comprising any ABR Borrowing at a rate per annum equal to the Alternate Base
Rate plus 1.0%. The Company will pay interest on amounts outstanding under
Loans comprising any Eurodollar Borrowing at a rate per annum equal to the
Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus
2.0%.
To the extent permitted by law, the Company will pay default interest on such
defaulted amount for any default in the payment of the principal of or interest
on any Loan or any other amount becoming due under the Credit Facility, by
acceleration or otherwise, at a rate per annum equal to the rate at the time
applicable to ABR Borrowings plus 2%.
Security. The Loans will be secured by a first priority perfected security
interest in the inventory and accounts receivable of the Company.
Certain Covenants. The Credit Facility contains numerous operating and
financial covenants, including, without limitation, the following:
The Company and its Recourse Subsidiaries shall maintain a ratio of
Current Assets to Current Liabilities, on a Consolidated basis, equal to or
greater than 1.8 to 1. For the fiscal quarter ended December 31, 1993 and
the fiscal year ended September 30, 1993, the Company's Current Ratio on a
pro forma basis (assuming completion of the Offering) would have been 3.26
to 1.00 and 3.65 to 1.00, respectively.
The Company and its Recourse Subsidiaries shall maintain a Tangible Net
Worth, computed on a Consolidated basis, at any time, equal to or in excess
of the sum of (i) $44 million plus (ii) 50% of Net Income for the fiscal
year ended September 30, 1993, and each fiscal year which shall have ended
after such date (but excluding any fiscal year for which Net Income is
negative). For the fiscal quarter ended December 31, 1993 and the fiscal
year ended September 30, 1993, the Company's Tangible Net Worth on a pro
forma basis (assuming completion of the Offering) would have been $51.0
million and $52.7 million, respectively.
The Company and its Recourse Subsidiaries shall maintain a total
Indebtedness to Capitalization Ratio, computed on a Consolidated basis, of
.65 to 1.00 or less. For the fiscal quarter ended December 31, 1993 and the
fiscal year ended September 30, 1993, the Company's total Indebtedness to
Capitalization Ratio on a pro forma basis (assuming completion of the
Offering) would have been .60 to 1.00 and .58 to 1.00, respectively.
The Company and its Recourse Subsidiaries shall maintain a ratio of
EBITDA to Consolidated Fixed Charges (the "Interest Expense Coverage
Ratio") from and including October 1, 1993, through and including December
31, 1993 (based only on such period), of .50 to 1.00; from and including
January 1, 1994, through and including March 31, 1994 (based only on such
period), of .75 to 1.00; from and including April 1, 1994, through and
including June 30, 1994 (based only on such period), of 1.00 to 1.00; from
and including July 1, 1994, through and including September 30, 1994 (based
only on such period), of 1.25 to 1.00; from and including October 1, 1994,
through and including December 31, 1994 (based only on such period), of
1.50 to 1.00; from and including January 1, 1995, through and including
March 31, 1995 (computed on a rolling 2 quarter basis), of 1.60 to 1.00;
from and including April 1, 1995, through and including June 30, 1995
(computed on a rolling 3 quarter basis), of 1.60 to 1.00; from and
including July 1, 1995, through and including September 30, 1995 (computed
on a rolling 4 quarter basis), of 1.60 to 1.00 and thereafter (computed on
a rolling 4 quarter basis), of 1.80 to 1.00. For the fiscal quarter ended
December 31, 1993 and the fiscal year and quarter ended September 30, 1993,
the Company's Interest Expense Coverage Ratio on a pro forma basis
(assuming completion of the Offering) would have been 1.15 to 1.00, .81 to
1.00 and .79 to 1.00, respectively. See "Prospectus Summary--Summary
Financial Information" and "Selected Financial Data" for the Ratio of
EBITDA to Net Interest Expense.
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The Company shall not amend or modify the Indenture or the First Mortgage
Notes issued pursuant thereto without the prior written consent of the
Required Lenders if such amendment or modification would adversely affect
the interests of the Lenders.
In addition, the Credit Facility includes the following covenants: (i)
requirements that the Company deliver to the Agent (a) financial information,
(b) certified quarterly and audited annual financial statements, (c) periodic
Borrowing Base certificates, (d) compliance certificates and (e) other
materials as specified by the Agent or any Lender, (ii) requirements that the
Company and its subsidiaries maintain their corporate existence, (iii)
requirements for the payment and discharge by the Company of its and its
subsidiaries' obligations and indebtedness, (iv) requirements for the
maintenance by the Company of its books and records, (v) requirements for the
Company and its subsidiaries to deliver to the Agent notice of certain
occurrences, (vi) requirements for the perfection of liens for the benefit of
the Lenders, (vii) requirements for the compliance with laws and regulations by
the Company and it subsidiaries including the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), (viii) requirements for the Company
to maintain certain insurance coverage, (ix) prohibitions against the
incurrence of indebtedness by the Company and its subsidiaries, subject to
certain exceptions, (x) prohibitions against the Company and its subsidiaries
granting liens to secure obligations to parties other than the Agent, subject
to certain exceptions, (xi) limitations on the Company's and its subsidiaries'
sales of assets and payment of dividends and distributions, (xii) prohibitions
on changes in the business of the Company or its subsidiaries, (xiii)
restrictions on mergers and acquisitions, loans and investments, capital
expenditures and transactions with affiliates by the Company and its
subsidiaries, (xiv) prohibitions on sale and lease-back transactions, (xv)
prohibitions on acts or omissions by the Company or any subsidiary thereof
constituting a default or an event of default under any loan document or any
other contract, lease, mortgage or instrument, unless such contract, lease,
mortgage or instrument is non-recourse, (xvi) limitations on the incurrence of
termination or withdrawal liability under ERISA by the Company or any
subsidiary thereof and (xvii) requirements that the proceeds of the Loans and
Letters of Credit be used for working capital, financing investments in stock
or acquisitions of assets of third parties (to the extent permitted), the
repayment of obligations under the Indenture and for other general corporate
purposes.
Defaults. The Credit Facility contains certain events of default after
expiration of applicable grace periods including, among others, (i) failure by
the Company to pay its obligations to the Lenders as they become due, (ii)
breach of any representation or warranty set forth in any Loan Document or in
any Borrowing Base Certificate, (iii) failure to observe the covenants,
conditions or agreements set forth in the Credit Facility or any other Loan
Document, (iv) a Change in Control, (v) entry of final judgments against the
Company in an aggregate amount in excess of $1,500,000 after giving effect to
reimbursement by insurance carriers, (vi) certain events of insolvency or
bankruptcy with respect to the Company and (vii) certain ERISA violations.
Upon the occurrence of an Event of Default thereunder, the Agent may, and at
the request of the Required Lenders shall, terminate the Credit Facility,
declare all obligations thereunder to be due and payable, exercise all rights
and remedies available under applicable law and revoke the Company's right to
use any cash collateral in which any Lender has an interest.
Consents/Waivers and Amendments. The provisions of the Credit Facility may
not be waived, amended or modified without the prior written consent of Lenders
holding Loans representing at least two-thirds of the aggregate principal
amount of Loans outstanding or, if no Loans are outstanding, Lenders having
Commitments representing at least two-thirds of the aggregate Commitments,
except that certain events, such as changing the principal amount of, or
extending the maturity date of, any payment of principal or interest with
respect to a Loan, require the consent of each Lender.
Certain Definitions.
"Capitalization" for any person means the sum of (i) such person's
Indebtedness plus (ii) such person's Tangible Net Worth.
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"EBITDA" means, with respect to the Company and its Recourse
Subsidiaries, computed on a Consolidated basis for any period, the sum of
(i) Net Income for such period, (ii) Interest Expense for such period,
(iii) Federal, state and local income and franchise taxes deducted from
revenue in determining such Net Income, and (iv) depreciation and
amortization deducted from revenue in determining such Net Income.
"Consolidated Fixed Charges" means, with respect to the Company and its
Recourse Subsidiaries, computed on a Consolidated basis for any period, the
Interest Expense incurred in such period.
"Net Income" means, with respect to the Company and its Recourse
Subsidiaries for any period, (a) net revenues and other proper income for
such period minus (b) the aggregate for such period of, without
duplication, (i) costs of goods sold, (ii) Interest Expense, (iii)
operating expenses, (iv) selling, general and administrative expenses, (v)
taxes, (vi) depreciation and amortization, (vii) any other items that are
treated as expenses under GAAP, but excluding from the definition of Net
Income any non-cash extraordinary gains or losses (including the effect of
the adoption of Financial Accounting Standards No. 106 and 109) and (viii)
excluding payments made with respect to premium on the prepayment under the
Indenture for the 14.75% Notes, all computed on a Consolidated basis in
accordance with GAAP consistently applied.
"Tangible Net Worth" means, with respect to any person at any time, (i)
the sum of such person's capital stock, capital in excess of par or stated
value of shares of its capital stock, retained earnings and any other
account principles which, in accordance with GAAP, constitute stockholders'
equity, less (ii) treasury stock and any minority interest in Subsidiaries,
less (iii) the amount of all assets reflected as goodwill, patents,
research and development and all other assets required to be classified as
intangibles in accordance with GAAP and less (iv) the amount of the write-
up in the value of any asset above the cost or depreciated cost thereof to
such person.
TULSA AGREEMENT
The Company is party to a purchase money facility relating to its Tulsa
stocking location (the "Tulsa Agreement"). The principal amount outstanding
under the Tulsa Agreement as of December 31, 1993 is $0.9 million. The Tulsa
Agreement contains substantially the same covenants as the Credit Facility and
provides that an occurrence of an event of default under the Credit Facility or
the First Mortgage Notes will trigger a default under the Tulsa Agreement. In
addition, the Tulsa Agreement is secured by a second priority security interest
in the Company's inventory and accounts receivable.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
OWNERSHIP AND DISPOSITION OF THE FIRST MORTGAGE NOTES PURSUANT TO THIS OFFERING
IS BASED ON THE TAX CODE, AS AMENDED TO THE DATE HEREOF, EXISTING AND PROPOSED
TREASURY REGULATIONS AND APPLICABLE JUDICIAL AND ADMINISTRATIVE DETERMINATIONS,
ALL OF WHICH ARE SUBJECT TO CHANGE AT ANY TIME BY LEGISLATIVE, JUDICIAL OR
ADMINISTRATIVE ACTION, POSSIBLY WITH RETROACTIVE EFFECT. THIS SUMMARY DEALS
ONLY WITH FIRST MORTGAGE NOTES HELD AS CAPITAL ASSETS WITHIN THE MEANING OF
SECTION 1221 OF THE TAX CODE BY HOLDERS WHO ARE THE ORIGINAL PURCHASERS OF THE
FIRST MORTGAGE NOTES AND, EXCEPT AS NOTED, DOES NOT APPLY TO ANY SUBSEQUENT
PURCHASERS. THE TAX TREATMENT OF THE HOLDERS OF THE FIRST MORTGAGE NOTES MAY
VARY DEPENDING UPON THEIR PARTICULAR SITUATIONS. CERTAIN HOLDERS (INCLUDING
INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, FINANCIAL INSTITUTIONS, BROKER-
DEALERS, FOREIGN ENTITIES AND INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF
THE UNITED STATES) MAY BE SUBJECT TO SPECIAL RULES NOT DISCUSSED BELOW. EACH
PURCHASER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES OF PURCHASING, HOLDING AND
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DISPOSING OF FIRST MORTGAGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF
ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND ANY RECENT CHANGES IN APPLICABLE
LAWS.
STATED INTEREST
A holder of a First Mortgage Note using the accrual method of accounting for
income tax purposes generally will be required to include interest in ordinary
income as such interest accrues, while a cash basis holder will be required to
include interest in income when cash payments are received (or made available
for receipt) by such holder.
DISPOSITION OF A FIRST MORTGAGE NOTE
In general, the holder of a First Mortgage Note will recognize gain or loss
upon the sale, exchange, retirement or other disposition of the First Mortgage
Note measured by the difference between the amount of cash and the fair market
value of property received (except to the extent the holder recognizes ordinary
income attributable to the payment of accrued interest), and the holder's tax
basis for the First Mortgage Note. Subject to the market discount rules
discussed below, applicable to subsequent purchasers of the First Mortgage
Notes, the gain or loss on the sale or redemption of a First Mortgage Note will
be long-term capital gain or loss, provided that the First Mortgage Note was
held as a capital asset and had been held for more than one year.
MARKET DISCOUNT ON RESALE
Purchasers of the First Mortgage Notes should be aware that their ability to
resell such Notes may be affected by the market discount provisions of the Tax
Code. These rules generally provide that if a subsequent holder of a First
Mortgage Note purchases it at a market discount in excess of a statutorily
defined de minimis amount, and thereafter recognizes gain upon a disposition
(including a partial redemption) of the First Mortgage Note, the lesser of such
gain or the portion of the market discount that accrued while the First
Mortgage Note was held by such holder will be treated as ordinary interest
income, rather than capital gain, at the time of the disposition. The rules
also provide that a holder who acquires a First Mortgage Note at a market
discount may be required to defer a portion of any interest expense that may
otherwise be deductible on any indebtedness incurred or maintained to purchase
or carry such First Mortgage Note until the holder disposes of such First
Mortgage Note in a taxable transaction. If a holder of a First Mortgage Note
elects to include market discount in income currently, both of the foregoing
rules would not apply. Such an election, once made, applies to all market
discount obligations acquired on or after the first day of the first taxable
year to which the election applies, and may not be revoked without the consent
of the Internal Revenue Service.
BACKUP WITHHOLDING
Interest paid to a holder of a First Mortgage Note will ordinarily not be
subject to withholding of federal income taxes. Withholding of such tax at a
rate of 31 percent may be required, however, by reason of events specified in
section 3406 of the Tax Code, which events include a failure of a holder to
supply the Company or its agent with such holder's "Taxpayer Identification
Number." Such "backup" withholding may also apply to a holder who is otherwise
exempt from backup withholding if such holder fails properly to document his
exempt status. Each holder of a First Mortgage Note will be asked to provide
and certify his correct Taxpayer Identification Number or otherwise to document
his exempt status.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between the Company and the Underwriter, the
Company has agreed to sell to the Underwriter, and the Underwriter has agreed
to purchase, the entire principal amount of the First Mortgage Notes.
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In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all the First Mortgage
Notes offered hereby if any of the First Mortgage Notes are purchased. The
Company has been advised by the Underwriter that it proposes initially to offer
the First Mortgage Notes to the public at the public offering price set forth
on the cover page of this Prospectus, and to certain dealers at such price less
a discount not in excess of % of the principal amount of the First Mortgage
Notes. The Underwriter may allow, and such dealers may reallow, a concession to
certain other dealers not in excess of % of the principal amount of the First
Mortgage Notes. After the initial public offering, the public offering price,
discount and concession may be changed.
The First Mortgage Notes are a new issue of securities with no established
trading market. The Company does not intend to apply for listing of the First
Mortgage Notes on a national securities exchange, but has been advised by the
Underwriter that the Underwriter intends to make a market in the First Mortgage
Notes, as permitted by applicable laws and regulations. No assurance can be
given, however, that the Underwriter will make a market in the First Mortgage
Notes or as to the liquidity of, or the trading market for, the First Mortgage
Notes.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments which the Underwriter may be required to make in respect thereof.
The Underwriter and its affiliates, Chemical Bank and Texas Commerce Bank,
have in the past engaged and continue to engage in transactions with, and
perform services for, the Company, Quexco, RSR, BSPL and Howard M. Meyers in
the ordinary course of business. Chemical Bank, in its capacities as agent and
lender, is party to the Credit Facility. See "Description of Certain
Indebtedness--Credit Facility."
LEGAL MATTERS
Certain legal matters related to the First Mortgage Notes offered hereby have
been passed upon for the Company by Kaye, Scholer, Fierman, Hays & Handler, New
York, New York and for the Underwriter by Simpson Thacher and Bartlett (a
partnership which includes professional corporations), New York, New York.
Certain other legal matters have been passed upon for the Company by Jones,
Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, Louisiana.
EXPERTS
The audited financial statements and schedules of the Company included in
this Prospectus have been audited by Arthur Andersen & Co., independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of such firm as experts in
auditing and accounting in giving such reports.
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NOTICE TO CALIFORNIA PURCHASERS
The First Mortgage Notes offered hereby will be sold in California pursuant
to a limited qualification obtained from the California Department of
Corporations under the California Corporate Securities Law of 1968. Pursuant to
the terms of such limited qualification, the First Mortgage Notes may only be
sold to the following classes of purchasers (and each such purchaser in making
purchase of a First Mortgage Note will be deemed to have represented to, and to
have agreed with, the Underwriter that it is such a purchaser):
A. any bank, any savings and loan association, any trust company, any
insurance company, any investment company registered under the Investment
Company Act of 1940, any pension or profit-sharing trust (other than a
pension or profit-sharing trust of the Company, a self-employed individual
retirement plan, or an individual retirement account);
B. any organization described in Section 501(c)(3) of the Tax Code, as
amended December 29, 1981, which has total assets (including endowment,
annuity and life income funds) of not less than $5,000,000 according to its
most recent audited financial statement, any corporation which has a net
worth on a consolidated basis according to its most recent audited
financial statement of not less than $14,000,000, any wholly owned
subsidiary of a person described in (i) and (ii);
C. the Federal Government, any agency or instrumentality of the Federal
Government, any corporation wholly owned by the Federal Government, any
state, any city, city and county, or county, or any agency or
instrumentality of a state, city, city and county, or county, or any state
university or state college, and any retirement system for the benefit of
employees of any person described in (iii);
D. any "accredited investor", as defined in Rule 501(a) under the
Securities Act;
E. any person who purchases at least $1,000,000 aggregate principal
amount of the First Mortgage Notes; and,
F. any person who (a) has an annual income of at least $65,000 and a net
worth of at least $250,000, or (b) has a net worth of at least $500,000. If
such person is a natural person, such person's net worth shall be
determined by excluding such person's home, home furnishings and personal
automobiles, if any. If such person is not a natural person, (1) annual
income shall be determined on a consolidated basis for such person's last
fiscal year by taking such person's net income and adding back Federal and
state income taxes, depreciation and amortization, and extraordinary items
and (2) net worth shall be determined on a consolidated basis for such
person's last fiscal year by taking such person's total assets and
subtracting therefrom such person's total liabilities.
If any of the foregoing classes of purchasers is purchasing the First
Mortgage Notes on behalf of a beneficial owner in California through the
exercise of investment control or discretion, where such beneficial owner is
not one of the purchasers described in (A) through (F) above, such purchaser
exercising such investment control or discretion must reasonably believe that
such beneficial owner has either (a) an annual income of at least $50,000 and a
net worth of at least $50,000, or (b) a net worth of at least $125,000. If such
beneficial owner is a natural person, such person's net worth shall be
determined by excluding such person's home, home furnishings and personal
automobiles, if any. If such beneficial owner is not a natural person, (1)
annual income shall be determined on a consolidated basis for such person's
last fiscal year by taking such person's net income and adding back state and
Federal income taxes, depreciation and amortization, and extraordinary items
and (2) net worth shall be determined on a consolidated basis for such person's
last fiscal year by taking such person's total assets and subtracting therefrom
such person's total liabilities.
89
<PAGE>
INDEX TO FINANCIAL STATEMENTS
BAYOU STEEL CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Balance Sheets as of September 30, 1993 and 1992.......................... F-3
Statements of Operations for the years ended September 30, 1993, 1992 and
1991..................................................................... F-4
Statements of Cash Flows for the years ended September 30, 1993, 1992 and
1991..................................................................... F-5
Statements of Changes in Equity for the years ended September 30, 1993,
1992 and 1991............................................................ F-6
Notes to Financial Statements............................................. F-7
Balance Sheets as of December 31, 1993 (unaudited) and as of September 30,
1993..................................................................... F-15
Statements of Income (Loss) for the three months ended December 31, 1993
and 1992 (unaudited)..................................................... F-16
Statements of Cash Flows for the three months ended December 31, 1993 and
1992 (unaudited)......................................................... F-17
Notes to Financial Statements............................................. F-18
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Bayou Steel Corporation:
We have audited the accompanying balance sheets of Bayou Steel Corporation (a
Delaware corporation) as of September 30, 1993 and 1992, and the related
statements of income (loss), cash flows, and changes in equity for the years
ended September 30, 1993, 1992, and 1991. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bayou Steel Corporation as of
September 30, 1993 and 1992 and the results of its operations and its cash
flows for the years ended September 30, 1993, 1992, and 1991 in conformity with
generally accepted accounting principles.
Arthur Andersen & Co.
New Orleans, Louisiana
November 24, 1993
F-2
<PAGE>
BAYOU STEEL CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1993 1992
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments................ $ 517,900 $ 11,149,702
Receivables, net of allowance for doubtful accounts
of $543,000 in 1993 and $943,000 in 1992.......... 18,676,907 12,339,576
Inventories........................................ 48,486,409 53,751,954
Prepaid expenses................................... 222,277 257,058
------------ ------------
Total current assets............................. 67,903,493 77,498,290
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land............................................... 2,750,398 2,411,182
Machinery and equipment............................ 76,257,285 73,623,878
Plant and office building.......................... 14,036,845 13,825,104
------------ ------------
.................................................. 93,044,528 89,860,164
Less--Accumulated depreciation..................... 23,785,624 19,624,375
------------ ------------
Net property, plant and equipment................ 69,258,904 70,235,789
OTHER ASSETS......................................... 1,117,788 1,646,784
------------ ------------
Total assets..................................... $138,280,185 $149,380,863
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt............... $ 9,282,156 $ 391,797
Borrowings under line of credit.................... 4,000,000 --
Accounts payable................................... 17,671,926 14,837,557
Accrued liabilities................................ 4,560,249 5,101,568
------------ ------------
Total current liabilities........................ 35,514,331 20,330,922
------------ ------------
LONG-TERM DEBT....................................... 41,534,625 61,664,977
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value--
Class A: 24,271,127 authorized and
10,613,380 outstanding shares............. 106,134 106,134
Class B: 4,302,347 authorized and
2,271,127 outstanding shares.............. 22,711 22,711
Class C: 100 authorized and outstanding shares..... 1 1
------------ ------------
Total common stock............................... 128,846 128,846
Paid-in capital.................................... 44,890,554 44,890,554
Retained earnings.................................. 16,211,829 22,365,564
------------ ------------
Total stockholders' equity....................... 61,231,229 67,384,964
------------ ------------
Total liabilities and stockholders' equity....... $138,280,185 $149,380,863
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
BAYOU STEEL CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES............................ $136,008,039 $119,771,725 $131,270,887
------------ ------------ ------------
COST OF SALES........................ 128,032,556 109,115,193 124,435,433
------------ ------------ ------------
GROSS PROFIT......................... 7,975,483 10,656,532 6,835,454
------------ ------------ ------------
SELLING, GENERAL AND ADMINISTRATIVE.. 3,985,564 4,071,154 4,125,008
NON-PRODUCTION STRIKE EXPENSES....... 3,162,325 -- --
------------ ------------ ------------
827,594 6,585,378 2,710,446
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense................... (8,260,775) (8,976,619) (8,821,364)
Interest income.................... 192,821 485,557 638,189
------------ ------------ ------------
Miscellaneous...................... 501,084 554,015 901,699
------------ ------------ ------------
(7,566,870) (7,937,047) (7,281,476)
------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES &
EXTRAORDINARY GAIN.................. (6,739,276) (1,351,669) (4,571,030 )
PROVISION FOR INCOME TAXES........... -- -- --
------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY
GAIN................................ (6,739,276) (1,351,669) (4,571,030)
EXTRAORDINARY GAIN................... 585,541 -- --
------------ ------------ ------------
NET INCOME (LOSS).................... $ (6,153,735) $ (1,351,669) $ (4,571,030)
============ ============ ============
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary
gain.............................. $ (.52) $ (.10) $ (.35)
Extraordinary gain................. .04 -- --
------------ ------------ ------------
Income (loss) per common share..... $ (.48) $ (.10) $ (.35)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
BAYOU STEEL CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1993 1992 1991
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss)........................ $ (6,153,735) $(1,351,669) $(4,571,030)
Extraordinary gain................... (585,541) -- --
Depreciation and amortization........ 4,616,286 4,308,936 3,803,291
Provision for losses on accounts
receivable.......................... (174,994) (233,025) 373,323
Changes in working capital:
(Increase) decrease in receivables.. (6,162,337) 2,219,855 2,338,345
Decrease (increase) in inventories.. 5,265,545 (3,740,480) 7,765,127
Decrease (increase) in prepaid
expenses........................... 34,781 92,839 (7,567)
Increase (decrease) in accounts
payable............................ 2,834,369 1,517,447 (5,326,494)
(Decrease) increase in accrued
liabilities........................ (541,319) 845,253 1,238,887
------------ ----------- -----------
Net cash (used in) provided by
operations........................ (866,945) 3,659,156 5,613,882
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Addition of property, plant and
equipment........................... (3,184,364) (3,234,659) (7,374,083)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit...... 4,000,000 -- --
Payments of long-term debt........... (10,836,789) (625,887) (5,691,567)
Proceeds from issuance of long-term
debt................................ 256,296 327,214 2,098,232
(Payment of) accrued interest on
unpaid dividends.................... -- -- (1,490,918)
(Increase) in other assets........... -- -- (41,677)
------------ ----------- -----------
Net cash used in financing
activities........................ (6,580,493) (298,673) (5,125,930)
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS...................... (10,631,802) 125,824 (6,886,131)
CASH AND CASH EQUIVALENTS, beginning
balance............................... 11,149,702 11,023,878 17,910,009
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, ending
balance............................... $ 517,900 $11,149,702 $11,023,878
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
BAYOU STEEL CORPORATION
STATEMENTS OF CHANGES IN EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------ PAID-IN RETAINED STOCKHOLDERS'
CLASS A CLASS B CLASS C CAPITAL EARNINGS EQUITY
-------- ------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE,
October 1, 1990........ $106,134 $22,711 $ 1 $44,890,554 $28,288,263 $73,307,663
Net loss.............. -- -- -- -- (4,571,030) (4,571,030)
-------- ------- ---- ----------- ----------- -----------
ENDING BALANCE,
September 30, 1991..... 106,134 22,711 1 44,890,554 23,717,233 68,736,633
Net loss.............. -- -- -- -- (1,351,669) (1,351,669)
-------- ------- ---- ----------- ----------- -----------
ENDING BALANCE,
September 30, 1992..... 106,134 22,711 1 44,890,554 22,365,564 67,384,964
Net loss.............. -- -- -- -- (6,153,735) (6,153,735)
-------- ------- ---- ----------- ----------- -----------
ENDING BALANCE,
September 30, 1993..... $106,134 $22,711 $ 1 $44,890,554 $16,211,829 $61,231,229
======== ======= ==== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1993 AND 1992
1. OWNERSHIP:
Bayou Steel Corporation (of LaPlace) was incorporated in Louisiana in 1979.
On September 5, 1986, Bayou Steel Acquisition Corporation (BSAC) acquired
substantially all of the capital stock of Bayou Steel Corporation (of LaPlace)
from the former stockholders (the Acquisition) for $75,343,000. Simultaneously
with the Acquisition, BSAC merged into Bayou Steel Corporation (of LaPlace)
(the Company) with the Company being the surviving corporation. The Company
reincorporated as a Delaware corporation on July 19, 1988 and changed its name
from Bayou Steel Corporation (of LaPlace) to Bayou Steel Corporation on August
3, 1988.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVENTORIES
Inventories are carried at the lower of cost (last-in, first-out) or market
except mill rolls, operating supplies, and other which are stated at average
cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment acquired as part of the Acquisition was
recorded based on the purchase price (see Note 1). Betterments and improvements
on property, plant and equipment are capitalized at cost. Interest during
construction of significant additions is capitalized. Interest of $115,000,
$107,000 and $264,000 was capitalized during the years ended September 30,
1993, 1992 and 1991, respectively. Repairs and maintenance are expensed as
incurred. Depreciation is provided on the units-of-production method for
machinery and equipment and on the straight-line method for buildings over an
estimated useful life of 30 years.
STATEMENT OF CASH FLOWS
The Company considers investments purchased with an original maturity of
generally three months or less to be cash equivalents.
Cash payments for interest and Federal income taxes during the three years
ended September 30, were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- -----------
<S> <C> <C> <C>
Interest...................................... $8,444,066 $9,083,712 $10,792,024
Income taxes.................................. -- -- --
</TABLE>
TAXES
The Company has not incurred income tax expense for fiscal 1993, 1992 and
1991 due to a net loss in each of these years.
CREDIT RISK
The Company extends credit to its customers primarily on 30 day terms and
encourages discounting. The Company believes that the credit risk is minimal
due to the ongoing review of its customers' financial
F-7
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
conditions and its requirement of letters of credit on some orders. Also, the
Company invests its excess cash in high-quality short-term financial
instruments.
OPERATING LEASE COMMITMENTS
The Company has no significant operating lease commitments that would be
considered material to the financial statement presentation.
3. INVENTORIES:
Inventories, as of September 30, 1993 and 1992 consisted of the following:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Scrap steel........................................ $ 3,187,963 $ 3,449,093
Billets............................................ 3,918,223 3,830,571
Finished product................................... 25,242,294 25,920,243
LIFO adjustments................................... (324,303) 3,764,072
----------- -----------
32,024,177 36,963,979
Mill rolls, operating supplies, and other.......... 16,462,232 16,787,975
----------- -----------
$48,486,409 $53,751,954
=========== ===========
</TABLE>
Decrements in the last-in, first-out ("LIFO") inventories had the effect of
decreasing net loss by $124,000 or $0.01 per share in fiscal 1993. There was an
increment in the last-in, first-out inventories in fiscal 1992. At September
30, 1993 and 1992, the first-in, first-out ("FIFO") inventories were $32.3
million and $33.2 million, respectively. A lower of cost or market evaluation
of the carrying value of inventory was done at the end of each fiscal year. For
all years presented, market value was in excess of the carrying value of the
LIFO and FIFO inventories.
4. PROPERTY, PLANT AND EQUIPMENT:
Depreciation expense during the years ended September 30, 1993, 1992 and 1991
was allocated as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Inventory.................................. $ -- $ 87,193 $ --
Cost of sales.............................. 4,156,851 3,884,913 3,467,871
Selling, general and administrative........ 4,398 4,347 4,326
---------- ---------- ----------
$4,161,249 $3,976,453 $3,472,197
========== ========== ==========
</TABLE>
5. OTHER ASSETS:
Other assets consist of costs associated with the issuance of the Senior
Secured Notes and the line of credit (see Notes 6 and 7) which are being
amortized over the lives of the related debt. Amortization expense was
approximately $458,000, $332,000 and $331,000 for the years ended September 30,
1993, 1992 and 1991, respectively.
F-8
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT:
Long-term debt of the Company as of September 30, 1993 and 1992 included the
following:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Senior Secured Notes (see below).................... $48,900,000 $60,000,000
Other notes payable, due monthly, bearing interest
from 8.5% to 10.50% secured by Company assets...... 1,916,781 2,056,774
----------- -----------
50,816,781 62,056,774
Less--current maturities............................ 9,282,156 391,797
----------- -----------
$41,534,625 $61,664,977
=========== ===========
</TABLE>
The Senior Secured Notes (the Notes) are secured by a mortgage (the Mortgage)
covering real property, plant and equipment. The Notes bear interest at the
nominal rate of 14.75% per annum (subject to increase as stated below) payable
on March 15 and September 15 of each year. If operating income, as defined,
plus depreciation and amortization, exceeds $20,000,000 for any fiscal year
ending September 30, the interest rate for the following calendar year only is
to be increased by 0.02% for each $50,000 of such excess. The nominal interest
rate and such excess rate cannot exceed a maximum rate of 20.75% per annum if
the Notes remain secured by the Mortgage on February 15 of the year for which
the excess interest rate is being determined or 23.50% per annum if on such
date the Notes are no longer secured by the Mortgage. For fiscal 1993 and 1992,
the Company accrued interest at a rate of 14.75%.
The Notes may be redeemed, at the Company's option, in whole or in part at
specified redemption prices plus accrued interest to the date of redemption.
This redemption price was 115% of principal amount at September 30, 1993 and is
to decline at a rate of 5% per year. Beginning October 1, 1995, the outstanding
principal can be redeemed at par. The Company is required to redeem $9,000,000
of the Notes on March 15 in each of the years 1994, 1995, 1996 and 1997, with a
$24,000,000 balloon payment due March 15, 1998. During fiscal 1993, the Company
purchased $11.1 million in principal of the Notes at a net discount. While the
Company has the right to apply the purchased Notes to any redemption date, it
has not decided which redemption the purchased Notes will be applied against.
The $9.0 million principal payment due in March 1994 has been classified as a
current liability on the Company's balance sheet.
The result of the Note purchases at a net discount, reduced by the write-off
of the related unamortized deferred cost (see Note 5), has been reflected in
the accompanying statement of income as an extraordinary gain. There was no tax
effect related to this transaction.
7. SHORT-TERM BORROWING ARRANGEMENT:
On June 28, 1989, the Company arranged a five-year $40,000,000 line of credit
with a group of banks which will be used for general corporate purposes. The
Company can borrow against the line of credit at market rates. The amount that
may be advanced to the Company is limited to $40,000,000 less the balance of
outstanding letters of credit and unpaid loans under the line. Based on these
criteria, the amount available as of September 30, 1993 and 1992 was
$34,475,016 and $38,475,016, respectively. Amounts borrowed under the line of
credit are secured by a lien on the Company's receivables, inventory and
certain contract rights. There were no borrowings under the line of credit for
fiscal 1992 and the only borrowing for fiscal 1993 of $4,000,000 occurred on
September 15, 1993 and remained outstanding at a rate of 3.75% through
September 30, 1993.
F-9
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
On November 23, 1993, the Company entered into an amendment and restatement
of its line of credit agreement. The terms of the new agreement call for
available borrowings up to $30 million, secured by inventory and accounts
receivable, at interest rates of prime plus 1% or LIBOR plus 2%.
8. INCOME TAXES:
The Company is subject to United States Federal income taxes. The primary
difference between book and tax reporting of income relates to the allocation
of the carrying cost of property, plant and equipment to operations due to (a)
different depreciation methods used for tax and financial reporting purposes,
(b) a writedown of the carrying value of property, plant and equipment to
estimated net realizable value recorded for financial reporting purposes in
prior years, and (c) the sale of tax benefits discussed below.
In 1981, the Company (pre-Acquisition) entered into lease agreements with an
unrelated corporation whereby certain tax benefits were transferred to the
unrelated corporation as allowed under the provisions of the Economic Recovery
Tax Act of 1981. These agreements, the last of which will expire in late 1996,
include various covenants not to dispose of the property covered by the
agreement and indemnification of the unrelated corporation by the former
majority stockholder against any losses which might result from a breach of the
Company's warranties and covenants, including those related to the Federal
income tax implications of the transaction. Pursuant to the Acquisition and as
a result of the merger (see Note 1) and the Mortgage, the Company agreed to
require any purchaser of the property subject to such Mortgage to take the
property subject to such agreements and to ensure that any disposition of the
property upon a foreclosure of the Mortgage would not constitute a
"disqualifying event" within the meaning of the regulations promulgated under
Section 168(f)(8) of the Internal Revenue Code as in effect prior to the
enactment of the Tax Equity and Fiscal Responsibility Act of 1982. The result
of this and other related agreements may be to limit the marketability of the
property upon a foreclosure of the Mortgage. The Company will recognize
interest income of $8.2 million and rent expense of $38.4 million for tax
reporting purposes in fiscal years 1994 through 1997 based upon the foregoing
agreements.
As of September 30, 1993, for tax purposes, the Company had net operating
loss carryforwards ("NOLs") of approximately $310.5 million and $284.5 million
available to offset against regular tax and alternative minimum tax,
respectively. Due to the fact that book and tax losses were generated in 1993,
1992 and 1991, there was no provision for income taxes in any of these years.
The NOLs will expire in varying amounts through fiscal 2008. A substantial
portion of the available NOLs, approximately $200 million, expires by fiscal
2000. In addition, the Company has $30.2 million of future tax benefits
attributable to its tax benefit lease which expires in 1996 and which may, to
the extent of taxable income in the year such tax benefit is produced, be
utilized prior to the NOLs. Even though management believes the Company will be
profitable in the future and will be able to utilize a portion of the NOLs,
management does not believe that it is likely that all of the NOLs will be
utilized. In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"), which will require the Company to change its method of
accounting for income taxes for financial reporting purposes for the fiscal
year beginning October 1, 1993. FAS 109 requires, among other things,
recognition of future tax benefits, subject to a valuation allowance based on
the likelihood of realizing such benefits. Preliminary calculations indicate
that deferred tax assets of approximately $118 million (NOLs and other
temporary timing differences multiplied by the federal income tax rate) and
deferred tax liabilities of approximately $8 million will be recorded upon
adoption of FAS 109 in fiscal 1994. However, in recording these deferred
assets, FAS 109 requires the Company to determine whether it is "more-likely-
than-not" that the Company will realize such benefits and that all negative and
positive evidence be considered (with more weight given to evidence that is
"objective and verifiable") in
F-10
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
making the determination. FAS 109 indicates that "forming a conclusion that a
valuation allowance is not needed is difficult when there is negative evidence
such as cumulative losses in recent years"; therefore, the Company has
determined that it will be required by the provisions of FAS 109 to establish a
valuation allowance for all of the recorded net deferred tax assets at the time
the standard is adopted. In view of the fact that this determination was based
primarily on historical losses with no regard for the impact of proposed
capital expenditures and business plans, future favorable adjustments to the
valuation allowance may be required if and when circumstances change and the
Company returns to profitability. Adoption of FAS 109 will have no material
adverse impact on income for financial reporting or tax purposes.
The Company and an individual controlling the current majority stockholder
agreed to indemnify the former majority stockholder for any payments required
to be made to the unrelated corporation caused by the Company's failure to
comply with the foregoing agreements. The former stockholder retains ownership
of the Company's Class C Common Stock which carries certain limited voting
rights including the holders' right to prevent certain transactions
(liquidation and certain mergers) which could result in liability to the former
majority stockholder under its indemnification to the unrelated corporation.
The Company's Class B Common Stock carries these same voting rights.
9. COMMITMENTS AND CONTINGENCIES:
CONTRACT WITH KEY EMPLOYEE
The Company entered into an employment arrangement in 1986 with the Chief
Executive Officer (CEO). The agreement provides that the CEO's annual
compensation will be limited to the higher of a specified amount or a
percentage of the Company's pretax net income earned in the previous year. The
CEO has agreed not to pursue any steel-related acquisition activities other
than through the Company, and all other acquisition activities, to the extent
required by his fiduciary duty as a direct or indirect controlling stockholder
and director of the Company, must be through the Company, giving effect to the
legal doctrine of "corporate opportunity."
EMPLOYEE STOCK OPTION PLAN
The Board of Directors and the Stockholders approved the 1991 Employees Stock
Option Plan (the "1991 Plan") for the purpose of attracting and retaining key
employees. The 1991 Plan provides for granting up to 600,000 shares of Class A
Common Stock, over a ten year period, from the Company's authorized and
unissued shares or from Treasury Stock. No options have been granted.
STRIKE
On March 21, 1993, the United Steelworkers of America Local 9121 (the
"Union") initiated a strike against the Company. Negotiations on a new contract
have continued, but differences have thus far precluded an agreement. The
Company cannot predict the impact that a new collective bargaining contract
will have on the Company's results. However, the Company believes a new
contract will not have a material effect on the Company's results. Also, the
Union has filed charges with the National Labor Relations Board alleging that
the Company has violated the National Labor Relations Act relating to its
bargaining conduct. The Company believes it has meritorious defenses to these
charges and has responded timely to all of these allegations and believes that
it has negotiated in good faith with the Union. An unfavorable decision by the
National Labor Relations Board, however, should not materially affect the
Company.
F-11
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ENVIRONMENTAL
The Company is subject to various Federal, state and local laws and
regulations concerning the discharge of contaminants which may be emitted into
the air, discharged into waterways, and the disposal of solids and/or hazardous
wastes such as electric arc furnace dust. In addition, in the event of a
release of a hazardous substance generated by the Company, the Company could be
potentially responsible for the remediation of contamination associated with
such a release. In the past, the Company's operations in some respects have not
met all of the applicable standards promulgated pursuant to such laws and
regulations. At this time, the Company believes that it is in compliance in all
material respects with applicable environmental requirements and that the cost
of such continuing compliance will not have a material adverse effect on the
Company's competitive position, operations or financial condition, or cause a
material increase in currently anticipated capital expenditures. The Company
currently has no mandated expenditures to address previously contaminated sites
and does not anticipate any infrequent or non-recurring clean-up expenditures.
Also, the Company is not designated as a Potential Responsible Party ("PRP")
under the Superfund legislation.
OTHER
The Company does not provide any post-employment or post-retirement benefits
to its employees other than those described in Note 10.
There are various claims and legal proceedings arising in the ordinary course
of business pending against or involving the Company wherein monetary damages
are sought. It is management's opinion that the Company's liability, if any,
under such claims or proceedings would not materially affect its financial
position.
10. EMPLOYEE RETIREMENT PLANS:
Effective October 1, 1991, the Company implemented two defined benefit
retirement plans (the "Plan(s)"), one for employees covered by the contracts
with the United Steelworkers of America ("hourly employees") and one for
substantially all other employees ("salaried employees"). The Plan for the
hourly employees provides benefits of stated amounts for a specified period of
service. The Plan for the salaried employees provides benefits based on
employees' years of service and average compensation for a specified period of
time before retirement. The Company follows the funding requirements under the
Employee Retirement Income Security Act of 1974 ("ERISA").
The net pension cost for both non-contributory Company sponsored pension
plans consists of the following components for fiscal year 1993 and 1992:
The actuarial present value of future benefit obligations:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Vested benefit obligation.............................. $ 490,977 $ 246,271
Non-vested benefit obligation.......................... 17,960 16,593
--------- ---------
Accumulated benefit obligation......................... $ 508,937 $ 262,864
========= =========
Projected benefit obligation........................... $ 776,582 $ 369,070
Plan assets at fair value.............................. (473,305) --
--------- ---------
Funded Status.......................................... 303,277 $ 369,070
Unrecognized net loss.................................. (118,300) (82,708)
Adjustment for additional liability.................... 23,319 16,297
--------- ---------
Accrued pension liability.............................. $ 208,296 $ 302,659
========= =========
</TABLE>
F-12
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Determination of net periodic pension cost:
<TABLE>
<S> <C> <C>
Service cost........................................... $ 336,676 $ 298,332
Interest cost.......................................... 27,216 --
Experience loss........................................ (14,203) (11,970)
Net amortization....................................... 2,838 --
Deficiency in accumulated benefit obligation........... 23,319 16,297
--------- ---------
Total net periodic pension cost........................ $ 375,846 $ 302,659
========= =========
</TABLE>
The primary actuarial assumptions used in determining the above benefit
obligation amounts were established on the September 30, 1993 and 1992
measurement dates and include a discount rate of 7.5% per annum on valuing
liabilities; long-term expected rate of return on assets of 9% per annum;
salary increases of 5% per annum for salaried employees; and an inflation rate
of 5% per annum.
11. MAJOR CUSTOMERS:
No single customer accounts for 10% or more of the total sales for the years
ended September 30, 1993, 1992 and 1991.
12. RELATED PARTY TRANSACTIONS:
SERVICE AGREEMENT WITH RELATED PARTIES
The Company and related parties controlled by a stockholder entered into a
Service Agreement dated September 5, 1986 (the Service Agreement), pursuant to
which the related parties provide certain assistance and services (research and
development, industrial and labor relations, engineering, legal, etc.) to the
Company for a fee. Costs charged for these services were approximately $87,000
for the year ended September 30, 1993, $107,000 for the year ended September
30, 1992, and $84,000 for the year ended September 30, 1991. The Service
Agreement may be terminated by either the Company or the related parties on 90
days' prior written notice to the other party.
OTHER AGREEMENTS WITH STOCKHOLDERS
The Company entered into an agreement on May 28, 1987 with a stockholder to
provide certain investment banking services to the Company over the next 7
years on a competitive, first refusal basis. Although services were provided,
no obligations were incurred in fiscal years 1993 and 1992. On June 20, 1991
and December 16, 1992, another minority shareholder entered into an arms length
success fee agreement with the Company with respect to merger and acquisition
advisory and private placement services in connection with a possible corporate
acquisition by the Company. During fiscal 1992, the Company paid $25,000 for
out-of-pocket expenses; during fiscal 1993 the Company paid $25,000 for
services under such agreement.
13. COMMON STOCK:
Income per common share is based on the average number of common shares
outstanding of 12,884,607 for the years ended September 30, 1993, 1992 and
1991, respectively.
Other than for voting rights, all classes of Common Stock have similar
rights. With respect to voting rights, Class B Common Stock has 60% and Class A
and Class C Common Stock have 40% of the votes except for special voting rights
for Class B and Class C Common Stock on liquidation and certain mergers
F-13
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(see Note 8). The Company's ability to pay dividends is subject to restrictive
covenants under both the Indenture pursuant to which the Company's Notes were
issued and the Company's line of credit (see Notes 6 and 7).
14. MISCELLANEOUS:
Miscellaneous income/(expense) as of September 30, 1993, 1992 and 1991
included the following:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Discount earned.................................. $149,648 $211,200 $ 68,122
Allowance for doubtful accounts.................. 174,994 233,025 (373,323)
Tax abatement refund FY'90....................... -- -- 813,186
Power company refund FY'81....................... -- -- 152,950
Other income..................................... 176,442 109,790 240,764
-------- -------- --------
$501,084 $554,015 $901,699
</TABLE>
15. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
FISCAL YEAR 1993 QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales.......................... $ 31,833 $ 33,408 $ 34,485 $ 36,282
Gross Profit....................... 3,634 2,040* 745 1,556
Net Income (Loss) Before
Extraordinary Gain (Loss)......... 347 (1,697) (4,078) (1,311)
Extraordinary Gain (Loss).......... 756 -- -- (170)
Net Income (Loss).................. 1,102 (1,697) (4,078) (1,481)
Income (Loss) Per Common Share
Before Extraordinary Gain (Loss).. .03 (.13) (.32) (.10)
Extraordinary Gain (Loss) Per
Common Share...................... .06 -- -- (.01)
Income (Loss) Per Common Share..... .09 (.13) (.32) (.11)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1992 QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales.......................... $ 29,211 $ 29,037 $ 31,050 $ 30,474
Gross Profit....................... 2,386 2,759 2,618 2,893
Net Income (Loss).................. (699) (352) (504) 203
Income (Loss) Per Common Share..... (.05) (.03) (.04) .02
</TABLE>
- --------
* Amount has been restated to conform with the 3rd and 4th quarter's 10-Q
presentation of strike-related expenses.
F-14
<PAGE>
BAYOU STEEL CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
DECEMBER 31, SEPTEMBER 30,
1993 1993
------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments.............. $ 3,073,937 $ 517,900
Trade receivables................................ 14,096,150 18,350,338
Other receivables................................ 451,635 326,569
Inventories...................................... 53,930,823 48,486,409
Prepaid expenses................................. 802,908 222,277
------------ ------------
Total current assets........................... 72,355,453 67,903,493
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements............................ 4,124,002 4,124,002
Machinery and equipment.......................... 73,139,509 72,954,682
Plant and office building........................ 12,663,242 12,663,242
Construction in progress......................... 3,531,274 3,302,602
Less-Accumulated depreciation.................... (24,949,331) (23,785,624)
------------ ------------
Net property, plant and equipment.............. 68,508,696 69,258,904
------------ ------------
OTHER ASSETS....................................... 1,546,357 1,117,788
------------ ------------
Total assets................................... $142,410,506 $138,280,185
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................. $ 19,167,924 $ 17,671,926
Accrued liabilities.............................. 6,840,346 4,560,249
Current maturities of long-term debt............. 9,249,068 9,282,156
Borrowings under line of credit.................. 5,900,000 4,000,000
------------ ------------
Total current liabilities...................... 41,157,338 35,514,331
------------ ------------
LONG-TERM DEBT:
Senior secured notes............................. 39,900,000 39,900,000
Notes payable.................................... 1,094,865 1,634,625
------------ ------------
Total long-term debt........................... 40,994,865 41,534,625
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value--
Class A.......................................... 106,134 106,134
Class B.......................................... 22,711 22,711
Class C.......................................... 1 1
------------ ------------
Total common stock............................. 128,846 128,846
Paid-in capital.................................... 44,890,554 44,890,554
Retained earnings.................................. 15,238,903 16,211,829
------------ ------------
Total stockholders' equity..................... 60,258,303 61,231,229
------------ ------------
Total liabilities & stockholders' equity....... $142,410,506 $138,280,185
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
BAYOU STEEL CORPORATION
STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
DECEMBER 31,
------------------------
1993 1992
----------- -----------
<S> <C> <C>
NET SALES............................................. $36,778,489 $31,832,929
COST OF SALES......................................... 34,558,324 28,198,559
----------- -----------
GROSS PROFIT.......................................... 2,220,165 3,634,370
SELLING, GENERAL & ADMINISTRATIVE EXPENSES............ 889,849 1,080,693
NON-PRODUCTION STRIKE EXPENSES........................ 399,181 --
----------- -----------
OPERATING INCOME...................................... 931,135 2,553,677
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense.................................... (1,884,614) (2,224,618)
Interest income..................................... 20,447 52,321
Miscellaneous....................................... (39,899) (34,679)
----------- -----------
(1,904,066) (2,206,976)
----------- -----------
INCOME (LOSS) BEFORE TAXES AND EXTRAORDINARY GAIN..... (972,931) 346,701
PROVISION FOR INCOME TAXES............................ -- --
----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN............... (972,931) 346,701
EXTRAORDINARY GAIN, NET OF APPLICABLE INCOME TAX...... -- 755,788
----------- -----------
NET INCOME (LOSS)..................................... $ (972,931) $ 1,102,489
=========== ===========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING........... 12,884,607 12,884,607
=========== ===========
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary gain............. $ (.08) $ .03
Extraordinary gain.................................. -- .06
----------- -----------
Income (loss) per common share...................... $ (.08) $ .09
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
BAYOU STEEL CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
DECEMBER 31,
------------------------
1993 1992
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ (972,931) $ 1,102,489
Extraordinary gain................................. -- (755,788)
Depreciation and amortization...................... 1,250,086 1,277,926
Provision for losses on accounts receivable........ 112,369 90,080
Changes in working capital:
Decrease (increase) in receivables................ 4,016,754 (2,297,836)
(Increase) decrease in inventories................ (5,444,415) 1,151,286
(Increase) in prepaid expenses.................... (580,631) (533,424)
Increase (decrease) in accounts payable........... 1,496,001 (4,603,392)
Increase in accrued liabilities................... 2,280,097 1,093,228
----------- -----------
Net cash provided by (used in) operations........ 2,157,330 (3,475,431)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Addition of property, plant and equipment.......... (413,498) (1,186,777)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under line of credit..................... 1,900,000 --
Payments of long-term debt......................... (572,847) (3,786,725)
(Increase) in other assets......................... (514,948) --
----------- -----------
Net cash provided by (used in) financing activi-
ties............................................ 812,205 (3,786,725)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. 2,556,037 (8,448,933)
CASH AND CASH EQUIVALENTS, beginning balance......... 517,900 11,149,702
----------- -----------
CASH AND CASH EQUIVALENTS, ending balance............ $ 3,073,937 $ 2,700,769
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
(UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). Certain information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations. Although Bayou Steel Corporation (the Company) believes that
disclosures made are adequate to ensure that information presented is not
misleading, it is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's latest annual report, Form 10-K, filed with the SEC on December 13,
1993 under File Number 33-22603.
In the opinion of the Company, the accompanying unaudited financial
statements present fairly the Company's financial position as of December 31,
1993 and September 30, 1993 and the results of its operations for the three-
month periods ended December 31, 1993 and 1992 and the cash flow statements for
the three-month periods ended December 31, 1993 and 1992.
The results of operations for the three-month periods ended December 31, 1993
and 1992 are not necessarily indicative of the results for the full year.
2. INVENTORIES:
Inventories as of December 31, 1993 and September 30, 1993 consisted of the
following:
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
DECEMBER 31, SEPTEMBER 30,
1993 1993
------------ -------------
<S> <C> <C>
Scrap steel..................................... $ 4,702,655 $ 3,187,963
Billets......................................... 3,229,014 3,918,223
Finished product................................ 29,445,896 25,242,294
LIFO adjustments................................ (545,106) (324,303)
----------- -----------
$36,832,459 $32,024,177
Mill rolls, operating supplies and other........ 17,098,364 16,462,231
----------- -----------
$53,930,823 $48,486,408
=========== ===========
</TABLE>
The inventory valuations are based on LIFO estimates of year-end levels and
prices. The actual LIFO inventories will not be known until year-end quantities
and indices are determined.
Shapes, billets, scrap steel, and certain production supplies are pledged as
collateral against the Company's line of credit.
3. PROPERTY, PLANT AND EQUIPMENT:
Betterments, improvements, and additions on property, plant and equipment are
capitalized at cost. Interest during construction of significant additions is
capitalized. Interest of $15,000 and $14,000 was capitalized during the three-
month periods ended December 31, 1993 and 1992, respectively. Interest of
$115,000 was capitalized during the fiscal year ended September 30, 1993.
F-18
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. OTHER ASSETS:
Other assets consist of costs associated with the issuance of the Senior
Secured Notes (the 14.75% Notes) and the Company's lines of credit.
Amortization expense was $86,000 and $179,000 for the three-month periods ended
December 31, 1993 and 1992. Amortization expense was $458,000 for the fiscal
year ended September 30, 1993.
5. LONG-TERM DEBT:
The Company has accrued interest on the 14.75% Notes at the rate of 14.75%
and 15.29% for the three-month periods ended December 31, 1993 and 1992,
respectively. The Company is required to redeem $9.0 million in principal of
its 14.75% Notes on March 15, 1994. The net proceeds of this Offering will be
used for the repayment of outstanding indebtedness, implementation of capital
projects and general working capital purposes.
6. SHORT-TERM DEBT:
On November 23, 1993, the Company entered into an amendment and restatement
of the line of credit agreement. The terms of the agreement call for available
borrowings up to $30 million including outstanding letters of credit. The
agreement is secured by inventory and accounts receivable at interest rates of
prime plus 1% or LIBOR plus 2%. The amount available under the line as of
December 31, 1993 was $22.6 million. There was $5.9 million borrowed under the
line as of December 31, 1993.
Maximum and average borrowings and weighted average interest rates on short-
term borrowings during the first quarter of fiscal 1994, follows:
<TABLE>
<S> <C>
Maximum borrowings outstanding................................... $5,900,000
Average borrowings outstanding................................... $4,485,000
Weighted average interest rate................................... 5.1%
</TABLE>
7. TAXES:
As of September 30, 1993, for tax purposes, the Company had net operating
loss carryforwards ("NOLs") of approximately $310.5 million and $284.5 million
available to offset against regular tax and alternative minimum tax
respectively. Due to the fact that book and tax losses were generated in 1993,
1992 and 1991, there was no provision for income taxes in any of these years.
The NOLs will expire in varying amounts through fiscal 2008. A substantial
portion of the available NOLs, approximately $200 million, expires by fiscal
2000. In addition, the Company has $30.2 million of future tax benefits
attributable to its tax benefit lease which expires in 1996 and which may, to
the extent of taxable income in the year such tax benefit is produced, be
utilized prior to the NOLs. Even though management believes the Company will be
profitable in the future and will be able to utilize a portion of the NOLs,
management does not believe that it is likely that all of the NOLs will be
utilized. In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"), which was adopted beginning October 1, 1993. FAS 109
requires, among other things, recognition of future tax benefits, subject to a
valuation allowance based on the likelihood of realizing such benefits.
Deferred tax assets of approximately $118 million (NOLs and other temporary
timing differences multiplied by the federal income tax rate) and deferred tax
liabilities of approximately $8 million were recorded upon adoption of FAS 109
in the first quarter of fiscal 1994. However, in recording these deferred
assets, FAS 109 requires the Company to determine whether it is "more
F-19
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
likely than not" that the Company will realize such benefits and that all
negative and positive evidence be considered (with more weight given to
evidence that is "objective and verifiable") in making the determination. FAS
109 indicates that "forming a conclusion that a valuation allowance is not
needed is difficult when there is negative evidence such as cumulative losses
in recent years"; therefore, the Company has determined that it is required by
the provisions of FAS 109 to establish a valuation allowance for all of the
recorded net deferred tax assets. In view of the fact that this determination
is based primarily on historical losses with no regard for the impact of
proposed capital expenditures and business plans, future favorable adjustments
to the valuation allowance may be required if and when circumstances change and
the Company returns to profitability. Adoption of FAS 109 will have no material
adverse impact on income for financial reporting or tax purposes.
8. MISCELLANEOUS:
Miscellaneous for the three-month period ended December 31, 1993 and 1992
included the following:
<TABLE>
<CAPTION>
DECEMBER 1993 DECEMBER 1992
------------- -------------
<S> <C> <C>
Discount earned.................................. $ 59,221 $ 24,561
Provision for bad debts.......................... (112,368) (90,080)
Other............................................ 13,248 30,840
--------- --------
$ (39,899) $(34,679)
========= ========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES:
STRIKE
On March 21, 1993, the United Steelworkers of America Local 9121 (the
"Union") initiated a strike against the Company. Negotiations on a new contract
have continued, but differences have thus far precluded an agreement. The
Company cannot predict the impact that a new collective bargaining contract
will have on the Company's results. However, the Company believes a new
contract will not have a material effect on the Company's results. Also, the
Union has filed charges with the National Labor Relations Board alleging that
the Company has violated the National Labor Relations Act relating to its
bargaining conduct. The Company believes it has meritorious defenses to these
charges and has responded timely to all of these allegations and believes that
it has negotiated in good faith with the Union. An unfavorable decision by the
National Labor Relations Board, however, should not materially affect the
Company.
ENVIRONMENTAL
The Company is subject to various Federal, state and local laws and
regulations concerning the discharge of contaminants which may be emitted into
the air, discharged into waterways, and the disposal of solids and/or hazardous
wastes such as electric arc furnace dust. In addition, in the event of a
release of a hazardous substance generated by the Company, the Company could be
potentially responsible for the remediation of contamination associated with
such a release. In the past, the Company's operations in some respects have not
met all of the applicable standards promulgated pursuant to such laws and
regulations. At this time, the Company believes that it is in compliance in all
material respects with applicable environmental requirements and that the cost
of such continuing compliance will not have a material adverse effect on the
Company's competitive position, operations or financial condition, or cause a
material increase in currently anticipated capital expenditures. The Company
currently has no mandated expenditures to address previously contaminated sites
and does not anticipate any infrequent or non-recurring clean-up expenditures.
Also, the Company is not designated as a Potential Responsible Party ("PRP")
under the Superfund legislation.
F-20
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
OTHER
There are various claims and legal proceedings arising in the ordinary course
of business pending against or involving the Company wherein monetary damages
are sought. It is management's opinion that the Company's liability, if any,
under such claims or proceedings would not materially affect its financial
position.
F-21
<PAGE>
[Graphics to appear here.]
1
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REP-
RESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HERE-
UNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMA-
TION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Prospectus Summary........................................................ 4
Investment Considerations................................................. 11
Use of Proceeds........................................................... 17
Capitalization............................................................ 18
Selected Financial Data................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 29
Management................................................................ 43
Principal Stockholders.................................................... 49
Certain Related Party Transactions........................................ 52
Description of the First Mortgage Notes................................... 54
Description of Certain Indebtedness....................................... 83
Certain Federal Income Tax Consequences................................... 86
Underwriting.............................................................. 87
Legal Matters............................................................. 88
Experts................................................................... 88
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BAYOU STEEL CORPORATION
$75,000,000
% FIRST MORTGAGE NOTES DUE 2001
-------------
PROSPECTUS
-------------
CHEMICAL SECURITIES INC.
FEBRUARY , 1994
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated (except for the Securities and
Exchange Commission registration fee and the National Association of Securities
Dealers, Inc. filing fee) fees and expenses in connection with the offering
described in this Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 25,862.07
National Association of Securities Dealers, Inc. filing fee...... 8,000.00
Trustee and fees................................................. 15,000.00
Blue sky filing and counsel fees and expenses.................... 20,000.00
Printing and engraving........................................... 160,000.00
Accountants' fees and expense.................................... 50,000.00
Legal fees and expenses.......................................... 400,000.00
Rating agency fees............................................... 50,000.00
Miscellaneous.................................................... 5,000.00
-----------
Total.......................................................... $733,862.07
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Second Restated Certificate of Incorporation (the "Charter")
provides that the Company shall, to the full extent permitted by Section 145 of
the General Corporation Law of the State of Delaware, as amended from time to
time ("DGCL"), indemnify all persons whom it may indemnify pursuant thereto. In
addition, the Charter eliminates personal liability to the Company of its
directors to the full extent permitted by Section 102(b)(7) of the DGCL. The
Company maintains policies of insurance to protect directors and officers
against certain liabilities asserted against or incurred by them in their
individual or collective capacities as directors or officers of the Company.
Section 145 of the DGCL permits a corporation to indemnify its directors and
officers against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by third parties, if
such directors or officers acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. In a derivative action, i.e., one by or in
the right of the corporation, indemnification may be made only for expenses
(including attorney fees) actually and reasonably incurred by directors and
officers in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation unless and only
to the extent that a court shall determine that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as a court shall
deem proper, although the court in which the action or suit was brought may
determine upon application that the defendant officers or directors are
reasonably entitled to indemnity for expenses despite such adjudication of
liability.
Section 102(b)(7) of the DGCL provides that a corporation may eliminate or
limit the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, or (iv) for any transaction from which the
director or officer derived an improper personal benefit. No such provision
shall eliminate or limit the liability of a director or officer for any act or
omission occurring prior to the date when such provision becomes effective.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. Exhibits
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
1.1 Form of Underwriting Agreement between the Company and Chemical
Securities Inc. (previously filed with this Registration Statement).
3.1 Second Restated Certificate of Incorporation of the Company
(incorporated by reference herein to Post-Effective Amendment No. 1 to
Registration Statement on Form S-1 (No. 33-10745)).
3.2 By-laws of the Company (incorporated herein by reference to
Registration Statement on Form S-1 (No. 33-10745)).
4.1 Form of Indenture (including form of First Mortgage Note) between the
Company and First National Bank of Commerce as trustee (the "Trustee").
4.2 Form of Mortgage granted by the Company and Subsidiary Guarantors to
the Trustee (Louisiana) (previously filed with Amendment No. 1 to this
Registration Statement).
4.3 Form of Mortgage, Assignment of Rents and Leases and Security Agreement
from the Company to the Trustee (Non-Louisiana) (previously filed with
Amendment No. 1 to this Registration Statement).
4.4 Form of Mortgage, Assignment of Rents and Leases and Security Agreement
from Subsidiary Guarantors to the Trustee (Non-Louisiana) (previously
filed with Amendment No. 1 to this Registration Statement).
4.5 Form of Security Agreement between the Company and the Trustee
(previously filed with Amendment No. 1 to this Registration Statement).
4.6 Form of Subsidiary Security Agreement between Subsidiary Guarantors and
the Trustee (previously filed with Amendment No. 1 to this Registration
Statement).
4.7 Form of Intercreditor Agreement between the Trustee and Chemical Bank,
as agent under the Credit Agreement (previously filed with Amendment
No. 1 to this Registration Statement).
4.8 Form of Subsidiary Guarantee between each recourse subsidiary of the
Company and the Trustee (previously filed with Amendment No. 1 to this
Registration Statement).
4.9 Form of Release of Federal Income Tax Ownership and Agreement between
the Trustee and the Company, Voest-Alpine A. G. and Howard M. Meyers
(previously filed with Amendment No. 1 to this Registration Statement).
5 Opinion of Kaye, Scholer, Fierman, Hays & Handler.
10.1 Employment Letter dated July 26, 1988, between Howard M. Meyers and the
Company (incorporated herein by reference to Post-Effective Amendment
No. 1 to Registration Statement on Form S-1 (No. 33-10745)).
10.2 (i) Agreement dated November 11, 1981, between Amoco Tax Leasing I
Corporation ("Amoco") and the Company, (ii) letter dated December 7,
1981 from Voest-Alpine A.G. ("VA") and Voest-Alpine International
Corporation ("VAIC") to Amoco, and (iii) letter dated November 11, 1981
from VAIC, Honen Investissements SARL, Barzel Investissements SARL,
Anku Foundation, Raphaely Steel Investments, N.V., Landotal Properties,
Inc., Canota Investments, Ltd., S.A. and Beruga Establishment and VA to
Amoco (incorporated herein by reference to Registration Statement on
Form S-1 (No.33-10745)).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
10.3 Release of Federal Income Tax Ownership and Agreement dated September
5, 1986, among the Company, First National Bank of Commerce, Bayou
Steel Acquisition Corporation, VA and Howard M. Meyers (incorporated
herein by reference to Registration Statement on Form S-1 (No.
33-10745)).
10.4 Service Agreement dated September 5, 1986, between the Company and RSR
Corporation and the assignment by RSR Corporation of a portion of its
interest in the Service Agreement to RSR Holding Corp., now known as
Quexco Incorporated (incorporated herein by reference to Registration
Statement on Form S-1 (No.33-10745)).
10.5 Letter Agreement dated May 28, 1987 between the Company and Allen &
Company Incorporated relating to investment banking services
(incorporated herein by reference to Registration Statement on Form S-1
(No.33-10745)).
10.6 Agreement dated June 20, 1991 among the Company, MMG Patricof & Co.,
Inc., and MMG Placement Corp. relating to investment banking services
(incorporated herein by reference to Post-Effective Amendment No. 4 to
Registration Statement on Form S-1 (No. 33-10745)).
10.7 Agreement dated December 16, 1992 between the Company and Patricof &
Co. Capital Corp. relating to investment banking services (previously
filed with Amendment No. 1 to this Registration Statement).
10.8 Warehouse (Stocking Location) Leases.
(i) Leetsdale, Pennsylvania (incorporated herein by reference to
Registration Statement on Form S-1 (No. 33-10745)).
(ii) Catoosa, Oklahoma (incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1989).
10.9 Tax Abatement Agreement dated July 10, 1985 between the Company and the
Louisiana Board of Commerce and Industry (incorporated herein by
reference to Registration Statement on Form S-1 (No. 33-22603)).
10.10 Tax Abatement Renewal Agreement dated August 22, 1990 between the
Company and the State of Louisiana Board of Commerce and Industry
(incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1989).
10.11 Credit Agreement dated as of June 28, 1989, as amended and restated
through November 23, 1993, among the Company, the Lenders named
therein, and Chemical Bank, as agent (the "Credit Agreement")
(previously filed with this Registration Statement).
10.12 Security Agreement dated as of June 28, 1989, as amended and restated
through November 23, 1993, among the Company, the Lenders named in the
Credit Agreement, and Chemical Bank, as agent (previously filed with
this Registration Statement).
10.13 Intercreditor Agreement dated as of November 23, 1993 between First
National Bank of Commerce and Chemical Bank as agent under the Credit
Agreement (previously filed with this Registration Statement).
10.14 Loan Agreement dated as of January 9, 1991 between the Company and
Hibernia National Bank (previously filed with Amendment No. 1 to this
Registration Statement).
10.15 First Amendment dated as of November 22, 1993 to the Loan Agreement
dated as of January 9, 1991 between the Company and Hibernia National
Bank (previously filed with this Registration Statement).
10.16 Mortgage, Security Agreement and Financing Statement dated as of
January 9, 1991 by the Company in favor of Hibernia National Bank
(previously filed with Amendment No. 1 to this Registration Statement).
10.17 First Amendment dated as of November 22, 1993 to Mortgage, Security
Agreement and Financing Statement dated as of January 9, 1991 by the
Company in favor of Hibernia National Bank (previously filed with this
Registration Statement).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
10.18 Intercreditor Agreement dated as of November 23, 1993 between Chemical
Bank and Hibernia National Bank (previously filed with this
Registration Statement).
10.19 Security Agreement dated as of November 22, 1993 between the Company
and Hibernia National Bank (previously filed with this Registration
Statement).
10.20 Bayou Steel Corporation Savings Plan dated March 7, 1991 (previously
filed with Amendment No. 1 to this Registration Statement).
10.21 Incentive Compensation Plan for Key Employees dated March 3, 1988
(incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1991).
10.22 1991 Employees' Stock Option Plan dated April 18, 1991 with technical
amendments (incorporated herein by reference to Post-Effective
Amendment No. 4 to Registration Statement on Form S-1 (No. 33-10745)).
10.23 Pension Plan for Bargained Employees and the Employees Retirement Plan
(incorporated by herein by reference to Post-Effective Amendment No. 5
to the Company's Registration Statement on Form S-1 (No. 33-10745)).
10.24 Amendment among the Company, Bayou Scrap Corporation, River Road Realty
Corporation, the Lenders named in the Credit Agreement, and Chemical
Bank, as agent.
12 Computation of Earnings to Fixed Charges.
18.1 Letter from Arthur Andersen & Co. regarding change in accounting method
from first-in, first-out (FIFO) to last-in, first-out (LIFO) method of
accounting for inventories (incorporated herein by reference to the
Annual Report on Form 10-K for the year ended September 30, 1989).
18.2 Letter from Arthur Andersen & Co. regarding change in method of
accounting for interest from the effective interest method to another
acceptable method (incorporated herein by reference to the Annual
Report on Form 10-K for the year ended September 30, 1990).
23.1 Consent of Arthur Andersen & Co. (previously filed with Amendment No. 2
to this Registration Statement).
23.2 Consent of Kaye, Scholer, Fierman, Hays & Handler is included in the
opinion of Kaye, Scholer, Fierman, Hays & Handler, filed as Exhibit 5.
23.3 Consent of Jones, Walker, Waechter, Poitevent, Carrere & Denegre.
24 Powers of Attorney (reference is made to the signature page of this
Registration Statement).
25 Statement of Eligibility of Trustee under the Trust Indenture Act of
1939 on Form T-1 (previously filed with Amendment No. 1 to this
Registration Statement).
99.1 Environmental Audit: Bayou Steel Corporation dated December 10, 1993
prepared by Disposal Safety Incorporated for, and distributed by, the
United Steel Workers of America ("USWA").
99.2 Bayou Steel Corporation Stakeholder Investment Considerations, prepared
and distributed by USWA.
</TABLE>
B. Financial Statement Schedules
Report of Independent Public Accountants
Schedule V Property, Plant and Equipment
Schedule VI Accumulated Depreciation of Property, Plant and Equipment
Schedule VIII Valuation and Qualifying Accounts
Schedule X Supplementary Income Statement Information
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
II-4
<PAGE>
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF
LAPLACE AND STATE OF LOUISIANA ON FEBRUARY 11, 1994.
Bayou Steel Corporation
By /s/ Richard J. Gonzalez
----------------------------------
RICHARD J. GONZALEZ
VICE PRESIDENT, TREASURER AND
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY AUTHORIZES HOWARD M. MEYERS AND RICHARD J. GONZALEZ AS ATTORNEYS-
IN-FACT, TO SIGN AND FILE ON HIS BEHALF, IN THE CAPACITY STATED BELOW, ALL
AMENDMENTS AND POST-EFFECTIVE AMENDMENTS TO THIS REGISTRATION STATEMENT.
<TABLE>
<CAPTION>
TITLE DATE
----- ----
<S> <C> <C>
* Chairman of the Board, February 11, 1994
- ------------------------------------- Chief Executive Officer,
HOWARD M. MEYERS President and Director
* Vice President, February 11, 1994
- ------------------------------------- Treasurer and Chief
RICHARD J. GONZALEZ Financial Officer
* Director February 11, 1994
- -------------------------------------
JOHN A. CANNING, JR.
Director February 11, 1994
- -------------------------------------
LAWRENCE E. GOLUB
* Director February 11, 1994
- -------------------------------------
MELVYN N. KLEIN
* Director February 11, 1994
- -------------------------------------
ALBERT P. LOSPINOSO
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
TITLE DATE
----- ----
<S> <C> <C>
* Director February 11, 1994
- -------------------------------------
ALAN J. PATRICOF
* Director February 11, 1994
- -------------------------------------
STANLEY S. SHUMAN
*By /s/ Richard J. Gonzalez
----------------------------------
Richard J. Gonzalez
Individually and as
Attorney-In-Fact
</TABLE>
II-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Bayou Steel Corporation:
We have audited, in accordance with generally accepted auditing standards,
the financial statements included in this registration statement. Our audit was
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedules listed in the index above are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. The schedules have been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen & Co.
New Orleans, Louisiana,
November 24, 1993
S-1
<PAGE>
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING ADDITIONS RECLASSIFICATIONS END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS PERIOD
-------------- ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
Year Ended September 30,
1993
Land................... $ 2,411,182 $ 339,216 $ $ 2,750,398
Machinery and
Equipment............. 71,119,778 1,834,903 72,954,681
Plant and Office
Building.............. 12,394,461 1,642,384 14,036,845
Construction-in-
Progress.............. 3,934,743 2,761,076 (3,393,215) 3,302,604
----------- ----------- ------------ -----------
TOTAL................ $89,860,164 $ 6,577,579 $ (3,393,215) $93,044,528
=========== =========== ============ ===========
Year Ended September 30,
1992
Land................... $ 2,411,182 $ $ $ 2,411,182
Machinery and
Equipment............. 69,031,413 2,119,651 (31,286) 71,119,778
Plant and Office
Building.............. 8,614,736 3,779,725 12,394,461
Construction-in-
Progress.............. 6,590,768 3,243,351 (5,899,376) 3,934,743
----------- ----------- ------------ -----------
TOTAL................ $86,648,099 $ 9,142,727 $ (5,930,662) $89,860,164
=========== =========== ============ ===========
Year Ended September 30,
1991
Land................... $ 2,111,182 $ 300,000 $ $ 2,411,182
Machinery and
Equipment............. 62,002,031 7,464,798 (435,416) 69,031,413
Plant and Office
Building.............. 3,698,639 4,916,097 8,614,736
Construction-in-
Progress.............. 11,731,454 7,240,209 (12,380,895) 6,590,768
----------- ----------- ------------ -----------
TOTAL................ $79,543,306 $19,921,104 $(12,816,311) $86,648,099
=========== =========== ============ ===========
SCHEDULE VI--ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1992 AND 1991
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING ADDITIONS END OF
DESCRIPTION OF PERIOD AT COST RETIREMENTS PERIOD
----------- ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
Year Ended September 30,
1993
Machinery and
Equipment............. $18,759,410 $ 3,917,892 $ $22,677,302
Plant and Office
Building.............. 864,965 243,357 1,108,322
----------- ----------- ------------ -----------
TOTAL................ $19,624,375 $ 4,161,249 $ $23,785,624
=========== =========== ============ ===========
Year Ended September 30,
1992
Machinery and
Equipment............. $15,037,292 $ 3,744,712 $ (22,594) $18,759,410
Plant and Office
Building.............. 633,224 231,741 864,965
----------- ----------- ------------ -----------
TOTAL................ $15,670,516 $ 3,976,453 $ (22,594) $19,624,375
=========== =========== ============ ===========
Year Ended September 30,
1991
Machinery and
Equipment............. $11,984,762 $ 3,321,822 $ (269,292) $15,037,292
Plant and Office
Building.............. 482,849 150,375 633,224
----------- ----------- ------------ -----------
TOTAL................ $12,467,611 $ 3,472,197 $ (269,292) $15,670,516
=========== =========== ============ ===========
</TABLE>
S-2
<PAGE>
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS (1) PERIOD
----------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
September 30, 1993
Allowance for doubtful
accounts.................... $ 943,267 $(174,994) $ 225,548 $ 542,725
---------- --------- --------- ----------
September 30, 1992
Allowance for doubtful
accounts.................... $1,213,720 $ (36,096) $ 234,357 $ 943,267
---------- --------- --------- ----------
September 30, 1991
Allowance for doubtful
accounts.................... $1,420,690 $ 373,323 $ 580,293 $1,213,720
---------- --------- --------- ----------
</TABLE>
- --------
(1) Write-off of uncollectible accounts.
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
ITEM 1993 1992 1991
---- ----------- ----------- -----------
<S> <C> <C> <C>
Maintenance and Repairs..................... $ 9,001,320 $ 8,827,799 $ 8,944,936
Depreciation
Inventory................................. $ -- $ 87,193 $ --
Cost of Sales............................. 4,156,849 3,884,913 3,467,871
Selling, General and Administrative....... 4,398 4,347 4,326
Amortization
Loan Acquisition Costs (1)................ $ 457,770 $ 332,483 $ 331,094
</TABLE>
- --------
(1) Represents amortization of costs associated with the issuance of the Senior
Secured Notes entered into on September 5, 1986 and the line of credit
entered into on June 28, 1989.
S-3
<PAGE>
BAYOU STEEL CORPORATION
(Graphics Appendix List)
EDGAR Version Typeset Version
- ------------- ---------------
Inside Front Cover; Graphic #1 is a color picture of the inside
contains graphics #1, #2, & #3 of Bayou Steel's warehouse with various
stacks of its products visible. The caption
reads: "Bayou Steel is a leading producer of
a variety of light structural steel
products."
Graphic #2 is a color picture of molten steel
pouring from the Company's furnance into a
ladle. The caption reads: "The Company
melts scrap in a 75-ton capacity Krupp
electric arc furnace."
Graphic #3 is a color picture of the
Company's rolling mill. The caption reads:
"The Company's rolling mill molds billets
into a variety of shape dimensions and
sizes."
Inside Back Cover: Graphic #4 is a color map of the United
contains graphics #4 & #5 States with Bayou Steel locations marked.
Graphic #5 is the color logo of the Company.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT PAGE
- ------ ------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement between the Company and Chemical
Securities Inc. (previously filed with this Registration Statement).
3.1 Second Restated Certificate of Incorporation of the Company
(incorporated by reference herein to Post-Effective Amendment No. 1 to
Registration Statement on Form S-1 (No. 33-10745)).
3.2 By-laws of the Company (incorporated herein by reference to Registration
Statement on Form S-1 (No. 33-10745)).
4.1 Form of Indenture (including form of First Mortgage Note) between the
Company and First National Bank of Commerce as trustee (the "Trustee").
4.2 Form of Mortgage granted by the Company and Subsidiary Guarantors to the
Trustee (Louisiana) (previously filed with Amendment No. 1 to this
Registration Statement).
4.3 Form of Mortgage, Assignment of Rents and Leases and Security Agreement
from the Company to the Trustee (Non-Louisiana) (previously filed with
Amendment No. 1 to this Registration Statement).
4.4 Form of Mortgage, Assignment of Rents and Leases and Security Agreement
from Subsidiary Guarantors to the Trustee (Non-Louisiana) (previously
filed with Amendment No. 1 to this Registration Statement).
4.5 Form of Security Agreement between the Company and the Trustee
(previously filed with Amendment No. 1 to this Registration Statement).
4.6 Form of Subsidiary Security Agreement between the Subsidiary Guarantors
and the Trustee (previously filed with Amendment No. 1 to this
Registration Statement).
4.7 Form of Intercreditor Agreement between the Trustee and Chemical Bank,
as agent under the Credit Agreement (previously filed with Amendment No.
1 to this Registration Statement).
4.8 Form of Subsidiary Guarantee between recourse subsidiaries of the
Company and the Trustee (previously filed with Amendment No. 1 to this
Registration Statement).
4.9 Form of Release of Federal Income Tax Ownership and Agreement between
the Trustee and the Company (previously filed with Amendment No. 1 to
this Registration Statement).
5 Opinion of Kaye, Scholer, Fierman, Hays & Handler.
10.1 Employment Letter dated July 26, 1988, between Howard M. Meyers and the
Company (incorporated herein by reference to Post-Effective Amendment
No. 1 to Registration Statement on Form S-1 (No. 33-10745)).
10.2 (i) Agreement dated November 11, 1981, between Amoco Tax Leasing I
Corporation ("Amoco") and the Company, (ii) letter dated December 7,
1981 from Voest-Alpine A.G. ("VA") and Voest-Alpine International
Corporation ("VAIC") to Amoco, and (iii) letter dated November 11, 1981
from VAIC, Honen Investissements SARL, Barzel Investissements SARL, Anku
Foundation, Raphaely Steel Investments, N.V., Landotal Properties, Inc.,
Canota Investments, Ltd., S.A. and Beruga Establishment and VA to Amoco
(incorporated herein by reference to Registration Statement on Form S-1
(No.33-10745)).
10.3 Release of Federal Income Tax Ownership and Agreement dated September 5,
1986, among the Company, First National Bank of Commerce, Bayou Steel
Acquisition Corporation, VA and Howard M. Meyers (incorporated herein by
reference to Registration Statement on Form S-1 (No. 33-10745)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT PAGE
------ ------- ----
<S> <C> <C>
10.4 Service Agreement dated September 5, 1986, between the Company and RSR
Corporation and the assignment by RSR Corporation of a portion of its
interest in the Service Agreement to RSR Holding Corp., now known as
Quexco Incorporated (incorporated herein by reference to Registration
Statement on Form S-1 (No.33-10745)).
10.5 Letter Agreement dated May 28, 1987 between the Company and Allen &
Company Incorporated relating to investment banking services
(incorporated herein by reference to Registration Statement on Form S-1
(No.33-10745)).
10.6 Agreement dated June 20, 1991 among the Company, MMG Patricof & Co.,
Inc., and MMG Placement Corp. relating to investment banking services
(incorporated herein by reference to Post-Effective Amendment No. 4 to
Registration Statement on Form S-1 (No. 33-10745)).
10.7 Agreement dated December 16, 1992 between the Company and Patricof & Co.
Capital Corp. relating to investment banking services (previously filed
with Amendment No. 1 to this Registration Statement).
10.8 Warehouse (Stocking Location) Leases.
(i) Leetsdale, Pennsylvania (incorporated herein by reference to
Registration Statement on Form S-1 (No. 33-10745)).
(ii) Catoosa, Oklahoma (incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1989).
10.9 Tax Abatement Agreement dated July 10, 1985 between the Company and the
Louisiana Board of Commerce and Industry (incorporated herein by
reference to Registration Statement on Form S-1 (No. 33-22603)).
10.10 Tax Abatement Renewal Agreement dated August 22, 1990 between the
Company and the State of Louisiana Board of Commerce and Industry
(incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1989).
10.11 Credit Agreement dated as of June 28, 1989, as amended and restated
through November 23, 1993, among the Company, the Lenders named therein,
and Chemical Bank, as agent (the "Credit Agreement") (previously filed
with this Registration Statement).
10.12 Security Agreement dated as of June 28, 1989, as amended and restated
through November 23, 1993, among the Company, the Lenders named in the
Credit Agreement, and Chemical Bank, as agent (previously filed with
this Registration Statement).
10.13 Intercreditor Agreement dated as of November 23, 1993 between First
National Bank of Commerce and Chemical Bank as agent under the Credit
Agreement (previously filed with this Registration Statement).
10.14 Loan Agreement dated as of January 9, 1991 between the Company and
Hibernia National Bank (previously filed with Amendment No. 1 to this
Registration Statement).
10.15 First Amendment dated as of November 22, 1993 to the Loan Agreement
dated as of January 9, 1991 between the Company and Hibernia National
Bank (previously filed with this Registration Statement).
10.16 Mortgage, Security Agreement and Financing Statement dated as of January
9, 1991 by the Company in favor of Hibernia National Bank (previously
filed with Amendment No. 1 to this Registration Statement).
10.17 First Amendment dated as of November 22, 1993 to Mortgage, Security
Agreement and Financing Statement dated as of January 9, 1991 by the
Company in favor of Hibernia National Bank (previously filed with this
Registration Statement).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT PAGE
------ ------- ----
<S> <C> <C>
10.18 Intercreditor Agreement dated as of November 23, 1993 between Chemical
Bank and Hibernia National Bank (previously filed with this Registration
Statement).
10.19 Security Agreement dated as of November 22, 1993 between the Company and
Hibernia National Bank (previously filed with this Registration
Statement).
10.20 Bayou Steel Corporation Savings Plan dated March 7, 1991 (previously
filed with Amendment No. 1 to this Registration Statement).
10.21 Incentive Compensation Plan for Key Employees dated March 3, 1988
(incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1991).
10.22 1991 Employees' Stock Option Plan dated April 18, 1991 with technical
amendments (incorporated herein by reference to Post-Effective Amendment
No. 4 to Registration Statement on Form S-1 (No. 33-10745)).
10.23 Pension Plan for Bargained Employees and the Employees Retirement Plan
(incorporated herein by reference to Post-Effective Amendment No. 5 to
the Company's Registration Statement on Form S-1 (No. 33-10745)).
10.24 Amendment among the Company, Bayou Scrap Corporation, River Road Realty
Corporation, the Lenders named in the Credit Agreement and Chemical
Bank, as Agent.
12 Computation of Earnings to Fixed Charges.
18.1 Letter from Arthur Andersen & Co. regarding change in accounting method
from first-in, first-out (FIFO) to last-in, first-out (LIFO) method of
accounting for inventories (incorporated herein by reference to the
Annual Report on Form 10-K for the year ended September 30, 1989).
18.2 Letter from Arthur Andersen & Co. regarding change in method of
accounting for interest from the effective interest method to another
acceptable method (incorporated herein by reference to the Annual Report
on Form 10-K for the year ended September 30, 1990).
23.1 Consent of Arthur Andersen & Co. (previously filed with Amendment No. 2
to this Registration Statement).
23.2 Consent of Kaye, Scholer, Fierman, Hays & Handler is included in the
opinion of Kaye, Scholer, Fierman, Hays & Handler, filed as Exhibit 5.
23.3 Consent of Jones, Walker, Waechter, Poitevent, Carrere & Denegre.
24 Powers of Attorney (reference is made to the signature page of this
Registration Statement).
25 Statement of Eligibility of Trustee under the Trust Indenture Act of
1939 on Form T-1 (previously filed with Amendment No. 1 to this
Registration Statement).
99.1 Environmental Audit: Bayou Steel Corporation date December 10, 1993
prepared by Disposal Safety Incorporated for, and distributed by, the
United Steel Workers of America ("USWA").
99.2 Bayou Steel Corporation Stakeholder Investment Considerations, prepared
and distributed by USWA.
</TABLE>
B. Financial Statement Schedules
Report of Independent Public Accountants
Schedule V Property, Plant and Equipment
Schedule VI Accumulated Depreciation of Property, Plant and Equipment
Schedule VIII Valuation and Qualifying Accounts
Schedule X Supplementary Income Statement Information
<PAGE>
Exhibit 4.1
- --------------------------------------------------------------------------------
BAYOU STEEL CORPORATION
TO
FIRST NATIONAL BANK OF COMMERCE, as Trustee
-------------------
Indenture
Dated __________ ___, 1994
$75,000,000
__% First Mortgage Notes due 2001
- --------------------------------------------------------------------------------
<PAGE>
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
Trust Indenture Indenture
Act Section Section(s)
- --------------- ----------
(S) 310(a)(1) . . . . . . . . . . . . . . 9.9
(a)(2) . . . . . . . . . . . . . . 9.9
(a)(3) . . . . . . . . . . . . . . Not applicable
(a)(4) . . . . . . . . . . . . . . Not applicable
(a)(5) . . . . . . . . . . . . . . 9.9
(b) . . . . . . . . . . . . . . 9.8; 9.10
(c) . . . . . . . . . . . . . . Not applicable
(S) 311(a) . . . . . . . . . . . . . . 9.13
(b) . . . . . . . . . . . . . . 9.13
(c) . . . . . . . . . . . . . . Not applicable
(S) 312(a) . . . . . . . . . . . . . . 10.1; 10.2(a)
(b) . . . . . . . . . . . . . . 10.2(b)
(c) . . . . . . . . . . . . . . 10.2(c)
(S) 313(a) . . . . . . . . . . . . . . 10.3(a)
(a)(4) . . . . . . . . . . . . . . 1.1
(b) . . . . . . . . . . . . . . 10.3(a)
(c) . . . . . . . . . . . . . . 10.3(a)
(d) . . . . . . . . . . . . . . 10.3(b)
(S) 314(a) . . . . . . . . . . . . . . 10.4
(a)(4) . . . . . . . . . . . . . . 6.5
(b) . . . . . . . . . . . . . . 12.2
(c)(1) . . . . . . . . . . . . . . 13.4
(c)(2) . . . . . . . . . . . . . . 13.4
(c)(3) . . . . . . . . . . . . . . 13.4
(d) . . . . . . . . . . . . . . 12.2; 12.3; 12.4;
12.5; 13.2; 13.3;
13.4; 13.5
(e) . . . . . . . . . . . . . . 13.6
(f) . . . . . . . . . . . . . . Not applicable
(S) 315(a) . . . . . . . . . . . . . . 9.1
(b) . . . . . . . . . . . . . . 9.2
(c) . . . . . . . . . . . . . . 9.1
(d) . . . . . . . . . . . . . . 9.1
(e) . . . . . . . . . . . . . . 8.14
(S) 316(a) . . . . . . . . . . . . . . 1.1
(a)(1)(A) . . . . . . . . . . . . . . 8.2; 8.12
(a)(1)(B) . . . . . . . . . . . . . . 8.13
(a)(2) . . . . . . . . . . . . . . Not applicable
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture.
<PAGE>
(b) . . . . . . . . . . . . . . 8.8
(c) . . . . . . . . . . . . . . 1.4
(S) 317(a)(1) . . . . . . . . . . . . . . 8.3
(a)(2) . . . . . . . . . . . . . . 8.4
(b) . . . . . . . . . . . . . . 6.26
(S) 318(a) . . . . . . . . . . . . . . 1.7
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION.................... 2
SECTION 1.1. Definitions............................. 2
"Act"................................................. 2
"Affiliate"........................................... 2
"Appraiser"........................................... 3
"Asset Acquisition"................................... 3
"Asset Sale".......................................... 3
"Asset Sale Offer".................................... 3
"Asset Sale Payment Date"............................. 3
"Authenticating Agent"................................ 3
"Available Amount".................................... 3
"Bankruptcy Law"...................................... 3
"Board of Directors".................................. 3
"Board Resolution".................................... 3
"BSPL"................................................ 4
"Business Day"........................................ 4
"Capital Stock"....................................... 4
"Capitalized Lease"................................... 4
"Capitalized Lease Obligation" ....................... 4
"Cash Equivalents".................................... 4
"Change of Control"................................... 4
"Change of Control Date".............................. 5
"Change of Control Offer"............................. 5
"Change of Control Payment Date"...................... 5
"Collateral".......................................... 5
"Collateral Account".................................. 5
"Collateral Agent".................................... 6
"Collateral Proceeds"................................. 6
"Commission".......................................... 6
"Common Stock"........................................ 6
"Company"............................................. 6
"Company Obligations"................................. 6
"Company Request" or "Company Order".................. 6
"Company Security Agreement".......................... 6
"Condemnation Award".................................. 6
"Consolidated Domestic Income Tax Expense"............ 6
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"Consolidated Interest Expense"....................... 7
"Consolidated Interest Income"........................ 7
"Consolidated Net Income"............................. 7
"Consolidated Net Worth".............................. 7
"Consolidated Subsidiary"............................. 8
"Corporate Trust Office".............................. 8
"corporation"......................................... 8
"Credit Facility"..................................... 8
"Currency Agreement".................................. 8
"Custodian"........................................... 8
"Default"............................................. 8
"Defaulted Interest".................................. 8
"Depositary".......................................... 8
"Disqualified Stock".................................. 8
"EBITDA".............................................. 8
"EBITDA Ratio"........................................ 9
"Event of Default".................................... 9
"Exchange Act"........................................ 9
"Financial Advisor"................................... 9
"GAAP"................................................ 9
"Global Security"..................................... 10
"Guarantee"........................................... 10
"Holder".............................................. 10
"Indebtedness"........................................ 10
"Indenture"........................................... 11
"Independent"......................................... 11
"Intercreditor Agreement"............................. 11
"Interest Payment Date"............................... 11
"Interest Rate Agreement"............................. 11
"Internal Revenue Code"............................... 11
"Investment".......................................... 11
"Issue Date".......................................... 11
"Joint Venture"....................................... 12
"Lenders"............................................. 12
"Lender Secured Property"............................. 12
"Lien"................................................ 12
"Maturity Date"....................................... 12
"Meyers".............................................. 12
"Mortgage"............................................ 12
"Net Cash Proceeds"................................... 12
"Net Income".......................................... 13
"Net Insurance Proceeds".............................. 13
"Non-Collateral Proceeds"............................. 13
"Non-Recourse Indebtedness"........................... 13
</TABLE>
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"Non-Recourse Subsidiary"........................... 14
"Obsolete Assets"................................... 14
"Officers' Certificate"............................. 14
"Opinion of Counsel"................................ 14
"Outstanding"....................................... 14
"Paying Agent"...................................... 15
"Permitted Liens"................................... 15
"Permitted Payments"................................ 16
"Permitted Related Acquisition"..................... 17
"Person"............................................ 17
"Predecessor Security".............................. 17
"Preferred Stock"................................... 17
"Prospectus"........................................ 17
"Recourse Subsidiary"............................... 17
"Reference Period".................................. 17
"Regular Record Date"............................... 17
"Release Agreement"................................. 17
"Released Interests"................................ 17
"Released Trust Moneys"............................. 17
"Responsible Officer"............................... 17
"Restricted Investment"............................. 18
"Restricted Payment"................................ 18
"Restricted Subsidiary"............................. 18
"Retained Trust Moneys"............................. 18
"Sale and Leaseback Transaction".................... 18
"Security Documents"................................ 19
"Security Register" and "Security Registrar"........ 19
"Service Agreement"................................. 19
"Special Record Date"............................... 19
"Stated Maturity"................................... 19
"Subsidiary"........................................ 19
"Subsidiary Guarantee".............................. 19
"Subsidiary Security Agreement"..................... 19
"Tax Lessor"........................................ 19
"TBT Lease"......................................... 20
"Trade Payables".................................... 20
"Transaction"....................................... 20
"Trust Moneys"...................................... 20
"Trust Moneys Release Notice" ...................... 21
"Trustee"........................................... 21
"Trust Indenture Act"............................... 21
"Trust Officer"..................................... 21
"Tulsa Facility".................................... 21
"U.S. Government Obligations"....................... 21
</TABLE>
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"VAIC".............................................. 22
"Valuation Date".................................... 22
"Vice President".................................... 22
"Voest-Alpine"...................................... 22
"Wholly-Owned Recourse Subsidiary".................. 22
"Wholly-Owned Subsidiary"........................... 22
"Withdrawal Notice"................................. 22
SECTION 1.2. Compliance Certificates and Opinions...... 22
SECTION 1.3. Form of Documents Delivered to Trustee.... 23
SECTION 1.4. Acts of Holders; Record Dates............. 23
SECTION 1.5. Notices, Etc., to Trustee and Company..... 24
SECTION 1.6. Notice to Holders; Waiver................. 25
SECTION 1.7. Conflict with Trust Indenture Act......... 25
SECTION 1.8. Effect of Headings and Table of Contents.. 25
SECTION 1.9. Successors and Assigns.................... 26
SECTION 1.10. Separability Clause....................... 26
SECTION 1.11. Benefits of Indenture..................... 26
SECTION 1.12. Governing Law............................. 26
SECTION 1.13. Legal Holidays............................ 26
SECTION 1.14. Immunity of Incorporators, Stockholders,
Officers and Directors.................. 26
ARTICLE II
SECURITY FORMS...................... 27
SECTION 2.1. Forms Generally........................... 27
SECTION 2.2. Form of Face of Security.................. 28
SECTION 2.3. Form of Trustee's Certificate
of Authentication....................... 36
ARTICLE III
THE SECURITIES...................... 37
SECTION 3.1. Title and Terms........................... 37
SECTION 3.2. Denominations............................. 38
SECTION 3.3. Execution, Authentication, Delivery
and Dating.............................. 38
SECTION 3.4. Temporary Securities...................... 38
SECTION 3.5. Registration; Registration of Transfer and
Exchange................................ 39
SECTION 3.6. Mutilated, Destroyed, Lost and Stolen
</TABLE>
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Securities............................ 41
SECTION 3.7. Payment of Interest; Interest Rights
Preserved............................. 42
SECTION 3.8. Persons Deemed Owners................... 43
SECTION 3.9. Cancellation............................ 44
SECTION 3.10. Computation of Interest................. 44
SECTION 3.11. Paying Agent............................ 44
ARTICLE IV
SATISFACTION AND DISCHARGE.............. 44
SECTION 4.1. Satisfaction and Discharge of Indenture. 44
SECTION 4.2. Application of Monies for Satisfaction
and Discharge......................... 45
ARTICLE V
REDEMPTION...................... 46
SECTION 5.1. Notices to Trustee...................... 46
SECTION 5.2. Selection of Securities To Be Redeemed.. 46
SECTION 5.3. Notice of Redemption.................... 46
SECTION 5.4. Effect of Notice of Redemption.......... 47
SECTION 5.5. Deposit of Redemption Price............. 48
SECTION 5.6. Securities Redeemed in Part............. 48
SECTION 5.7. Securities Exchange Act Requirements.... 48
ARTICLE VI
COVENANTS...................... 48
SECTION 6.1. Payment of Securities................... 48
SECTION 6.2. Maintenance of Office or Agency......... 49
SECTION 6.3. Corporate Existence..................... 49
SECTION 6.4. Payment of Taxes and Other Claims;
Tax Consolidation..................... 50
SECTION 6.5. Compliance Certificates................. 50
SECTION 6.6. SEC Reports............................. 51
SECTION 6.7. Waiver of Stay, Extension or Usury Laws. 52
SECTION 6.8. Maintenance of Properties; Insurance;
Books and Records; Compliance
with Law.............................. 52
SECTION 6.9. Limitations on Indebtedness............. 53
SECTION 6.10. Limitation on Liens..................... 55
</TABLE>
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SECTION 6.11. Limitation on the Issuance of
Preferred Stock by Subsidiaries.................. 56
SECTION 6.12. Transfer of Assets to Subsidiaries................. 57
SECTION 6.13. Limitations on Restricted Payments................. 57
SECTION 6.14. Limitations on Transactions
with Stockholders and Affiliates................. 58
SECTION 6.15. Restrictions on Assets Sales....................... 59
SECTION 6.16. Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries.............. 62
SECTION 6.17. Limitation on Sale and Leaseback Transactions...... 62
SECTION 6.18. Limitation on Investment, Loans and Advances....... 63
SECTION 6.19. Change of Control.................................. 64
SECTION 6.20. Limitations as to Non-Recourse Subsidiaries........ 66
SECTION 6.21. Impairment of Security Interest.................... 66
SECTION 6.22. Conflicting Agreements............................. 66
SECTION 6.23. Amendment to Security Documents.................... 67
SECTION 6.24. Inspection......................................... 67
SECTION 6.25. Use of Proceeds.................................... 67
SECTION 6.26. Money for Security Payments to Be Held in Trust.... 67
ARTICLE VII
SUCCESSOR CORPORATION........................... 68
SECTION 7.1. When Company May Merge, etc........................ 68
SECTION 7.2. Surviving Person Substituted....................... 70
ARTICLE VIII
EVENTS OF DEFAULT............................. 70
SECTION 8.1. Events of Default.................................. 70
SECTION 8.2. Acceleration of Maturity; Rescission and
Annulment........................................ 72
SECTION 8.3. Collection of Debt and Suits for
Enforcement by Trustee........................... 73
SECTION 8.4. Trustee May File Proofs of Claims.................. 74
SECTION 8.5. Trustee May Enforce Claims
Without Possession of Securities................. 74
SECTION 8.6. Application of Money Collected..................... 75
SECTION 8.7. Limitation on Suits................................ 75
SECTION 8.8. Unconditional Right of Holders to
Receive Principal and Interest................... 76
SECTION 8.9. Restoration of Rights and Remedies................. 77
</TABLE>
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SECTION 8.10. Rights and Remedies Cumulative............... 77
SECTION 8.11. Delay or Omission Not Waiver................. 77
SECTION 8.12. Control by Holders........................... 77
SECTION 8.13. Waiver of Past Defaults...................... 78
SECTION 8.14. Undertaking for Costs........................ 78
SECTION 8.15. Waiver of Stay or Extension Laws............. 79
SECTION 8.16. Collection Suit by Trustee................... 79
ARTICLE IX
THE TRUSTEE.......................... 79
SECTION 9.1. Certain Duties and Responsibilities.......... 79
SECTION 9.2. Notice of Defaults........................... 80
SECTION 9.3. Certain Rights of Trustee.................... 80
SECTION 9.4. Not Responsible for Recitals
or Issuance of Securities.................. 81
SECTION 9.5. May Hold Securities.......................... 81
SECTION 9.6. Money Held in Trust.......................... 82
SECTION 9.7. Compensation and Reimbursement............... 82
SECTION 9.8. Disqualification; Conflicting Interests...... 83
SECTION 9.9. Corporate Trustee Required; Eligibility...... 83
SECTION 9.10. Resignation and Removal;
Appointment of Successor................... 83
SECTION 9.11. Acceptance of Appointment by Successor....... 85
SECTION 9.12. Merger, Conversion, Consolidation or
Succession to Business..................... 85
SECTION 9.13. Preferential Collection of Claims Against
Company.................................... 86
SECTION 9.14. Appointment of Authenticating Agent.......... 86
ARTICLE X
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY...... 88
SECTION 10.1. Company to Furnish Trustee
Names and Addresses of Holders............ 88
SECTION 10.2. Preservation of Information; Communications
to Holders................................ 88
SECTION 10.3. Reports by Trustee.......................... 88
SECTION 10.4. Reports by Company.......................... 89
</TABLE>
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ARTICLE XI
SUPPLEMENTAL INDENTURES...................... 89
SECTION 11.1. Supplemental Indentures without Consent of
Holders...................................... 89
SECTION 11.2. Supplemental Indentures with Consent of
Holders...................................... 90
SECTION 11.3. Execution of Supplemental Indentures........... 91
SECTION 11.4. Effect of Supplemental Indentures.............. 91
SECTION 11.5. Conformity with Trust Indenture Act............ 91
SECTION 11.6. Reference in Securities to Supplemental
Indentures................................... 92
ARTICLE XII
COLLATERAL AND SECURITY...................... 92
SECTION 12.1. Collateral and Security Documents.............. 92
SECTION 12.2. Recording and Opinions......................... 94
SECTION 12.3. Release of Collateral.......................... 95
SECTION 12.4. Possession and Use of Collateral............... 95
SECTION 12.5. Specified Releases of Collateral............... 96
SECTION 12.6. Disposition of Collateral Without Release...... 98
SECTION 12.7. Form and Sufficiency of Release................ 98
SECTION 12.8. Purchaser Protected............................ 98
SECTION 12.9. Authorization of Actions To Be Taken by The
Trustee Under the Security Documents......... 99
SECTION 12.10. Authorization of Receipt of Funds by the Trustee
Under the Security Documents................. 99
ARTICLE XIII
APPLICATION OF TRUST MONEYS...................... 99
SECTION 13.1. Collateral Account............................. 99
SECTION 13.2. Withdrawals of Insurance Proceeds and
Condemnation Awards.......................... 100
SECTION 13.3. Withdrawal of Trust Moneys for Asset Sale
Offer........................................ 102
SECTION 13.4. Withdrawal of Trust Moneys for Permitted
Related Acquisitions......................... 103
SECTION 13.5. Withdrawal of Trust Moneys for Retention by the
Company or its Subsidiaries.................. 104
SECTION 13.6. Withdrawal of Trust Moneys on Basis
of Retirement of Securities.................. 105
</TABLE>
- viii-
<PAGE>
INDENTURE UNITED STATES OF AMERICA
BY
BAYOU STEEL CORPORATION STATE OF LOUISIANA
TO
FIRST NATIONAL BANK OF COMMERCE, PARISH OF ST. JOHN
AS TRUSTEE THE BAPTIST
On this ___ day of _______, 1994, before me, _________
_______________, a Notary Public duly commissioned and qualified in and for the
above State and Parish and in the presence of the undersigned competent
witnesses, personally came and appeared:
BAYOU STEEL CORPORATION, a Delaware corporation (herein called the
"Company", the Federal Employer Identification Number of which is 72-1125783,
represented herein by ________________, its _________________, duly authorized
by resolutions of the Board of Directors of the Corporation, a certified copy of
which is annexed hereto;
Mailing address: P.O. Box 5000
River Road
LaPlace, LA 70069; and,
FIRST NATIONAL BANK OF COMMERCE, a national banking association, as
Trustee (herein called the "Trustee"), the Federal Employer Identification
Number of which is 72-0269760, represented by ________________, its
_________________;
Mailing address: Trust Department
210 Baronne Street
New Orleans, LA 70112
who declared as follows:
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its ___%
First Mortgage Notes due 2001 (herein called the "Securities") of substantially
the tenor and amount hereinafter set forth, and to provide therefor the Company
has duly authorized the execution and delivery of this Indenture.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
<PAGE>
2
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.1. Definitions
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as
are generally accepted at the date of this instrument; and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning specified
in Section 1.4.
"Affiliate" means, with respect to any specific Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specific Person. For the purposes of this
definition, "control," as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person whether through the ownership of voting
securities, or by agreement or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Appraiser" means a Person who in the course of its business appraises
property and, where real property is involved, who is a member in good standing
of the American Institute of Real Estate Appraisers, recognized and licensed to
do business in the
<PAGE>
3
jurisdiction where the applicable real property is situated, and who may be
employed by the Company.
"Asset Acquisition" means (i) any capital contribution (by means of
transfer of cash or other property to others or payments for property or
services for the account or use of others, or otherwise), or purchase or
acquisition of Capital Stock by the Company or any of its Subsidiaries in any
other Person, in either case pursuant to which such Person shall become a
Subsidiary of the Company or any of its Subsidiaries or shall be merged with or
into the Company or any of its Subsidiaries or (ii) any acquisition by the
Company or any of its Subsidiaries of the assets of any Person which constitute
substantially all of an operating unit or business of such Person.
"Asset Sale" means any direct or indirect sale, conveyance, transfer,
lease or other disposition to any Person (including any Non-Recourse Subsidiary)
other than the Company or a Wholly-Owned Recourse Subsidiary of the Company, in
one transaction or a series of related transactions, of (i) any Capital Stock of
any Subsidiary of the Company or (ii) any other property or asset of the Company
or any Subsidiary of the Company, in each case, other than in the ordinary
course of business.
"Asset Sale Offer" has the meaning specified in Section 6.15(b).
"Asset Sale Payment Date" has the meaning specified in Section
6.15(c).
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 9.14 to act on behalf of the Trustee to authenticate
Securities.
"Available Amount" has the meaning specified in Section 6.15(b).
"Bankruptcy Law" means Title 11, United States Code or any similar
Federal or state law for the relief of debtors, as amended.
"Board of Directors" means either the board of directors of the
Company or its Subsidiaries, as the case may be, or any duly authorized
committee of such boards or any duly authorized committee consisting of one or
more officers and/or directors of the Company, as the case may be.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company or its Subsidiaries, as the
case may be, to have been duly adopted by the Board of Directors of the Company
or its Subsidiaries, as the case may be, and to be in full force and effect on
the date of such certification, and delivered to the Trustee.
"BSPL" means Bayou Steel Properties Limited, formerly RSR Steel
Corporation, which is the owner of 100% of the Class B Common Stock of the
Company.
<PAGE>
4
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York City or New
Orleans are authorized or obligated by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, warrants, options or other equivalents (however
designated and whether voting or non-voting) of capital stock of a corporation
and any and all equivalent ownership interests in a Person (other than a
corporation), in each case whether outstanding on the Issue Date or thereafter
issued, including, without limitation, all Common Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) the discounted present value of the
rental obligations of such Person or lessee under which, in conformity with
GAAP, is required to be capitalized on the balance sheet of that Person.
"Capitalized Lease Obligation" means the discounted present value of
the rental obligations of any Person under any Capitalized Lease.
"Cash Equivalents" means, at any time, (i) any evidence of
Indebtedness with a maturity of 365 days or less issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof); (ii) certificates of deposit
or acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $250,000,000; (iii) commercial
paper with a maturity of 180 days or less issued by a corporation (except an
Affiliate of the Company) organized under the laws of any state of the United
States or the District of Columbia and rated at least A-1 by Standard & Poor's
Corporation or at least P-1 by Moody's Investors Service, Inc.
"Change of Control" means the occurrence of one or more of the
following events:
(a) the direct or indirect sale, lease, exchange or other
transfer of all or substantially all of the assets of the Company to
any Person or entity or group of Persons or entities acting in concert
as a partnership or other group (a "Group of Persons") other than an
Affiliate of the Company;
(b) the consummation of any consolidation or merger of the
Company with or into another corporation with the effect that the
stockholders of the Company as of the date of the Indenture hold less
than 51% of the combined voting power of the outstanding voting
securities of the surviving entity of such merger or the corporation
resulting from such consolidation ordinarily having the right to vote
in the election of directors
<PAGE>
5
(apart from rights accruing under special circumstances) immediately
after such merger or consolidation;
(c) the stockholders of the Company shall approve any plan or
proposal for the liquidation or dissolution of the Company; and
(d) a Person or Group of Persons (other than management of the
Company and their respective Affiliates) shall, as a result of a
tender or exchange offer, open market purchases, privately negotiated
purchases or otherwise, have become the direct or indirect beneficial
owner (within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company representing a majority of the combined
voting power of the then outstanding securities of the Company
ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors.
For purposes of this definition, the following shall not be considered
a Change of Control:
(i) transfers among (A) Meyers; (B) any son, daughter,
stepson, stepdaughter or spouse of Meyers; (C) any lineal descendant of an
individual referred to in clause (A) or (B); or (D) any trust in which one
or more of the Persons referred to in clause (A), (B) or (C) are principal
beneficiaries; or
(ii) a merger resulting in the proportionate interest of the
Class B Common Stock held by BSPL being held by BSPL's shareholders,
provided such transaction shall have no adverse effect on the Company.
"Change of Control Date" has the meaning specified in Section 6.19.
"Change of Control Offer" has the meaning specified in Section 6.19.
"Change of Control Payment Date" has the meaning specified in Section
6.19.
"Collateral" means, collectively, all of the property and assets
(including, without limitation, Trust Moneys) that are from time to time subject
to the Lien of the Security Documents.
"Collateral Account" means the collateral account to be established
pursuant to the Indenture.
"Collateral Agent" means the Trustee in its capacity as agent for the
Holders under the Security Documents.
"Collateral Proceeds" means the Net Cash Proceeds received by the
Collateral Agent from the sale of Collateral.
<PAGE>
6
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Stock" includes any stock of any class of the Company which
has no preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding-up of the
Company and which is not subject to redemption by the Company.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Obligations" has the meaning specified in Section 12.1(a).
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Company Security Agreement" means the Security Agreement dated as of
the date hereof between the Company and the Trustee, in substantially the form
attached hereto as Exhibit A, as the same may be amended, supplemented or
otherwise modified from time to time.
"Condemnation Award" means any proceeds, award or payment paid to the
mortgagee or beneficiary under the Mortgages relating to any taking of the
Collateral subject to such Mortgage by condemnation or eminent domain or sold
pursuant to the exercise by the United States of America or any state,
municipality or other governmental authority of any right which it may then have
to purchase, or to designate a purchaser or to order a sale of, any part
of the Collateral, together with interest accrued thereon, less certain
expenses.
"Consolidated Domestic Income Tax Expense" of any Person for any
period means, without duplication, the aggregate amount of net U.S. taxes based
on income or profits for such period of the operations of such Person and its
Consolidated Recourse Subsidiaries, determined in accordance
with GAAP (to the extent such income or profits were included in computing
Consolidated Net Income).
"Consolidated Interest Expense" of any Person for any period means the
sum of (a) the aggregate interest expense (including amortization of original
issue discount and non-cash interest payments or accruals) of such Person and
its Consolidated Recourse Subsidiaries for such period and (b) to the
extent not included in clause (a), all
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7
commissions, discounts and other fees and charges owed with respect to letters
of credit and banker's acceptance financing, the net cost associated with
Interest Rate Agreements and Currency Agreements, amortization of other
financing fees and expenses and the interest portion of any deferred payment
obligation.
"Consolidated Interest Income" of any Person means all amounts that
would be included under interest income on a consolidated income statement of
such Person and its Consolidated Recourse Subsidiaries determined in
accordance with GAAP, less accreted amounts attributable to original issue
discount securities prior to the receipt thereof and other non-cash interest
payments or accruals.
"Consolidated Net Income" of any Person for any period means the Net
Income of such Person and its Consolidated Recourse Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP; provided,
that there shall be excluded (i) the Net Income of any Person (other than a
Consolidated Recourse Subsidiary) in which such Person or any of its
Consolidated Recourse Subsidiaries has a joint interest with a third party
except to the extent of the amount of dividends or distributions actually paid
to such Person or a Recourse Subsidiary during such period; (ii) except to the
extent includable pursuant to the foregoing clause (i), the Net Income of any
Person accrued prior to the date it becomes a Recourse Subsidiary of such Person
or is merged into or consolidated with such Person or any of its Recourse
Subsidiaries or that Person's assets are acquired by such Person or any of its
Recourse Subsidiaries; (iii) the Net Income (if positive) or any portion
thereof, of any Recourse Subsidiary of such Person to the extent that the
declaration or payment of dividends or similar distributions by that Recourse
Subsidiary to such Person or to any other Recourse Subsidiary of such Net Income
is not at the time permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Recourse Subsidiary; (iv) without duplication, any
gains or losses attributable to Asset Sales; (v) Net Income (if positive)
arising from the adoption of changes in accounting policy to comply with GAAP or
voluntarily by the Company with the consent of its independent auditors that so
qualify under Regulation S-X of the Securities Act; (vi) Net Income arising in
connection with a merger, combination or consolidation that is accounted for as
a pooling of interests; and (vii) foreign currency translation gains and losses.
"Consolidated Net Worth" of any Person means as of any date all
amounts that would be included under stockholders' equity on a consolidated
balance sheet of such Person and its Consolidated Recourse Subsidiaries
determined in accordance with GAAP.
"Consolidated Recourse Subsidiary" of any Person means a
Recourse Subsidiary which for financial reporting purposes is or, in
accordance with GAAP, should be, accounted for by such Person as a consolidated
Subsidiary.
"Corporate Trust Office" means the principal office of the Trustee in
New Orleans at which at any particular time its corporate trust business shall
be administered.
<PAGE>
8
"Corporation" means a corporation, association, company, joint-stock
company or business trust.
"Credit Facility" means the Credit Agreement, dated June 28, 1989, as
amended and restated through November 23, 1993, among the Company, the Lenders
named therein and Chemical Bank, as agent and lender, or any renewal,
refinancing or continuation thereof as each of the foregoing may be amended,
supplemented or otherwise modified from time to time.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Default" means any event which is, or after the giving of notice or
passage of time or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Depositary" means The Depository Trust Company or any successor
thereto.
"Disqualified Stock" means any Capital Stock which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part on, or prior to, the final
maturity date of the Securities.
"EBITDA" of any Person for any period means the sum of (a)
Consolidated Net Income of such Person; (b) Consolidated Domestic Income Tax
Expense; (c) Consolidated Interest Expense; and (d) depreciation and
amortization expense determined on a consolidated basis for such Person and its
Consolidated Recourse Subsidiaries in accordance with GAAP for such period;
provided, that the amounts set forth in clauses (b) through (d) will be included
only to the extent such amounts reduced Consolidated Net Income.
"EBITDA Ratio" means the ratio, on a pro forma basis, of (a) EBITDA of
any Person for the Reference Period immediately prior to the date of the
transaction giving rise to the need to calculate the EBITDA Ratio (the
"Transaction Date") to (b) the Net Interest Expense of such Person during such
Reference Period; provided, that in making such computation, (i) the incurrence
of the Indebtedness giving rise to the need to calculate the EBITDA Ratio and
the application of the proceeds therefrom shall be assumed to have occurred on
the first day of the Reference Period; (ii) Asset Sales and Asset Acquisitions
which occur during the Reference Period or subsequent to the Reference Period
but prior
<PAGE>
9
to the incurrence of the Indebtedness in question (but including any Asset
Acquisition to be made with such Indebtedness) shall be assumed to occur on the
first day of the Reference Period; (iii) the issuance of any Indebtedness during
the Reference Period or subsequent to the Reference Period but prior to the
Transaction Date and the application of the proceeds therefrom shall be assumed
to have occurred on the first day of the Reference Period; (iv) the Consolidated
Interest Expense attributable to interest on any Indebtedness (whether existing
or being incurred) computed on a pro forma basis and bearing a floating interest
rate shall be computed as if the rate in effect on the date of computation had
been the applicable rate for the entire period, unless such Person or any of its
Recourse Subsidiaries is a party to an Interest Rate Agreement which has the
effect of reducing the interest rate below the rate on the date of computation,
in which case such lower rate shall be used; and (v) there shall be excluded
from Consolidated Interest Expense any Consolidated Interest Expense related to
any Indebtedness which was outstanding during and subsequent to the Reference
Period but is not outstanding on the Transaction Date, except for Consolidated
Interest Expense actually incurred with respect to Indebtedness borrowed under a
revolving credit or similar arrangement to the extent the commitment thereunder
remains in effect on the Transaction Date. For the purpose of making the
computation referred to in the preceding sentence, Asset Sales and Asset
Acquisitions which have been made by any Person which has become a Recourse
Subsidiary of the Company or been merged with or into the Company or any
Recourse Subsidiary of the Company during the Reference Period or subsequent to
the Reference Period and prior to the Transaction Date shall be calculated on a
pro forma basis (including all of the calculations referred to in numbers (i)
through (v) of the preceding sentence) assuming such Asset Sales or Asset
Acquisitions occurred on the first day of the Reference Period.
"Event of Default" has the meaning specified in Section 8.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financial Advisor" means an investment banking firm of national
reputation which (except as otherwise expressly provided in this Indenture) may
be employed by the Company.
"GAAP" means generally accepted accounting principles in the United
States as in effect from time to time, including, without limitation, those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are applicable as of
the date of determination.
"Global Security" means a Security evidencing all or part of a series
of Securities which is issued to the Depositary or its nominee and is registered
in the name of the Depositary or its nominee.
<PAGE>
10
"Guarantee" means, as applied to any Indebtedness, (a) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such Indebtedness, and (b) an agreement, direct or indirect, contingent
or otherwise, the practical effect of which is to assure the payment or
performance (or payment of damages in the event of nonperformance) of any part
or all of such Indebtedness, including, without limiting the foregoing, the
payment of amounts drawn under letters of credit. The amount of any Guarantee
shall be deemed to be an amount equal to the stated or determinable amount of
the primary obligation in respect of which such Guarantee is made (unless such
Guarantee shall be expressly limited to a lesser amount, in which case such
lesser amount shall apply) or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined by such Person
in good faith.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness" of any Person means at any date, without duplication,
(a) all obligations of such Person for borrowed money or evidenced by bonds,
debentures, notes or other similar instruments; (b) all obligations of such
Person in respect of letters of credit or other similar instruments (or
reimbursement obligations with respect thereto); (c) all obligations of such
Person to pay the deferred purchase price of property or services, except Trade
Payables; (d) all Capitalized Lease Obligations of such Person; (e) all
Indebtedness of others secured by a Lien on any asset of such Person, whether or
not such Indebtedness is assumed by such Person, provided that, for purposes of
determining the amount of any Indebtedness of the type described in this clause,
if recourse with respect to such Indebtedness is limited to such asset, the
amount of such Indebtedness shall be limited to the fair market value of the
asset; (f) to the extent not otherwise included, all obligations under Interest
Rate Agreements and Currency Agreements; (g) all Guarantees of such Person in
respect of Indebtedness of others; and (h) all Disqualified Stock issued by such
Person (the amount of Indebtedness represented by any Disqualified Stock will be
the greater of the voluntary or involuntary liquidation preference plus accrued
and unpaid dividends).
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Independent" when used with respect to any specified Person means
such a Person who (a) is in fact independent, (b) does not have any direct
financial interest or any material indirect financial interest in the Company or
in any other obligor in respect of the Securities or in any Affiliate of the
Company or such other obligor and (c) is not an officer, employee, promotor,
underwriter, trustee, partner, director or person performing similar functions
to any of the foregoing for the Company or such other obligor or any
<PAGE>
11
Affiliate thereof. Whenever it is provided in the Indenture that any
Independent Person's opinion or certificate shall be furnished to the Trustee,
such Person shall be appointed by the Company and approved by the Trustee in the
exercise of reasonable care, and such opinion or certificate shall state that
the signer has read this definition and that the signer is Independent within
the meaning thereof.
"Intercreditor Agreement" means the Intercreditor Agreement dated of
even date herewith among the Company, Chemical Bank, as agent for the financial
institutions parties to the Credit Facility, and Hibernia National Bank,
in substantially the form of Exhibit __ hereto, as the same may be amended,
supplemented or otherwise modified from time to time.
"Interest Payment Date" means the Stated Maturity of an installment
of interest on the Securities.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future, interest rate option, interest rate swap,
interest rate cap or other interest rate hedge agreement, to or under which the
Company or any of its Subsidiaries is a party or a beneficiary on the date of
the Indenture or becomes a party or a beneficiary thereafter.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
"Investment" of any Person means all investments in other Persons in
the form of loans, advances or capital contributions (excluding commission,
travel and similar advances to officers and employees made in the ordinary
course of business), purchase (or other acquisitions for consideration) of
Indebtedness, Capital Stock or other securities issued by any other Person.
"Issue Date" means the original date of issuance of the Securities.
"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided,
that as to any such arrangement in corporate form, such corporation shall not,
as to any Person of which such corporation is a Subsidiary, be considered to be
a Joint Venture to which such Person is a party.
"Lenders" means the lenders who are from time to time parties to the
Credit Facility.
"Lender Secured Property" means the accounts receivable and inventory
(excluding certain rolling equipment classified as inventory in the books and
records of the Company) of the Company, and the proceeds thereof, that secure
the obligations of the Company under the Credit Facility and the Tulsa Facility.
<PAGE>
12
"Lien" means, with respect to any property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
property. For the purposes of the Indenture and the Security Documents, the
Company and its Subsidiaries shall be deemed to own subject to a Lien any
property which they have acquired or hold subject to the interest of a vendor or
lessor under any conditional sales agreement, capital lease or other title
retention agreement relating to such property.
"Maturity Date" when used with respect to any Security, means the date
on which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption, Asset Sales Offer, Change of Control Offer or
otherwise.
"Meyers" means Howard M. Meyers, an individual with a business address
on the Issue Date at 1111 Mockingbird Lane, Dallas, Texas 75247.
"Mortgage" means each mortgage (or deed of trust), dated as of
the date hereof, between the Company and the Trustee or between a Subsidiary of
the Company and the Trustee, in either case in substantially the form of Exhibit
B-1 or B-2 hereto, as the same may be amended, supplemented or modified from
time to time in accordance with its terms.
"Net Cash Proceeds" from a sale, transfer or other disposition of
properties or assets means cash payments received (including any cash payments
received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received (including
any cash received upon sale or disposition of such note or receivable),
excluding any other consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to such
properties or assets or received in any other non-cash form) therefrom, in each
case, net of all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP as a consequence of
such sale, transfer or other disposition, and in each case net of appropriate
amounts to be provided by the Company as a reserve, in accordance with GAAP,
against any liabilities associated with such assets and retained by the Company
or any Subsidiary after such sale, transfer or other disposition, including,
without limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters and the after-tax cost of any
indemnification payments (fixed and contingent) attributable to seller's
indemnities to the purchaser undertaken by the Company or any of its
Subsidiaries in connection with such sale, transfer or other disposition (but
excluding any payments, which by the terms of the indemnities will not, under
any circumstances, be made during the term of the Securities) and net of all
payments made on any Indebtedness which is secured by such assets, in accordance
with the terms of any Lien upon or with respect to such assets or which must by
its terms, or in order to obtain a necessary consent to such asset disposition,
or by applicable law be repaid out of the proceeds from such sale, transfer or
other disposition, and net of all distributions and other payments made to
minority interest holders in Subsidiaries or Joint Ventures as a result of such
sale, transfer or other disposition.
<PAGE>
13
"Net Income" of any Person for any period means the net income (loss)
of such Person for such period, determined in accordance with GAAP, except that
extraordinary, unusual and non-recurring gains and losses as determined in
accordance with GAAP shall be excluded.
"Net Insurance Proceeds" means all proceeds paid to the Collateral
Agent or any mortgagee or beneficiary under the Security Documents relating to
damage to, or loss or destruction of, improvements on equipment constituting
Collateral, together with interest earned thereon, less certain expenses.
"Net Interest Expense" means the difference between Consolidated
Interest Expense and Consolidated Interest Income; provided, that such amount
shall not be less than zero.
"Non-Collateral Proceeds" means the Net Cash Proceeds of any Asset
Sale that does not represent Collateral Proceeds.
"Non-Recourse Indebtedness" means Indebtedness of a Non-Recourse
Subsidiary where (a) neither the Company nor any Subsidiary (other than such
Non-Recourse Subsidiary): (i) provides any Guarantee or credit support for such
Indebtedness (including any undertaking, guaranty, indemnity, agreement or
instrument which would constitute Indebtedness); or (ii) is directly or
indirectly liable for such Indebtedness; (b) the holders of such Indebtedness
expressly waive any recourse which they may have, in law, equity or otherwise,
whether based on misrepresentation, control, ownership or otherwise, to the
Company and any Subsidiary (other than such Non-Recourse Subsidiary), including,
without limitation, a waiver of the benefits of the provisions of Section
1111(b) of Bankruptcy Code (Title 11, United States Code) as amended; and (c) no
default with respect to such Indebtedness (including any rights which the holder
thereof may have to take enforcement action against such Non-Recourse
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness of the Company or any Subsidiary (other than such
Non-Recourse Subsidiary) to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity.
"Non-Recourse Subsidiary" means a special purpose Subsidiary of the
Company or any of its Subsidiaries formed to acquire securities or assets of a
third party and which (i) has no Indebtedness other than Non-Recourse
Indebtedness and (ii) does not, directly or indirectly, own any Indebtedness,
stock or securities of, and has no Investment in, the Company or any Recourse
Subsidiary.
"Obsolete Assets" means machinery, equipment, furniture, apparatus,
tools or implements or other similar property which have become worn out,
obsolete or no longer necessary to the operation of the business of the Company
or its Subsidiaries, as the case may be.
<PAGE>
14
"Officers' Certificate" means, when used with respect to the Company,
a certificate signed by the Chairman of the Board, the President, a Vice
Chairman of the Board or the Chief Financial Officer of the Company (or any
other officer identified by any of the foregoing officers in an Officers'
Certificate to be an executive officer of the Company) and the Secretary, an
Assistant Secretary or the Controller of the Company. One of the officers
signing an Officers' Certificate given pursuant to Section 6.5 shall be the
principal executive, financial or accounting officer of the Company.
"Opinion of Counsel" means an opinion in writing signed by legal
counsel, who may be an employee of or of counsel to the Company, or who may be
other counsel satisfactory to the Trustee.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Securities; provided, that if such Securities are
to be redeemed, notice of such redemption has been duly given pursuant to
this Indenture or provision therefor satisfactory to the Trustee has been
made; and
(iii) Securities which have been paid pursuant to Section 3.6
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any such
Securities in respect of which there shall have been presented to the
Trustee proof satisfactory to it that such Securities are held by a bona
fide purchaser in whose hands such Securities are valid obligations of the
Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or of such other obligor.
<PAGE>
15
"Patent License" means all agreements, whether written or oral,
providing for the grant by or to the Company of any right to manufacture, use or
sell any invention covered by a Patent.
"Patents" means (a) all letters patent of the United States or any
other country and all reissues and extensions thereof and (b) all applications
for letters patent of the United States or any other country and all divisions,
continuations and continuations-in-part thereof.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or interest on any Securities on behalf of the Company.
"Permitted Liens" means (a) Liens for taxes, assessments, governmental
charges or claims which are not yet delinquent or which are being contested in
good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor; (b) other Liens incidental to the conduct of the Company's and
its Subsidiaries' business or the ownership of its property and assets not
securing any Indebtedness, and which do not in the aggregate materially detract
from the value of the Company's and its Subsidiaries' property or assets when
taken as a whole, or materially impair the use thereof in the operation of its
business (including, without limitation, Liens securing any obligation to
landlords, vendors, carriers, warehousemen, mechanics, laborers and materialmen
and other similar obligations arising by operation of law not yet delinquent or
which are being contested in good faith by appropriate proceedings, if a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made therefor); (c) Liens with respect to assets of a
Subsidiary granted by such Subsidiary to the Company to secure Indebtedness
owing to the Company; (d) Liens on assets owned by Non-Recourse Subsidiaries to
secure Non-Recourse Indebtedness; (e) Liens on assets not constituting
Collateral with an aggregate book value not in excess of 5% of the book value of
the Company's total assets as shown on the Company's most recent consolidated
balance sheet; (f) pledges and deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security; (g) deposits made to secure the performance of tenders,
bids, leases, statutory obligations, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a like
nature incurred in the ordinary course of business (exclusive of obligations for
the payment of borrowed money); (h) zoning restrictions, servitudes, easements,
rights-of-way, restrictions and other similar charges or encumbrances incurred
in the ordinary course of business which, in the aggregate, are not substantial
in amount and which do not in any case materially detract from the value of the
property subject thereto or interfere with the ordinary conduct of the business
of the Company or its Subsidiaries; (i) Liens arising out of judgments or awards
against the Company or any Subsidiary with respect to which the Company or such
Subsidiary is prosecuting an appeal or proceeding for review and the Company or
such Subsidiary is maintaining adequate reserves in accordance with GAAP; and
(j) any interest or title of a lessor in the property subject to any Capitalized
Lease Obligation or operating lease.
<PAGE>
16
"Permitted Payments" means, with respect to the Company or any of its
Subsidiaries, (a) any dividend on shares of Capital Stock payable solely in
shares of Capital Stock (other than Disqualified Stock) or in options, warrants
or other rights to purchase Capital Stock (other than Disqualified Stock); (b)
any dividend, other distribution, loan or advance to the Company by any of its
Subsidiaries or by a Subsidiary to another Subsidiary (except a Non-Recourse
Subsidiary); (c) any defeasance, redemption, repurchase or other acquisition for
value of any Indebtedness of the Company with the proceeds from the issuance of
(i) Indebtedness which is subordinate to Securities at least to the extent and
in the manner as the Indebtedness to be defeased, redeemed, repurchased or
otherwise acquired is subordinate to the Securities; provided, that (1) such
newly-issued subordinated Indebtedness provides for no payments of principal by
way of sinking fund, mandatory redemption, defeasance or otherwise by the
Company or its Subsidiaries (including, without limitation, at the option of the
holder thereof other than an option given to a holder pursuant to a "Change of
Control" covenant which (x) is no more favorable to the holders of such
Indebtedness than the provisions in favor of the Holders and (y) such
Indebtedness provides that the Company or its Subsidiaries will not repurchase
such Indebtedness pursuant to such provisions prior to the Company's repurchase
of the Securities required to be repurchased by the Company upon a Change of
Control) prior to the maturity of the Indebtedness being replaced and (2) the
proceeds of such new Indebtedness are utilized for such purpose within 45 days
of issuance or (ii) Capital Stock (other than Disqualified Stock); and (d) the
redemption or repurchase by a Wholly-Owned Subsidiary of its Capital Stock owned
by the Company or another Wholly-Owned Subsidiary.
"Permitted Related Acquisition" has the meaning specified in Section
6.15(b).
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.6 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock whether now outstanding or issued
after the Issue Date, and includes, without limitation, all classes and series
of preferred or preference stock.
"Prospectus" means the Prospectus dated ________ __, 1994 pursuant to
which the Securities were offered.
<PAGE>
17
"Recourse Subsidiary" means any Subsidiary other than a Non-Recourse
Subsidiary.
"Reference Period" means the four fiscal quarters for which financial
information is available preceding the date of a transaction giving rise to the
need to make a financial calculation.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the __________ or _________ (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Release Agreement" means the Release of Federal Income Tax Ownership
and Agreement dated as of the date hereof between the Trustee, the Company,
Voest-Alpine and Meyers, in substantially the form attached hereto as
Exhibit __, as the same may be amended, supplemented or otherwise modified from
time to time.
"Released Interests" has the meaning specified in Section 12.5(b).
"Released Trust Moneys" has the meaning specified in Section 13.4.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any Trust Officer or assistant Trust Officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Investment" means any Investment in any Person other than
a Wholly-Owned Recourse Subsidiary of the Company.
"Restricted Payment" means, with respect to any Person, (a) any
dividend or other distribution on any shares of such Person's Capital Stock
(other than dividends or distributions payable in Capital Stock that is not
Disqualified Stock); (b) any payment on account of the purchase, redemption,
retirement or other acquisition of (i) any shares of such Person's Capital
Stock or (ii) any option, warrant or other right to acquire shares of such
Person's Capital Stock; (c) any defeasance, redemption, repurchase or other
acquisition or retirement for value prior to scheduled maturity of any
Indebtedness ranked pari passu or subordinate in right of payment to the
Securities and having a maturity date subsequent to the maturity of the
Securities; (d) any investment in, loan, advance to, Guarantee on behalf of,
directly or indirectly, or other transfer of assets to (i) any Restricted
Subsidiary or (ii) any holder of 5% or more of any class of Capital Stock of the
Company (including Affiliates thereof other than Subsidiaries of the Company);
and (e) any Restricted
<PAGE>
18
Investment (except to the extent permitted by Section 6.18); provided, that
"Restricted Payments" shall not include any payment described in (a), (b) or
(c) above made by a Subsidiary to the Company or to a Wholly-Owned Recourse
Subsidiary of the Company. Notwithstanding the foregoing, Restricted Payment
shall not include any Permitted Payment.
"Restricted Subsidiary" means (a) any Joint Venture in which the
Company or any of its Subsidiaries holds a 50% or less interest or (b) any
Subsidiary which is not a Wholly-Owned Recourse Subsidiary or (c) any Subsidiary
subject to consensual restrictions, other than pursuant to the Credit Facility,
direct or indirect, on the declaration or payment of dividends or similar
distributions by that Subsidiary to the Company or any other
Subsidiary of the Company.
"Retained Trust Moneys" has the meaning specified in Section 13.5.
"Sale and Leaseback Transaction" means, with respect to any Person, an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
Person or any of its Subsidiaries of any property or asset of such Person or any
of its Subsidiaries which has been or is being sold or transferred by such
Person or such Subsidiary to such lender or investor or to any person to whom
funds have been or are to be advanced by such lender or investor on the security
of such property or asset.
"Security Documents" means, collectively, (i) the Mortgages, (ii) the
Company Security Agreements, (iii) the Subsidiary Security Agreements, (iv) the
Subsidiary Guarantee, (v) the Intercreditor Agreement, and (vi) any other
Mortgage, security agreement or other agreement evidencing a security interest
executed in accordance with Section 12.1 after the Issue Date.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 3.5.
"Service Agreement" means the Service Agreement dated as of September
5, 1986, among the Company, Quexco Incorporated and RSR Corporation.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which 50% or more of the Capital Stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time
directly or indirectly owned by such Person.
<PAGE>
19
"Subsidiary Guarantee" means each guarantee dated as of the date
hereof, or with respect to Persons that become Recourse Subsidiaries of
the Company subsequent to the Issue Date, as of such subsequent date, between
the Trustee and each Recourse Subsidiary of the Company, substantially
in the form of Exhibit __ hereto, as the same may be amended, supplemented or
otherwise modified from time to time.
"Subsidiary Security Agreement" means each Security Agreement dated as
of the date hereof, or with respect to Persons that become Recourse Subsidiaries
of the Company subsequent to the Issue Date, as of such subsequent date, between
the Trustee and each Recourse Subsidiary of the Company, substantially in the
form of Exhibit D hereto, as the same may be amended, supplemented or otherwise
modified from time to time.
"Tax Lessor" means Amoco Tax Leasing I Corporation, a Delaware
corporation.
"TBT Lease" means the Agreement dated November 11, 1981 between the
Tax Lessor and the Company, as amended, supplemented or otherwise modified from
time to time.
"Trade Payables" means accounts payable or any other Indebtedness or
monetary obligations to trade creditors created or assumed by the Company or its
Subsidiaries in the ordinary course of business in connection with the obtaining
of materials or services.
"Trade Secrets" means any proprietary information, process
or system now or hereafter created which is within the possession of the
Company, including, without limitation, manufacturing processes or methods, all
formulae, processes, compounds, drawings, designs, blueprints, surveys, reports,
manuals, and operating standards relating to or used in the operating standards
relating to or used in the operation of the Company's business, rights in works
of authorship, and contract rights relating to computer software programs, in
whatever form created or maintained.
"Trademark License" means any agreement, written or oral, providing
for the grant by or to the Company of any right to use any Trademark.
"Trademarks": (a) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers, and the goodwill
associated therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, whether in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof, or otherwise, and (b) all renewals
thereof.
"Transaction" has the meaning specified in Section 6.14.
<PAGE>
20
"Trust Moneys" means all cash or Cash Equivalents received by the
Collateral Agent (a) upon the release of property from the Lien of the Security
Documents; or (b) as Condemnation Proceeds with respect to all or any
part of the Collateral; or (c) as Net Insurance Proceeds with respect
to all or any part of the Collateral; or (d) as proceeds of any other sale or
other disposition of all or any part of the Collateral by or on behalf of the
Collateral Agent or any collection, recovery, receipt, appropriation or other
realization of or from all or any part of the Collateral pursuant to the
Security Documents or otherwise; or (e) for application under Article XIII as
elsewhere provided in this Indenture or the Security Documents or whose
disposition is not elsewhere otherwise specifically provided for in the
Indenture or in the Security Documents; provided, however, that Trust Moneys
shall not include any property deposited with the Trustee pursuant to Article IV
or XIV or Section 5.5 or delivered to or received by the Trustee for application
in accordance with Section 8.6 hereof. Trust Moneys shall be held by the
Trustee for the benefit of the Holders as a part of the Collateral and, upon any
entry upon or sale or other disposition of the Collateral or any part thereof
pursuant to the Security Documents, said Trust Moneys shall be applied in
accordance with Section 8.6; but, prior to any such entry, sale or other
disposition, all or any part of the Trust Moneys may be withdrawn, and shall be
released, paid or applied by the Trustee, from time to time as provided in
Article XIII.
"Trust Moneys Release Notice" has the meaning specified in Section
13.4.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, and as in force at the date as of which this instrument was executed;
provided, however, that in the event the Trust Indenture Act is amended after
such date, "Trust Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939, as so amended.
"Trust Officer" means any Vice President, any Assistant Vice President
or any other officer or assistant officer of the Trustee assigned by the Trustee
to administer its corporate trust matters.
"Tulsa Facility" means the Loan Agreement, dated as of January 9,
1991, as amended and restated November 22, 1993, between the Company and
Hibernia National Bank, together with the Mortgage, Security Agreement and
Financing Statement of even date therewith, each as amended, supplemented or
otherwise modified from time to time.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer
<PAGE>
21
thereof, and shall also include a depository receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act of 1933, as amended) as
custodian with respect to any such U.S. Government Obligation or a specific
payment of principal of or interest on any such U.S. Government Obligation held
by such custodian for the account of the holder of such depository receipt;
provided, that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal of or interest on the
U.S. Government Obligation evidenced by such depository receipt.
"VAIC" means Voest-Alpine International Corporation, a wholly-owned
subsidiary of Voest-Alpine.
"Valuation Date" has the meaning specified in Section 12.5(b).
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voest-Alpine" means Voest-Alpine A.G., an Austrian company.
"Wholly-Owned Recourse Subsidiary" means a Wholly-Owned Subsidiary
that is a Recourse Subsidiary.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
Subsidiary of which at least 95% of the Capital Stock (other than any
director's qualifying stock) or, in the case of a non- corporate Subsidiary,
other equity interests having ordinary voting power for the election of
directors or other governing body of such Subsidiary, is owned by such Person or
another Wholly-Owned Subsidiary of such Person.
"Withdrawal Notice" has the meaning specified in Section 13.5.
SECTION 1.2. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee such certificates and opinions as may be required under the Trust
Indenture Act or under this Indenture. Each such certificate or opinion shall
be given in the form of an Officers' Certificate, if to be given by officers of
the Company, or an Opinion of Counsel, if to be given by counsel, and shall
comply with the requirements of the Trust Indenture Act and any other
requirement set forth in this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
<PAGE>
22
(i) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions herein
relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such
individual, he has made such examination or investigation as is necessary
to enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.3. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary
that all such matters be certified by, or covered by the opinion of, only
one such Person, or that they be so certified or covered by only one
document, but one such Person may certify or give an opinion with respect
to some matters and one or more other such Persons as to other matters, and
any such Person may certify or give an opinion as to such matters in one or
several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows, or
in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or
opinion of counsel may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or
officers of the Company stating that the information with respect to such
factual matters is in the possession of the Company, unless such counsel
knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be
consolidated and form one instrument.
SECTION 1.4. Acts of Holders; Record Dates.
-----------------------------
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or
taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such
<PAGE>
23
Holders in person or by one or more agents duly appointed in writing; and,
except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee
and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 9.1) conclusive
in favor of the Trustee and the Company, if made in the manner provided in
this Section 1.4.
(b) The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may be proved
in any manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of
determining the Holders entitled to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action, or to
vote on any action, authorized or permitted to be given or taken by
Holders. If not set by the Company prior to the first solicitation of a
Holder made by any Person in respect of any such action, or, in the case of
any such vote, prior to such vote, the record date for any such action or
vote shall be the 30th day (or, if later, the date of the most recent list
of Holders required to be provided pursuant to Section 10.1) prior to such
first solicitation or vote, as the case may be. With regard to any record
date, only the Holders on such date (or their duly designated proxies)
shall be entitled to give or take, or vote on, the relevant action.
(d) The ownership of Securities shall be proved by the Security
Register.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued
upon the registration of transfer thereof or in exchange therefor or in
lieu thereof in respect of anything done, omitted or suffered to be done by
the Trustee or the Company in reliance thereon, whether or not notation of
such action is made upon such Security.
SECTION 1.5. Notices, Etc., to Trustee and Company.
-------------------------------------
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:
(i) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed
in writing to or with the Trustee at its Corporate Trust Office, Attention:
Corporate Trustee, ________________________, New Orleans, Louisiana _____;
or
<PAGE>
24
(ii) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to the
Company addressed to the attention of its Secretary at the address of its
principal office specified in the first paragraph of this instrument or at
any other address previously furnished in writing to the Trustee by the
Company.
SECTION 1.6. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each
Holder affected by such event, at his address as it appears in the Security
Register, not later than the latest date (if any), and not earlier than the
earliest date (if any), prescribed for the giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any particular
Holder shall affect the sufficiency of such notice with respect to other
Holders. Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed
with the Trustee, but such filing shall not be a condition precedent to the
validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the
Trustee shall constitute a sufficient notification for every purpose
hereunder.
SECTION 1.7. Conflict with Trust Indenture Act.
---------------------------------
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required under such Act to be
a part of and govern this Indenture, the latter provision shall control.
If any provision of this Indenture modifies or excludes any provision of
the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to
be excluded, as the case may be.
SECTION 1.8. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
<PAGE>
25
SECTION 1.9. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
SECTION 1.10. Separability Clause.
-------------------
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 1.11. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder and the Holders of Securities, any benefit or any
legal or equitable right, remedy or claim under this Indenture.
SECTION 1.12. Governing Law.
-------------
This Indenture and the Securities shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 1.13. Legal Holidays.
--------------
In any case where any Interest Payment Date, Maturity Date or
Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the
Securities) payment of interest or principal need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the Interest Payment Date or Maturity Date, or at the
Stated Maturity; provided, that no interest shall accrue for the period
from and after such Maturity Date or Stated Maturity, as the case may be.
SECTION 1.14. Immunity of Incorporators, Stockholders,
----------------------------------------
Officers and Directors.
----------------------
No recourse shall be had for the payment of the principal of or
interest on any Security or for any claim
based thereon, or upon any obligation, covenant or agreement of this
Indenture, against any incorporator, stockholder, officer or director, as
such, past, present or future, of the Company or of any successor
corporation, either directly or indirectly through the
<PAGE>
26
Company or any successor corporation, whether by virtue of any
constitution, statute or rule of law or by the enforcement of any
assessment of penalty or otherwise; it being expressly agreed and
understood that this Indenture and all the Securities are solely corporate
obligations, and that no personal liability whatever shall attach to, or is
incurred by, any incorporator, stockholder, officer or director, past,
present or future, of the Company or of any successor corporation, either
directly or indirectly through the Company or any successor corporation,
because of the incurring of the indebtedness hereby authorized or under or
by reason of any of the obligations, covenants or agreements contained in
this Indenture or in any of the Securities, or to be implied herefrom or
therefrom; and that all such personal liability is hereby expressly
released and waived as a condition of, and as part of the consideration
for, the execution of this Indenture and the issuance of the Securities.
ARTICLE II
SECURITY FORMS
SECTION 2.1. Forms Generally.
---------------
The Securities and the Trustee's certificates of authentication
shall be in substantially the forms set forth in this Article, with such
appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture, and may have such letters,
numbers or other marks of identification and such legends or endorsements
placed thereon as may be required to comply with the rules of any
securities exchange or as may, consistently herewith, be determined by the
officers executing such Securities, as evidenced by their execution of the
Securities.
The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods on steel engraved
borders or may be produced in any other manner permitted by the rules of
any securities exchange on which the Securities may be listed, if any, all
as determined by the officers executing such Securities, as evidenced by
their execution of such Securities.
SECTION 2.2. Form of Face of Security.
------------------------
BAYOU STEEL CORPORATION
No. _____________ $__________________
[Insert if the Security is to be a Global Security -- This Security is
a Global Security within the meaning of the Indenture hereinafter referred to
and is registered in the name of The Depository Trust Company (the "Depositary")
or a nominee of the Depositary. This Global Security is exchangeable for
Securities registered in the name of a
<PAGE>
27
Person other than the Depositary or its nominee only in the limited
circumstances described in the Indenture, and no transfer of this Security
(other than a transfer of this Security as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary) may be registered except in such limited
circumstances.
Unless this Security is presented by an authorized representative of
the Depositary (55 Water Street, New York, New York) to the issuer or its agent
for registration of transfer, exchange or payment, and any Security issued upon
registration or transfer of, or in exchange for, or in lieu of, this Security
is registered in the name of Cede & Co. or such other name as requested by an
authorized representative of the Depositary and any payment hereon is made to
Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has
an interest herein.]
BAYOU STEEL CORPORATION, a corporation duly organized and existing
under the laws of Delaware (herein called the " Company", which term includes
any successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to [Insert if the Security is to be a Global
Security --Cede & Co., as nominee for the Depositary] ______________, or
registered assigns, the principal sum of ____________ Dollars on ______________,
and to pay interest thereon from ___________ /1/ or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semi-annually on ________________ and ________________ in each year, commencing
___ ___________, at the rate of ____% per annum, until the principal hereof is
paid or made available for payment. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in
such Indenture, be paid to the Person in whose name this Security (or one or
more Predecessor Securities) is registered at the close of business on the
Regular Record Date for such interest, which shall be the ____________ or
______________ (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Interest will be computed on the basis of
a 360-day year of twelve 30-day months. Any such interest not so punctually
paid or duly provided for will forthwith cease to be payable to the Holder on
such Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in said
Indenture. The Company will pay interest on overdue principal and on overdue
interest (to the full extent permitted by law) at a rate of __% per annum.
- --------------
/1/ Insert date of the Indenture or, if the Securities are to be sold "flat",
the expected closing date.
<PAGE>
28
Payment of the principal of and interest on this Security will be made
at the office or agency of the Paying Agent in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public or private debts; provided, however, that at the option of the Company
payment of interest may be made by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register; provided
further, that a Holder of $10,000,000 in aggregate principal amount of the
Securities shall be entitled to receive payments of interest by wire transfer in
immediately available funds (but only if appropriate payment instructions have
been received in writing by the Paying Agent not less than 15 calendar days
prior to the applicable Interest Payment Date). Holders must surrender the
Security at maturity, whether such date occurs by acceleration or otherwise, to
the Paying Agent.
[Insert in place of preceding paragraph if the Security is to be a
Global Security -- Immediately available funds for the payment of the principal
of (and premium, if any) and interest on this Security due on any Interest
Payment Date, Maturity Date or on Stated Maturity will be made available to the
Paying Agent to permit the Paying Agent to pay such funds to the Depositary
on such respective dates. The Depositary will allocate and pay such funds to
the owners of beneficial interests in the Security in accordance with its
existing operating procedures.]
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
By acceptance of this Security, the Holder hereby irrevocably appoints
the Trustee as its special attorney-in-fact for the Holder and vests the Trustee
on behalf of the Holder with full power to act on such Holder's behalf and
enforce the Security Documents for the benefit of the Holder.
The Company will appoint and at all times maintain a Paying Agent
(which may be the Trustee) authorized by the Company to pay the principal of
(and premium, if any) and interest on any Securities on behalf of the Company
and having an office or agency in the City of New Orleans, where Securities may
be presented or surrendered for payment and where notice, designations or
requests in respect of payments with respect to Securities may be served. The
Company has initially appointed the First National Bank of
Commerce as such Paying Agent, with its Corporate Trust Office currently at
_____________________. In addition, the Company has initially appointed the
First National Bank of Commerce as Security Registrar. The Company
<PAGE>
29
will give prompt written notice to the Trustee of any such change in
appointments.
BAYOU STEEL CORPORATION
-----------------------
By:
--------------------
Chairman of the Board
Attest by:
-----------------
Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
- ---------------------------------------
This is one of the Securities issued
under the Indenture described herein.
FIRST NATIONAL BANK OF COMMERCE,
- -------------------------------
AS TRUSTEE
----------
By ________________________
Authorized Officer
[Form of Reverse of Security]
---------------------------
This Security is one of a duly authorized issue of Securities of the
Company designated as its __% First Mortgage Notes due 2001 (herein called the
"Securities"), limited in aggregate principal amount to $75,000,000, issued and
to be issued under an Indenture, dated as of ___________, 1994 (herein called
the "Indenture"), between the Company and The First National Bank of Commerce,
as Trustee (herein called the "Trustee", which term includes any successor
trustee under the Indenture), to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. The terms of this
Security include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act. This Security is subject to
all such terms, and the Holders of the Securities are referred to the Indenture
and the Trust Indenture Act for a statement of them. Capitalized and certain
other terms used herein and not otherwise defined have the meanings set forth in
the Indenture.
This Security is a secured obligation of the Company limited in
aggregate principal amount to $75,000,000. The Indenture limits, among other
things, the ability of the Company to incur additional Indebtedness; create
Liens; make Restricted Payments; engage in certain transactions with
stockholders and Affiliates; engage in Sale and Leaseback Transactions; dispose
of assets; issue Preferred Stock of Subsidiaries; transfer assets to its
<PAGE>
30
Subsidiaries; enter into agreements that restrict the ability of its
Subsidiaries to make dividends and distributions; engage in mergers,
consolidations and transfers of substantially all of the Company's assets; make
certain Investments, loans, and advances; and create Non-Recourse
Subsidiaries. These limitations are subject to a number of important
qualifications and exceptions. The Company must report to the Trustee
quarterly its compliance with the limitations contained in the Indenture.
The Company, at its option, may redeem this Security, in whole or in
part, from time to time on and after , 1998, at the redemption
prices set forth below (expressed as a percentage of the principal amount
thereof), in each case together with accrued interest, if any, to the date of
redemption, if redeemed during the twelve-month period beginning _______ ____ of
the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- -------------
<S> <C>
1998 %
1999 %
2000 %
</TABLE>
provided, that if the date fixed for redemption is ______ 15 or ____ 15, then
the interest payable on such date shall be paid to the Holder of record on the
next preceding ______1 or ______1.
In the event that less than all of the Securities are to be redeemed
at any time, selection of Securities for redemption will be made by the Trustee
on a pro rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided, however, that no Securities of $1,000 or less shall be
redeemed in part. Notice of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder to
be redeemed at its registered address. If any Security is to be redeemed in
part only, the notice of redemption that relates to such Security shall state
the portion of the principal amount thereof to be redeemed. A new Security in a
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Security. On and
after the redemption date, interest will cease to accrue on Securities or the
portion thereof called for redemption unless the Company defaults in the payment
of the redemption price or accrued interest.
Sections 6.15 and 6.19 of the Indenture provide that after certain
Asset Sales and upon the occurrence of a Change of Control, and subject to
further limitations contained therein, the Company may be required
to make an offer to purchase certain amounts of Securities in accordance
with the procedures set forth in the Indenture.
In order to secure the due and punctual payment of the principal of
and interest on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same become due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture, the Company, subject to certain
exceptions, has granted security interests in and
<PAGE>
31
Liens on the Collateral owned by it to the Collateral Agent for the benefit of
the Holders pursuant to the Indenture and the Security Documents. The Recourse
Subsidiaries of the Company shall execute a Subsidiary Guarantee to guarantee
the obligations of the Company with respect to the Securities. The obligations
of a Recourse Subsidiary under the Subsidiaries Guarantee will be secured by the
Collateral assigned by such Subsidiary pursuant to a Subsidiary Security
Agreement.
Each Holder, by accepting a Security, agrees to all of the terms and
provisions of the Security Documents, as the same may be amended from time to
time pursuant to the respective provisions thereof and the Indenture.
The Trustee, the Collateral Agent and each Holder acknowledges that a
release of any of the Collateral or any Lien strictly in accordance with the
terms and provisions of the Indenture and Security Documents will not
be deemed for any purpose to be an impairment of the Security under the
Indenture.
If an Event of Default (other than an Event of Default specified in
Section 8.1(vii) or (viii)) occurs and is continuing, the Trustee or the Holders
of at least 25% of the principal amount of the Outstanding Securities by notice
to the Company (and to the Trustee if such notice is given by the Holders) may
declare the principal amount and accrued interest on the Securities to be
immediately due and payable. If an Event of Default specified in Section
8.1(vii) or (viii) occurs, the principal amount and accrued interest shall ipso
facto become and be immediately due and payable on all Outstanding Securities
without any declaration or other act on the part of the Trustee or any Holder.
The Holders of a majority in principal amount of the then Outstanding Securities
by notice to the Trustee and the Company may rescind an acceleration and its
consequences if the Company has paid or deposited with the Trustee a sum
sufficient to pay all amounts due, other than amounts due by declaration of
acceleration, and all existing Events of Default, other than the nonpayment of
the principal of the Securities which have became due solely by such declaration
of acceleration, have been cured or waived. The Holders of a majority in
principal amount of the outstanding Securities also have the right to waive
certain past defaults under the Indenture, except a default in the payment of
the principal of, premium, if any, or interest on the Security, or in respect of
a covenant or a provision which cannot be modified or amended without the
consent of all Holders.
From time to time, the Company when authorized by a Board Resolution,
and the Trustee (or the Collateral Agent, if a party thereto), may, without the
consent of any Holders, amend, waive, or supplement the Indenture, the Security
Documents or the Securities for certain specified purposes, including, among
other things, curing ambiguities, defects, or inconsistences, maintaining the
qualification of the Indenture under the Trust Indenture Act, making any change
that does not adversely affect the rights of any Holder or mortgaging, pledging,
or granting a security interest in favor of the Collateral Agent as additional
security for the payment and performance of the obligations of the Company under
the Indenture, in any property or assets, including any which are required to be
mortgaged, pledged or hypothecated, or in which a security interest is required
to be granted, to the Collateral Agent pursuant to any Security Document or
<PAGE>
32
otherwise; provided, that the Company delivers to the Trustee an Opinion of
Counsel stating that such change does not adversely affect the rights of any
Holder. Other amendments and modifications of the Indenture, the Securities or
the Security Documents may be made by the Company, the Collateral Agent (if a
party thereto) and the Trustee with the consent of the Holders of not less than
a majority of the aggregate principal amount of the Outstanding Securities;
provided, that no such modification or amendment may, without the consent of the
Holder of each Outstanding Security affected thereby, (i) change the Stated
Maturity of the principal of, or any installment of interest on, any Security,
or alter the redemption provisions or reduce the principal amount thereof or the
rate of interest thereon, or change the place of payment where, or the coin or
currency in which, any Security or interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment on or after the
Maturity Date thereof; or (ii) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture; or
(iii) modify any of the provisions of Section 8.8 , 8.13 or 11.2, except to
increase any such percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of each
Outstanding Security affected thereby; or (iv) affect the ranking of the
Securities or the Liens in favor of the Trustee, the Collateral Agent and the
Holders in a manner adverse to the Holders or release all or substantially all
of the Collateral.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and interest on this
Security at the times, place and rate, and in the coin or currency, herein
prescribed.
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent will pay the money back to the
Company at its request. After that, Holders entitled to the money must look to
the Company for payment as unsecured general creditors.
As provided in the Indenture and subject to certain limitations set
forth therein (including in case of any Global Security, certain additional
limitations) and as may be set forth on the face hereof, the transfer of this
Security is registrable in the Security Register upon surrender of this Security
for registration of transfer at the office or agency of the Company in any place
where the principal of and interest on this Security are payable, duly endorsed
by, or accompanied by a written instrument of transfer in form satisfactory to
the Company and the Security Registrar, duly executed by the Holder hereof or
his attorney duly authorized in writing, and thereupon one or more new
Securities in an authorized denomination and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture
<PAGE>
33
and subject to certain limitations therein and herein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of different
authorized denominations, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require appropriate endorsements and the
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith, other than exchanges pursuant to Section 3.4 or
11.6 not including any transfer. During the period of 15 days preceding any
Interest Payment Date or Maturity Date, the Company shall not be required to
register the transfer of or to exchange any Securities. In addition, the
Company shall not be required (i) to register the transfer of or to exchange any
Securities for a period of 15 days immediately preceding any date fixed for any
selection of Securities of such series to be redeemed and (ii) to register the
transfer of or to exchange any Securities selected for redemption, except the
unredeemed portion of any Security being redeemed in part.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture and the Securities endorsed thereon shall be governed by
and construed in accordance with the laws of the State of New York.
When a successor corporation assumes all the obligations of its
predecessor under the Securities and the Indenture and the transaction complies
with the terms of Article VII of the Indenture, the predecessor corporation will
be released from those obligations.
The Trustee, in its individual or any other capacity, may make loans
to, accept deposits and pledges from, and perform services for the Company or
its Affiliates, and may otherwise deal with the Company or its Affiliates, as if
it were not Trustee.
Directors, officers, employees or shareholders of the Company shall
not have any liability for any obligations of the Company under the Securities,
the Indenture or the Security Documents or for any claim based on, in respect
of, or by reason of, such obligation or their creation. The Holder of this
Security, or any beneficial interests in this Security, hereby waives and
releases all such liability. Such waiver and release are part of the
consideration for the issue of the Securities.
Customary abbreviations may be used in the name of a holder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
<PAGE>
34
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders. No representation is made as
to the accuracy of such numbers either as printed in the Securities or as
contained in any notice of redemption, and reliance may be placed only on the
other identification numbers placed thereon.
SECTION 2.3. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
This is one of the Securities referred to in the within-mentioned
Indenture.
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
This is one of the Securities
issued under the Indenture
described herein.
FIRST NATIONAL BANK OF COMMERCE,
as Trustee
By_____________________________
Authorized Officer
Date of Authentication:
ARTICLE III
THE SECURITIES
SECTION 3.1. Title and Terms.
---------------
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $75,000,000,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities . Subject to
Section 3.5, the Securities will be represented by a Global Security in the name
of the Depositary or its nominee.
The Securities shall be known and designated as the "___% First
Mortgage Notes due 2001" of the Company. Their Stated Maturity shall be
_______________
<PAGE>
35
2001, and they shall bear interest at the rate of ___% per annum, from
_________________ /2/ or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, as the case may be, payable
semi-annually on ____________ and ____________ in each year, commencing
_____________ 1994, until the principal thereof is paid or made available for
payment.
The principal of and interest on the Securities shall be payable at
the office or agency of the Paying Agent in The City of New Orleans, maintained
for such purpose; provided, however, that at the option of the Company payment
of interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register; provided,
further, that a Holder of $10,000,000 in aggregate principal amount of the
Securities shall be entitled to receive payments of interest by wire transfer in
immediately available funds (but only if appropriate payment instructions have
been received in writing by the Paying Agent not less than 15 calendar days
prior to the applicable Interest Payment Date).
Notwithstanding any other provision of this Section 3.1, if the
Security is in the form of a Global Security, immediately available funds for
the payment of the principal of (and premium, if any) and interest on the
Security due on any Interest Payment Date or Maturity Date, as the case may be,
will be made available to the Paying Agent to permit the Paying Agent to pay
such funds to the Depositary on such respective dates. The Depositary will
allocate and pay such funds to the owners of beneficial interests in the
Security in accordance with its existing operating procedures.
The Securities shall be subject to redemption and repurchase by
the Company as provided herein.
SECTION 3.2. Denominations.
-------------
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 3.3. Execution, Authentication, Delivery
-----------------------------------
and Dating.
----------
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Vice Chairman of the Board, its President or its
Chief Financial Officer, under its corporate seal reproduced thereon and
attested by its Secretary or one of its Assistant Secretaries. The signature of
any of these officers on the Securities may be manual or facsimile.
- --------------
/2/ Insert date of the Indenture or, if the Securities are to be sold "flat",
the expected closing date.
<PAGE>
36
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwith-standing that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices on the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authen-ticate and deliver such Securities as in
this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder.
SECTION 3.4. Temporary Securities.
--------------------
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 6.2, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities of
authorized denominations. Until so exchanged the temporary Securities shall in
all respects be entitled to the same benefits under this Indenture as definitive
Securities.
<PAGE>
37
SECTION 3.5. Registration; Registration of Transfer and
------------------------------------------
Exchange.
--------
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 6.2 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is
hereby appointed Security Registrar for the purpose of registering Securities
and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at an
office or agency of the Company designated pursuant to Section 6.2 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of any authorized denominations and of a like aggregate principal
amount.
Notwithstanding any other provision of this Section 3.5, unless and
until it is exchanged in whole or in part for Securities in definitive form, a
Global Security representing all or a portion of the Securities may not be
transferred except as a whole by the Depositary to a nominee of such Depositary
or by a nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor Depositary
for such series or a nominee of such successor Depositary. Unless otherwise
provided as contemplated by Section 3.1 with respect to any series of Securities
evidenced in whole or in part by a Global Security, the Depositary may not sell,
assign, transfer or otherwise convey any beneficial interest in a Global
Security evidencing all or part of the Securities of such series unless such
beneficial interest is in an amount equal to an authorized denomination for the
Securities.
If at any time the Depositary for the Securities notifies the Company
that it is unwilling or unable to continue as a Depositary for the Securities or
if at any time the Depositary for Securities shall no longer be registered or in
good standing under the Exchange Act or other applicable statute or regulation,
the Company shall appoint a successor Depositary with respect to the Securities.
If a successor Depositary for the Securities is not appointed by the Company
within 90 days after the Company receives such notice or becomes aware of such
condition, the Company will execute, and the Trustee, upon the written request
or authorization of any officer of the Company, will authenticate and deliver
Securities in definitive form in an aggregate principal amount equal to the
principal amount of the Global Security representing Securities in exchange for
such Global Security.
In the event that (i) the Company at any time and in its sole
discretion determines that the Securities issued in the form of a Global
Security shall no longer be represented by such Global Security or (ii) there
shall have occurred and be continuing a Default or an Event of Default, the
Company will execute, and the Trustee, upon the written request or authorization
of any officer of the Company, will authenticate and
<PAGE>
38
deliver Securities in definitive form and in an aggregate principal amount equal
to the principal amount of the Global Security representing the Securities in
exchange for such Global Security.
The Depositary may surrender a Global Security in exchange, in whole
or in part, for Securities in definitive form on such terms as are acceptable to
the Company and such Depositary. Thereupon, the Company shall execute and the
Trustee shall authenticate and deliver, without charge,
(i) to each Person specified by the Depositary, a new Security
or Securities of the same series in definitive form in an aggregate
principal amount equal to and in exchange for such Person's beneficial
interest in the surrendered Global Security; and
(ii) to the Depositary, a new Global Security in a
denomination equal to the difference, if any, between the principal amount
of the surrendered Global Security and the aggregate principal amount of
Securities of such series delivered in definitive form to Holders pursuant
to clause (i) above.
Upon the exchange of a Global Security for Securities in definitive
form, such Global Security shall be cancelled by the Trustee. Securities issued
in definitive form in exchange for a Global Security pursuant to this Section
3.4 shall be registered in such names and in such authorized denominations as
the Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall
deliver such Securities in definitive form to the Person in whose name such
Securities are so registered.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
<PAGE>
39
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 3.4 or 11.6 not involving any transfer.
During the period of 15 days preceding any Interest Payment Date or
Maturity Date, the Company shall not be required to register the transfer of or
to exchange any Securities. In addition, the Company shall not be required (i)
to register the transfer of or to exchange any Securities for a period of 15
days immediately preceding any date fixed for any selection of Securities of
such series to be redeemed and (ii) to register the transfer of or to exchange
any Securities selected for redemption, except the unredeemed portion of any
Security being redeemed in part.
SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities.
------------------------------------------------
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of like tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section 3.6, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section 3.6 in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
<PAGE>
40
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.7. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall
be fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which shall
be not more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it appears in
the Security Register, not less than 10 days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted Interest
shall be paid to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of business
on such Special Record Date and shall no longer be payable pursuant to the
following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities
<PAGE>
41
exchange on which the Securities may be listed, and upon such notice as may
be required by such exchange, if, after notice given by the Company to the
Trustee of the proposed payment pursuant to this Clause, such manner of
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 3.8. Persons Deemed Owners.
---------------------
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and (subject to
Section 3.7) interest on such Security and for all other purposes whatsoever,
whether or not such Security be overdue, and neither the Company, the Trustee
nor any agent of the Company or the Trustee shall be affected by notice to the
contrary.
SECTION 3.9. Cancellation.
------------
All Securities surrendered for payment, redemption, repurchase,
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly cancelled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as provided
in this Section, except as expressly permitted by this Indenture. All cancelled
Securities held by the Trustee shall be destroyed and certification of their
destruction delivered to the Company unless by a Company Order the Company shall
direct that cancelled Securities be returned to it.
SECTION 3.10. Computation of Interest.
-----------------------
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
<PAGE>
42
SECTION 3.11. Paying Agent.
------------
The Company initially appoints the Trustee as a Paying Agent for the
Securities. The Company may have one or more additional Paying Agents at any
time, and may appoint itself as a Paying Agent. The Company shall deliver
notice in accordance with the terms of this Indenture of any future appointment
of a Paying Agent.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Securities herein
expressly provided for), and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and issued (other
than (i) Securities which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 3.6 and (ii)
Securities for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter
repaid to the Trustee or discharged from such trust, as provided in
Section 6.26) have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable; or
(ii) will become due and payable within
one year,
and the Company, in the case of (B) (i) or (ii) above, has
deposited or caused to be deposited with the Trustee as trust funds in
trust an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the
Trustee for cancellation, for principal and interest to the date of
such deposit (in the case of Securities which have become due and
payable) or to the Maturity Date, as the case may be;
<PAGE>
43
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 9.7, the obligations of
the Trustee to any Authenticating Agent under Section 9.14 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section 4.1, the obligations of the Trustee under Section 4.2 and the last
paragraph of Section 6.26 shall survive.
SECTION 4.2. Application of Monies for Satisfaction and
-------------------------------------------
Discharge.
---------
Subject to the provisions of the last paragraph of Section 6.26, all
money deposited with the Trustee pursuant to Section 4.1 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
whose payment such money has been deposited with the Trustee.
ARTICLE V
REDEMPTION
SECTION 5.1. Notices to Trustee.
------------------
If the Company elects to redeem Securities, it shall notify the
Trustee and the Paying Agent in writing of the redemption date and the principal
amount of Securities to be redeemed.
The Company shall give each notice provided for in this Section 5.1 at
least 75 days before the redemption date (unless a shorter notice shall be
agreed to by the Trustee in writing), together with an Officers' Certificate
stating that such redemption shall comply with the conditions contained herein
and in the Securities.
SECTION 5.2. Selection of Securities
-----------------------
To Be Redeemed.
--------------
If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed in compliance with the requirements
of the principal national
<PAGE>
44
securities exchange, if any, on which the Securities being redeemed are listed
or, if the Securities are not listed on a national securities exchange, on a pro
rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided, that no Securities of $1,000 or less shall be redeemed
in part.
The Trustee shall make the selection from the Outstanding Securities
not previously called for redemption. The Trustee shall promptly notify the
Company in writing of such Securities and, in the case of Securities selected
for partial redemption, the principal amount to be redeemed. The Trustee may
select for redemption portions (equal to $1,000 or any integral multiple
thereof) of the principal of Securities that have denominations larger than
$1,000. The Securities and portions of them the Trustee selects shall be in
amounts of $1,000 or integral multiples of $1,000. Provisions of this Indenture
that apply to Securities called for redemption also apply to portions of
Securities called for redemption.
SECTION 5.3. Notice of Redemption.
--------------------
At least 30 days but not more than 60 days prior to a redemption date,
the Company shall mail or cause the mailing of a notice of redemption by first-
class mail to each Holder of Securities to be redeemed at its registered
address.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price and the amount of accrued interest, if any,
to be paid;
(3) the name and address of the Paying Agent;
(4) that the Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price and accrued interest, if
any;
(5) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on
and after the redemption date and the only remaining right of the Holders
is to receive payment of the redemption price upon surrender to the Trustee
or the Paying Agent of the Securities redeemed;
(6) if any Security is being redeemed in part, the portion of the
principal amount (equal to $1,000 or any integral multiple thereof) of such
Security to be redeemed and that, on and after the redemption date, upon
surrender of such Security, a new Security or Securities in principal
amount equal to the unredeemed portion thereof shall be issued without
charge to the Holder; and
<PAGE>
45
(7) if less than all of the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of the Securities estimated to
be outstanding after the redemption.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense.
SECTION 5.4. Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date and at the redemption price and
shall cease to bear interest from and after the redemption date (unless the
Company shall default in the payment of the redemption price or accrued
interest). Upon surrender to the Paying Agent, such Securities shall be paid at
the redemption price, plus accrued interest to the redemption date; provided,
that if the redemption date is ________ 15 or ________ 15, then the interest
payable on such date shall be paid to the Holder of record on the next preceding
________ 1 or ________ 1.
SECTION 5.5. Deposit of Redemption Price.
---------------------------
At least one Business Day prior to the redemption date, the Company
shall deposit with the Paying Agent in immediately available funds money
sufficient to pay the redemption price of and accrued interest on all Securities
or portions thereof to be redeemed on the redemption date.
If any Security surrendered for redemption in the manner provided in
the Securities shall not be so paid on the redemption date due to the failure of
the Company to deposit sufficient funds with the Paying Agent, interest shall
continue to accrue from the redemption date until such payment is made on the
unpaid principal and, to the extent lawful, on any interest not paid on such
unpaid principal, in each case at the date and in the manner provided in the
Securities.
SECTION 5.6. Securities Redeemed in Part.
---------------------------
Upon surrender of a Security that is redeemed in part, the Company
shall issue and the Trustee shall authenticate for the Holder a new Security
equal in principal amount to the unredeemed portion of the Security surrendered.
<PAGE>
46
SECTION 5.7. Securities Exchange Act Requirements.
------------------------------------
In connection with any repurchase of Securities pursuant to this
Indenture, the Company shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such requirements, laws and regulations are applicable.
ARTICLE VI
COVENANTS
SECTION 6.1. Payment of Securities.
---------------------
The Company shall pay, or cause to be paid, the principal of and
interest on the Securities on the dates and in the manner provided in the
Securities and this Indenture. If the Securities are not represented by one or
more global Securities, an installment of principal or interest shall be
considered paid on the date due if the Trustee or Paying Agent (other than the
Company or any Subsidiary) holds on that date money in immediately available
funds designated for and sufficient to pay such installment. The Company agrees
with the Trustee to deposit such funds with the Trustee or Paying Agent prior to
the close of business on the Business Day immediately preceding the date such
payment is due.
The Company shall pay interest on overdue principal and (to the extent
permitted by law) on overdue installments of interest at a rate equal to ___%.
SECTION 6.2. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in the City of New Orleans, Louisiana an
office or agency where Securities may be surrendered for registration of
transfer or exchange or for presentation for payment and where notices and
demands to or upon the Company in respect of the Securities and this Indenture
may be served. The Company shall give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
address of the Trustee as set forth in Section 1.5 hereof.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
City of New Orleans, Louisiana for such purposes.
<PAGE>
47
The Company shall give prompt written notice to the Trustee of such designation
or rescission and of any change in the location of any such other office or
agency.
The Company hereby initially designates the Corporate Trust Office of
the Trustee located at ____________________ as such offices of the Company in
accordance with Sections 3.5 and 3.11 hereof.
SECTION 6.3. Corporate Existence.
-------------------
Subject to Article VII, the Company shall do or cause to be done, at
its own cost and expense, all things necessary to, and shall cause each
Subsidiary to, preserve and keep in full force and effect the corporate
existence and the rights (charter and statutory), licenses and franchises of the
Company and its Subsidiaries; provided, however, that the Company shall not be
required to preserve any such right, license or franchise, or the corporate
existence of any Subsidiary, if in the judgment of the Board of Directors of the
Company, (a) such preservation or existence is not desirable in the conduct of
business of the Company or such Subsidiary and (b) the loss of such right,
license or franchise or the dissolution of such Subsidiary is not adverse in any
material respect to the Holders.
SECTION 6.4. Payment of Taxes and Other Claims;
----------------------------------
Tax Consolidation.
-----------------
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or upon the income,
profits or property of the Company or any Subsidiary, and (b) all lawful claims
for labor, materials and supplies that, if unpaid, might by law become a Lien
upon the property of the Company or any Subsidiary; provided, however, that,
subject to the terms of the applicable Security Documents, the Company shall not
be required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which adequate
reserves (in the good faith judgment of the Board of Directors of the Company)
have been made.
SECTION 6.5. Compliance Certificates.
-----------------------
(a) The Company shall deliver to the Trustee, within 45 days after
the end of each of the respective first three quarters of the Company's fiscal
year, and within 90 days after the end of its respective fiscal year, Officers'
Certificates of the Company stating (i) that a review of the activities of the
Company during the preceding fiscal quarter or year, as the case may be, has
been made under the supervision of the signing officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such
Responsible Officer
<PAGE>
48
signing such certificate, (ii) that, to the best knowledge of such Responsible
Officer, the Company has kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions hereof (or, if a
Default or Event of Default shall have occurred, describing all such Defaults or
Events of Default of which such Responsible Officer may have knowledge, their
status and what action the Company is taking or proposes to take with respect
thereto) and (iii) that to the best of his knowledge no event has occurred and
remains in existence by reason of which payments on account of the principal of
or interest, if any, on the Securities are prohibited (or, if such event has
occurred, describing the event and what action the Company is taking or proposes
to take with respect thereto).
(b) So long as (and to the extent) not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
annual financial statements delivered pursuant to Section 6.6 shall be
accompanied by a written statement of the Company's independent public
accountants that in making the examination necessary for certification of such
annual financial statements nothing has come to their attention that would lead
them to believe that the Company has violated any provisions of this Indenture
or, if any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants shall not be liable
directly or indirectly to any Person for any failure to obtain knowledge of any
such violation that would not be disclosed in the course of an audit examination
conducted in accordance with generally accepted auditing standards.
(c) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, forthwith upon any officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
SECTION 6.6. SEC Reports.
-----------
(a) In accordance with the provisions of Section 314(a) of the Trust
Indenture Act, at any time that the Company is required to file periodic reports
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act, the
Company shall file with the Trustee, within 15 days after it files them with the
Commission, copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) which the Company is required
to file with the Commission. The Company also shall comply with the other
provisions of Section 314(a) of the Trust Indenture Act. In addition, at any
time that the Company has a class of equity securities registered under the
Exchange Act, the Company shall cause its annual report to stockholders and any
quarterly or other financial reports furnished by it to stockholders generally
to be filed with the Trustee and mailed, no later than the date such materials
are mailed or made available to the Company's stockholders, to the Holders at
their addresses as set forth in the Securities Register.
<PAGE>
49
(b) At any time that the Company does not have a class of securities
registered under the Exchange Act, the Company shall furnish to the Trustee
(who is hereby authorized and directed to furnish a copy thereof to any person
requesting the same in writing) and shall mail (or cause to be mailed by the
Trustee at the Company's expense) to each of the Holders at their addresses as
set forth in the Securities Register maintained by the Securities Registrar
within 60 days after the close of each of the first three quarters of each
fiscal year and within 105 days after the close of each fiscal year consolidated
balance sheets of the Company as of the end of each such quarter or fiscal year,
as the case may be, and consolidated statements of income and changes in
financial position of the Company for the period commencing at the end of the
Company's previous fiscal year and ending with the end of such quarter or fiscal
year, as the case may be, all such financial statements setting forth in
comparative form the corresponding figures for the corresponding period of the
preceding fiscal year, all in reasonable detail and duly certified (subject to
year-end adjustments) by a Responsible Officer of the Company as having been
prepared in accordance with GAAP consistently applied, and, in the case of
annual consolidated financial statements, certified by independent public
accountants of recognized standing and a discussion and analysis of the results
of operations and financial condition of the Company and its subsidiaries for
the periods presented, which discussion and analysis shall be prepared by the
management of the Company in a manner responsive to the requirements of Item 303
(or any successor item or section) of Regulation S-K. All financial
statements shall be prepared in accordance with GAAP consistently applied,
except for changes with which the Company's independent public accountants
concur and except that quarterly statements may be subject to year-end
adjustments.
SECTION 6.7. Waiver of Stay, Extension or Usury Laws.
---------------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law or any usury law
or other law that would prohibit or forgive the Company from paying all or any
portion of the principal of or interest on the Securities as contemplated
herein, wherever enacted, now or at any time hereafter in force, or that may
affect the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) the Company hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not hinder, delay or
impede the execution of any power herein granted to the Trustee but shall suffer
and permit the execution of every such power as though no such law had been
enacted.
SECTION 6.8. Maintenance of Properties; Insurance;
-------------------------------------
Books and Records; Compliance with Law.
--------------------------------------
(a) Subject to the applicable provisions of the Security Documents,
the Company shall, and shall cause each Subsidiary to, at all times cause all
properties used or useful in the conduct of its business to be maintained and
kept in good working order and condition, ordinary wear and tear excepted, and
shall cause to be made all necessary (in the
<PAGE>
50
good faith opinion of management) repairs, renewals, replacements, additions,
betterments and improvements thereto.
(b) The Company shall and shall cause each Subsidiary to maintain
insurance with insurance companies or associations with a rating of "A-" or
better, as established by Best's Rating Guide (or an equivalent rating with such
other publication of a similar nature as shall be in current use), subject to
the provisions of the applicable Security Documents, in such amounts and
covering such risks as are usually and customarily carried with respect to
similar facilities according to their respective locations.
(c) The Company shall and shall cause each Subsidiary to keep proper
books of record and account in which full and correct entries shall be made of
all financial transactions and the assets and business of the Company and each
Subsidiary, in accordance with GAAP consistently applied to the Company and its
Subsidiaries taken as a whole.
(d) The Company shall and shall cause each Subsidiary to comply with
all statutes, laws, ordinances, or government rules and regulations to which it
is subject, non-compliance with which would adversely affect the business,
prospects, earnings, properties, assets or condition (financial or otherwise) of
the Company and its Subsidiaries taken as a whole.
SECTION 6.9. Limitations on Indebtedness.
---------------------------
(a) The Company shall not, and shall not permit any of its
Subsidiaries, directly or indirectly, to incur, create, assume, suffer to exist,
guarantee, become liable, contingently or otherwise, with respect to, or
otherwise become responsible for the payment of (each event, an "incurrence")
any Indebtedness unless (a) the pro forma EBITDA Ratio of the Company and its
Recourse Subsidiaries for the Reference Period prior to the incurrence of such
Indebtedness (taken as a whole and calculated on the assumptions that such
Indebtedness had been incurred and the proceeds thereof had been applied on the
first day of the Reference Period) would have been greater than (i) 2.00 to 1.00
and (b) no Default or Event of Default shall have occurred and be continuing at
the time of, or after giving effect to, the incurrence of such
Indebtedness.
(b) The limitation set forth in paragraph (a) shall not apply to:
(i) Indebtedness evidenced by the Securities and the
obligations of the Company and its Subsidiaries under the Indenture and the
Security Documents;
(ii) Indebtedness of the Company issued to any Wholly-Owned
Recourse Subsidiary; provided, that (a) any such Indebtedness is
unsecured and is subordinated to the Securities and (b) that any subsequent
issuance or transfer of any Capital Stock which results in any such Wholly-
Owned Subsidiary ceasing to be a Wholly-Owned Recourse Subsidiary or
any transfer of such Indebtedness by any Wholly-Owned Recourse
<PAGE>
51
Subsidiary to someone not a Wholly-Owned Recourse Subsidiary will, in each
case, be deemed an incurrence of Indebtedness under the Indenture;
(iii) Indebtedness of the Company which is existing
immediately following the issuance of the Securities and the application of
the proceeds of the Securities (in no event shall this clause be deemed to
permit the 14.75% Senior Secured Notes due 1998 to remain outstanding);
(iv) Indebtedness arising in connection with the Credit
Facility at any time outstanding not to exceed the lesser of (1)
$30,000,000 and (2) amounts available to be borrowed under the Credit
Facility without causing a mandatory prepayment thereunder in the absence
of a waiver or consent;
(v) Indebtedness incurred with respect to Interest Rate
Agreements covering floating rate Indebtedness of the Company that is
permitted under this covenant to the extent the notional principal amount
of such Interest Rate Agreements does not exceed the principal amount of
the Indebtedness to which such Interest Rate Agreements relate;
(vi) Indebtedness incurred in connection with Industrial
Development Bonds (including Pollution Control Bonds) as such terms are
defined under the Internal Revenue Code, in an aggregate principal amount
not to exceed $5,000,000;
(vii) Indebtedness incurred with respect to the deferred
purchase price of machinery and equipment related to the business of the
Company or its Subsidiaries at the time of purchase and other purchase
money obligations (including Capitalized Lease Obligations) not to
exceed, in the aggregate, $5,000,000; provided, that the maturity of
any such obligation does not exceed the anticipated useful life of the
asset being financed; and
(viii) any renewal, extension or refinancing (and subsequent
renewals, extensions or refinancings) of any Indebtedness of the Company
permitted under the Indenture, in an amount not in excess of the amount
permitted under the Indenture at the time of such renewal, extension or
refinancing; provided, that Indebtedness which constitutes a renewal,
extension or refinancing of Indebtedness of the Company shall be pari passu
or subordinated in right of payment to the Securities; and, provided,
further, that in no event may Indebtedness of the Company be renewed,
extended or refinanced by means of Indebtedness of any Subsidiary of the
Company pursuant to this clause (viii).
(c) The limitation set forth in paragraph (a) shall not apply to:
(i) Indebtedness of a Wholly-Owned Recourse Subsidiary
issued to and held by the Company or any Wholly-Owned Recourse
Subsidiary of the Company; provided, that any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly-Owned
Recourse Subsidiary ceasing to be a
<PAGE>
52
Wholly-Owned Recourse Subsidiary or any transfer of such Indebtedness by
the Company or any Wholly-Owned Recourse Subsidiary to someone not a
Wholly-Owned Recourse Subsidiary shall, in each case, be deemed an
incurrence of Indebtedness under the Indenture;
(ii) Indebtedness of the Company's Subsidiaries which is
existing immediately following the issuance of the Securities;
(iii) Non-Recourse Indebtedness incurred by Non-Recourse
Subsidiaries; and
(iv) any renewal, extension or refinancing (and subsequent
renewals, extensions or refinancings) of any Indebtedness of the Company's
Subsidiaries permitted under the Indenture, in an amount not in excess of
the amount permitted under the Indenture at the time of such renewal,
extension or refinancing; provided, that Indebtedness which constitutes a
renewal, extension or refinancing of Indebtedness of a Subsidiary of the
Company shall be pari passu or subordinated in right of payment to the
obligations under the Subsidiary Guarantee.
SECTION 6.10. Limitation on Liens.
-------------------
The Company shall not, and shall not permit, cause or suffer any
of its Subsidiaries to, create, incur, assume or suffer to exist any Liens
of any kind upon any property or assets of the Company or any Subsidiary,
whether now owned or hereafter acquired, except for:
(i) Liens in favor of the Collateral Agent or the Holders,
including Liens created by the Securities, the Indenture and the Security
Documents;
(ii) Liens on the Lender Secured Property to secure the Credit
Facility and the Tulsa Facility;
(iii) Permitted Liens;
(iv) Liens on the property of the Company or any of its
Subsidiaries created solely for the purpose of securing purchase money
obligations for property acquired in the ordinary course of business;
provided, that (a) such property so acquired for use in the ordinary course
of business is for use in lines of business related to the Company's or
its Subsidiaries' business as it exists immediately prior to the issuance
of the related debt, (b) no such Lien shall extend to or cover other
property or assets of the Company and its Subsidiaries other than the
respective property or assets so acquired and (c) the principal amount of
Indebtedness secured by any such Lien shall at no time exceed the original
purchase price of such property or assets;
<PAGE>
53
(v) Liens on the assets of any entity existing at the time
such entity or assets are acquired by the Company or any of its
Subsidiaries, whether by merger, consolidation, purchase of assets or
otherwise; provided, that such Liens (a) are not created, incurred or
assumed in connection with, or in contemplation of, such assets being
acquired by the Company or any of its Subsidiaries and (b) do not extend to
any other property of the Company or any of its Subsidiaries;
(vi) Liens in existence on the date of the Indenture
(excluding Liens relating to all or any portion of the 14.75% Senior
Secured Notes due 1998);
(vii) Liens relating to the real and chattel mortgages on
record in certain parishes of the State of Louisiana with respect to the
Indenture dated September 5, 1986 between the Company and First National
Bank of Commerce, as trustee; provided, that such Liens (a) shall not
secure any Indebtedness of the Company and (b) the Company shall use its
best efforts to record the releases of such Lien, as soon as practicable.
(viii) Liens securing Industrial Development Bonds (including
Pollution Control Bonds) as such terms are defined in the Internal Revenue
Code; provided, that any Lien permitted by this clause (viii) shall not
extend to any other property of the Company or any of its Subsidiaries; and
(ix) any extension, renewal or replacement (or successive
extensions, renewals or replacements), in whole or in part, of any Lien
referred to in the foregoing clauses; provided, that the principal amount
of Indebtedness secured thereby shall not exceed the principal amount of
Indebtedness so secured immediately prior to the time of such extension,
renewal or replacement, and that such extension, renewal, or replacement
Lien shall be limited to all or a part of the property which secured the
Lien so extended, renewed or replaced (plus improvements on such property).
SECTION 6.11. Limitation on the Issuance of
-----------------------------
Preferred Stock by Subsidiaries.
-------------------------------
The Company shall not permit any of its Subsidiaries to issue,
directly or indirectly, any Preferred Stock, except:
(i) Preferred Stock issued to and held by the Company or a
Wholly-Owned Recourse Subsidiary, except that any subsequent
issuance or transfer of any Capital Stock which results in any Wholly-Owned
Recourse Subsidiary ceasing to be a Wholly-Owned Recourse
Subsidiary or any transfer of such Preferred Stock by any Wholly-Owned
Recourse Subsidiary will, in each case, be deemed an issuance of
Preferred Stock under the Indenture;
<PAGE>
54
(ii) Preferred Stock issued by a Person prior to the time (a)
such Person became a Subsidiary, (b) such Person merges with or into a
Subsidiary or (c) another Subsidiary merges with or into such Person (in a
transaction in which such Person becomes a Subsidiary), in each case if
such Preferred Stock was not incurred in anticipation of such transaction;
and
(iii) Preferred Stock (other than Disqualified Stock) which is
exchanged for Preferred Stock permitted to be outstanding pursuant to
clauses (i) and (ii) or which are used to refinance Indebtedness (or any
extension, renewal or refinancing thereof), having a liquidation preference
not to exceed the liquidation preference of the Preferred Stock or the
principal amount of the Indebtedness so exchanged or refinanced.
SECTION 6.12. Transfer of Assets to Subsidiaries.
----------------------------------
Notwithstanding the covenant restricting Asset Sales, the Company
shall not, and shall not permit any of its Subsidiaries to, make any sale,
transfer or other disposition (including by way of Sale and Leaseback
Transaction) to any of its Subsidiaries (other than in the ordinary course
of business) of (i) any assets of the Company or its Subsidiaries or (ii)
any shares of Capital Stock of any of the Company's Subsidiaries directly
owned by the Company, in either case with an aggregate fair market value in
excess of $250,000 (as determined in good faith by an Independent Appraiser
or Independent Financial Adviser, as the circumstances dictate) unless the
Company or its Subsidiaries shall receive consideration from the Subsidiary
acquiring such assets or Capital Stock by way of any such sale, transfer or
otherwise from the Company in cash or Cash Equivalents equal to the amount
in excess of $250,000.
SECTION 6.13. Limitations on Restricted Payments.
----------------------------------
Neither the Company nor any of its Subsidiaries shall, directly
or indirectly, declare, pay or set apart for payment, any Restricted
Payment, if after giving effect thereto: (i) a Default or an Event of
Default shall have occurred and be continuing; (ii) the Company or its
Subsidiaries would not be permitted to incur or become liable with respect
to at least $1.00 of additional Indebtedness as determined in accordance
with Section 6.9; or (iii) the aggregate amount of all Restricted Payments
made by the Company or any of its Subsidiaries (the amount expended or
distributed for such purposes, if other than in cash, to be valued at its
fair market value as determined in good faith by the Board of Directors of
the Company, whose determination shall be conclusive and evidenced by a
Board Resolution delivered to the Trustee) from and after the date of the
Indenture, through and including the date on which such Restricted Payment
is made, would exceed the sum of:
(i) the aggregate of 50% of the Company's Consolidated Net
Income accrued for the period (taken as one accounting period) (or if such
aggregate Consolidated Net Income shall be less than zero, minus 100% of
the amount of
<PAGE>
55
such loss) commencing with the first full fiscal quarter after the Issue
Date to and including the fiscal quarter ended immediately prior to the
date of such calculation; and
(ii) the aggregate net cash proceeds received by the Company
after the Issue Date from the issuance or sale (other than to a Subsidiary)
by the Company of its Capital Stock (excluding Disqualified Stock, but
including Capital Stock other than Disqualified Stock issued upon
conversion of, or exchange for, Disqualified Stock or securities other than
its Capital Stock), and upon the exercise of warrants and rights to
purchase such Capital Stock. For purposes of this clause (ii), the
aggregate net cash proceeds received by the Company (x) from the issuance
of its Capital Stock upon the conversion of, or exchange for, securities
evidencing Indebtedness of the Company, shall be calculated on the
assumption that the gross proceeds from such issuance are equal to the
accreted principal amount (or, if discounted Indebtedness, the accredited
principal amount) of Indebtedness evidenced by such securities converted or
exchanged and (y) upon the conversion or exchange of other securities of
the Company shall be equal to the aggregate net proceeds of the original
sale of the securities so converted or exchanged if such proceeds of such
original sale were not previously included in any calculation for the
purposes of this clause (ii), plus any additional sums payable upon
conversion or exchange.
Notwithstanding the foregoing, this provision shall not prevent (i)
the payment of any dividend within 60 days after the date of its declaration (if
the declaration of such dividend was permitted by the foregoing provision at the
time of such declaration); or (ii) the repurchase, retirement or other
acquisition of any shares of the Company's Capital Stock, or any option, warrant
or other right to purchase shares of the Company's Capital Stock, or the
repayment of any Indebtedness of the Company solely in exchange for shares of,
or out of the proceeds of a substantially contemporaneous issuance of, Capital
Stock (other than Disqualified Stock).
SECTION 6.14. Limitations on Transactions
---------------------------
with Stockholders and Affiliates.
--------------------------------
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, enter into or permit to exist any transaction (or series of
related transactions), including, without limitation, any loan, advance,
guarantee or capital contribution to, or for the benefit of, or any sale,
purchase, lease, exchange or other disposition of any property or the rendering
of any service, or any other direct or indirect payment, transfer or other
disposition (a "Transaction"), involving payments, with any holder of 5% or more
of any class of Capital Stock of the Company or with any Affiliate of such
holder or with any Affiliate of the Company (other than a Wholly-Owned Recourse
Subsidiary of the Company), on terms and conditions less favorable to the
Company or such Subsidiary, as the case may be, than would be available at such
time in a comparable Transaction in arm's length dealings with an unrelated
Person as determined by the Board of Directors of the Company or a Subsidiary,
such approval to be evidenced by a Board Resolution.
<PAGE>
56
(b) The provisions of paragraph (a) will not apply to:
(i) Restricted Payments otherwise permitted pursuant to
the Indenture;
(ii) transactions between the Company and one or more of
its Recourse Subsidiaries; provided, that such transactions are not
otherwise prohibited by the Indenture;
(iii) reasonable and customary fees and compensation
(including amounts paid pursuant to employee benefit plans) paid to,
and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Subsidiary, as determined by the
Board of Directors of the Company or any Subsidiary;
(iv) annual payments in an aggregate amount not to exceed
$150,000 under the Service Agreement; and
(v) payments for goods and services purchased in the
ordinary course of business on an arms-length basis.
SECTION 6.15. Restrictions on Assets Sales.
----------------------------
(a) The Company shall not, and shall not permit any of its Recourse
Subsidiaries to, make any Asset Sale, unless (i) the Company (or its Subsidiary,
as the case may be) receives consideration at the time of such Asset Sale at
least equal to the fair market value of the Capital Stock or assets to be sold
(as determined in good faith by its Board of Directors); (ii) at least 85% of
the consideration therefor is received by the Company or such Subsidiary in the
form of cash or Cash Equivalents; and (iii) 100% of the consideration therefor
is received by the Company or such Subsidiary in the form of cash, Cash
Equivalents or instruments with respect to which a security interest therein
may be perfected through possession.
(b) Within six months of the date that the sum of the Net Cash
Proceeds of Asset Sales (less the sum of the Net Cash Proceeds (i) previously
applied to the acquisition of property and assets used in lines of business
related to the Company's or the Subsidiaries' business at such time (each a
"Permitted Related Acquisition") and (ii) from the sale of Obsolete Assets not
exceeding an aggregate fair market value of $1,000,000 in any year), together
with Condemnation Proceeds and Net Insurance Awards (the "Available Amount"),
equals or exceeds $5,000,000, the Company shall elect to either (A) apply or
cause to be applied the Available Amount to a Permitted Related Acquisition or
the commencement thereof (provided that such project is completed within a
reasonable time of the commencement thereof), (B) make an offer to purchase
Securities (an "Asset Sale Offer") from all Holders up to an amount equal to the
Available Amount (rounded to the next lowest multiple of $1,000) at a purchase
price equal to 100% of the principal amount thereof plus accrued interest
thereon, if any, to the date of purchase or (C) any
<PAGE>
57
combination of clauses (A) and (B) above; provided, that (i) property acquired
at any time as a Permitted Related Acquisition that has been acquired with
Collateral Proceeds shall be subject to a first priority Lien in favor of the
Collateral Agent for the benefit of the Trustee and the Holders; (ii) pending
application to a Permitted Related Acquisition or an Asset Sale Offer, the
Collateral Proceeds, together with all Condemnation Proceeds and Net Insurance
Awards received by the Collateral Agent, will be retained by the Collateral
Agent in the Collateral Account; and (iii) notwithstanding the foregoing, the
Company and its Subsidiaries, in the aggregate, shall be permitted to retain
$1,000,000 of Net Cash Proceeds from Asset Sales. The Company and its
Subsidiaries collectively may retain the Net Cash Proceeds from the sale of
Obsolete Assets in an aggregate amount not to exceed $1,000,000 in any year.
(c) The Company shall provide the Trustee with notice of any Asset
Sale Offer at least 10 days before any notice of an Asset Sale Offer is mailed
to Holders of the Securities (unless shorter notice is acceptable to the
Trustee). If the Company elects to make an Asset Sale Offer, notice of such
Asset Sale Offer shall be mailed by the Company to all Holders of Securities,
with a copy to the Trustee and the Paying Agent, not more than 195 days after
the Available Amount equals or exceeds $5,000,000 which notice shall specify the
purchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed (the "Asset Sale Payment Date"). The Asset
Sale Offer shall remain open from the time of mailing for at least 20 Business
Days and until at least 5:00 p.m., Central time, on the Business Day immediately
preceding the Asset Sale Payment Date. The notice, which shall govern the terms
of the Asset Sale Offer, shall include such disclosures as are required by law
and shall state:
(i) that the Asset Sale Offer is being made pursuant to this
Section 6.15;
(ii) the purchase price (including the amount of accrued
interest, if any) for each Security and the Asset Sale Payment Date;
(iii) that any Security not tendered or accepted for payment
shall continue to accrue interest in accordance with the terms thereof;
(iv) that any Security accepted for payment pursuant to the
Asset Sale Offer shall cease to accrue interest after the Asset Sale
Payment Date;
(v) that Holders electing to have Securities purchased
pursuant to an Asset Sale Offer must surrender their Securities with the
form "Option of Holder to Elect Purchase" on the reverse of the Securities
completed, to the Paying Agent at the address specified in the notice prior
to 5:00 p.m., Central time, on the Business Day immediately preceding the
Asset Sale Payment Date and must complete any form letter of transmittal
proposed by the Company and acceptable to the Trustee and the Paying Agent;
(vi) that Holders shall be entitled to withdraw their
elections if the Paying Agent receives, not later than 5:00 p.m., Central
time, on the third Business Day
<PAGE>
58
immediately preceding the Asset Sale Payment Date, a telegram, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Securities the Holder delivered for purchase, the Security
certificate number (if any) and a statement that such Holder is withdrawing
his election to have such Securities purchased;
(vii) that if Securities in a principal amount in excess of
the Holders' pro rata share of the Available Amount are tendered pursuant
to the Asset Sale Offer, the Company shall purchase on a pro rata
basis among the Securities tendered (with such adjustments as may be
deemed appropriate by the Company so that only Securities in denominations
of $1,000 or integral multiples of $1,000 shall be acquired);
(viii) that Holders whose Securities are purchased only in
part shall be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered; and
(ix) the instructions that Holders must follow to tender their
Securities.
On or about the Asset Sale Payment Date, the Company shall (i) accept
for payment, on a pro rata basis among the Securities tendered, Securities or
portions thereof pursuant to the Asset Sale Offer and (ii) deliver to the
Paying Agent the Securities so accepted together with an Officers' Certificate
setting forth the Securities or portions thereof tendered to and accepted for
payment by the Company. The Paying Agent shall promptly mail or deliver (or,
in the case of a Global Security, transfer immediately available funds, on the
Asset Sale Payment Date to the Depositary) to each Holder of the Securities so
accepted payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail or deliver to each such Holder a new
Security equal in principal amount to any unpurchased portion of the
Securities surrendered upon receipt from the Company thereof. Any Security
not so accepted shall be promptly mailed or delivered by the Company to the
Holder thereof. The Company shall publicly announce the results of the Asset
Sale Offer on the first Business Day following the Asset Sale Payment Date.
To the extent the Holders' pro rata portion of an Asset Sale Offer is not
fully subscribed to by such Holders, the Company may retain (free and clear of
the Lien of this Indenture and the Security Documents) such unutilized
portion. The Paying Agent shall promptly deliver to the Company the balance
of any such Trust Moneys held by the Paying Agent after payment to the Holders
as aforesaid. For purposes of this Section 6.15, so long as the Collateral
Agent is also the Trustee, the Collateral Agent shall act as the Paying Agent
and, otherwise, the Trustee shall act as Paying Agent.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant
to the Asset Sale Offer. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this Section 6.15, the Company
shall comply with the applicable securities laws and
<PAGE>
59
regulations and shall not be deemed to have breached its obligations under this
Section 6.15 by virtue thereof.
SECTION 6.16. Limitation on Dividend and Other Payment
----------------------------------------
Restrictions Affecting Subsidiaries.
-----------------------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, assume or otherwise cause or suffer to exist
or enter into any agreement with any Person that would cause any consensual
encumbrance or restriction of any kind on the ability of any such Subsidiary to
(a) pay dividends, in cash or otherwise, or make any other distributions on its
Capital Stock; (b) make payments in respect of any Indebtedness owed to the
Company or any of the Company's Subsidiaries; (c) make loans or advances to the
Company or any of the Company's Subsidiaries; or, (d) transfer any of its assets
to the Company or any of the Company's Subsidiaries, other than by reason of (i)
the Securities, the Indenture and the Security Documents; (ii) restrictions
existing under agreements in effect on the Issue Date, including, without
limitation, restrictions under the Credit Facility as in effect on the Issue
Date; (iii) consensual encumbrances or restrictions binding upon any Person at
the time such Person becomes a Subsidiary of the Company so long as such
encumbrances or restrictions are not created, incurred or assumed in
contemplation of such Person becoming a Subsidiary of the Company; (iv)
restrictions existing under any agreement which refinances or replaces any of
the agreements containing the restrictions in (ii) or (iii); provided, that the
terms and conditions of any such restrictions are not materially less favorable
to the Company or such Subsidiary than those under the agreement evidencing the
refinanced Indebtedness; (v) customary non-assignment or sublease provisions of
any lease governing a leasehold interest of the Company or any of its
Subsidiaries; (vi) customary restrictions relating to assets acquired with the
proceeds of a purchase money obligation; (vii) customary non-assignment
provisions restricting subletting or assignment of any lease or assignment
entered into by a Subsidiary; and (viii) any restrictions with respect to a
Subsidiary of the Company imposed pursuant to an agreement which has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Subsidiary.
SECTION 6.17. Limitation on Sale and Leaseback Transactions.
---------------------------------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, enter into, directly or indirectly, any Sale and Leaseback Transaction, with
respect to any real or tangible personal property, other than (i) a Sale and
Leaseback Transaction entered into between the Company and any of its Wholly-
Owned Subsidiaries or between Wholly-Owned Subsidiaries of the Company, as the
case may be; and (ii) Capitalized Lease Obligations permitted to be incurred by
the Company or any of its Subsidiaries pursuant to the limitations on
Indebtedness set forth in Section 6.9.
<PAGE>
60
SECTION 6.18. Limitation on Investment, Loans and Advances.
--------------------------------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, make any advances or loans to, or Investments (by way of transfers of
property, contributions to capital, acquisitions of stock, securities or
evidences of indebtedness, or otherwise) in any other Person, except:
(i) the Company may make advances and loans to, and
Investments in, any Wholly-Owned Recourse Subsidiary and any Subsidiary may
make advances or loans to, and Investments in, the Company or any Wholly-
Owned Recourse Subsidiary of the Company;
(ii) the Company and its Subsidiaries may acquire and hold
cash and Cash Equivalents;
(iii) the Company and its Subsidiaries may make advances and
loans to officers and employees in the ordinary course of business not to
exceed $50,000 to any one officer or employee or $100,000 in the aggregate
at any one time outstanding;
(iv) the Company and its Subsidiaries may make payroll
advances in the ordinary course of business;
(v) the Company may make advances or loans in connection with
Currency Agreements provided such agreements are made in the ordinary
course of business;
(vi) the Company may make advances or loans in connection with
Interest Rate Agreements provided such agreements are made in the ordinary
course of business;
(vii) the Company and its Subsidiaries may make loans to, or
Investments in, any Person, including Non-Recourse Subsidiaries, not to
exceed at any time outstanding an aggregate amount equal to $250,000 with
respect to loans to, and Investments in, all such Persons (the value of
any such loans and Investments shall be the original cost less the amount
returned in cash);
(viii) the Company and its Subsidiaries may make Investments
in exchange for assets sold or otherwise disposed of in accordance with
Section 6.15;
(ix) the Company and its Subsidiaries may make Investments in
the form of advances, extensions of credit, progress payments and
prepayments for asset purchases by it in the ordinary course of
business; and
(x) accounts receivable arising and trade credit granted in
the ordinary course of business and any securities received in satisfaction
or partial satisfaction
<PAGE>
61
thereof from financially troubled account debtors to the extent reasonably
necessary in order to prevent or limit loss.
SECTION 6.19. Change of Control.
-----------------
In the event of a Change of Control (the date of such occurrence,
the "Change of Control Date"), the Company shall notify the Holders of
Securities in writing of such occurrence and shall make an offer to
purchase (the "Change of Control Offer ") on a Business Day (the "Change of
Control Payment Date") not earlier than 30 days nor later than 60 days from
the date such notice is mailed all Securities then outstanding at a
purchase price equal to 101% of the principal amount thereof plus accrued
interest to the Change of Control Payment Date, if any.
Notice of a Change of Control Offer shall be mailed by the
Company within 30 days following the Change of Control Date to the Holders
of Securities at their last registered addresses with a copy to the Trustee
and the Paying Agent. The Change of Control Offer shall remain open from
the time of mailing for at least 20 Business Days and until 5:00 p.m.,
Central time, on the Business Day immediately preceding the Change of
Control Payment Date. The notice, which shall govern the terms of the
Change of Control Offer, shall include such disclosures as are required by
law and shall state:
(i) that the Change of Control Offer is being made pursuant to
this Section 6.19 and that all Securities tendered shall be accepted for
payment;
(ii) the purchase price (including the amount of accrued
interest, if any) for each Security and the Change of Control Payment Date;
(iii) that any Security not tendered or accepted for payment
shall continue to accrue interest in accordance with the terms thereof;
(iv) that any Security accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(v) that Holders electing to have Securities purchased pursuant
to a Change of Control Offer must surrender their Securities with the form
"Option of Holder to Elect Purchase" on the reverse of the Securities
completed, to the Paying Agent at the address specified in the notice prior
to 5:00 p.m., Central time, on the Business Day immediately preceding the
Change of Control Payment Date and must complete any form letter of
transmittal proposed by the Company and acceptable to the Trustee and the
Paying Agent;
(vi) that Holders shall be entitled to withdraw their election
if the Paying Agent receives, not later than 5:00 p.m., Central time, on
the third Business Day immediately preceding the Change of Control Payment
Date, a telegram, facsimile
<PAGE>
62
transmission or letter setting forth the name of the Holder, the principal
amount of Securities the Holder delivered for purchase, the Security
certificate number (if any), and a statement that such Holder is
withdrawing his election to have such Securities purchased;
(vii) that Holders whose Securities are purchased only in part shall
be issued Securities equal in principal amount to the unpurchased portion
of the Securities surrendered;
(viii) the instructions that Holders must follow to tender their
Securities; and
(ix) the circumstances and relevant facts regarding such Change of
Control (including, but not limited to, information with respect to pro
forma historical financial information, including income, cash flow and
capitalization, after giving effect to such Change of Control, information
regarding the Persons acquiring control and such Person's business plans
going forward).
On or before the Change of Control Payment Date, the Company shall (i)
accept for payment Securities or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Payment Agent money sufficient to
pay the purchase price of all Securities or portions thereof so tendered and
accepted and (iii) deliver to the Trustee the Securities so accepted together
with an Officers' Certificate setting forth the Securities or portions thereof
tendered to and accepted for payment by the Company. The Paying Agent shall
promptly mail or deliver (or, in the case of a Global Security, transfer
immediately available funds on the Change of Control Payment Date to the
Depositary) to the Holders of Securities so accepted for payment in an amount
equal to the purchase price, and the Trustee shall promptly authenticate and
mail or deliver to such Holders a new Security equal in principal amount to any
unpurchased portion of the Security surrendered upon receipt from the Company
thereof. Any Security not so accepted shall be promptly mailed or delivered by
the Company to the Holder thereof. The Company shall publicly announce the
results of the Change of Control Offer not later than the first Business Day
following the Change of Control Payment Date.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act, and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to a
Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this Section 6.19, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under this Section 6.19 by virtue
thereof.
<PAGE>
63
SECTION 6.20. Limitations as to Non-Recourse Subsidiaries.
-------------------------------------------
The Company shall not permit any Non-Recourse Subsidiary to create,
assume, incur, guarantee or otherwise become liable in respect to any
Indebtedness unless the lender in respect thereof has effectively waived all
claims and/or recourse on or in respect of such Indebtedness against the Company
or any other Subsidiary of the Company, including, without limitation, a waiver
by such lender of the benefits of the provisions of Section 1111(b) of the
Bankruptcy Code (Title 11, United States Code), as amended, and the Company has
delivered to the Trustee an Opinion of Counsel (by a law firm of national
repute) and a Board Resolution confirming the foregoing, in each case in form
and substance satisfactory to the Trustee. Neither the Company nor any of its
Subsidiaries (other than Non-Recourse Subsidiaries) will sell, lease, convey or
otherwise transfer to any Non-Recourse Subsidiary any asset which is essential
to the steelmaking operations of the Company or its Subsidiaries (other than
Non-Recourse Subsidiaries). The Company will not permit any Non-Recourse
Subsidiary to acquire any such essential asset, and the Company and its
Subsidiaries will not purchase any Non-Recourse Subsidiary, unless in the
judgment of the Board of Directors of the Company the creation and operation of
the Non-Recourse Subsidiary and its acquisition of such assets are neither
intended nor reasonably expected to adversely affect the financial condition,
business, prospects or operations of the Company and its Subsidiaries (other
than Non-Recourse Subsidiaries).
SECTION 6.21. Impairment of Security Interest.
-------------------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, take or omit to take any action, which action or omission would have the
result of affecting or impairing the security interest in favor of the
Collateral Agent with respect to the Collateral, and the Company shall not
grant to any Person (other than the Collateral Agent and the Holders) any
interest whatsoever in the Collateral, except, in either case, as expressly
permitted by Section 6.10 and the Security Documents.
SECTION 6.22. Conflicting Agreements.
----------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, enter into any agreement or instrument that by its terms expressly (i)
prohibits the Company from redeeming or otherwise making any payments on or in
respect of the Securities in accordance with the terms thereof or hereof, as in
effect from time to time, or (ii) requires that the proceeds received from the
sale of any Collateral be applied to repay, redeem or otherwise retire any
Indebtedness of any Person other than the Indebtedness represented by the
Securities, except as expressly permitted hereby or by the Security Documents.
<PAGE>
64
SECTION 6.23. Amendment to Security Documents.
-------------------------------
The Company shall not, and shall not permit any of its other
Subsidiaries to, amend, modify or supplement, or permit or consent to any
amendment, modification or supplement of, any of the Security Documents in any
way which would be adverse to the Holders or which would constitute a Default
hereunder or a default under any Security Document.
SECTION 6.24. Inspection.
----------
The Company shall, and shall cause each of its Subsidiaries to, permit
authorized representatives of the Trustee and the Collateral Agent to visit and
inspect the properties of the Company or its Subsidiaries, and any or all books,
records and documents in the possession of the Company relating to the
Collateral, and to make copies and take extracts therefrom and to visit and
inspect the Collateral, all upon reasonable prior notice and at such reasonable
times during normal business hours and as often as may be reasonably requested.
SECTION 6.25. Use of Proceeds.
---------------
The Company shall use the proceeds of the Securities in the manner
described in the Prospectus. The Company shall not use any part of such
proceeds to purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any margin stock. Neither the issuance of
any Security nor the use of the proceeds thereof shall violate or be
inconsistent with the provisions of Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System.
SECTION 6.26. Money for Security Payments to Be Held in Trust.
-----------------------------------------------
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of or interest on any of the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal or interest so becoming due until
such sums shall be paid to such Persons or otherwise disposed of as herein
provided and will promptly notify the Trustee of its action or failure so to
act.
Whenever the Company shall have one or more Paying Agents, it will, on
or prior to each due date of the principal of or interest on any Securities,
deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be
held as provided by the Trust Indenture Act, and (unless such Paying Agent is
the Trustee) the Company will promptly notify the Trustee of its action or
failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree
<PAGE>
65
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will (i) comply with the provisions of Section 317 of the Trust Indenture
Act applicable to it as a Paying Agent and (ii) during the continuance of any
default by the Company (or any other obligor upon the Securities) in the making
of any payment in respect of the Securities, upon the written request of the
Trustee, forthwith pay to the Trustee all sums held in trust by such Paying
Agent as such.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same terms as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of or interest on any
Security and remaining unclaimed for two years after such principal or interest
has become due and payable shall be paid to the Company on Company Request, or
(if then held by the Company) shall be discharged from such trust; and the
Holder of such Security shall thereafter, as an unsecured general creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in a newspaper
published in the English language, customarily published on each Business Day
and of general circulation in New Orleans and New York City, or give by mail to
each Holder, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining will
be repaid to the Company.
ARTICLE VII
SUCCESSOR CORPORATION
SECTION 7.1. When Company May Merge, etc.
----------------------------
The Company shall not consolidate with or merge into any other Person
or convey, sell, assign, transfer or lease all or substantially all of its
properties and assets (determined on a consolidated basis for the Company and
its Subsidiaries taken as a whole) in one transaction or a series of
transactions to any other Person or Persons, or permit any Person to consolidate
with or merge into the Company, or convey, sell, assign, transfer or lease all
or substantially all of such Person's properties and assets in one transaction
or a series of transactions to the Company, unless:
<PAGE>
66
(i) such Person is a solvent corporation, partnership or trust
organized under the laws of the United States, one of the States thereof
or the District of Columbia;
(ii) the resulting, surviving or transferee corporation,
partnership or trust (if other than the Company) assumes by a supplemental
indenture executed and delivered to the Trustee, in form satisfactory to
the Trustee, all of the Company's obligations under the Securities, the
Indenture and the Security Documents;
(iii) immediately before and after giving effect to such
transaction or series of transactions, no Default or Event of Default shall
have occurred and be continuing;
(iv) immediately after giving effect to such transaction or
series of transactions (including, without limitation, any Indebtedness
incurred or anticipated to be incurred in connection with or in respect of
the transaction or series of transactions), the Company, or the successor
or transferee corporation, would be permitted to incur an additional $1.00
of Indebtedness pursuant to the Indenture;
(v) the Person formed by or surviving any such consolidation
or merger (if other than the Company), or the Person to whom such sale or
conveyance shall have been made, shall have a Consolidated Net Worth
immediately after the transaction or series of transactions (including,
without limitation, any Indebtedness incurred or anticipated to be incurred
in connection with or in respect of the transaction or series of
transactions) equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the transaction; and
(vi) the Company or the surviving entity shall have delivered
to the Trustee an Officer's Certificate and an Opinion of Counsel, each
stating that such consolidation, merger, conveyance, sale, transfer or
lease and, if a supplemental indenture has been executed in connection with
such transaction or series of transactions, such supplemental indenture
complies with this covenant and that all conditions precedent in the
Indenture relating to the transaction or series of transactions have been
satisfied.
Notwithstanding the foregoing, clause (iv) shall not prohibit a
transaction, the principal purpose of which is (as determined in good faith by
the Board of Directors of the Company and evidenced by the Board Resolution or
Board Resolutions thereof) to change the state of incorporation of the Company,
and such transaction does not have as one of its purposes the evasion of the
limitation on merger, consolidations and sales of assets contained
herein. Nothing contained in this Article shall be deemed to prevent the
Company or any Subsidiary from granting a security interest in, or a mortgage or
Lien upon, or otherwise encumbering, any of its assets, subject to the
limitations on Liens set forth in Section 6.10. Notwithstanding the
foregoing, the Company and its Recourse Subsidiaries may not consolidate with or
merge into a Non-Recourse Subsidiary or convey, sell, assign, transfer or lease
all or substantially all of their properties and assets
<PAGE>
67
(determined, with respect to the Company, on a consolidated basis for the
Company and its Subsidiaries taken as a whole) in one transaction or a series of
transactions to any Non-Recourse Subsidiary, or permit any Non-Recourse
Subsidiary to consolidate with or merge into the Company or any of its Recourse
Subsidiaries or convey, sell, assign, transfer or lease all or substantially all
of such Non- Recourse Subsidiary's properties and assets in one transaction or a
series of transactions to the Company or any of its Recourse Subsidiaries.
SECTION 7.2. Surviving Person Substituted.
----------------------------
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with Section 7.1,
the surviving person formed by such consolidation or into which the Company is
merged or to which such transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Indenture
with the same effect as if such surviving person had been named as the Company
herein.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(i) default in the payment of any interest upon any Security
when it becomes due and payable, and continuance of such default for a
period of 30 days; or
(ii) default in the payment of the principal, or premium, if
any, of any Security on a Maturity Date; or
(iii) default in the performance, or breach, of any covenant
or agreement described in Sections 6.15 or 6.19 of this Indenture, and
continuance of such default or breach for a period of five days; or
(iv) failure to observe or perform any covenant,
condition or agreement in the Securities, the Indenture or the Security
Documents (other than as described in clause (i), (ii) or (iii)) and such
failure to observe or perform continues for a period of 30 days after there
has been given to the Company by the Trustee,
<PAGE>
68
or has been received by the Company and the Trustee from the
Holders of at least 25% of the principal amount of the Securities then
outstanding, a written notice specifying such default, demanding that it be
remedied and stating that the notice is a "Notice of Default", unless, with
respect to defaults under the Security Documents, the remedy or cure of
such default requires work to be performed, acts to be done or conditions
to be removed which cannot, by their nature, reasonably be performed, done
or removed within such 30-day period, or if such remedy or cure is
prevented by causes outside of the control or responsibility of the
Company, in which case no "Event of Default" shall be deemed to exist
until the date that is 90 days after such written notice so long as the
Company shall have commenced cure within such 90-day period and shall
diligently prosecute the same to completion; or
(v) a default under any bond, debenture, note or other
evidence of Indebtedness for money borrowed (other than the Securities) by
the Company or any Recourse Subsidiary of the Company or under any
mortgage, indenture or instrument (other than this Indenture or the
Securities) under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company
(including, in each case, Guarantees of the Company and its Recourse
Subsidiaries), whether such Indebtedness or Guarantee now exists or shall
hereafter be created, which default shall constitute a failure to pay any
portion of the principal of such Indebtedness in a principal amount of at
least $1,000,000 when due and payable after the expiration of any
applicable grace period with respect thereto; or
(vi) a default under any bond, debenture, note or other
evidence of Indebtedness for money borrowed (other than the Securities) by
the Company or any Recourse Subsidiary of the Company or under any
mortgage, indenture or instrument (other than this Indenture or the
Securities) under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company
(including, in each case, Guarantees of the Company and its Recourse
Subsidiaries), whether such Indebtedness or Guarantee now exists or shall
hereafter be created if (i) as a result of such event of default the
maturity of such Indebtedness has been accelerated prior to its stated
maturity and (ii) the principal amount of such Indebtedness, together with
the principal amount of any other Indebtedness of the Company and its
Subsidiaries the maturity of which has been so accelerated, aggregates
$1,000,000 or more; or
(vii) the Company or any Subsidiary (other than a Non-Recourse
Subsidiary, unless such action or proceeding adversely affects the
interests of the Company or any Recourse Subsidiary) pursuant to or within
the meaning of any Bankruptcy Law (a) commences a voluntary case or
proceeding; (b) consents to the entry of an order for relief against it in
an involuntary case or proceeding; (c) consents to the appointment of a
Custodian of it or for all or substantially all of its property; (d) makes
a general assignment for the benefit of its creditors; or (e) admits in
writing its inability to pay its debts as the same become due; or
<PAGE>
69
(viii) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that (a) is for relief against the Company
or any Subsidiary in an involuntary case; (b) appoints a Custodian of the
Company or any Subsidiary for all or substantially all of its property; or
(c) orders the liquidation of the Company or any Subsidiary; provided, that
clauses (a), (b) and (c) shall not apply to a Non-Recourse
Subsidiary, unless such action or proceeding adversely affects the
interests of the Company or any Recourse Subsidiary and in any
such case the order or decree remains unstayed and in effect for 60
days; or
(ix) the Company or any Subsidiary shall fail to discharge any
one or more judgments not covered by insurance (from which no further
appeal may be taken) in excess of $1,500,000, and such judgments shall
remain in force, undischarged, unsatisfied, unstayed and unbonded for more
than 30 days; or
(x) the Security Documents shall cease, for any reason, to be
in full force and effect or shall cease to be effective to grant a first
priority perfected Lien on the Collateral, subject to the exceptions
permitted by Section 6.10.
SECTION 8.2. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in
subparagraph (vii) or (viii) of Section 8.1) occurs and is continuing, then
and in every such case the Trustee or the Holders of not less than 25% in
principal amount of the Outstanding Securities may declare the principal of and
accrued interest on all the Securities to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by Holders), and
upon any such declaration such principal shall become immediately due and
payable. If an Event of Default specified in clause (vii) or (viii) of Section
8.1 occurs, the principal amount and accrued interest shall ipso facto become
and be immediately due and payable on all Outstanding Securities without any
declaration or other act on the part of the Trustee or any Holder.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(i) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(a) all overdue interest on all Securities;
(b) the principal of any Securities which have become due
otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Securities;
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(c) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities;
and
(d) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(ii) all Events of Default, other than the non-payment of the
principal of Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 8.13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 8.3. Collection of Debt and Suits for
---------------------------------
Enforcement by Trustee
----------------------
The Company covenants that if:
(i) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days; or
(ii) default is made in the payment of the principal of any Security
on a Maturity Date,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and interest, and, to the extent that payment of such
interest shall be legally enforceable, interest on any overdue principal and on
any overdue interest, at the rate borne by the Securities, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or the Security
Documents or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy.
Each Holder, by accepting a Security, acknowledges that the exercise
of remedies by the Trustee with respect to the Collateral is subject to the
terms and
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71
conditions of the Security Documents and the proceeds received upon
realization of the Collateral shall be applied by the Trustee in accordance with
Section 8.6.
SECTION 8.4. Trustee May File Proofs of Claims.
---------------------------------
In case of any judicial proceeding relative to the Company (or any
other obligor upon the Securities), its property or its creditors, the Trustee
shall be entitled and empowered, by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 9.7.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 8.5. Trustee May Enforce Claims
--------------------------
Without Possession of Securities.
--------------------------------
All rights of action and claims under this Indenture, the Security
Documents, or the Securities may be prosecuted and enforced by the Trustee
without the possession of any of the Securities or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the Securities in
respect of which such judgment has been recovered.
SECTION 8.6. Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or interest,
upon presentation of the
<PAGE>
72
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 9.7 and, in its capacity as Collateral Agent, for amounts due
under the Security Documents;
SECOND: To the payment of unpaid interest accrued on the
Securities in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on such Securities for
interest;
THIRD: To the payment of the unpaid principal of the Securities
in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal; and
FOURTH: To the Company or any other obligors on the Securities,
as their interests may appear, or as a court of competent jurisdiction
may direct.
SECTION 8.7. Limitation on Suits.
-------------------
Except as provided in Section 8.8, no Holder of any Security shall
have any right to institute any proceeding, judicial or otherwise, with respect
to this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless:
(i) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(ii) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(iii) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(iv) the Trustee for 15 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding;
and
<PAGE>
73
(v) no direction inconsistent with such written request has been
given to the Trustee during such 15-day period by the Holders of a majority
in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whether by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
The foregoing limitations shall not apply to a suit instituted by a
Holder for the enforcement of the payment of principal of or accrued interest on
such Securities on or after the respective due dates set forth in such
Securities.
SECTION 8.8. Unconditional Right of Holders to
---------------------------------
Receive Principal and Interest.
------------------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and (subject to Section 3.7) interest on
such Security on the respective Maturity Dates expressed in such Security and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired or affected without the consent of such Holder, except to the
extent that the institution or prosecution of such suit or entry of judgment
therein would, under applicable law, result in the surrender, impairment or
waiver of the Lien of this Indenture and the Security Documents upon the
Collateral.
SECTION 8.9. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 8.10. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 3.6, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the
<PAGE>
74
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 8.11. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 8.12. Control by Holders.
------------------
The Holders of a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; provided, that the Trustee may
refuse to follow any direction that:
(i) conflicts with any rule of law or with this Indenture;
(ii) the Trustee determines may be unduly prejudicial to the
rights of another Holder; or
(iii) may involve the Trustee in personal liability unless the
Trustee has indemnification satisfactory to it in its sole discretion
against any loss or expense caused by it following such directions;
provided, further, that the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction.
SECTION 8.13. Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
(i) in the payment of the principal of or interest on any
Security; or
<PAGE>
75
(ii) in respect of a covenant or provision hereof which under
Article XI cannot be modified or amended without the consent of the Holder
of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 8.14. Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess reasonable
costs, including reasonable attorneys' fees, against any such party litigant, in
the manner and to the extent provided in the Trust Indenture Act; provided, that
neither this Section nor the Trust Indenture Act shall be deemed to authorize
any court to require such an undertaking or to make such an assessment in any
suit instituted by the Trustee, a suit by a Holder pursuant to Section 8.8, or a
suit by a Holder or Holders of more than 10% in aggregate principal amount of
the outstanding Securities.
SECTION 8.15. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 8.16. Collection Suit by Trustee.
--------------------------
If an Event of Default specified in Section 8.1(i) or 8.1(ii) or
8.1(iii) occurs and is continuing, the Trustee may recover judgment in its own
name and as trustee of an express trust against the Company (or any other
obligor upon the Securities) for the whole amount of principal and accrued
interest remaining unpaid, together with interest overdue on principal and, to
the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum borne by the
Securities, and such further amount as shall be sufficient to cover the costs
and expenses of collection,
<PAGE>
76
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
ARTICLE IX
THE TRUSTEE
SECTION 9.1. Certain Duties and Responsibilities.
-----------------------------------
The duties and responsibilities of the Trustee shall be as provided by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section 9.1. If an Event of Default has
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture and use the same degree of care and skill
in its exercise as a prudent person would exercise or use under the
circumstances in the conduct of its own affairs.
SECTION 9.2. Notice of Defaults.
------------------
The Trustee shall give the Holders notice of any default hereunder as
and to the extent provided by Section 315(b) of the Trust Indenture Act. Except
in the case of a Default or an Event of Default in payment of principal of or
interest on any Security (including the failure to make payments with respect to
redemptions, Asset Sale Offers or a Change of Control Offer), the Trustee may
withhold the notice if and so long as the Trustee in good faith determines that
withholding the notice is in the interest of Holders.
SECTION 9.3. Certain Rights of Trustee.
-------------------------
Subject to Sections 315(a) through (d) of the Trust Indenture Act, the
terms of which are hereby incorporated herein by this reference:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
<PAGE>
77
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(h) subject to Section 11.2 hereof, the Trustee may (but shall not
be obligated to), without the consent of the Holders, give any consent,
waiver or approval required under the Security Documents or by the terms
hereof with respect to the Collateral, but shall not without the consent of
the Holders of a majority in aggregate principal amount of the Securities
at the time outstanding (i) give any consent, waiver or approval or (ii)
agree to any amendment or modification of the Security Documents, in each
case, that shall have an adverse effect on the interests of any Holder.
The Trustee shall be entitled to request and conclusively rely on an
Opinion of Counsel with respect to whether any consent,
<PAGE>
78
waiver, approval, amendment or modification shall have an adverse effect on
the interests of any Holder.
SECTION 9.4. Not Responsible for Recitals
----------------------------
or Issuance of Securities.
-------------------------
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements
of the Company, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities. The Trustee shall not
be accountable for the use or application by the Company of Securities or
the proceeds thereof.
SECTION 9.5. May Hold Securities.
-------------------
The Trustee, any Authenticating Agent, any Paying Agent, any
Security Registrar or any other agent of the Company, in its individual or
any other capacity, may become the owner or pledgee of Securities and,
subject to Section 9.8 and 9.13, may otherwise deal with the Company with
the same rights it would have if it were not Trustee, Authenticating Agent,
Paying Agent, Security Registrar or such other agent.
SECTION 9.6. Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The
Trustee shall be under no liability for interest on any money received by
it hereunder except as otherwise agreed in writing with the Company.
SECTION 9.7. Compensation and Reimbursement.
------------------------------
The Company agrees:
(i) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder and under the
Security Documents (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust);
(ii) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance
with any provision of this Indenture or the Security Documents (including
the reasonable compensation and the expenses and disbursements of its
agents and counsel),
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79
except any such expense, disbursement or advance as
may be attributable to its negligence or bad faith; and
(iii) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or bad
faith on its part, arising out of or in connection with the acceptance or
administration of this Indenture or the Security Documents, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder or thereunder.
The Trustee shall notify the Company promptly of any claim asserted
against it for which it may seek indemnity.
As security for the performance of the obligations of the Company
under this Section the Trustee shall have a Lien prior to the Securities on all
properties and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of or interest on particular Securities.
If the Trustee incurs expenses or renders services after an Event of
Default specified in Section 8.1(vii) or (viii) occurs, the expenses and
compensation for the services will be intended to constitute expenses of
administration under any applicable Bankruptcy Law or other similar law.
The Company's obligations under this Section 9.7 and any Lien arising
hereunder shall survive the resignation or removal of any Trustee, the discharge
of the Company's obligations pursuant to Articles IV or XII of this Indenture
and/or the termination of this Indenture.
SECTION 9.8. Disqualification; Conflicting Interests.
---------------------------------------
If the Trustee has or shall acquire a conflicting interest within the
meaning of Section 310(b) of the Trust Indenture Act, the Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Indenture.
SECTION 9.9. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall at all times be a Trustee hereunder which shall be a
Person that is eligible pursuant to Section 310(a) of the Trust Indenture Act to
act as such and has a combined capital and surplus of at least $50,000,000 and
its Corporate Trust Office in New York City or New Orleans, Louisiana. If such
Person publishes reports of condition at least annually, pursuant to law or to
the requirements of said supervising or examining authority, then for the
purposes of this Section 9.9, the combined capital and surplus of such Person
shall be deemed to be its combined capital and surplus as set forth in its most
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80
recent report of condition so published. If at any time the Trustee shall cease
to be eligible in accordance with the provisions of this Section 9.9, it shall
resign immediately in the manner and with the effect hereinafter specified in
this Article.
SECTION 9.10. Resignation and Removal;
------------------------
Appointment of Successor.
------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 9.11.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 9.8 after
written request therefor by the Company or by any Holder who has been a
bona fide Holder of a Security for at least six months; or
(ii) the Trustee shall cease to be eligible under Section 9.9
and shall fail to resign after written request therefor by the Company or
by any such Holder; or
(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation;
then, in any such case, (1) the Company by a Board Resolution may remove the
Trustee, or (2) subject to Section 8.14, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board
<PAGE>
81
Resolution, shall promptly appoint a successor Trustee. If, within one year
after such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee shall be appointed by Act of the Holders of a
majority in principal amount of the Outstanding Securities delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 1.6. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
(g) Any resignation or removal of the Trustee pursuant to this
Indenture shall be deemed to be a resignation or removal of the Trustee in its
capacity as Collateral Agent under the Security Documents and any appointment of
a successor Trustee pursuant to this Indenture shall be deemed to be an
appointment of a successor Collateral Agent under the Security Documents and
such successor shall assume all of the obligations of the Trustee in its
capacity as Collateral Agent under the Security Documents.
SECTION 9.11. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder, subject nevertheless to its Lien, if any,
provided for in Section 9.7. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
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82
SECTION 9.12. Merger, Conversion, Consolidation or
------------------------------------
Succession to Business.
----------------------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder; provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 9.13. Preferential Collection of Claims Against Company.
-------------------------------------------------
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of Section 311 of the Trust Indenture Act regarding the collection of
claims against the Company (or any such other obligor).
SECTION 9.14. Appointment of Authenticating Agent.
-----------------------------------
The Trustee may appoint an Authenticating Agent or Agents which shall
be authorized to act on behalf of the Trustee to authenticate Securities issued
upon original issue and upon exchange, registration of transfer or partial
repurchase or pursuant to Section 3.6, and Securities so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory for
all purposes as if authenticated by the Trustee hereunder. Wherever reference
is made in this Indenture to the authentication and delivery of Securities by
the Trustee or the Trustee's certificate of authentication, such reference shall
be deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section 9.14, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
an Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 9.14, such
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83
Authenticating Agent shall resign immediately in the manner and with the effect
specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section 9.14, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 9.14, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall mail
written notice of such appointment by first-class mail, postage prepaid, to all
Holders as their names and addresses appear in the Security Register. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section 9.14.
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section 9.14, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 9.7.
If an appointment is made pursuant to this Section 9.14, the
Securities may have endorsed thereon, in addition to the Trustee's certificate
of authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities described in the within-mentioned
Indenture.
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
This is one of the Securities
issued under the Indenture
described herein.
FIRST NATIONAL BANK
OF COMMERCE, As Trustee
<PAGE>
84
By_______________________________
As Authenticating Agent
By_______________________________
Authorized Officer
ARTICLE X
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 10.1. Company to Furnish Trustee
--------------------------
Names and Addresses of Holders.
------------------------------
The Company will furnish or cause to be furnished to the Trustee:
(i) semi-annually, not more than 15 days after each Regular
Record Date, a list, in such form as the Trustee may reasonably require, of
the names and addresses of the Holders as of such Regular Record Date; and
(ii) at such other times as the Trustee may request in
writing, within 30 days after the receipt by the Company of any such
request, a list of similar form and content as of a date not more than 15
days prior to the time such list is furnished;
provided, no such list need be furnished if the Trustee is acting as Security
Registrar.
SECTION 10.2. Preservation of Information; Communications to Holders.
------------------------------------------------------
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the most
recent list furnished to the Trustee as provided in Section 10.1 and the names
and addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 10.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by Section
312 of the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of them shall be held accountable by reason of
any disclosure of
<PAGE>
85
information as to names and addresses of Holders made pursuant
to Section 312 of the Trust Indenture Act.
SECTION 10.3. Reports by Trustee.
------------------
(a) Within 60 days after each May 15 beginning with May 15, 1994,
the Trustee shall transmit to Holders such reports concerning the Trustee and
its actions under this Indenture as may be required pursuant to Section 313 of
the Trust Indenture Act at the times and in the manner provided pursuant
thereto.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Securities are listed, with the Commission and with the Company. The
Company will notify the Trustee when the Securities are listed on any stock
exchange.
SECTION 10.4. Reports by Company.
------------------
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to Section 314 of the Trust
Indenture Act at the times and in the manner provided pursuant to such Act;
provided, that any such information, documents or reports required to be filed
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be
filed with the Trustee within 15 days after the same shall be so required to be
filed with the Commission; provided further that if the Company is not subject
to the periodic reporting and information requirements of the Exchange Act, it
will provide to Holders annual reports containing audited consolidated financial
statements and an opinion thereon by the Company's independent certified public
accountants, and quarterly reports for the first three quarters of each fiscal
year containing unaudited condensed consolidated financial statements.
ARTICLE XI
SUPPLEMENTAL INDENTURES
SECTION 11.1. Supplemental Indentures without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto or amendments to the Security
Documents, in form satisfactory to the Trustee, for any of the following
purposes:
<PAGE>
86
(i) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of the
Company herein and in the Securities; or
(ii) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon the
Company; or
(iii) to comply with any requirements of the Commission in
order to maintain the qualification of this Indenture under the Trust
Indenture Act, as contemplated by Section 11.5; or
(iv) to pledge or grant a security interest in favor of the
Trustee as additional security for the payment and performance of the
Company's obligations under this Indenture, in any property or assets,
including any that are required to be pledged or in which a security
interest is required to be granted, to the Trustee pursuant to the Security
Documents or otherwise; or
(v) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision herein,
or to make any other provisions with respect to matters or questions
arising under this Indenture which shall not be inconsistent with the
provisions of this Indenture; provided, that such action pursuant to this
Clause (v) shall not adversely affect the interests of the Holders.
SECTION 11.2. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
(a) With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture, the
Securities or the Security Documents or of modifying in any manner the rights of
the Holders under this Indenture, the Securities or the Security Documents;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or alter the redemption
provisions or reduce the principal amount thereof or the rate of interest
thereon, or change the place of payment where, or the coin or currency in
which, any Security or interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
Maturity Date thereof; or
<PAGE>
87
(ii) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required
for any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture; or
(iii) modify any of the provisions of this Section 11.2 or
Section 8.8 or 8.13, except to increase any such percentage or to provide
that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Security
affected thereby; or
(iv) affect the ranking of the Securities or the Liens in
favor of the Trustee, the Collateral Agent and the Holders in a manner
adverse to the Holders or release all or substantially all of the
Collateral.
(b) It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
(c) After an amendment, supplement or waiver under this Section 11.2
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 11.3. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 9.1) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 11.4. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
<PAGE>
88
SECTION 11.5. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 11.6. Reference in Securities to Supplemental Indentures.
--------------------------------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
ARTICLE XII
COLLATERAL AND SECURITY
SECTION 12.1. Collateral and Security Documents.
---------------------------------
(a) In order to secure the due and punctual payment of the principal
of and interest on the Securities when and as the same shall be due and payable,
whether on an Interest Payment Date, Maturity Date, by acceleration, redemption
or otherwise, and interest on the overdue principal of and interest (to the
extent permitted by law), if any, on the Securities and the performance of all
other obligations of the Company to the Holders or the Trustee under this
Indenture and the Securities (the "Company Obligations"), the Company and the
Trustee have simultaneously with the execution of this Indenture entered into
the Company Security Agreement and certain Mortgages pursuant to which the
Company has granted to the Trustee, in its capacity as Collateral Agent, for the
benefit of the Holders a first priority Lien on and security interest in the
Collateral described therein, subject to the exceptions permitted by Section
6.10. Simultaneously with the execution of the Indenture, or if later, the date
on which a Person becomes a Subsidiary of the Company (with the exception of
Non-Recourse Subsidiaries), each Subsidiary of the Company shall guarantee the
Company Obligations pursuant to a Subsidiary Guarantee. On the Issue Date, each
of the Subsidiaries of the Company shall enter into a Subsidiary Security
Agreement and a Mortgage (if such Subsidiary holds title to real property) to
secure its obligations under its executed Subsidiary Guarantee, pursuant to
which such Subsidiary shall grant to the Trustee for the benefit of the Holders
a first priority Lien on and security interest in the Collateral described in
such Subsidiary Security Agreement or Mortgage(s), subject to the exceptions
permitted by Section 6.10. Subsequent to the Issue Date, the Company and its
Subsidiaries (with the exception of Non-Recourse Subsidiaries) shall execute, as
soon as practicable, any further security agreements (substantially in the form
of the Company Security Agreement or the
<PAGE>
89
Subsidiary Security Agreement, as the case may be), Mortgages, or other
agreements necessary to create an effective security interest in the entirety of
their real property, machinery, equipment (including, without limitation, (i)
furniture, furnishings, tools, lubricants, spare parts, shelving, displays,
cases, accessories, motors and engines, (ii) bearings, rolls, guides and stores,
(iii) certain [ ] classified on the balance sheet of the Company as
inventory, (iv) all attachments, components, parts and accessories installed
thereon or affixed thereto and (v) equipment, as such term is defined in the
Uniform Commercial Code as from time to time is in effect in the State of New
York), Patents, Patent Licenses, Trade Secrets, Trademarks and Trademark
Licenses. The Trustee, the Company and the Subsidiaries hereby agree that the
Trustee holds the Collateral in trust for the benefit of the Holders pursuant to
the terms of the Security Documents.
(b) The Trustee is authorized and directed by the Holders to enter
into and comply with the provisions of the Release Agreement in connection with
any sale or other disposition of the Collateral subject to the TBT Lease.
Compliance with the Release Agreement shall in no event serve as the basis for
any claim by the Company or any other party having an interest in the Collateral
that the Collateral was sold or otherwise disposed of in a commercially
unreasonable manner. Under no circumstances will any Holder or any portion of
the Collateral have any obligation, or be in any manner responsible to the
Company, the Tax Lessor, Meyers, Voest-Alpine or VAIC in respect of any loss
anticipated in connection with the TBT Lease and neither any portion of the
Collateral nor any Holder shall be liable to the Company, the Tax Lessor,
Meyers, Voest-Alpine or VAIC under the TBT Lease for any cost, damage,
liability, tax or indemnity, or other expense incurred by any of them relating
to the TBT Lease or any portion of the Collateral subject to the TBT Lease or
otherwise. The Trustee may, but shall not be required to, obtain the Opinions
of Counsel referred to in the Release Agreement without direction from the
Holders; provided, that the Trustee shall upon direction of the Holders of a
majority in principal amount of the Outstanding Securities obtain an Opinion of
Counsel from a law firm designated in such direction and shall be protected in
relying and acting thereon.
(c) The Trustee is authorized and directed by the Holders to enter
into and comply with the provisions of the Intercreditor Agreement. Compliance
with the Intercreditor Agreement shall in no event serve as the basis for any
claim by the Company or any other party having an interest in the Collateral
that the Collateral was sold or otherwise disposed of in a commercially
unreasonable manner. The Trustee is authorized to execute and deliver the
documents referred to in Section 2(c) of the Intercreditor Agreement upon
receipt of such documents and an Officer's Certificate and an Opinion of
Counsel, each to the effect that such documents comply with the requirements of
the Intercreditor Agreement and the conditions contained herein to the execution
of such documents have been complied with and that such documents do not release
property subject to the Lien of this Indenture or the Security Documents in
contravention of the provisions of this Indenture or such Security Documents.
<PAGE>
90
(d) Each Holder, by accepting a Security, agrees to all of the terms
and provisions of the Security Documents, as the same may be amended from time
to time pursuant to the provisions of the Security Documents and this Indenture.
SECTION 12.2. Recording and Opinions.
----------------------
(a) The Company as soon as practicable shall take or cause to be
taken all action required to perfect, maintain, preserve and protect the first
priority Lien on and security interest in the Collateral, subject to the
exceptions set forth in Section 6.10, granted by the Security Documents,
including without limitation, the filing of financing statements, continuation
statements and any instruments of further assurance, in such manner and in such
places as may be required by law fully to preserve and protect the rights of the
Holders and the Trustee under this Indenture and the Security Documents to all
property comprising the Collateral. The Company shall from time to time
promptly pay all financing and continuation statement recording and/or filing
fees, charges and taxes relating to this Indenture and the Security Documents,
any amendments thereto and any other instruments of further assurance required
pursuant to the Security Documents.
(b) The Company shall furnish to the Trustee at the time of execution
and delivery of this Indenture, Opinion(s) of Counsel either (i) substantially
to the effect that, in the opinion of such Counsel, this Indenture and the grant
of a security interest in the Collateral intended to be made by the Security
Documents and all other instruments of further assurance, including, without
limitation, financing statements, have been properly recorded and filed to the
extent necessary to perfect the security interests in the Collateral created by
the Security Documents and reciting the details of such action, and stating that
as to the security interests created pursuant to the Security Documents, such
recordings and filings are the only recordings and filings necessary to give
notice thereof and that no re-recordings or refilings are necessary to maintain
such notice (other than as stated in such opinion), or (ii) to the effect that,
in the opinion of such counsel, no such action is necessary to perfect such
security interests. Promptly after execution and delivery of this Indenture,
the Company shall deliver the opinion(s) required by Section 314(b) of the Trust
Indenture Act. Subsequent to the Issue Date, at the time of the execution of
any Security Document, Opinion(s) of Counsel with respect to the identical
matters set forth in this paragraph (ii) and an Opinion of Counsel to the effect
that the Security Documents executed on such date constitute the legally valid,
binding and enforceable obligation of the Company or such Subsidiary, as the
case may be, subject to acceptable bankruptcy and similar exceptions, shall be
delivered to the Trustee.
(c) The Company shall furnish to the Trustee on ____________ 1 in
each year, beginning with _______________ 1, 1994, an Opinion of Counsel, dated
as of such date, either (i)(A) stating that, in the opinion of such counsel,
action has been taken with respect to the recording, filing, re-recording and
refiling of all supplemental indentures, financing statements and continuation
statements as is necessary to maintain the Lien of the Security Documents and
reciting with respect to the security interests in the Collateral the details of
such action or referring to prior Opinions of Counsel in which such details are
<PAGE>
91
given, and (B) stating that, based on relevant laws as in effect on the date of
such Opinion of Counsel, all financing statements and continuation statements
have been executed and filed that are necessary as of such date and during the
succeeding 12 months fully to maintain the security interest of the Holders and
the Trustee hereunder and under the Security Documents with respect to the
Collateral, or (ii) stating that, in the opinion of such Counsel, no such action
is necessary to maintain such Lien.
SECTION 12.3. Release of Collateral.
---------------------
(a) The Trustee, in its capacity as Collateral Agent under the
Security Documents, shall not at any time release Collateral from the security
interest created by this Indenture and the Security Documents unless such
release is in accordance with the provisions of this Indenture and the Security
Documents.
(b) At any time when an Event of Default shall have occurred and be
continuing, no release of Collateral pursuant to the provisions of this
Indenture and the Security Documents shall be effective as against the Holders
of the Securities.
(c) The release of any Collateral from the terms of the Security
Documents shall not be deemed to impair the security under this Indenture in
contravention of the provisions hereof if and to the extent the Collateral is
released in accordance with this Indenture and the Security Documents. To the
extent applicable, the Company shall cause Section 314(d) of the Trust Indenture
Act relating to the release of property from the Lien of the Security Documents
and relating to the substitution therefor of any property to be subjected to the
Lien of the Security Documents to be complied with. Any certificate or opinion
required by Section 314(d) of the Trust Indenture Act may be made by a
Responsible Officer of the Company, except in cases where Section 314(d) of the
Trust Indenture Act requires that such certificate or opinion be made by an
independent Person, which Person shall be an independent engineer, or other
expert selected or approved by the Trustee in the exercise of reasonable care.
SECTION 12.4. Possession and Use of Collateral.
--------------------------------
Subject to and in accordance with the provisions of this Indenture and
the Security Documents, so long as no Event of Default shall have occurred and
be continuing the Company and its Subsidiaries shall have the right to remain in
possession and retain exclusive control of the Collateral other than Trust
Moneys held by the Trustee, to operate, manage, develop, lease, use, consume and
enjoy the Collateral (other than Trust Moneys held by the Trustee), to alter or
repair any Collateral consisting of vehicles, machinery or equipment so long as
such alterations and repairs do not diminish the value thereof or impair the
Lien of the Security Documents thereon and to collect, receive, use, invest and
dispose of the reversions, remainders, interest, rents, lease payments, issues,
profits, revenues, proceeds and other income thereof.
<PAGE>
92
SECTION 12.5. Specified Releases of Collateral.
--------------------------------
(a) Satisfaction and Discharge; Defeasance. The Company and its
--------------------------------------
Subsidiaries shall be entitled to obtain a full release of all of the Collateral
from the Liens of this Indenture and of the Security Documents upon compliance
with the conditions precedent set forth in Article IV for satisfaction and
discharge of this Indenture or for legal defeasance pursuant to Section 14.2.
Upon delivery by the Company to the Trustee of an Officers' Certificate and
Opinion of Counsel, each to the effect that such conditions precedent have been
complied with (and which may be the same Officers' Certificate and Opinion of
Counsel required by Section 4.1 or 14.4), the Trustee shall forthwith take all
necessary action (at the request of and the expense of the Company) to release
and reconvey to the Company all of the Collateral, and shall deliver such
Collateral in its possession to the Company including, without limitation, the
execution and delivery of releases and satisfactions whenever required.
(b) Sales of Collateral Permitted by Section 6.15. The Company shall
---------------------------------------------
be entitled to obtain a release of items of Collateral (the "Released
Interests") subject to an Asset Sale upon compliance with the condition
precedent that the Company shall have delivered to the Trustee the following:
(i) Company Order. A Company Order requesting release of
-------------
Released Interests, such Company Order (A) specifically describing the
proposed Released Interests, (B) specifying the fair value of such Released
Interests on a date within 60 days of the Company Order (the "Valuation
Date"), (C) stating that the purchase price received is at least equal to
the fair value of the Released Interest, (D) stating that the release of
such Released Interests will not interfere with or impede the Trustee's
ability to realize the value of the remaining Collateral and will not
impair the maintenance and operation of the remaining Collateral, (E)
confirming the sale of, or an agreement to sell, such Released Interests in
a bona fide sale to a Person that is not an Affiliate of the Company or, in
the event that such sale is to a Person that is an Affiliate, that such
sale is being made in accordance with Section 6.14, (F) certifying that
such Asset Sale complies with the terms and conditions of Section 6.15
hereof and (G) in the event that there is to be a substitution of property
for the Collateral to be sold, specifying the property intended to be
substituted for the Collateral to be sold;
(ii) Officers' Certificate. An Officers' Certificate
---------------------
certifying that (A) such Asset Sale covers only the Released Interests and
complies with the terms and conditions of an Asset Sale pursuant to Section
6.15, (B) all Net Cash Proceeds from the sale of any of the Released
Interests constitutes Collateral and will be deposited in the Collateral
Account for application in accordance with Section 6.15, (C) there is no
Default or Event of Default in effect or continuing on the date thereof,
the Valuation Date or the date of such Asset Sale, (D) the release of the
Collateral will not result in a Default or Event of Default hereunder and
(E) all conditions precedent to such release have been complied with; and
<PAGE>
93
(iii) Other Documents. All documentation required by Section
---------------
314(d) of the Trust Indenture Act.
(c) Eminent Domain and Other Governmental Takings. The Company shall
---------------------------------------------
be entitled to obtain a release of, and the Trustee shall release, items of
Collateral taken by eminent domain or sold pursuant to the exercise by the
United States of America or any State, municipality or other governmental
authority of any right which it may then have to purchase, or to designate a
purchaser or to order a sale of, all or any part of the Collateral, upon
compliance with the condition precedent that the Company shall have delivered to
the Trustee the following:
(i) Officer's Certificate. An Officer's Certificate (A)
---------------------
stating that such property has been taken by eminent domain and the amount
of the award therefor, or that such property has been sold pursuant to a
right vested in the United States of America, or a State, municipality or
other governmental authority to purchase, or to designate a purchaser, or
order a sale of such property and the amount of the proceeds of such sale,
and (B) stating that all conditions precedent to such release have been
complied with;
(ii) Opinion of Counsel. An Opinion of Counsel to the effect
------------------
that (A) such property has been lawfully taken by exercise of the right of
eminent domain, or has been sold pursuant to the exercise of a right vested
in the United States of America or a State, municipality or other
governmental authority to purchase, or to designate a purchaser or order a
sale of, such property, (B) in the case of any such taking by eminent
domain, the award for such property has become final or an appeal therefrom
is not advisable in the interests of the Company or the Holders, and (C)
all conditions precedent herein provided relating to such release have been
complied with; and
(iii) Eminent Domain Award. Subject to the requirements of
--------------------
any prior Lien on the Collateral so taken, cash equal to the amount of the
award for such property or the proceeds of such sale, to be held as Trust
Moneys subject to the disposition thereof pursuant to Article XIII hereof.
Upon compliance by the Company with the conditions precedent set forth
above, and upon delivery by the Company to the Trustee of an Opinion of Counsel
to the effect that such conditions precedent have been complied with, the
Trustee shall cause to be released and reconveyed to the Company, the Released
Interests.
SECTION 12.6. Disposition of Collateral Without Release.
-----------------------------------------
So long as no Event of Default shall have occurred and be continuing,
the Company or any of its Subsidiaries may, without any release or consent by
the Collateral Agent or the Trustee, sell or otherwise dispose of any Obsolete
Assets subject to the Lien of the Security Documents, not exceeding
individually, in fair market value, $25,000.
<PAGE>
94
SECTION 12.7. Form and Sufficiency of Release.
-------------------------------
In the event that the Company or any of its Subsidiaries have sold,
exchanged or otherwise disposed of or proposes to sell, exchange or otherwise
dispose of any portion of the Collateral that under the provisions of Section
12.5 or 12.6 may be sold, exchanged or otherwise disposed of by the Company or
its Subsidiary, and the Company or its Subsidiary requests the Trustee to
furnish a written disclaimer, release or quit-claim of any interest in such
property under this Indenture and the Security Documents, the Trustee, in its
capacity as Collateral Agent under the Security Documents, shall execute,
acknowledge and deliver to the Company or its Subsidiary (in proper and
recordable form) such an instrument promptly after satisfaction of the
conditions set forth herein for delivery of any such release. Notwithstanding
the preceding sentence, all purchasers and grantees of any property or rights
purporting to be released herefrom shall be entitled to rely upon any release
executed by the Trustee hereunder as sufficient for the purpose of this
Indenture and as constituting a good and valid release of the property therein
described from the Lien of this Indenture or of the Security Documents.
SECTION 12.8. Purchaser Protected.
-------------------
No purchaser or grantee of any property or rights purporting to be
released herefrom shall be bound to ascertain the authority of the Trustee to
execute the release or to inquire as to the existence of any conditions herein
prescribed for the exercise of such authority; nor shall any purchaser or
grantee of any property or rights permitted by this Indenture to be sold or
otherwise disposed of by the Company or any of its Subsidiaries be under any
obligation to ascertain or inquire into the authority of the Company or its
Subsidiary to make such sale or other disposition.
SECTION 12.9. Authorization of Actions To Be Taken by The Trustee Under the
-------------------------------------------------------------
Security Documents.
------------------
Subject to the provisions of the Security Documents, (a) the Trustee
may, in its sole discretion and without the consent of the Holders, take all
actions it deems necessary or appropriate in order to (i) enforce any of the
terms of the Security Documents and (ii) to collect and receive any and all
amounts payable in respect of the obligations of the Company hereunder or of the
Subsidiaries of the Company under the relevant Subsidiary Guarantee and (b) the
Trustee shall have power to institute and to maintain such suits and proceedings
as it may deem expedient to prevent any impairment of the Collateral by any acts
that may be unlawful or in violation of the Security Documents or this
Indenture, and such suits and proceedings as the Trustee may deem expedient to
preserve or protect its interests and the interests of the Holders in the
Collateral (including the power to institute and maintain suits or proceedings
to restrain the enforcement of or compliance with any legislative or other
governmental enactment, rule or order that may be unconstitutional or otherwise
invalid if the enforcement of, or compliance with, such
<PAGE>
95
enactment, rule or order would impair the security interest thereunder or be
prejudicial to the interests of the Holders or of the Trustee.
SECTION 12.10. Authorization of Receipt of Funds by the Trustee Under the
----------------------------------------------------------
Security Documents.
------------------
The Trustee is authorized to receive any funds for the benefit of
Holders distributed under the Security Documents, and to make further
distributions of such funds to the Holders in accordance with the provisions of
Article XIII and the other provisions of this Indenture.
ARTICLE XIII
APPLICATION OF TRUST MONEYS
SECTION 13.1. Collateral Account.
------------------
On the Issue Date there shall be established and, at all times
hereafter until this Indenture shall have terminated, there shall be maintained
with the Trustee an account which shall be entitled the "Collateral Account"
(the "Collateral Account"). The Collateral Account shall be established and
maintained by the Trustee at its corporate trust offices. All Trust Moneys
which are received by the Trustee shall be deposited in the Collateral Account
and thereafter shall be held, applied and/or disbursed by the Trustee in
accordance with the terms of this Article.
SECTION 13.2. Withdrawals of Insurance Proceeds and Condemnation Awards.
---------------------------------------------------------
To the extent that any Trust Moneys consist of either (i) Net
Insurance Proceeds or (ii) Condemnation Awards, such Trust Moneys may be
withdrawn by the Company (or by a Subsidiary of the Company if title to the
property damaged or taken was held by such Subsidiary, but only to the extent of
the Net Insurance Proceeds or Condemnation Proceeds relating thereto) and shall
be paid by the Trustee upon a Company Order to reimburse the Company or its
Subsidiary for expenditures made, or to pay costs incurred, by the Company or
its Subsidiary to repair, rebuild or replace the property destroyed, damaged or
taken, upon receipt by the Trustee of the following:
(a) an Officers' Certificate of the Company or its Subsidiary, dated
not more than 30 days prior to the date of the application for the
withdrawal and payment of such Trust Moneys:
(i) that expenditures have been made or costs incurred,
by the Company or its Subsidiary in a specified amount for the purpose
of making certain repairs, rebuildings and replacements of the
Collateral, which shall be
<PAGE>
96
briefly described, and stating the fair value thereof to the
Company or its Subsidiary at the date of the expenditure or incurrence
thereof by the Company or its Subsidiary;
(ii) that no part of such expenditures or costs has been
or is being made the basis for the withdrawal of any Trust Moneys in
any previous or then pending application pursuant to this Section
13.2;
(iii) that there is no outstanding Indebtedness, other
than costs for which payment is being requested, known to the Company
or its Subsidiary, after due inquiry, for the purchase price or
construction of such repairs, rebuildings or replacements, or for
labor, wages, materials or supplies in connection with the making
thereof, which, if unpaid, might become the basis of a vendors',
mechanics', laborers', materialmen's, statutory or other similar Lien
upon any of such repairs, rebuildings or replacement, which Lien
might, in the opinion of the signers of such certificate, materially
impair the security afforded by such repairs, rebuildings or
replacements;
(iv) that the property to be repaired, rebuilt or
replaced is necessary or desirable in the conduct of the Company's or
its Subsidiary's business;
(v) whether any part of such repairs, rebuildings or
replacements within six months before the date of acquisition thereof
by the Company or its Subsidiary has been used or operated by others
than the Company or its Subsidiary in a business similar to that in
which such property has been or is to be used or operated by the
Company or its Subsidiary, and whether the fair value to the Company
or its Subsidiary, at the date of such acquisition of such part of
such repairs, rebuildings or replacement is at least $25,000, or 1% of
the aggregate principal amount of the Outstanding Securities;
(vi) that no Default or Event of Default shall have
occurred and be continuing; and
(vii) that all conditions precedent herein provided for
relating to such withdrawal and payment have been complied with;
(b) all documentation required under Section 314(d) of the Trust
Indenture Act; and
(c) an Opinion of Counsel substantially stating:
(i) that the instruments that have been or are therewith
delivered to the Trustee conform to the requirements of this Indenture
and the Security Documents, and that, upon the basis of such request
of the Company or its Subsidiary and the accompanying documents
specified in this
<PAGE>
97
Section 13.2, all conditions precedent herein
provided for relating to such withdrawal and payment have been
complied with, and the Trust Moneys whose withdrawal is then requested
may be lawfully paid over under this Section 13.2;
(ii) that the Trustee has a valid and perfected Lien on
such repairs, rebuilding and replacements, that the same and every
part thereof are subject to no Liens prior to the Lien of the Security
Documents, except Liens of the type permitted under the Security
Documents to which the property so destroyed or damaged shall have
been subject at the time of such destruction or damage; and
(iii) that all of the Company's or its Subsidiary's
right, title and interest in and to said repairs, rebuildings or
replacements, or combination thereof, are then subject to the Lien of
the Security Documents.
Upon compliance with the foregoing provisions of this Section 13.2,
the Trustee shall pay on the written request of the Company or its Subsidiary an
amount of Trust Moneys of the character aforesaid equal to the amount of the
expenditures or costs stated in the Officers' Certificate required by clause (i)
of subsection (a) of this Section 13.2, or the fair value to the Company or its
Subsidiary of such repairs, rebuildings and replacements stated in such
Officers' Certificate (or in such Independent Appraiser's or Independent
Financial Advisor's certificate, if required by the Trust Indenture Act),
whichever is less; provided, however, that notwithstanding the above, so long as
no Default or Event of Default shall have occurred and be continuing, in the
event that any Net Insurance Proceeds or Condemnation Award for such property or
proceeds of such sale does not exceed the lesser of $25,000 or 1% of the
principal amount of the Outstanding Securities, and, in the good faith estimate
of the Company, such destruction or damage resulting in such Net Insurance
Proceeds or Condemnation Award does not detrimentally affect the value or use of
the applicable Collateral in any material respect, upon delivery to the Trustee
of an Officers' Certificate of the Company or its Subsidiary to such effect, the
Trustee shall release to the Company or its Subsidiary such Net Insurance
Proceeds or Condemnation Award for such property or proceeds of such sale, free
of the Lien hereof and of the Security Documents.
SECTION 13.3. Withdrawal of Trust Moneys for Asset Sale Offer.
------------------------------------------------
Trust Moneys may be withdrawn by the Company and shall be paid by the
Trustee to the Company (or as otherwise directed by the Company) upon a Company
Order to the Trustee and upon receipt by the Trustee of the following:
(a) an Officers' Certificate, dated not more than five days prior to
the Asset Sale Payment Date stating:
(i) that no Event of Default exists;
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98
(ii) (A) that pursuant to and in accordance with Section
6.15, the Company has made an Asset Sale Offer, (B) the amount of
money to be applied to the repurchase of the Securities pursuant to
the Asset Sale Offer, and (C) the amount of money to be retained by
the Company;
(iii) the Asset Sale Payment Date; and
(iv) that all conditions precedent and covenants herein
provided for relating to such application of Trust Moneys have been
complied with; and
(b) all documentation required under Section 314(d) of the Trust
Indenture Act; and
(c) an Opinion of Counsel stating that the documents that have been
or are therewith delivered to the Trustee in connection with the Asset Sale
Offer pursuant to this Section 13.3 conform to the requirements of this
Indenture and that all conditions precedent herein provided for relating to
such application of Trust Moneys have been complied with.
Upon compliance with the foregoing provisions of this Section 13.3,
the Trustee shall apply the Trust Moneys as directed and specified by such
Company Order.
SECTION 13.4. Withdrawal of Trust Moneys for Permitted Related
-------------------------------------------------
Acquisitions.
- -------------
In the event the Company (or a Subsidiary of the Company if such
Subsidiary has engaged in the Asset Sale) intends to reinvest Net Cash Proceeds
of an Asset Sale in a manner that would constitute a Permitted Related
Acquisition (the "Released Trust Moneys"), such Net Cash Proceeds constituting
Trust Moneys may be withdrawn by the Company (or, to the extent that the legal
title to the property transferred in an Asset Sale is held by a Subsidiary, by
such Subsidiary; provided, that the aggregate cost of the Permitted Related
Acquisitions to be made by such Subsidiary shall not exceed the Net Cash
Proceeds of such Asset Sale) and shall be paid by the Trustee to the Company or
its Subsidiary (or as otherwise directed by the Company or its Subsidiary) upon
a Company Order to the Trustee and upon receipt by the Trustee of the following:
(a) A notice (each, a "Trust Moneys Release Notice"), which shall (i)
refer to this Section 13.4, (ii) contain all documents referred to below,
(iii) describe with particularity the Related Trust Moneys, (iv) describe
with particularity the Permitted Related Acquisition to be made with
respect to the Released Trust Moneys and (v) be accompanied by a
counterpart of the instruments proposed to give effect to the release fully
executed and acknowledged (if applicable) by all parties thereto other than
the Trustee;
<PAGE>
99
(b) An Officer's Certificate certifying that (i) the release of the
Released Trust Moneys complies with the terms and conditions of Section
6.15 of this Indenture, (ii) there is no Default or Event of Default in
effect or continuing on the date thereof, (iii) the release of the Released
Trust Moneys will not result in a Default or Event of Default hereunder and
(iv) all conditions precedent to such release have been complied with;
(c) All documentation required under Section 314(d) of the Trust
Indenture Act; and
(d) An Opinion of Counsel stating that the documents that have been
or are therewith delivered to the Collateral Agent and the Trustee in
connection with a Permitted Related Acquisition conform to the requirements
of this Indenture and that all conditions precedent herein provided for
relating to such application of Trust Moneys have been complied with.
Upon compliance with the foregoing provisions of this Indenture, the
Trustee shall apply the Released Trust Moneys as directed and specified by the
Company or its Subsidiary.
SECTION 13.5. Withdrawal of Trust Moneys for Retention by the Company or its
--------------------------------------------------------------
Subsidiaries.
------------
To the extent that any Trust Moneys consist of Net Cash Proceeds
received by the Trustee pursuant to the provisions of Section 6.15 (including
Asset Sales relating to Obsolete Assets), and the Company (or a Subsidiary of
the Company if such Subsidiary has engaged in an Asset Sale, including an Asset
Sale relating to Obsolete Assets) intends to retain, subject to the limitations
set forth in Section 6.15, all or a portion of such Net Cash Proceeds (the
"Retained Trust Moneys"), such Trust Moneys may be withdrawn by the Company or
its Subsidiary and shall be paid by the Trustee to the Company or its Subsidiary
(or as otherwise directed by the Company or its Subsidiary) upon a Company Order
to the Trustee and upon receipt by the Trustee of the following:
(a) A notice (each, a "Withdrawal Notice"), which shall (i) refer to
this Section 13.5, (ii) contain all documents referred to below, (iii)
describe with particularity the Retained Trust Moneys and the Asset Sale
from which such Retained Trust Moneys were held as Collateral and (iv) be
accompanied by a counterpart of the instruments proposed to give effect to
the release fully executed and acknowledged (if applicable) by all parties
thereto other than the Trustee;
(b) An Officer's Certificate certifying that (i) the release of the
Retained Trust Moneys complies with the terms and conditions of Section
6.15 of the Indenture (including, but not limited to, a specific statement
that (A) the Net Cash Proceeds from the sale of Obsolete Assets retained by
the Company and its Subsidiaries does not exceed $1,000,000 in the
aggregate in any given year and (B)
<PAGE>
100
from the Issue Date, the aggregate of the Net Cash Proceeds of Asset Sales
(other than from Asset Sales relating to Obsolete Assets) retained by the
Companies and its Subsidiaries does not exceed $1,000,000, regardless of
whether the funds retained by the Company and its Subsidiaries constitute
Collateral Proceeds or Non-Collateral Proceeds), (ii) there is no Default
or Event of Default in effect or continuing on the date thereof, (iii) the
release of the Retained Trust Moneys will not result in a Default or Event
of Default hereunder and (iv) all conditions precedent to such release have
been complied with;
(c) All documentation required under Section 314(d) of the Trust
Indenture Act; and
(d) An Opinion of Counsel stating that the documents that have been
or are therewith delivered to the Collateral Agent and the Trustee in
connection with a release of Retained Trust Moneys conform to the
requirements of this Indenture and that all conditions precedent herein
provided for relating to such application of Trust Moneys have been
complied with.
Upon compliance with the foregoing provisions of this Indenture, the
Trustee shall apply the Retained Trust Moneys as directed and specified by the
Company or its Subsidiary.
SECTION 13.6.Withdrawal of Trust Moneys on Basis of Retirement of
----------------------------------------------------
Securities.
----------
Trust Moneys may be withdrawn by the Company to be applied to the
redemption and retirement of the Securities and shall be paid by the Trustee to
the Company (or as otherwise directed by the Company) upon a Company Order to
the Trustee and upon receipt by the Trustee of the following:
(a) a Board Resolution requesting the withdrawal and payment of a
specified amount of Trust Moneys;
(b) an Officer's Certificate, dated not more than 30 days prior to
ate of the application for the withdrawal and payment of such Trust
s, certifying that (i) there is no Default or Event of Default in
t or continuing on the date thereof and (ii) all conditions precedent
n provided relating to such withdrawal and application have been
ied with; and
(c) an Opinion of Counsel stating that the Trust Moneys whose
withdrawal and payment is then requested may be lawfully paid over under
this Section 13.6 and that all conditions precedent herein provided
relating to such withdrawal have been complied with.
<PAGE>
101
Upon compliance with the foregoing provisions of this Indenture, the
Trustee shall apply the Trust Moneys as directed and specified by such Company
Order.
SECTION 13.7. Investment of Trust Moneys.
--------------------------
All or any part of any Trust Moneys held by the Trustee shall from
time to time be invested or reinvested by the Trustee in any Cash Equivalents
pursuant to the written direction of the Company, which shall specify the Cash
Equivalents in which such Trust Moneys shall be invested. Unless an Event of
Default occurs and is continuing, any interest in such Cash Equivalents (in
excess of any accrued interest paid at the time of purchase) that may be
received by the Trustee shall be forthwith paid to the Company. Such Cash
Equivalents shall be held by the Trustee as a part of the Collateral, subject to
the same provisions hereof as the cash used by it to purchase such Cash
Equivalents.
The Trustee shall not be liable or responsible for any loss resulting
from such investments or sales except only for its own grossly negligent action,
its own grossly negligent failure to act or its own willful misconduct in
complying with this Section 13.7.
ARTICLE XIV
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 14.1. Company's Option to Effect Defeasance or Covenant Defeasance.
------------------------------------------------------------
The Company may at its option by Board Resolution, at any time, elect
to have either Section 14.2 or Section 14.3 applied to the Outstanding
Securities upon compliance with the applicable conditions set forth below in
this Article XIV.
SECTION 14.2. Defeasance and Discharge.
------------------------
Upon the Company's exercise of the option provided in Section 14.1
applicable to this Section 14.2, the Company shall be deemed to have been
discharged from its obligations with respect to the Outstanding Securities
(other than those specified in the next sentence) on the date the applicable
conditions set forth below are satisfied (hereinafter, "defeasance"). For this
purpose, such defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the Outstanding Securities and
to have satisfied all its other obligations under such Securities and this
Indenture insofar as such Securities are concerned (and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise terminated
or discharged hereunder: (A) the rights of Holders of such Securities to
receive, solely from the trust fund described in Section 14.4 and as more fully
set forth in such Section, payments in respect of the principal of and interest
on such Securities when such payments are due, (B) the Company's obligations
with respect to such Securities under Sections 3.4, 3.5, 3.6, 6.2 and
<PAGE>
102
6.26 and with respect to the Trustee under Section 9.7, (C)
the rights, powers, trusts, duties and immunities of the Trustee hereunder and
(D) this Article XIV. Subject to compliance with the applicable conditions
under this Article XIV, the Company may exercise its option under this Section
14.2 notwithstanding the prior exercise of its option under Section 14.3.
SECTION 14.3. Covenant Defeasance.
-------------------
Upon the Company's exercise of the option provided in Section 14.1
applicable to this Section 14.3, (i) the Company shall be released from its
obligations under Sections 6.9 through 6.25 and (ii) the occurrence of an event
specified in Section 8.1(iv) (with respect to any of Section 6.9 through 6.25),
8.1(v) and (vi)) shall not be deemed to be an Event of Default (hereinafter,
"covenant defeasance"). For this purpose, such covenant defeasance means that
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such Section, whether
directly, or indirectly by reason of any reference elsewhere herein to any such
Section or by reason of any reference in any such Section to any other provision
herein or in any other document, but the remainder of this Indenture and such
Securities shall be unaffected thereby.
SECTION 14.4. Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
Except as otherwise indicated below, the following shall be the
conditions to application of either Section 14.2 or Section 14.3 to the then
Outstanding Securities:
The Company may exercise its legal defeasance option or its covenant
defeasance option only if:
(1) the Company shall irrevocably have deposited or caused to be
deposited in trust with the Trustee (or another trustee satisfying the
requirements of Section 9.9 who shall agree to comply with the provisions
of this Article applicable to the Trustee) as trust funds in trust for the
purpose of making the following payments, specifically pledged as security
for, and dedicated solely to, the benefit of the Holders of such
Securities, (A) money in an amount, or (B) U.S. Government Obligations
which through the scheduled payment of principal and interest in respect
thereof in accordance with their terms will provide, not later than one day
before the due date of any payment, money in an amount sufficient to pay
the principal of and each installment of interest on the Securities on the
Maturity Date of such principal or Interest Payment Date, as the case may
be, in accordance with the terms of this Indenture and of the Securities,
or (C) a combination of (A) and (B)
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent certified public accountants
expressing their opinion
<PAGE>
103
that the payments of principal and interest when due and without
reinvestment of the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Securities to maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no Event of Default or Default relating to bankruptcy and insolvency
events with respect to the Company occurs which is continuing at the end of
the period;
(4) no Event of Default or Default has occurred and is continuing on
the date of such deposit and after giving effect thereto;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that (i) the trust resulting from the deposit does not constitute,
or is qualified as, a regulated investment company under the Investment
Company Act of 1940, (ii) the Holders have a valid first priority perfected
security interest in the trust funds, and (iii) after passage of 123 days
following the deposit (except, with respect to any trust funds for the
account of any Holder who may be deemed to be an "insider" for purposes of
the Bankruptcy Code, after one year following the deposit), the trust funds
will not be subject to the effect of Section 547 of the Bankruptcy Law or
Section 15 of the New York Debtor and Creditor Law in a case commenced by
or against the Company under either such statute, and either (A) the trust
funds will no longer remain the property of the Company (and therefore,
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally) or
(B) if a court were to rule under any such law in any case or proceeding
that the trust funds remained property of the Company, (x) assuming such
trust funds remained in the possession of the Trustee prior to such court
ruling to the extent not paid to Holders, the Trustee will hold, for the
benefit of the Holders, a valid first priority perfected security interest
in such trust funds that is not avoidable in bankruptcy or otherwise except
for the effect of Section 552(b) of the Bankruptcy Law on interest on the
trust funds accruing after the commencement of a case under such statute
and (y) the Holders will be entitled to receive adequate protection of
their interests in such trust funds if such trust funds are used in such
case or proceeding;
(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of the Indenture there has been a
change in the applicable U.S. Federal income tax law or a regulation
clarifying existing law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders will not
recognize income, gain or loss for U.S. Federal income tax purposes as a
result of such defeasance and will be subject to U.S. Federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such defeasance had not occurred;
<PAGE>
104
(7) in the case of the covenant defeasance option, the company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders will not recognize income, gain or loss for U.S. Federal income tax
purposes as a result of such covenant defeasance and will be subject to
U.S. Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred;
(8) such defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest as defined in Section 9.8 and for
purposes of the Trust Indenture Act with respect to any securities of the
Company;
(9) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute default under, any other agreement or
instrument to which the Company is a party or by which it is bound; and
(10) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the Securities have been
complied with.
SECTION 14.5. Deposited Money and U.S. Government Obligations to be held in
-------------------------------------------------------------
Trust; Other Miscellaneous Provisions.
-------------------------------------
Subject to the provisions of the last paragraph of Section 6.26, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee -- collectively, for purposes of
this Section 14.5 and Section 14.6, the "Trustee") pursuant to Section 14.4 in
respect of the Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities, of all sums due and to become due thereon in respect of
principal and interest.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 14.4 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Securities.
Anything in this Article XIV to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 14.4 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance.
<PAGE>
105
The provisions of the last paragraph of Section 6.26 shall apply to
any money held by the Trustee or any Paying Agent under this Article XIV that
remains unclaimed for two years after the Maturity Date of any Securities for
which money or Government Obligations have been deposited pursuant to Section
14.4.
SECTION 14.6. Reinstatement.
-------------
If the Trustee or the Paying Agent is unable to apply any money in
accordance with Section 14.5 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 14.5; provided,
however, that if the Company makes any payment of principal of or interest on
any Security following the reinstatement of the Company's obligations, the
Company shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money held by the Trustee or the Paying Agent.
<PAGE>
106
______________________
THUS DONE AND PASSED in multiple originals, on the date first above
-------------------------------------------------------------------
written, at Edgard, Louisiana, in the presence of the undersigned competent
- ---------------------------------------------------------------------------
witnesses, and of the undersigned Notary Public, after due reading of the whole.
- --------------------------------------------------------------------------------
WITNESSES TO ALL BAYOU STEEL CORPORATION
- ----------------
SIGNATURES:
- ----------
- ----------------------------------- BY:---------------------------------
PRINTED NAME: PRINTED NAME:
- ----------------------------------- ---------------------------------
TITLE: -------------
FIRST NATIONAL BANK OF
COMMERCE,
AS TRUSTEE
- ----------------------------- BY: --------------------------------
PRINTED NAME: PRINTED NAME:
- ---------------------------- --------------------------------
TITLE: ------------
ACCEPTED TO AND AGREED
----------- ------
TO BY:
RIVER ROAD REALTY
CORPORATION
- ----------- ----------------------
BY:
----------------------
PRINTED NAME:
----------------------
TITLE:
----------------------
BAYOU STEEL SCRAP
----------------------
CORPORATION
<PAGE>
107
BY:
---------------------------
PRINTED NAME:
---------------------------
TITLE:
--------------------
----------------
NOTARY PUBLIC
PRINTED NAME:
------------------------
MY COMMISSION IS ISSUED FOR LIFE.
---------------------------------
<PAGE>
EXHIBIT 5
February 11, 1994
(212) 836-8000
Bayou Steel Corporation
River Road
P.O. Box 5000
La Place, Louisiana 70069
Re: Bayou Steel Corporation
Registration Statement on Form S-1
(File No. 33-72486)
----------------------------------
Gentlemen:
We have acted as special counsel to Bayou Steel Corporation, a Delaware
corporation (the "Company"), in connection with its Registration Statement on
Form S-1 (File No. 33-72486), Amendment No. 1, Amendment No. 2 and Amendment
No. 3 (collectively, the "Registration Statement"), filed pursuant to the
Securities Act of 1933, as amended, relating to the proposed offering of the
Company's __% First Mortgage Notes due 2001 in the aggregate principal amount
of $75,000,000 (the "First Mortgage Notes"), to be issued pursuant to the
Indenture dated as of February __, 1994 (the "Indenture") between the Company
and First National Bank of Commerce, as trustee.
In that connection, we have reviewed the Company's Second Restated
Certificate of Incorporation and By-laws, resolutions adopted by its Board of
Directors, the Indenture, the Registration Statement and such other documents
and instruments as we have deemed appropriate.
On the basis of such review, it is our opinion that the First Mortgage
Notes have been duly authorized and, when issued in accordance with the terms
of the Indenture, will be legal, valid and binding obligations of the Company
enforceable in accordance with their terms, subject to bankruptcy,
reorganization, insolvency, fraudulent conveyance and other laws affecting
enforcement of creditors' rights generally and to general principles of equity
(regardless of whether such enforcement is considered in a proceeding in
equity or at law).
We hereby consent to the use of our name under the caption "Legal
Matters" in the Prospectus included in the Registration Statement and to the
use of this opinion as an Exhibit to the Registration Statement.
Very truly yours,
Kaye, Scholer, Fierman,
Hays & Handler
<PAGE>
EXHIBIT 10.24
AMENDMENT dated as of February 10, 1994, among BAYOU STEEL
CORPORATION, a Delaware corporation (the "Borrower"), BAYOU
STEEL SCRAP CORPORATION, a Delaware corporation ("Bayou
Scrap"), RIVER ROAD REALTY CORPORATION, a Louisiana
corporation ("River Road" and together with Bayou Scrap, the
"Subsidiary Guarantors"), the Lenders named in the Credit
Agreement (as defined below) (the "Lenders"), CHEMICAL BANK,
a New York banking corporation, as Agent for the Lenders
under the Credit Agreement (in such capacity, the "Agent")
and CHEMICAL BANK, as issuing bank for letters of credit
issued under the Credit Agreement (in such capacity, the
"Issuing Bank").
A. The Borrower, the Lenders, the Agent and the Issuing Bank are
parties to a Credit Agreement dated as of June 28, 1989, as amended and
restated through November 23, 1993 (as amended by and together with this
Amendment, the "Credit Agreement"), pursuant to which the Lenders have
agreed, pursuant to the terms and subject to the conditions set forth therein,
to extend credit to the Borrower. Capitalized terms used and not otherwise
defined herein shall have the meanings assigned to them in the Credit Agreement
as amended pursuant to Section 1 hereof.
B. The Borrower is contemplating incurring Indebtedness pursuant to
the First Mortgage Financing.
C. In connection with the First Mortgage Financing, the Borrower has
requested that the Lenders amend the Credit Agreement as provided herein.
The Lenders are willing to amend the Credit Agreement as provided herein,
subject to the terms and conditions set forth herein.
Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
Section 1. Amendment to Section 1.01.
-------------------------
(a) Section 1.01 of the Credit Agreement is hereby amended by deleting the
term "Consolidated Cash Flow Available for Fixed Charges" and substituting
in lieu thereof the term
<PAGE>
2
"EBITDA" and the definition of EBITDA shall be placed in its correct
alphabetical order therein. Furthermore, all references to the term
"Consolidated Cash Flow Available for Fixed Charges" throughout the Credit
Agreement shall be deemed references to the term "EBITDA".
(b) The definition of "Intercreditor Agreement" in Section 1.01 of
the Credit Agreement is hereby amended by deleting the term "Exhibit H"
therein and substituting in lieu thereof the term "Exhibit G".
(c) Section 1.01 of the Credit Agreement is hereby amended by adding
the following definition of the term "Obligations" in its appropriate
alphabetical order therein:
"Obligations" shall mean (i) the due and punctual payment by the
-----------
Borrower of (A) the principal of and interest on each Loan, when and as
due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise, and (B) all other monetary obligations of the
Borrower under this Agreement and the Security Agreement to which it is a
party, in each case whether now or hereafter incurred, due or to become
due and direct or contingent, (ii) the due and punctual performance of
all other obligations of the Borrower under this Agreement (iii) the due
and punctual performance of all the obligations hereunder of the
Guarantors and (iv) the due and punctual performance of all the
obligations of all the Grantors (as defined in the Security Agreement)
under the Security Agreement.
SECTION 2. Amendment to Section 7.01(i). Section 7.01(i) of the
----------------------------
Credit Agreement is hereby amended and restated in its entirety to read as
follows:
(i) Indebtedness issued in connection with the First Mortgage
Financing including any subsidiary guarantees guaranteeing any portion of
such Indebtedness, provided that (i) such Indebtedness is issued on terms
and conditions substantially the same as those disclosed to the Lenders
prior to the execution of this Agreement (or other terms and conditions
approved by the Required Lenders) and (ii) the trustee or other person
acting as security representative in respect of collateral securing the
First Mortgage Financings entered into an intercreditor
<PAGE>
3
agreement with the Agent substantially in the form of the Intercreditor
Agreement.
SECTION 3. Amendment to Section 7.02.
-------------------------
(a) Section 7.02(a) of the Credit Agreement is hereby amended by
deleting the reference to clause "(l)" in the provision therein and
substituting in lieu thereof a reference to clause "(m)".
(b) Section 7.02(m) is hereby amended by deleting the phrase ",
including, without limitation, Liens granted under the First Mortgage Indenture
on assets previously subject to the Lien of the Senior Secured Indenture; and
deleting the word "and" at the end thereof and substituting in lieu thereof a
semi-colon.
(c) Section 7.02(n) is hereby amended by deleting the "." at the
end thereof and substituting "; and" in lieu thereof.
(d) Section 7.02 of the Credit Agreement is hereby amended by adding
the following clause (o) at the end thereof:
(o) Liens granted by the Borrower or any of its Subsidiaries
with respect to the First Mortgage Financings or the subsidiary
guarantees executed in connection therewith, as the case may be, on real
property or personal property other than Accounts Receivable and Inventory
as such terms are defined in the Intercreditor Agreement.
SECTION 4. Amendment To The Credit Agreement. The Credit Agreement
---------------------------------
is hereby amended by adding the following Article XI immediately following
Section 10.16 therein:
ARTICLE XI. GUARANTEE
Each of Bayou Scrap and River Road unconditionally guarantees, as a
principal obligor and not merely as a surety, the due and punctual
payment of all monetary Obligations and the due and punctual performance
of all other Obligations (other than, in each case, its own Obligations).
Each of Bayou Scrap and River Road further agrees that the Obligations
may be extended or renewed, in whole or in part, without notice or
further
<PAGE>
4
assent from it, and that it will remain bound upon the provisions of this
Article XI notwithstanding any extension or renewal of any Obligation.
Each of Bayou Scrap and River Road waives presentation to, demand of
payment from and protest to the Borrower of any of the Obligations, and
also waives notice of acceptance of the guarantee set forth in this
Article XI and notice of protest for nonpayment. The obligations of Bayou
Scrap and River Road hereunder shall not be affected by (a) the failure
of the Agent, the Issuing Bank or any Lender to assert any claim or
demand or to enforce any right or remedy against the Borrower under the
provisions of this Agreement, any guarantee or any other Loan Document;
(b) any extension or renewal of any thereof; (c) any rescission, waiver,
amendment or modification of any of the terms or provisions of this
Agreement, any Guarantee, any other Loan Document or any other agreement;
(d) the release of any security held by the Collateral Agent or any
Lender for the Obligations owed to any of them; or (e) the failure of
the Agent, the Issuing Bank or any Lender to exercise any right or remedy
against any other guarantor of the Obligations.
Each of Bayou Scrap and River Road further agrees that the guarantee
set forth in this Article XI constitutes a guarantee of payment when due
and not of collection and waives any right to require that any resort be
had by the Agent, the Issuing Bank or any Lender to any security held for
payment of the Obligations or to any balance of any deposit account or
credit on the books of the Agent, the Issuing Bank or any Lender in favor
of the Borrower or any other Person.
The obligations of Bayou Scrap and River Road hereunder shall not be
subject to any reduction, limitation, impairment or termination for any
reason, including any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense of setoff,
counterclaim, recoupment or termination whatsoever by reason of the
invalidity, illegality or unenforceability of the Obligations or
otherwise. Without limiting the generality of the foregoing, the
obligations of Bayou Scrap and River Road hereunder shall not be
discharged or impaired or otherwise affected by the failure of the Agent,
the
<PAGE>
5
Issuing Bank or any Lender to assert any claim or demand or to enforce
any remedy under this Agreement or any other Loan Document, by any waiver
or modification of any thereof, by any default, failure or delay, wilful
or otherwise, in the performance of the Obligations or by any other act
or omission which may or might in any manner or to any extent vary the
risk of Bayou Scrap or River Road or would otherwise operate as a
discharge of Bayou Scrap or River Road as a matter of law or equity.
Each of Bayou Scrap and River Road further agrees that this guarantee
shall continue to be effective or be reinstated, as the case may be, if
at any time payment by the Borrower, Bayou Scrap or River Road to the
Agent, the Issuing Bank or any Lender, or any part thereof, of principal
of or interest on any Obligation is rescinded or must otherwise be
restored by any Agent, the Issuing Bank or any Lender or the holder of
any Obligation upon the bankruptcy or reorganization of the Borrower or
any Borrowing Subsidiary or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which the Agent, the Issuing Bank or any Lender may have at law or
in equity against either Bayou Scrap or River Road by virtue hereof, upon
the failure of the Borrower to pay any Obligation when and as the same
shall become due, whether at maturity, by acceleration, after notice of
prepayment or otherwise, each of Bayou Scrap and River Road hereby
promises to and will, upon receipt of written demand by the Agent,
promptly pay, or cause to be paid, to the Agent in cash the amount of
such unpaid Obligations, and thereupon the Agent shall assign, in any
reasonable manner, the amount of the Obligations paid by either Bayou
Scrap or River Road pursuant to this guarantee to either Bayou Scrap or
River Road, as the case may be, such assignment to be pro tanto to the
--- -----
extent to which the Obligations in question were discharged by either
Bayou Scrap or River Road, as the case may be, or make such other
disposition thereof as either Bayou Scrap or River Road, as the case may
be, shall direct (all without recourse to the Agent, the Issuing Bank or
any Lender and without any representation or warranty by the Agent, the
Issuing Bank or any Lender).
<PAGE>
6
Upon payment by either Bayou Scrap or River Road, as the case may be
of any sums to the Agent as provided above, all rights of either Bayou
Scrap or River Road, as the case may be, against the Borrower arising as
a result thereof by way of right of subrogation or otherwise shall in all
respects be subordinate and junior in right of payment to the prior
indefeasible payment in full of all the Obligations to the Agent, the
Issuing Bank and the Lenders.
SECTION 5. Representations and Warranties. The Borrower and the
------------------------------
Subsidiary Guarantors hereby represent and warrant to each Lender, as of the
date hereof, that:
(a) This Amendment has been duly authorized, executed and delivered
by the Borrower and the Subsidiary Guarantors, and each of this Agreement
and the Credit Agreement constitutes a legal, valid and binding
obligation of the Borrower and each of the Subsidiary Guarantors,
enforceable in accordance with its terms.
(b) The representations and warranties set forth in Article IV of
the Credit Agreement are true and correct in all material respects with
the same effect as if made on as of the date hereof, as applicable, after
giving effect to this Amendment.
(c) No Event of Default or event which upon notice or lapse of time
or both would constitute an Event of Default has occurred and is
continuing.
SECTION 6. Effectiveness. This Amendment shall become effective upon
-------------
receipt by the Agent of counterparts hereof signed by the Borrower, the
Subsidiary Guarantors and the Lenders, or in the case of any party as to which
an executed counterpart shall not have been received, receipt by the Agent of
a telecopy of a counterpart hereof executed by such party.
SECTION 7. Miscellaneous. (a) This Amendment constitutes the entire
-------------
agreement and understanding of the parties with respect to the subject matter
hereof and supersedes any and all prior agreements and understandings, oral or
written, relating to the subject matter hereof.
(b) Section headings used herein are for convenience of reference
only and are not to affect the
<PAGE>
7
construction of, or to be taken into consideration in interpreting, this
Amendment.
(c) This Amendment shall be construed in accordance with and
governed by the law of the State of New York.
(d) Each reference to a party hereto shall be deemed to include its
successors and assigns, all of whom shall be bound by this Amendment and to
whose benefit the provisions of this Amendment shall incur.
(e) This Amendment may be executed in any number of counterparts,
each of which shall be an original but all of which, when taken together,
shall constitute but one instrument.
(f) Except as specifically amended or modified hereby, the Credit
Agreement shall continue in full force and effect in accordance with the
provisions thereof. As used therein, the terms "Agreement", "herein",
"hereunder", "hereinafter", "hereto", "hereof" and words of similar
<PAGE>
8
import shall, unless the context otherwise requires, refer to the Credit
Agreement as amended hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed by their respective authorized officers as of the date
first above written.
BAYOU STEEL CORPORATION,
by
---------------------------
CHEMICAL BANK, individually
and as agent,
by
---------------------------
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION,
by
---------------------------
For purposes of SECTION 4
hereof only,
BAYOU SCRAP STEEL CORPORATION,
by
---------------------------
RIVER ROAD REALTY CORPORATION,
by
---------------------------
<PAGE>
EXHIBIT 12
BAYOU STEEL CORPORATION
COMPUTATION OF RATIO OF EBITDA
TO NET INTEREST EXPENSE & COMPUTATION
OF RATIO OF ADJUSTED EBITDA TO NET INTEREST EXPENSE
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income (Loss) ($6,154) ($1,352) ($4,571) $243 $8,056 $23,331 $3,188
Add: Provision (Benefit)
for Income Taxes -- -- -- (116) 281 237 --
------- ------- ------- ------- -------- ------- -------
($6,154) ($1,352) ($4,571) $127 $8,337 $23,568 $3,188
Add:
Interest Expense ($8,261) ($8,977) ($8,821) ($9,514) ($11,131) ($9,639) ($9,445)
Interest Income $193 $486 $638 $1,850 $1,540 $649 $61
Depreciation ($4,158) ($3,977) ($3,472) ($3,646) ($3,260) ($3,107) ($2,374)
Amortization ($458) ($332) ($331) ($330) ($360) ($406) ($402)
------- ------- ------- ------- -------- ------- -------
Earnings Before Inter-
est, Taxes, Depreciation
& Amortization
(EBITDA) $6,530 $11,448 $7,415 $11,767 $21,548 $36,071 $15,348
======= ======= ======= ======= ======== ======= =======
Adjustments to EBITDA
A. Strike $3,749 -- -- -- -- -- --
B. Rust -- ($401) $1,088 $985 -- -- --
C. Extraordinary Gain &
Cumulative Effect of
Accounting Change ($585) -- -- $1,572 -- -- --
------- ------- ------- ------- -------- ------- -------
Total Adjustments $3,164 ($401) $1,088 $2,557 $0 $0 $0
Adjusted EBITDA $ 9,694 $11,047 $8,503 $14,324 $21,548 $36,071 $15,348
======= ======= ======= ======= ======== ======= =======
Net Interest Expense
Interest Expense ($8,261) ($8,977) ($8,821) ($9,514) ($11,131) ($9,639) ($9,445)
Capitalized Interest ($115) ($107) ($264) ($173) ($468) ($206) $0
Interest Income $193 $486 $638 $1,850 $1,540 $649 $61
------- ------- ------- ------- -------- ------- -------
Net Interest Expense ($8,183) ($8,598) ($8,447) ($7,837) ($10,059) ($9,196) ($9,384)
======= ======= ======= ======= ======== ======= =======
Ratio of Adjusted EBITDA
to Net Interest Expense 1.18 1.28 1.01 1.83 2.14 3.92 1.64
======= ======= ======= ======= ======== ======= =======
Pro Forma Net Interest
Expense ($8,163)
=======
Ratio of Adjusted EBITDA
to Net Interest Expense 1.19
=======
Ratio of EBITDA to Net
Interest Expense 0.80 1.33 0.88 1.50 2.14 3.92 1.64
======= ======= ======= ======= ======== ======= =======
Ratio of EBITDA to Pro
Forma Net Interest
Expense 0.80
=======
</TABLE>
<PAGE>
BAYOU STEEL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987
------- ------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from con-
tinuing operations be-
fore provision for in-
come taxes per state-
ment of income (loss) ($6,739) ($1,352) ($4,571) $1,699 $8,337 $23,568 $3,188
Add: Fixed Charges
Interest Expense ($8,261) ($8,977) ($8,821) ($9,514) ($11,131) ($9,639) ($9,445)
Amortization ($458) ($332) ($331) ($330) ($360) ($406) ($402)
------- ------- ------- -------- -------- -------- -------
Earnings as adjusted $1,980 $7,957 $4,581 $11,543 $19,828 $33,613 $13,035
======= ======= ======= ======== ======== ======== =======
Fixed Charges
Interest Expense ($8,261) ($8,977) ($8,821) ($9,514) ($11,131) ($9,639) ($9,445)
Capitalized Interest ($115) ($107) ($264) ($173) ($468) ($206) $0
Interest Income ($458) ($332) ($331) ($330) ($360) ($406) ($402)
------- ------- ------- -------- -------- -------- -------
Total Fixed Charges ($8,834) ($9,416) ($9,416) ($10,017) ($11,959) ($10,251) ($9,847)
======= ======= ======= ======== ======== ======== =======
Ratio of Earnings to
Fixed Charges 0.22 0.85 0.49 1.15 1.66 3.28 1.32
======= ======= ======= ======== ======== ======== =======
Deficiency ($6,854) ($1,459) ($4,835) N/A N/A N/A N/A
======= ======= ======= ======== ======== ======== =======
</TABLE>
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF JONES, WALKER, WAECHTER, POITEVENT,
CARRERE & DENEGRE APPEARS HERE]
February 11, 1994
Bayou Steel Corporation
River Road
P.O. Box 5000
La Place, LA 70069
RE: Bayou Steel Corporation
Registration Statement on Form S-1
(File No. 33-72486)
----------------------------------
Gentlemen:
We have acted as special Louisiana counsel to Bayou Steel Corporation, a
Delaware corporation (the "Company"), in connection with its Registration
Statement on Form S-1 (File No. 33-72486), Amendment No. 1, Amendment No. 2
and Amendment No. 3 (collectively, the "Registration Statement"), filed
pursuant to the Securities Act of 1933, as amended, relating to the proposed
offering of the Company's ____% First Mortgage Notes due 2001 in the aggregate
principal amount of $75,000,000.
In that connection, we hereby consent to the use of our name under the
caption "Legal Matters" in the Prospectus included in the Registration
Statement and to the use of this consent as an Exhibit to the Registration
Statement.
Very truly yours,
JONES, WALKER, WAECHTER, POITEVENT,
CARRERE & DENEGRE, L.L.P.
/s/ Michael K. Tarver
-----------------------------------
Michael K. Tarver
<PAGE>
EXHIBIT 99.1
Report No. 39
ENVIRONMENTAL AUDIT:
BAYOU STEEL CORPORATION
December 10, 1993
DISPOSAL SAFETY INCORPORATED
1660 L Street NW, Suite 510
Washington, DC 20036
(202) 293-3993
<PAGE>
Report No. 39
ENVIRONMENTAL AUDIT:
BAYOU STEEL CORPORATION
December 10, 1993
prepared for:
Department of Occupational Health and Safety
United Steel Workers of America
5 Gateway Center
Pittsburgh, PA 15222
prepared by:
Disposal Safety Incorporated
1660 L. Street, NW
Suits 510
Washington, DC 20036
(202) 293-3993
i
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SUMMARY
We have audited the environmental performance of Bayou Steel Corporation.
Our study focused on hazardous waste management, air emissions, surface-water
discharges, and reporting of toxic emissions. The scope of our audit was
limited, in that we did not have access to the company's facilities,
management employees, or files.
Emission control dust from the primary production of steel in electric
furnaces is classified as hazardous waste K061 under the Resource Conservation
and Recovery Act. Bayou's own documents demonstrate that the company
systematically manages this waste in treatment and disposal units that are not
permitted to manage hazardous waste. The company's practices include:
. Incineration without the required permit.
. Storage/disposal in a surface impoundment (waste pile) without the
required permit.
. Long-term storage of mixed hazardous-radioactive waste in unpermitted
storage units.
Workers at the plant report that Bayou regularly bypasses its air
emissions control system, in violation of regulations. Additionally, the
company's Toxic Release Inventory reports show that Bayou's fugitive emissions
greatly exceed stack emissions and Bayou's fugitive emissions of lead are the
largest of any industrial plant in Louisiana. Instances of large-scale
non-stack emissions have been recorded on videotape and observed by DSI staff.
Bayou regularly violates limits in its wastewater discharge permit.
Modification of the permit is currently under consideration; the modified
permit should include limits for chromium, lead, cadmium, and polychlorinated
biphanyls in all discharge streams. Full public participation is required
because this is a major permit modification.
ii
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NOTICE
This report is not intended for use in any real estate or other transaction,
and should not be used or relied upon for such purposes.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Introduction......................................................... 1
1.1 Purpose and scope............................................ 1
1.2 Background................................................... 2
2. Hazardous waste management........................................... 5
2.1 Incineration without a permit................................ 5
2.2 Disposal without a permit.................................... 7
2.3 Storage of mixed waste....................................... 9
2.4 Improper personnel training.................................. 10
3. Air pollution........................................................ 10
3.1 Emission of flue dust........................................ 10
3.2 Off-site atmospheric transport............................... 13
3.3 Need for additional study.................................... 14
4. Wastewater discharges................................................ 15
4.1 Permit modification.......................................... 15
4.2 Regulation of the discharge ponds............................ 17
4.3 Compliance performance....................................... 18
5. Reporting of releases of hazardous substances........................ 20
5.1 SARA Title III............................................... 20
5.2 Superfund.................................................... 21
6. Conclusions and recommendations...................................... 21
</TABLE>
iv
<PAGE>
1. Introduction
- ----------------
1.1 Purpose and scope
This report presents the results of an independent audit of the
environmental record of the Bayou Steel Corporation plant in Laplace,
Louisiana. The purpose of the audit was to identify areas of concern and
provide recommended approaches that the Louisiana Department of Environmental
Quality (DEQ), USEPA, or others could take to improve Bayou's environmental
performance. The study was conducted for the United Steelworkers of America
(USWA), which represents Bayou's employees, by Disposal
Safety Incorporated.
The audit focused on four principal areas:
. Management of hazardous wastes regulated under the Resource Conservation
and Recovery Act (RCRA).
. Atmospheric releases of pollutants.
. Wastewater discharges, which are regulated under the Clean Water Act.
. Reporting of releases of toxic chemicals as required under various
environmental laws.
Time limitations prevented us from addressing Bayou's management of naturally
occurring radioactive materials.
In conducting our audit, we reviewed Louisiana Department of
Environmental Quality (DEQ) files, Bayou internal memoranda that were
available to us, and written Bayou operating procedures. We also interviewed
USWA members employed by Bayou.
We did not have the opportunity to interview management employees, to
enter the property, or to examine internal company files. There may be other
environmental problems, in addition to those discussed in this report, which
we were not able to identify because of this limitation.
1
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1.2 Background
The Bayou Steel Corporation produces steel billets from scrap metal.
Most scrap metal arrives by barge at a loading dock on the Mississippi River
and is then transported by truck approximately 1/4 mile to Bayou. Some scrap
also arrives by truck and rail. The scrap is unloaded onto the ground where
it is sized and sorted into grades. The sorted scrap is melted in an electric
arc furnace to which coke, lime, and other fluxes are added. Varying amounts
and types of ferro alloys are introduced into the furnace or ladle to control
the kind of steel produced (see Figure 1). The furnace operates at
temperatures in excess of 3000 degrees Fahrenheit. Slag is decanted off the
molten metal and sent off-site for further processing. Molten steel is
transferred with a ladle to a continuous caster that produces billets, which
are then formed into structural shapes in a rolling mill.
In the melting process, gases and particulate emissions (dust) are
generated. This dust is sucked up through a swivel tube connected to the
furnace and eventually transported to the emission control system (see Figure
2). Emission control equipment for the furnaces and furnace building is
located in two baghouses at the facility. One of the baghouses, the primary
baghouse, is located east of the furnace building and filters cooled gases
from the flues of the electric furnace. A secondary baghouse (called the Bay
De Dust Baghouse) is located on the roof of the furnace building. The dust is
circulated through disposable bags where it is captured from the flue gas and
stored in a silo prior to off-site disposal or reclamation. The captured dust
is classified under RCRA as a listed hazardous waste K061./1/
- -----------------------
/1/ On May 19, 1980 (45 FR 33124), the Administrator of the U.S.
Environmental Protection Agency determined that emission control dusts/sludges
meet the criteria to be listed as a hazardous waste. EPA listed emissions
control dust from primary production of steel because it almost always
contains high levels of lead, hexavalent chromium, and cadmium. According to
EPA, lead is poisonous in all forms. It is one of the most hazardous of the
toxic heavy metals because it accumulates in many organisms and its
deleterious effects are numerous and severe. Lead may enter the human system
through inhalation, ingestion, or skin contact. Hexavalent chromium is toxic
and carcinogenic to humans, and toxic to lower forms of aquatic life. Cadmium
is also a cumulative poison; the effects are essentially irreversible.
Excessive intake leads to kidney damage; inhalation of dusts also damages the
lungs.
2
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BAYOU STEEL CORPORATION
[PROCESS BLOCK FLOW DIAGRAM APPEARS HERE]
Figure 1. Plant Flow Diagram.
3
<PAGE>
[SITE MAP APPEARS HERE]
BAYOU STEEL CORPORATION
LA PLACE, LOUISIANA
Figure 2. Site map, showing location of emission control systems.
4
<PAGE>
However, Bayou reports that most of the plant's dust emissions do not
pass through the baghouse. The majority of dust emissions are generated from
cooling tube dropouts and inside the furnace building and are classified as
fugitive emissions.
Bayou is considered a 90-day generator storage facility only and thus
does not have a RCRA permit (nor interim status) for the onsite storage and
disposal of hazardous waste. Bayou does have a water discharge permit (permit
no. LA0054691) and an air emissions permit (permit no. 885). There is no
record of other environmental permits issued to Bayou.
2. Hazardous waste management
- ------------------------------
As described above, the flue dust generated by Bayou is a listed hazardous
waste (no. K061) under RCRA. Our audit found serious deficiencies in Bayou's
mamagement of this material.
2.1 Incineration without a permit
The bags which collect K061 waste in Bayou's baghouse are themselves a
hazardous waste. Contaminated clothing and soil is also defined as a
hazardous waste./2/ Bayou incinerates this material in its furnaces, but does
not have a permit for hazardous waste incineration.
The job description contained in Bayou's Inspecting and Replacing Bags in
Baghouse Compartments/3/ (see Appendix A) dictates that employees must place
spent bags and contaminated coveralls and gloves "in drum and place in furnace
when drum is full." (These same procedures also warn workers of the lead
hazard posed by the contaminated bags and
- --------------------------
/2/ Under LAC 33:V.109, the mixture of any amount of a listed hazardous
waste and a nonhazardous waste meets the definition of hazardous waste. In
addition, any waste generated from the treatment, storage, or disposal of a
listed hazardous waste is itself a hazardous waste in accordance with the
definition of hazardous waste LAC 33:V.109.
/3/ Contained in the Bayou operating manual for baghouse personnel dated
July 10, 1989, prepared by Pat Hendricks and approved by J.T. Baun.
5
<PAGE>
contaminated personal protective equipment.) A Bayou inter-office
memorandum/4/ concerning flue dust spill procedures states in item number 4
that "...all contaminated earth [resulting from a spill of K061] shall be
excavated and deposited in drums marked 'Hazardous Waste' and placed on pad
[surface impoundment] to await proper disposal. Disposal shall be into an arc
furnace..."
The practice of disposing of hazardous waste in the electric arc furnaces
is corroborated by statements by several USWA members who formerly worked in
the baghouse. USWA members stated that flue dust (K061 hazardous waste) that
spilled onto the ground, K061-contaminated spent bags from the baghouse, and
contaminated personal protective gear used to handle K061 waste were placed
into drums (with plastic liners) and labelled and dated in compliance with
applicable hazardous waste regulations for generators of hazardous waste./5/
These drums were subsequently placed into a pit adjacent to the baghouse.
Scrap metal was piled into the pit directly onto the drums. Periodically,
these drums, which by then were severely damaged and leaking, were placed
along with scrap metal into the electric arc furnaces.
The conclusion that K061 waste is incinerated is further corroborated by
Bayou's reports to Federal and State agencies. Bayou's Toxic Release
Inventory reporting forms (Form R) and Louisiana State Hazardous Waste
Generator Annual Reports (which must account for all hazardous waste managed
on-site or shipped off-site for management) state that no K061-contaminated
personnel clothing or spent bags were sent off-site. Bayou's reports only
record shipments of K061 that were sent for reclamation; spent bags and
contaminated clothing cannot be reclaimed.
Incineration of this material clearly constitutes thermal treatment/6/
of a hazardous waste. That is, the intent of this practice was to change a
hazardous waste into a
- ------------------------------
/4/ The memorandum, dated June 4, 1989, is from Pat Hendricks to all
baghouse operators on the subject of flue dust spill procedures.
/5/ LAC 33:V. Chapter 11.
/6/ Thermal treatment is defined in LAC 33:V.109 as "the processing of
hazardous waste in a device which uses elevated temperatures as the primary
means to change the chemical, physical, or biological character or composition
of the hazardous waste..."
6
<PAGE>
nonhazardous waste and circumvent treatment and disposal requirements.
Consultation with DEQ's Hazardous Waste Section (Permits) revealed that Bayou
did not possess a permit nor did it have authority to operate under interim
status for the thermal treatment or disposal of hazardous waste.
Bayou is required to submit immediately a Part A and Part B permit
application for licensing of the furnaces as a hazardous waste thermal
treatment unit. Any permit application for a treatment, storage, or disposal
unit under RCRA must address the existence of solid waste management units on
the entire facility (including both sides of the railroad tracks) so that DEQ
or the Federal EPA can determine whether corrective action is necessary under
Section 3004(u).
2.2 Disposal without a permit
On March 8, 1990, DEQ issued a compliance order to Bayou. Among several
items, Bayou was cited for operating a waste pile,/7/ which is classified as a
hazardous waste management unit, without a required permit. To achieve
compliance, Bayou was ordered to apply for a hazardous waste management
permit; submit a detailed ground-water monitoring plan and, upon DEQ approval,
implement the plan; inspect weekly and after storm events; and submit a
written closure plan for the waste pile.
DEQ staff have indicated to us that Bayou has complied with the order.
This conclusion seems to be based on Bayou's statement that the waste pile is
no longer in
- --------------------------
/7/ Although the DEQ initially classified the hazardous waste management
unit as a waste pile, Bayou memoranda and photographs demonstrate that the
unit is in fact a surface impoundment and not a waste pile. A waste pile is
defined in LAC 33:V.109 as "any non-containerized accumulation of solid,
nonflowing hazardous waste that is used for treatment or storage." A surface
impoundment is defined in LAC 33.V.109 as "a facility or part of a facility
which is a ... diked area formed primarily of earthen materials (although it
may be lined with man-made materials), which is designed to hold an
accumulation of liquid waste or wastes containing free liquids..." Bayou
memoranda dictate that contaminated wastewater must be disposed of on the pad
(the Bayou term for the waste pile/surface impoundment). In addition,
photographs contained in the baghouse operator procedure manual dated June 4,
1990, clearly show standing liquids in the unit. Because there is liquid in
the unit, it cannot meet the definition of a waste pile, but instead meets the
definition of surface impoundment.
This is significant in that requirements for surface impoundments
concerning ground-water monitoring and runon/runoff control systems are more
stringent than for waste piles.
7
<PAGE>
operation. However, USWA members report that the waste pile continues to
exist (it has been covered with a roof) and is used to manage hazardous wastes.
It is used to temporarily store hazardous waste prior to loading onto railroad
cars for disposal. Temporary storage without a permit is allowed only in
containers and tanks.
Even if the "waste pile" was taken out of service in 1990, it is
important to note that any waste pile (or surface impoundment) that received
hazardous waste after July 26, 1982, is classified as a regulated unit./8/
All regulated units must comply with the more stringent ground-water
protection standards for permitted units regardless of the administrative
status of the unit. In addition, all hazardous waste management units that
accepted hazardous waste after July 26, 1982, that did not obtain a permit to
operate must either "clean close" the unit in accordance with an approved
closure plan or close with waste in place and apply/9/ for a post-closure
permit as a landfill./10/ Clean closure, which requires the removal of all
hazardous waste, liners, and contaminated soils and groundwater, ensures that
any residues remaining will be at levels that are considered protective of
human health and the environment. Verifying and documenting a clean closure
is critical because the owner/operator has no further responsibility for that
unit under RCRA after a clean closure is certified. DEQ files indicate that
Bayou has submitted neither a clean-closure plan nor an application for a
post-closure permit.
If the "waste pile" is still in operation, the law, implementing
regulations, and the compliance order have been violated. If the "waste pile"
is not in operation as the state believes, the law, implementing regulations,
and the compliance order still have been violated.
- ------------------------
/8/ LAC 33.V.3301A.
/9/ It is important to note that all owners or operators that apply for a
permit under the authority of the Resource Conservation and Recovery Act must
comply with (S)3004(u) [LAC 33.V.3322]. This provision requires the
remediation of all releases of hazardous waste or hazardous constituents from
solid waste management units (irrespective of whether the unit was intended to
manage waste) as necessary to protect human health and the environment
regardless of when waste was placed in the unit.
/10/ LAC 33.V.305.A.
<PAGE>
Bayou is required to submit immediately a Part A and Part B permit
application for a surface impoundment for the waste or, alternatively, submit
a plan for clean closure of the surface impoundment in compliance with the
closure requirements.
2.3 Storage of mixed waste
Bayou is currently storing mixed waste (i.e., K061 flue dust contaminated
with cesium-137) in four railroad cars at the facility. There are currently no
facilities in the U.S. authorized to manage a mixed waste and comply with the
land disposal restrictions./11/ The waste has been stored at Bayou since
November 1989.
Permits are required to store hazardous waste for more than 90 days.
Bayou evaded the requirement of obtaining a permit by repeatedly seeking and
obtaining 60-day extensions to the original 90-day storage limit/12/ (which
expired in February 1990) from DEQ.
The regulations allow for "an extension of up to 30 days" [LAC
33:V.1109.E.2] due to "unforeseen circumstances." This provision was
intended to allow extra time needed in case of an emergency; however, it was
not intended to be used to evade the more stringent and safer provisions
that a permit would require.
Bayou must apply for a hazardous waste storage permit. Other states have
required mixed-waste generators to apply for storage permits to ensure safe
storage conditions, and Louisiana should do the same. It is uncertain when
any outside facility will be authorized to accept mixed waste. The
requirement of a storage permit is designed to ensure that the long-term
storage of this radioactive, hazardous mixed waste would be safe. Permit
requirements
- -----------------------------
/11/ The Hazardous and Solid Waste Amendments of 1984 require that all
hazardous wastes be treated prior to land disposal.
/12/ Under LAC 33:V, Chapter 22 and LAC 33:V.1109.E, a generator of
hazardous waste is authorized to temporarily store hazardous waste onsite for
a maximum of 90 days (there are additional time allotments for small
generators, but Bayou does not fit this category) without having to obtain a
permit provided certain minimal conditions are met. Under the Resource
Conservation and Recovery Act and the Louisiana Hazardous Waste Control Law, the
term temporarily means 90 days. However, the storage of the mixed waste has now
exceeded 1,460 days. Interestingly, the duration of hazardous waste permits
(i.e., land-based) is 5 years or 1,825 days.
9
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include secondary containment, adequate personnel training, emergency
procedures, a closure plan, financial assurance for management, and more
frequent inspections.
2.4 Improper personnel training
Under LAC 33:V.1515.A.1, "Facility personnel must successfully complete a
program of classroom instruction or on-the-job training that teaches them to
perform their duties in a way that ensures the facility's compliance with the
requirements of this Section" [emphasis added]. However, as previously stated,
Bayou instructed personnel in the baghouse operations manual to dispose of
hazardous waste in the furnaces in violation of federal and state hazardous
waste laws and regulations.
Bayou should immediately establish a comprehensive personnel training
program that will ensure that personnel are no longer instructed to perform
noncomplying activities. Such a training program is necessary to ensure
adequate protection of worker health and to avoid creating potential legal
problems for company employees.
3. Air pollution
- ----------------
Although much of its flue dust is collected in the baghouse and
transported off-site for disposal, Bayou emits thousands of pounds into the
atmosphere each year. The vast majority of these emissions are in the form of
untreated and unpermitted fugitive emissions. Because some of the heavy metals
in the flue dust pose grave inhalation risks, a detailed, multimedia
investigation of off-site conditions must be initiated as soon as possible.
3.1 Emission of flue dust
Electric arc furnaces used to produce steel generate gases containing
metallic dusts. This dust contains significant concentrations of the toxic
metals chromium, lead, and cadmium/13/ as well as nickel, zinc, and manganese.
The metal oxides in this waste are
- -----------------------------
/13/ USEPA Listing Background Document for K061, Emission control
dusts/sludges from the primary production of steel in electric furnaces.
10
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formed at high temperatures in an oxidizing atmosphere. Under these
conditions, chromium will oxidize to it hexavalent form. According to the
Agency for Toxic Substances and Disease Registry,/14/ approximately 2.2% of
the chromium emitted as a result of steel production is in the hexavalent
form.
Bayou Steel has a permit from the Louisiana Department of Environmental
Quality to operate a smokestack and an emissions control system. The primary
dust system collects the emissions from the electric arc furnace. The
secondary system handles the emissions when the furnace cover is removed. The
collected flue dust is directed to a baghouse. Gases and dust that do not
enter the emissions control system are called fugitive emissions.
Louisiana regulations/15/ require that all reasonable precautions be taken
to prevent particulate matter, especially that containing lead, from becoming
airborne. The new source performance standard/16/ applicable to the Bayou Steel
facility prohibits more than de minimus discharges of particulate matter, along
with continuous monitoring.
USWA members employed at the plant report that Bayou Steel routinely
bypasses its emission control system and vents fine dust directly into the
atmosphere. Numerous instances, many lasting more than 15 minutes, have been
documented on video tape. On the evening of November 23, 1993, a Disposal
Safety employee observed what appeared to be a dust cloud emanating from Bayou
Steel buildings. Deliberate bypassing of emissions controls would constitute a
clear violation of Bayou's air permit. In addition, bypassing the air
pollution control system circumvents the hazardous waste requirements by
decreasing the amount of flue dust captured and thus regulated as hazardous
waste.
Even without considering the apparent bypassing of the emission control
system, data submitted by Bayou Steel to EPA under the Toxic Release Inventory
(TRI) program show that the fugitive emissions are excessive for a facility of
this size. According to the TRI data, fugitive emissions greatly exceed the
amount of flue dust that is emitted through the
- ------------------------------
/14/ Figure 6.1, Toxicological Profile for Chromium, Draft for Public
Comment, October, 1987.
/15/ LAC 33:III.1303, 33:III.1303, and 33:III.1321.
/16/ LAC 33:III.3332.
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<PAGE>
permitted stack. Table 1 shows the emissions of certain heavy metals reported
from 1987 through 1993. The values for 1992 and 1993 are estimated (by Bayou
Steel) emissions. Between 1987 and 1991, fugitive emissions of lead,
chromium, zinc, and manganese were five to eight times the permitted emissions
through the stack. In 1989, 1990, and 1991, they were eight times greater.
TABLE 1
EMISSIONS OF LEAD, CHROMIUM, ZINC, AND MANGANESE DUST REPORTED
UNDER TRI
<TABLE>
<CAPTION>
================================================================================
Date Stack (lbs) Fugitive (lbs) Percent Fugitive
================================================================================
<S> <C> <C> <C>
1987 6,771 32,936 76%
- --------------------------------------------------------------------------------
1988 7,437 20,396 73%
- --------------------------------------------------------------------------------
1989 6,060 48,580 90%
- --------------------------------------------------------------------------------
1990 4,506 36,056 89%
- --------------------------------------------------------------------------------
1991 3,352 26,982 89%
- --------------------------------------------------------------------------------
1992* Total of stack and fugitive: 32,868
- --------------------------------------------------------------------------------
1993* Total of stack and fugitive: 34,599
================================================================================
</TABLE>
* Estimated in 1992 by Bayou Steel
Table 2 shows emissions Bayou reported in 1992 for lead. Between 1987
and 1991, nearly 18,000 pounds of lead was emitted into the atmosphere. Of
this, 84% was fugitive emissions.
The fugitive emissions of lead reported by Bayou are excessive.
According to the TRI database, Bayou's fugitive emissions of 1,892 lb was by
far the highest in the state of Louisiana. By comparison, the facility with
the second-highest lead fugitive emissions released 256 lb. In 1991, Bayou
Steel's total lead emissions were the third highest in the state.
12
<PAGE>
TABLE 2
EMISSION OF LEAD REPORTED UNDER TRI
<TABLE>
<CAPTION>
================================================================================
Date Stack (lbs) Fugitive (lbs) Percent fugitive
================================================================================
<S> <C> <C> <C>
1987 750 2,711 78%
- --------------------------------------------------------------------------------
1988 880 2,600 75%
- --------------------------------------------------------------------------------
1989 570 4,600 89%
- --------------------------------------------------------------------------------
1990 402 3,219 89%
- --------------------------------------------------------------------------------
1991 236 1,892 89%
- --------------------------------------------------------------------------------
1992* Total of stack and fugitive: 3,305
- --------------------------------------------------------------------------------
1993* Total of stack and fugitive: 3,479
================================================================================
* Estimated in 1992 by Bayou Steel.
</TABLE>
3.2 Off-site atmospheric transport
Wind transports Bayou Steel's atmospheric emissions of flue dust into the
surrounding area. Air containing heavy metals is inhaled by people living
adjacent to the facility. Some of the dust settles in homes and throughout
residential areas. Bayou Steel's emissions thus pose a health risk to the
surrounding community. The fugitive emissions are of particular concern
because they originate closer to the ground and concentrations are less likely
to have been reduced by dispersion.
As discussed above, Bayou Steel emits extremely large amounts of lead.
According to the Agency for Toxic Substances and Disease Registry/17/ chronic
exposure to minute concentrations of lead dust in air can have harmful
neurological effects. Infants and small children are at the highest risk.
There is some evidence that when inhaled, lead poses a cancer risk.
- -----------------------------
/17/ Toxicological Profile for Lead, Draft for Public Comment, February,
1988.
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<PAGE>
Bayou Steel reported under SARA Title III that it discharged over 1,400
lb of chromium between 1987 and 1991. The actual amount must be far greater
if the reports of bypassing the emission control systems are true. As
discussed above, a significant portion of the chromium emissions will be in
hexavalent form, which USEPA classifies as a known human carcinogen.
According to ATSDR/18/, hexavalent chromium is one of the most potent
carcinogens known, with chronic inhalation exposure to just 1 ug/m/3/ yielding
an excess cancer risk of 12 in 1000.
Although not reported by Bayou Steel under SARA Title III, cadmium and
nickel are also constituents of flue dust generated by steel production./19/
Both elements are known to pose a cancer risk when inhaled. According to
ATSDR,/20/ chronic inhalation of 1 ug/m/3/ of cadmium yields an excess cancer
risk of 2 in 1000.
3.3 Need for additional study
There needs to be an immediate, comprehensive, multimedia investigation
of the flue dust emissions to determine the level of exposure in the
residential areas adjacent to Bayou Steel. This investigation should include
the following elements:
. Blood tests of residents for levels of lead, hexavalent chromium, and
cadmium.
. Analysis of flue dust for lead, hexavalent chromium, cadmium and nickel.
. Investigation of off-site, ambient levels of lead, hexavalent chromium,
cadmium, and nickel in the atmosphere. The investigation should have the
dual objectives of (1) allowing a risk analysis to be performed, and (2)
determining whether the lead National Emissions Standard for Hazardous
Air Pollutant (NESHAP)/21/ is being met. For hexavalent chromium, samples
must
- --------------------------
/18/ Toxicological Profile for Chromium, Draft for Public Comment,
October, 1987.
/19/ Cadmium and nickel are designated toxic chemicals under SARA Title
III (40 CFR 372.65). It is unclear why Bayou did not report these emissions.
/20/ Toxicological Profile for Cadmium, Draft for Public Comment,
November, 1987.
/21/ 40 CFR 50.12. The lead NESHAP is 1.5 ug/m/3/ measured downwind of
the source at the facility boundary.
14
<PAGE>
must be collected and analyzed using a method which yields a detection
limit low enough to allow a reliable risk analysis to be performed./22/
. Off-site soil sampling for lead, hexavalent chromium, and cadmium. For
hexavalent chromium, the newly revised EPA method of analysis should be
used.
. Household levels of lead, hexavalent chromium, cadmium, and nickel should
be tested. This should include collection of vacuum cleaner dust and
window sill dust or rafter dust.
. Atmospheric modeling of the flue dust emissions. As a start, the emission
loads reported under SARA Title III should be used. A scenario that
includes bypassing the baghouse should also be used.
4. Wastewater discharges
- ------------------------
Two broad areas of concern were identified with respect to Bayou's
wastewater discharges. These were Bayou's request for a permit modification
to relocate one of its present outfalls and its noncompliance with
environmental orders and its water discharge permit.
4.1 Permit modification
At present, Bayou collects stormwater runoff from its facility in two
ponds located on Bayou's property. The present outfall from the north pond is
designated as Outfall 003 in Bayou's NPDES permit and it is here that Bayou
monitors the effluent to determine compliance with the permit limits.
Bayou has requested a permit modification that would eliminate Outfall
003 as a monitoring point. Bayou believes that eliminating Outfall 003 would
remove the two ponds from the NPDES treatment train and thus render them not
subject to solid waste management
- ---------------------------
/22/ For measuring hexavalent chromium in ambient air the most reliable
method is an impinger method developed in California. The method is described
in P. Shaehan, R. Ricks, S. Ripple, and D. Paustenbach, Field Evaluation of a
Sampling and Analytical Method for Environmental Levels of Airborne Hexavalent
Chromium, Am. Ind. Hyg. Assoc. J., 53, pp. 57-68, 1992.
15
<PAGE>
regulations. (See Section 4.2.) In lieu of Outfall 003, Bayou proposes
monitoring stormwater runoff at three new discrete outfall locations which are
associated with specific processing areas. In considering the request for
permit modification, DEQ and EPA must consider the following concerns:
Public notice -- This represents a major modification of Bayou's permit.
The permit modification process must be properly noticed to the public so that
an informed citizenry can be fully involved in the resolution of the issues
identified below and any other issues of concern that may arise during the
process.
Protection of water quality in the receiving water -- If and when the
ponds are removed from the treatment train, the ponds themselves become the
receiving water to which the proposed new outfalls will discharge. That being
the case, DEQ must establish an appropriate designated use for the receiving
water. The permit writer must then ensure that permit limits for all
pollutants of concern are established for the proposed outfalls that will
fully protect the designated use. Also, in establishing protective water
quality limitations, the permit writer must recognize that the waters of the
ponds do not provide dilution to the effluent from the proposed outfalls.
Because the waters of the pond are made up entirely from facility runoff, no
dilution is available and, thus, the permit limitations established for the
outfalls must be identical to the water quality standard for the designated
use of the receiving water.
Inclusion of all runoff -- Designated outfalls must account for all
potentially contaminated runoff from the site. As now proposed, three
outfalls would replace the present Outfall 003. The three outfalls are
intended to discharge collected runoff from the proposed shredder operation,
the slag processing area, and the melt shop area. While these outfalls might
serve as appropriate monitoring points for the runoff from these particular
areas, they cannot account for all potentially contaminated runoff from the
site. For instance, as the 1991 Settlement between DEQ and Bayou Steel for
hazardous waste violations makes clear, K061 dust was scattered throughout the
facility. Because K061 dust is found throughout the facility, all runoff from
the facility, not just from three process areas, should be collected and
monitored for parameters of concern. In particular, hexavalent chromium is
very mobile in the environment and especially surface water, so that, its
presence in stormwater runoff would be expected.
16
<PAGE>
Choice of parameters to be limited - Permit limits must be established
for all parameters of concern, with appropriate measures to insure compliance
with the limits. Currently, only Oil and Grease, Total Organic Carbon (TOC)
and pH are limited at Outfall 003. However, many known and potential
pollutants are parameters of concern in the stormwater runoff from processing
areas and from the site in general. These include the chromium, lead and
cadmium noted above along with polychlorinated biphenyls (PCBs) and other
chlorinated organics resulting from the "fluff" from the proposed auto
shredding operation. All of these pollutants must be identified and, as
described above, the permit writer must establish permit limits for these
pollutants which are protective of water quality. Furthermore, Bayou Steel
must demonstrate that these permit limits can be attained, either through
installation of appropriate treatment technology or by instituting effective
Best Management Practices (BMPs) for stormwater.
4.2 Regulation of the discharge ponds
The state has declared that the ponds are Solid Waste Management Units
and has ordered their closure. This order requires sampling of the ponds'
contents. However, because the ponds received runoff from the facility and
K061 hazardous waste has been stored on the ground surface and spilled on the
ground surface at the facility (in addition to PCB releases to the soil), it
appears that K061-contaminated and PCB-contaminated runoff has been discharged
into the ponds. In accordance with the mixture rule /23/, the contents of the
ponds would consequently be hazardous waste. Therefore, these ponds would meet
the definition of a hazardous waste surface impoundment and a regulated unit
under RCRA.
DEQ should immediately investigate this matter by collection and
analyzing samples for lead, cadmium, and hexavalent chromium (the hazardous
constituents of K061) in addition to PCBs and other hazardous constituents
likely to have been present at the facility. If detectable levels are found,
Bayou must submit immediately a Part A and Part B permit application for the
ponds as surface impoundments. The environmental condition of the ponds,
sediment, sediment downstream of the ponds, and potentially impacted
groundwater associated with the ponds must be thoroughly investigated and
remediated if necessary and these treatment units must be properly closed in
accordance with applicable Louisiana
- ---------------------
/23/LAC 33:II.109.
17
<PAGE>
regulations. The remedial investigation must be comprehensive in scope and
address all potential areas and pollutants of concern.
4.3 Compliance performance
4.3.1 Quarterly Non-Compliance Reports
We reviewed available summaries of EPA Quarterly Non-Compliance Reports
from the fourth quarter of 1991 through the fourth quarter of 1992, which was
the most recent available to us. Each of the five reports identified Bayou
Steel as being in significant non-compliance for compliance schedule
violations for the quarter. We do not have sufficient information at this time
to determine what compliance schedule milestone is being violated. However, it
is our understanding that EPA's August 17, 1988 Administrative Order (AO)
imposed the most recent compliance schedule on Bayou Steel. That AO
established a deadline of February 15, 1989 to "complete construction and
achieve and maintain compliance with permit effluent limitations." If that,
or any other compliance schedule milestone, continues to be violated,
appropriate actions, including the imposition of penalties or fines, should be
instituted to compel compliance.
4.3.2 Wastewater permit compliance
Bayou Steel's current wastewater permit contains permit limits only for
some conventional and non-conventional pollutants. No numerical effluent
limitations for any of the pollutants designated as priority pollutants
pursuant to the federal Clean Water Act (such as chromium, lead, and cadmium in
flue dust) have been imposed on Bayou Steel. We recommend that during the
permit modification process, appropriate numerical effluent limitations for
all pollutants of concern at all outfalls be established.
We reviewed Bayou Steel's Discharge Monitoring Reports (DMRs) from
January 1992 through August 1993 to determine Bayou Steel's compliance
performance. Despite the fact that there was no flow reported from Outfall
001, there were at least nine violations of daily maximum limitations and two
violations of monthly average limitations. Table 3 lists the
violations. In particular, the pattern of violations at the sanitary
monitoring point (Outfall 102) is indicative of either inadequate treatment
facilities or improper operation.
18
<PAGE>
TABLE 3
NPDES VIOLATIONS JANUARY 1992 THROUGH AUGUST 1993
<TABLE>
<CAPTION>
===========================================================================================================
Date Outfall Parameter Unit Avg/Max Limit Reported Value
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Aug-93 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
Aug-93 102 BOD5 mg/1 Max 45 59
- -----------------------------------------------------------------------------------------------------------
Aug-93 102 pH S.U. Max 9 9.2
- -----------------------------------------------------------------------------------------------------------
Jun-93 102 Fecal Coliform Col. Avg 200 TNTC
- -----------------------------------------------------------------------------------------------------------
Jun-93 102 Fecal Coliform Col. Max 400 TNTC
- -----------------------------------------------------------------------------------------------------------
Jun-93 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
May-93 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
May-93 102 BOD5 mg/1 Max 170 45
- -----------------------------------------------------------------------------------------------------------
Apr-93 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
Apr-93 102 BOD5 mg/a Max 45 52
- -----------------------------------------------------------------------------------------------------------
Apr-93 102 Fecal Coliform Col. Max 400 Confluent
- -----------------------------------------------------------------------------------------------------------
Mar-93 102 Fecal Coliform Col. Max 400 TNTC
- -----------------------------------------------------------------------------------------------------------
Mar-93 102 TSS mg/1 Max 45 59
- -----------------------------------------------------------------------------------------------------------
Mar-93 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
Feb-93 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
Jan-93 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
Dec-92 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
Nov-92 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
Oct-92 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
Sep-92 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
Aug-92 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
Jul-92 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
Jun-92 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
May-92 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
May-92 102 TSS mg/1 Avg 30 117
- -----------------------------------------------------------------------------------------------------------
May-92 102 TSS mg/1 Max 45 228
- -----------------------------------------------------------------------------------------------------------
Apr-92 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
Mar-92 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
Mar-92 102 TSS mg/1 Max 45 59
- -----------------------------------------------------------------------------------------------------------
Feb-92 001 No flow from this outfall
- -----------------------------------------------------------------------------------------------------------
Jan-92 001 No flow from this outfall
===========================================================================================================
</TABLE>
Confluent -- Confluent growth constitutes a non-repeating incident for
this parameter.
TNTC -- Too numerous to count.
19
<PAGE>
5. Reporting of releases of hazardous substances
- ------------------------------------------------
5.1 SARA Title III
Section 313 of the Emergency Planning and Community Right-to-Know Act
(EPCRA, or SARA Title III) requires each facility manufacturing or otherwise
using a listed toxic chemical at or above the prescribed threshold level to
report all releases and offsite transfers of each listed toxic chemical. In
addition, 40 CFR 378.85(16)(ii)(A) requires that all offsite transfers of each
subject chemical include the EPA identification number of the receiving
facility.
These reports are entered into EPA's Toxic Release Inventory (TRI). The
most recent TRI report for Bayou, covering the calendar year 1992, reported
releases for lead, zinc, chromium, and manganese. Bayou reported that none of
these substances were sent offsite for disposal. However, according to the
files and copies of signed uniform hazardous waste manifests, thousands of
pounds of K061 wastes were sent offsite to a permitted hazardous waste
landfill (EPA identification number LAD000777201), which was not reported as
required.
Bayou's TRI report also fails to include spent bags containing K061. The
number of spent bags generated from the bag houses in a year can be
significant. As discussed in Section 2.1, K061-contaminated spent bags and
contaminated clothing are being disposed of on-site in the electric arc
furnaces. The TRI Form R requires that the amount being treated on-site
(whether permitted or not) must be reported. Bayou's report incorrectly states
that all hazardous waste subject to SARA Title III reporting is being
reclaimed.
Bayou is required to amend all previous TRI submissions to account for
the on-site disposal of lead-, zinc-, and chromium-contaminated spent bags and
clothing. Cadmium and nickel releases should also be reported. In addition,
Bayou should publicly correct advertisements which make claims about TRI
releases to reflect the amended data.
20
<PAGE>
5.2 Superfund
Video tape, photographs, and reports by USWA members show that Bayou has
systematically released significant quantities of flue dust into the
atmosphere and onto the ground for several years. Section 103 of the
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA,
otherwise known as Superfund) requires that the any release of the reportable
quantity of a designated hazardous substance/24/ must be reported to the
National Response Center immediately. The designated reportable quantity for
K061/25/ is one pound. Thus, each one-pound release of K061 during each
24-hour period must be reported./26/
We recommend that the National Response Center's data base be checked to
determine whether these reports have been filed.
6. Conclusions and recommendations
- ------------------------------------
Our audit has identified several areas in which Bayou is currently out of
compliance with environmental laws. Specifically,
* Bayou is required under RCRA to submit immediately Part A and Part B
permit applications for licensing of (1) the electric-arc furnaces as a
hazardous waste thermal treatment unit, (2) the pads as a surface
impoundment (or, alternatively, a plan for clean closure), and (3) long-
term storage of mixed waste. All RCRA permit applications must address
the existence of solid waste management units on the entire facility
(including both sides of the
- ------------------------
/24/ Under CERCLA, all wastes designated as hazardous under the Resource
Conservation and Recovery Act are automatically designated as hazardous
substances.
/25/ 40 CFR 302.4(a).
/26/ In listing emission control dust from primary metal production, EPA
stated that the airborne exposure to lead, chromium, and cadmium particulates
escaping from mismanaged emission control dusts is a major pathway of concern
(EPA's Listing Background Document, 1980, pp 743). As a result, the health of
persons who inhale these airborne particulates would be jeopardized. This is
especially true for hexavalent chromium compounds, whose carcinogenicity via
inhalation is especially well substantiated.
21
<PAGE>
railroad track) so that regulators can determine whether corrective
action is necessary under Section 3004(u).
* Bayou must establish a training program for its workers that accurately
instructs them in the requirements of the law.
* Workers at the plant report that the company frequently bypasses its air
emissions control system. Evidence from videotape and personal observation
is consistent with these reports.
* Bayou is in significant non-compliance with the compliance schedule for
its wastewater discharges. It also frequently exceeds limits set in its
NPDES permit.
* Bayou is required to amend its previous Toxic Release Inventory
submissions to account for the on-site disposal of lead-, zinc-, and
chromium-contaminated spent bags and clothing.
This pattern of non-compliance calls for prompt and vigorous enforcement
action by regulatory agencies.
Bayou has applied for a modification of its wastewater discharge permit.
This is a major modification, and DEQ must provide opportunities for public
participation before any modification is granted. Before approving the
modification, DEQ should ensure that all runoff from the site is regulated,
that permit limits are set for all parameters of concern (including chromium,
lead, cadmium, nickel, and polychlorinated biphenyls), and that the limits
fully protect the receiving water for a properly designated use. The permit
should also be modified to limit additional parameters at outfalls not
included in Bayou's request.
Our audit has also identified several issues that require further
investigation by environmental agencies. Needed studies include:
* A comprehensive study of the company's past and present air emissions,
and their compliance with permit conditions and with NESHAPS for lead.
* A study of exposures of residents adjacent to Bayou to lead, cadmium,
hexavalent chromium, and nickel.
* An investigation of whether Bayou has deliberately bypassed its emissions
control system.
22
<PAGE>
* Determination of whether the wastewater receiving ponds are hazardous
waste impoundments under RCRA.
* Determination of whether reports of releases of toxic substances have
been filed as required by Section 103 of CERCLA.
23
<PAGE>
APPENDIX A
Bayou's Inspecting and Replacing Bags in Baghouse Compartments
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
JOB PLANT: BAYOU STEEL JOB OPERATION TITLE: J.?.?. ?
SAFETY LOADING CLOSED TOP TRUCKS (REVISED)
ANALYSIS DEPT: FWE ============================================================================ SCH- 1
SECTION: BAGHOUSE POSITION TITLE OF PERSONNEL WHO DID THE JOB: BAGHOUSE OPERATOR (REVISED)
====================================================================================================================================
REQUIRED AND/OR RECOMMENDED PERSONAL PROTECTIVE EQUIPMENT:
HARDHATS, SAFETY GLASSES, METATARSAL BOOTS, PAPR, DISPOSAL OF PAPER SUIT AND GLOVES
====================================================================================================================================
SEQUENCE OF BASIC JOB STEPS POTENTIAL ACCIDENTS OR HAZARDS RECOMMENDED SAFE JOB PROCEDURE
====================================================================================================================================
<S> <C> <C>
1. INSPECT CONTRACTORS TRUCK PRIOR TO 1. SB -- TRUCK 1. TRUCK TURNED OFF AND PARKING BRAKE SET.
- ------------------------------------------------------------------------------------------------------------------------------------
LOADING. INSPECT FOR ANY FOREIGN MATERIAL IN TRUCK.
- ------------------------------------------------------------------------------------------------------------------------------------
RELATE TRUCK DEFICIENCIES IMMEDIATELY IF ANY
- ------------------------------------------------------------------------------------------------------------------------------------
ARE FOUND. NOTIFY FOREMAN.
- ------------------------------------------------------------------------------------------------------------------------------------
2. POSITION TRUCK FOR LOADING 2. SB -- TRUCK 2. KEEP PERSONS CLEAR OF TRUCK.
- ------------------------------------------------------------------------------------------------------------------------------------
3. BAGHOUSE OPERATOR MONITOR LOADING OF 3. E -- OVEREXPOSURE TO LEAD 3. WEAR REQUIRED SAFETY EQUIPMENT.
- ------------------------------------------------------------------------------------------------------------------------------------
TRUCK.
- ------------------------------------------------------------------------------------------------------------------------------------
4. REMOVE ANY DUST FROM TOP OR SIDE OF TRUCK. 4. E -- OVEREXPOSURE TO LEAD 4. USE A BROOM AND SWEEP ANY SPILLAGE ONTO THE PAD
- ------------------------------------------------------------------------------------------------------------------------------------
BEFORE MOVING TRUCK.
- ------------------------------------------------------------------------------------------------------------------------------------
5. INSPECT TRUCK FOR LEAKAGE BEFORE LEAVING 5. E -- OVEREXPOSURE TO LEAD 5. WEAR REQUIRED SAFETY EQUIPMENT AND INSPECT
- ------------------------------------------------------------------------------------------------------------------------------------
LOADING SITE. AREA. IF LEAKING, CALL FOREMAN.
- ------------------------------------------------------------------------------------------------------------------------------------
6. DISPOSE OF COVERALLS AND GLOVES. 6. E -- LEAD 6. PLACE COVERALLS IN PLASTIC BAG AND PUT ON
- ------------------------------------------------------------------------------------------------------------------------------------
IMPACT PADS.
- ------------------------------------------------------------------------------------------------------------------------------------
7. WASH FACE AND HANDS. 7. E -- LEAD 7. USE SOAP AND WATER TO CLEAN FACE AND HANDS.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
================================================================== ================================================================
SIGNATURE: /s/ DATE: 2/27/89 REVIEW ?? OPERATION TITLE: J.S.?. ?
- ------------------------------------------------------------------
APPROVED: /s/ DATE: 3/2/89 LOADING CLOSED TOP TRUCKS (REVISED) SCH- 1 (REVISED)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
JOB PLANT: BAYOU STEEL JOB OPERATION TITLE: J.?.?. ?
SAFETY INSPECTING AND REPLACING BAGS IN BAGHOUSE COMPARTMENTS
ANALYSIS DEPT: FWE ============================================================================ SCH- 2
SECTION: BAGHOUSE POSITION TITLE OF PERSONNEL WHO DID THE JOB: BAGHOUSE PERSONNEL (REVISED)
====================================================================================================================================
REQUIRED AND/OR RECOMMENDED PERSONAL PROTECTIVE EQUIPMENT:
HARD HAT, SAFETY GLASSES, METATARSAL BOOTS, DISPOSABLE PAPER COVERALLS, GLOVES AND PAPR
====================================================================================================================================
SEQUENCE OF BASIC JOB STEPS POTENTIAL ACCIDENTS OR HAZARDS RECOMMENDED SAFE JOB PROCEDURE
====================================================================================================================================
<S> <C> <C>
1. ISOLATE COMPARTMENT. NOTE: TWO PEOPLE 1. FS-HOUSEKEEPING 1A. PROCEED WITH CAUTION TO CONTROL PANEL.
- ------------------------------------------------------------------------------------------------------------------------------------
MINIMUM FROM THIS STEP ON TO WORK IN 1B. FILL LOCK OUT TAG ACCURATELY AND COMPLETELY
- ------------------------------------------------------------------------------------------------------------------------------------
COMPARTMENTS. AND TAG PROPER SWITCH AFTER TURNING TO THE
- ------------------------------------------------------------------------------------------------------------------------------------
ISOLATE POSITION.
- ------------------------------------------------------------------------------------------------------------------------------------
1C. INSERT PIN IN MAIN COMPARTMENT DAMPER CYLINDER
- ------------------------------------------------------------------------------------------------------------------------------------
TOP.
- ------------------------------------------------------------------------------------------------------------------------------------
2. OPEN ISOLATED COMPARTMENT DOORS. 2. SB-DOOR 2. STAND CLEAR OF DOOR BEFORE OPENING.
- ------------------------------------------------------------------------------------------------------------------------------------
3. INSPECT BAGS IN ISOLATED COMPARTMENTS. 3. E-LEAD 3. WEAR SAFETY EQUIPMENT REQUIRED.
- ------------------------------------------------------------------------------------------------------------------------------------
4. REPLACE DEFECTIVE BAG. 4. E-LEAD 4. WEAR REQUIRED SAFETY EQUIPMENT. TIE ROPE TO
- ------------------------------------------------------------------------------------------------------------------------------------
BAG AND SECURE ROPE. REMOVE NUT AND LOWER BAG.
- ------------------------------------------------------------------------------------------------------------------------------------
REMOVE BAG FROM COMPARTMENT. INSTALL NEW BAGS.
- ------------------------------------------------------------------------------------------------------------------------------------
5. CLOSE ISOLATED COMPARTMENT. 5. CB-DOOR 5. SECURE DOOR, KEEP HANDS CLEAR OF PINCH POINTS.
- ------------------------------------------------------------------------------------------------------------------------------------
6. REMOVE LOCKS AND TAGS. 6. FS-HOUSEKEEPING 6. REMOVE PIN FROM MAIN COMPARTMENT DAMPER
- ------------------------------------------------------------------------------------------------------------------------------------
CYLINDER ROD. THEN PROCEED WITH CAUTION TO
- ------------------------------------------------------------------------------------------------------------------------------------
CONTROL PANEL AND REMOVE TAG. THEN UN-ISOLATE
- ------------------------------------------------------------------------------------------------------------------------------------
COMPARTMENT.
- ------------------------------------------------------------------------------------------------------------------------------------
7. PUT COMPARTMENT BACK ON LINE. 7. E-LEAD 7. CHECK OPACITY MONITORS FOR ALARMS. IF ALARMS
- ------------------------------------------------------------------------------------------------------------------------------------
ARE PRESENT, NOTIFY FOREMAN.
- ------------------------------------------------------------------------------------------------------------------------------------
8. DISPOSE OF DEFECTIVE BAGS. 8. E-LEAD 8. PLACE IN DRUM AND PLACE IN FURNACE WHEN DRUM
- ------------------------------------------------------------------------------------------------------------------------------------
IS FULL.
- ------------------------------------------------------------------------------------------------------------------------------------
9. DISPOSE OF COVERALLS AND GLOVES. 9. E-LEAD 9. PLACE IN DRUM AND PLACE IN FURNACE WHEN DRUM
- ------------------------------------------------------------------------------------------------------------------------------------
IS FULL.
- ------------------------------------------------------------------------------------------------------------------------------------
10. WASH FACE AND HANDS. 10. E-LEAD 10. USE SOAP AND WATER TO CLEAN FACE AND HANDS.
- ------------------------------------------------------------------------------------------------------------------------------------
11. NOTIFY FOREMAN WHEN JOB IS COMPLETE. 11. FS-TAPPING 11. FOREMAN AND HIS SUPERVISOR NEED TO KNOW JOB
- ------------------------------------------------------------------------------------------------------------------------------------
STATUS WHEN COMPLETE.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NOTE: NO FOOD, DRINKS OR SMOKING WHILE
- ------------------------------------------------------------------------------------------------------------------------------------
JOB IS BEING DONE.
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
================================================================ ===============================================================
SIGNATURE DATE: 07/10/93 REVIEW JOB ?????????? TITLE: ?.?.?. ?
================================================================
APPROVED: DATE: 07/10/89 INSPECTING AND REPLACING
BAGS IN BAGHOUSE COMPARTMENTS ???? ???? ????
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
JOB PLANT: BAYOU STEEL JOB OPERATION TITLE: J.?.?. ?
SAFETY INSPECTING AND REPLACING BAGS IN BAGHOUSE COMPARTMENTS
ANALYSIS DEPT: FWE ============================================================================== SCH- 2
SECTION: BAGHOUSE POSITION TITLE OF PERSONNEL WHO DID THE JOB: BAGHOUSE PERSONNEL (REVISED)
====================================================================================================================================
REQUIRED AND/OR RECOMMENDED PERSONAL PROTECTIVE EQUIPMENT:
HARD HAT, SAFETY GLASSES, METATARSAL BOOTS, DISPOSABLE PAPER COVERALLS, GLOVES AND PAPR
====================================================================================================================================
SEQUENCE OF BASIC JOB STEPS POTENTIAL ACCIDENTS OR HAZARDS RECOMMENDED SAFE JOB PROCEDURE
====================================================================================================================================
<S> <C> <C>
1. ISOLATE COMPARTMENT. NOTE: TWO PEOPLE 1. FS -- HOUSEKEEPING 1A. PROCEED WITH CAUTION TO CONTROL PANEL
- ------------------------------------------------------------------------------------------------------------------------------------
MINIMUM FROM THIS STEP ON TO WORK IN 1B. FILL LOCK OUT BAG ACCURATELY AND COMPLETELY
- ------------------------------------------------------------------------------------------------------------------------------------
COMPARTMENTS. AND TAG PROPER SWITCH AFTER TURNING TO THE
- ------------------------------------------------------------------------------------------------------------------------------------
ISOLATE POSITION.
- ------------------------------------------------------------------------------------------------------------------------------------
1C. INSERT PIN IN MAIN COMPARTMENT DAMPER
- ------------------------------------------------------------------------------------------------------------------------------------
CYLINDER TOP.
- ------------------------------------------------------------------------------------------------------------------------------------
2. OPEN ISOLATED COMPARTMENT DOORS. 2. SB -- DOOR 2. STAND CLEAR OF DOOR BEFORE OPENING.
- ------------------------------------------------------------------------------------------------------------------------------------
3. INSPECT BAGS IN ISOLATED COMPARTMENTS. 3. E -- LEAD 3. WEAR SAFETY EQUIPMENT REQUIRED.
- ------------------------------------------------------------------------------------------------------------------------------------
4. REPLACE DEFECTIVE BAG. 4. E -- LEAD 4. WEAR REQUIRED SAFETY EQUIPMENT. TIE ROPE TO
- ------------------------------------------------------------------------------------------------------------------------------------
BAG AND SECURE ROPE. REMOVE NUT AND LOWER
- ------------------------------------------------------------------------------------------------------------------------------------
BAG. REMOVE BAG FROM COMPARTMENT.
- ------------------------------------------------------------------------------------------------------------------------------------
5. CLOSE ISOLATED COMPARTMENT. 5. CB -- DOOR 5. SECURE DOOR. KEEP HANDS CLEAR OF PINCH POINTS.
- ------------------------------------------------------------------------------------------------------------------------------------
6. REMOVE LOCKS AND TAGS. 6. FS -- HOUSEKEEPING 6. REMOVE PIN FROM MAIN COMPARTMENT DAMPER
- ------------------------------------------------------------------------------------------------------------------------------------
CYCLINDER ROD. THEN PROCEED WITH CAUTION TO
- ------------------------------------------------------------------------------------------------------------------------------------
CONTROL PANEL AND REMOVE TAG. THEN UN-ISOLATE
- ------------------------------------------------------------------------------------------------------------------------------------
COMPARTMENT.
- ------------------------------------------------------------------------------------------------------------------------------------
7. PUT COMPARTMENT BACK ON LINE. 7. E -- LEAD 7. CHECK OPACITY MONITORS FOR ALARMS. IF ALARMS
- ------------------------------------------------------------------------------------------------------------------------------------
ARE PRESENT, NOTIFY FOREMAN.
- ------------------------------------------------------------------------------------------------------------------------------------
8. DISPOSE OF DEFECTIVE BAGS. 8. E -- LEAD 8. PLACE IN PLASTIC CONTAINER AND STORE WITH
- ------------------------------------------------------------------------------------------------------------------------------------
IMPACT PAD.
- ------------------------------------------------------------------------------------------------------------------------------------
9. DISPOSE OF COVERALLS AND GLOVES. 9. E -- LEAD 9. PLACE ON PLASTIC BAGS AND PUT ON IMPACT PAD.
====================================================================================================================================
============================================================= ===============================================================
SIGNATURE: /s/ DATE: 07/10/89 REVIEW JOB OPERATION TITLE: J.S.????
=============================================================
APPROVED: /s/ 07/13/89 INSPECTING AND REPLACING BAGS IN
BAGHOUSE COMPARTMENTS (SCH-2 REVISED)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
[LOGO JOB SAFETY ANALYSIS PLANT JOB OPERATION TITLE: JSA NO.
OF ? Bayou Steel Cleaning out Blow Tank BGH--5
APPEARS --------------------------------------------------------------------------------------------
HERE] DEPARTMENT
INSTRUCTIONS ON REVERSE SIDE Maintenance
--------------------------------------------------------------------------------------------
SECTION POSITION TITLE OF PERSONNEL WHO DID THE JOB
M.F.B. Baghouse Tech
- ------------------------------------------------------------------------------------------------------------------------------------
REQUIRED AND/OR RECOMMENDED PERSONAL PROTECTIVE EQUIPMENT:
hard hat, metatarsal boots, greens, ear protection, safety glasses, P.A.P.R., gloves
====================================================================================================================================
SEQUENCE OF BASIC JOB STEPS POTENTIAL ACCIDENTS OR HAZARDS RECOMMENDED SAFE JOB PROCEDURE
====================================================================================================================================
<S> <C> <C>
1. Notify foreman of work to be 1. FS -- slipping 1. Foreman needs to be aware of work in his area.
- ------------------------------------------------------------------------------------------------------------------------------------
done.
- ------------------------------------------------------------------------------------------------------------------------------------
2. Obtain necessary tools. 2. O -- carrying too many tools 2. Wear proper safety equipment.
- ------------------------------------------------------------------------------------------------------------------------------------
3. Lock and tag out power to 3. CBy -- touching live circuits 3. Have an electrician turn power off. Make sure
- ------------------------------------------------------------------------------------------------------------------------------------
blow tank and augers. power is off.
- ------------------------------------------------------------------------------------------------------------------------------------
4. Spread visqueen at base of 4. FBe -- dust in air 4. Lay visqueen flat to prevent tripping hazards.
- ------------------------------------------------------------------------------------------------------------------------------------
blow tank.
- ------------------------------------------------------------------------------------------------------------------------------------
5. Remove cover on blow tank. 5. O -- straining 5. Loosen and remove bolts. Set cover aside on
- ------------------------------------------------------------------------------------------------------------------------------------
FBe -- dust in air floor out of the way.
- ------------------------------------------------------------------------------------------------------------------------------------
6. Dig out tank. 6. FBe -- CBy -- dust 6. Dust is to be contained on the visqueen.
- ------------------------------------------------------------------------------------------------------------------------------------
7. Reinstall tank cover. 7. O -- straining 7. Bolt covers on securely.
- ------------------------------------------------------------------------------------------------------------------------------------
8. Remove locks and tags. 8. CBy -- electricity 8. Wear proper safety equipment.
- ------------------------------------------------------------------------------------------------------------------------------------
9. Power tank and augers up. 9. CBy -- electricity 9. Have an electrician turn power back on. Watch
- ------------------------------------------------------------------------------------------------------------------------------------
equipment run to be sure problem is corrected.
- ------------------------------------------------------------------------------------------------------------------------------------
10. Clean up work area. 10. O -- lifting 10. Avoid spilling dust to furnace floor below.
- ------------------------------------------------------------------------------------------------------------------------------------
11. Clean up tools. 11. FBe -- cleaner 11. Dispose of soiled rags on pad.
- ------------------------------------------------------------------------------------------------------------------------------------
12. Notify foreman of job when 12. FS -- tripping 12. Foreman needs to know job status when complete.
- ------------------------------------------------------------------------------------------------------------------------------------
complete.
- ------------------------------------------------------------------------------------------------------------------------------------
REVIEW DATES JSA NO.
/s/ DATE 8/18/87
- ----------------------------------------------------------------------------------------------
SIGNATURE OF PERSON MAKING JSA BGH--5
???? /s/ DATE 8/18/87 -------------------------------------
- ---------------------------------------------------------------------------------------------- JOB OPERATION TITLE
Cleaning out Blow Tank
????? ------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
JOB PLANT: BAYOU STEEL JOB OPERATION TITLE: J.?.?. ?
SAFETY
ANALYSIS DEPT: MAINTENANCE ============================================================================ SCH- 2
SECTION: POSITION TITLE OF PERSONNEL WHO DID THE JOB: (REVISED)
====================================================================================================================================
REQUIRED AND/OR RECOMMENDED PERSONAL PROTECTIVE EQUIPMENT:
====================================================================================================================================
SEQUENCE OF BASIC JOB STEPS POTENTIAL ACCIDENTS OR HAZARDS RECOMMENDED SAFE JOB PROCEDURE
====================================================================================================================================
<S> <C> <C>
1.
- ------------------------------------------------------------------------------------------------------------------------------------
2.
- ------------------------------------------------------------------------------------------------------------------------------------
NOTE:
- ------------------------------------------------------------------------------------------------------------------------------------
3.
- ------------------------------------------------------------------------------------------------------------------------------------
4.
- ------------------------------------------------------------------------------------------------------------------------------------
5.
- ------------------------------------------------------------------------------------------------------------------------------------
6.
- ------------------------------------------------------------------------------------------------------------------------------------
7.
- ------------------------------------------------------------------------------------------------------------------------------------
8.
- ------------------------------------------------------------------------------------------------------------------------------------
9.
- ------------------------------------------------------------------------------------------------------------------------------------
10.
- ------------------------------------------------------------------------------------------------------------------------------------
11.
- ------------------------------------------------------------------------------------------------------------------------------------
12.
- ------------------------------------------------------------------------------------------------------------------------------------
13.
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
<PAGE>
MEMORANDUM
TO: All Operators
FROM: Pat Hendricks
DATE: November 15, 1988
SUBJECT: Lead Contamination
------------------
As a reminder, due to the possibility of Lead Poisoning, several items must be
added to our preventative measures.
1. Remove any contaminated articles before entering the bathroom. (tools,
clothing, hardhats, shoes.)
2. Wash hands and face after removing clothing.
3. Each Turn Operator must mop the shack and clean the following with a
damp rag:
A. phone
B. coffee pot
C. tables
D. desk
E. chairs
F. walls
G. microwave
H. refrigerator
I. anything not listed...
4. Dispose of waste water on pad. Rags are to be put in contaminated
waste barrels for later disposal.
Thank You
PH:enl
cc: D. Goodfellow
F. Watson
J. Betty
<PAGE>
BAYOU STEEL CORPORATION
INTER-OFFICE MEMORANDUM
TO: All Baghouse Operators DATE: June 4, 1990
FROM: Pat Hendricks
SUBJECT: Flue Dust Spill Procedures -- Revision #1
1. Notify foreman (for week-ends notify week-end duty man) of a spill of
1# (one pound) or more of flue dust. One pound equals approximately
1/2 quart.
2. If it is raining, use visqueen to cover the spill immediately to
prevent run-off of flue dust.
3. Use the push-pull system to vacuum up spill and deposit into silo or
rail car. If distance is too great for push-pull to be effective, use
drum vacuum or an outside vacuum service contractor will be called in
to assist.
4. Area of spill must be thoroughly decontaminated after the job is
completed. If ground was contaminated all contaminated earth shall be
evacuated and deposited in drums marked "Hazardous Waste" and placed
on pad to await proper disposal. Disposal shall be into an arc
furnace or landfill.
5. Any contaminated articles should be placed into a drum for charging
into the arc furnace.
6. Log incident occurrence on shift report.
7. Spills information will be entered on a spill sheet and turned in to
the unit supervisor.
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EXHIBIT 99.2
BAYOU STEEL CORPORATION
STAKEHOLDER INVESTMENT CONSIDERATIONS
As you may be aware, the United Steelworkers of America ("Steelworkers) is
engaged in a lawful strike against the Bayou Steel Corporation ("the Company"
or "Bayou") at its LaPlace, Louisiana minimill. In connection with that labor
dispute, the Steelworkers became aware that the Company intended to present a
public offering of First Mortgage Notes, and the Steelworkers decided to
conduct an investigation with respect to that public offering.
Based upon this ongoing investigation, the Steelworkers believes that
there are four major areas of concern for potential investors. They are: (1)
Bayou's problems under federal labor law; (2) Bayou's environmental problems;
(3) Bayou's relationship with RSR; and (4) Bayou's tax abatement problems.
I. BAYOU'S PROBLEMS UNDER FEDERAL LABOR LAW
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The New Orleans Regional Director of the National Labor Relations Board
("NLRB") recently upheld unfair labor practice charges filed by the
Steelworkers against the Company. The NLRB Regional Director has informed
both parties that unless there is a settlement of the union's charges, the
Board will issue a complaint against Bayou Steel charging the Company with
committing eight violations of the duty to bargain in good faith and of
causing an unfair labor practice strike.
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Under the terms of the proposed settlement, the Company must offer jobs
to eligible members of USWA Local 9121 whose positions are now being filled by
striker replacements. In that case, the Company will also be required to apply
to the returning strikers the terms and conditions of employment set forth in
the expired contract, not any other terms. In addition, the Company would be
required to bargain in good faith with the Steelworkers on request.
As the Company admits in its S-1, as amended 1/31/94 (p. 12), a
"settlement agreement ... could impair the company's labor initiatives because
the Company would be unable to implement all or part of its last proposed
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labor agreement until it returned to the bargaining process and remedied the
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unfair labor practices, and until such time as either an agreement with the
Union was ratified or impasse in the bargaining process was reached."
(emphasis added).
Any attempt by the Company to implement its last proposal depends upon a
NLRB determination that there has been an impasse in bargaining. Although the
determination of whether an impasse exists is, as the Company notes in its
second amended Registration Statement, "strictly dependent on the facts of
each individual case," the Steelworkers believes that the recent NLRB action
will have an overall negative impact on the Company's ability to declare an
impasse and impose its last proposed agreement.
The Steelworkers believes that it is unlikely that the Company will be
able in the near term to implement its last proposals to the Steelworkers.
Similarly, it is doubtful that the
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Company will be able to "realize an additional savings in average labor costs
of approximately $2 per ton" or that aggregate annual operating cost savings
resulting from its labor initiatives (or any other savings derived from the
Company's regressive contract proposals) will occur in the near term. Indeed,
the Steelworkers agrees that a settlement agreement may, to quote the Company,
"result in the strengthening of the strikers' commitment to their negotiating
position, the work stoppage, and the corporate campaign." (p. 12).
II. BAYOU'S ENVIRONMENTAL PROBLEMS
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Of particular concern to investors should be the Company's representation
in its offering that "the Company is in compliance in all material respects
with applicable environmental requirements. . . . The Company does not
anticipate any substantial increase in its costs for environmental remediation
or that such costs will have a material adverse effect on the Company's
competitive position, operations or financial condition." Form S-1, as amended
1/31/94, p. 37.
On the basis of our investigation, we seriously question the accuracy of
that conclusory representation. We have concluded, instead, that at the
LaPlace minimill, the Company has failed to comply with a number of important
obligations under the applicable federal and state environmental laws, and
those potential violations could, in our judgment, impose major costs upon
Bayou that should be taken into account before you determine
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whether to recommend that potential investors should purchase the Company's
First Mortgage Notes.
This part of the letter summarizes the results of a preliminary
investigation of the Company's environmental problems. This information was
obtained primarily from the environmental audit of Bayou conducted at the
Steelworkers' request by Disposal Safety, Inc., an experienced environmental
consulting firm based in Washington, D.C., and was supplemented by government
records, business databases, court cases, interviews, press reports and
independent research on our part. To the best of our knowledge, this
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information is not contained in the Form S-1 Registration Statement, as
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amended, filed by Bayou with the Securities and Exchange Commission. That is
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an important point because the omitted information, we believe, would be
relevant to potential investors. After reviewing the substance of this
letter, we recommend that you undertake an independent check to satisfy
yourself of its accuracy.
On December 10, 1993, Disposal Safety, Inc. issued its Environmental
Audit of Bayou Steel Corporation, which focused on hazardous waste management,
air emissions, surface-water discharges, and reporting of toxic emissions.
Although the Company did not provide Disposal Safety access to the Company's
facilities and/or files, the audit nevertheless found, based on information
supplied from other sources, that the Company had violated five major
environmental laws, including the Resource Conservation and Recovery Act
("RCRA"), the
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Clean Water Act, and the Clean Air Act. We summarize below Bayou's
environmental record as found by the Audit.
(1) Air Pollution: At LaPlace, Bayou Steel has emitted into the
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atmosphere large amounts of flue dust which contain extremely high
concentrations of lead. According to reports submitted by the company to the
U.S. Environmental Protection Agency ("EPA") under the Toxic Release Inventory
(TRI) program, the Company is responsible for more fugitive emissions of lead
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than any other industrial plant in Louisiana. Between 1987 and 1991, nearly
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18,000 pounds of lead left the Company's LaPlace minimill and entered the
atmosphere. Eighty-four percent (84%) of these emissions were "fugitive"
(i.e., did not enter the Company's permitted emissions control system). Based
on firsthand observations, Steelworkers members employed at the minimill
report that the Company routinely bypasses its emission control system and
vents flue dust directly into the atmosphere. This has been documented on
videotape. Untreated fugitive emissions can pose serious health risks for
people living adjacent to the smelter and in the surrounding community.
These emissions likely violate Louisiana regulations which require that
all reasonable precautions be taken to prevent particulate matter, especially
that containing lead, from becoming airborne and regulations which appear to
prohibit Bayou from making more than de minimis discharges of particulate
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matter. Bayou's emissions may also violate its federal air pollution permit.
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If violations of applicable state or federal clean air laws are
established, Bayou could be subject to fines of as much as $25,000 per day
per violation (with exact amounts established by the court considering the
case) and potentially costly compliance orders.
(2) Hazardous Waste: Bayou's own documents reveal that it systematically
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manages hazardous waste in treatment and disposal units without the required
permits. For example, although Bayou routinely thermally treats hazardous
waste (K061) in its electric arc furnaces, the Company does not possess a
permit or the authority to operate under interim status for the thermal
treatment or disposal of hazardous waste.
Additionally, in March 1990, the Louisiana Department of Environmental
Quality cited Bayou for operating a waste pile without the required permit.
Although the waste pile is no longer in operation according to the DEQ,
Steelworkers members report that the waste pile continues to exist. In any
event, Bayou is obligated either to remove all hazardous waste and
constituents ("clean closure") in accordance with an approved plan or to apply
for a post-closure permit as a landfill. Because Bayou has done neither, we
believe it remains in violation of the DEQ's compliance order and applicable
hazardous waste regulations.
Third, Bayou currently stores K061 flue dust contaminated with
radioactive material in four railroad cars at the LaPlace facility without the
required permit. Although it has obtained temporary extensions for emergency
storage, it must obtain a storage permit. In order to obtain that permit, Bayou
will likely be required to put in place costly containment measures.
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Fourth, the Company has two storm water retention ponds at LaPlace which
receive runoff from areas where K061 hazardous waste was stored on the surface
and spilled on the ground. If runoff containing such waste contaminated the
ponds with detectable levels of K061 constituents, Bayou would be required to
close the ponds as hazardous waste surface impoundments. Such closure
involves either excavating all contaminated material and disposing of it in a
hazardous waste landfill or covering it with a cap and monitoring it for
thirty years. In either event, it is the Steelworkers' understanding that the
expense would likely run into the millions. In marked contrast, the Company,
states that it "does not anticipate that such expenditures, if needed, would
be material." Form S-1, as amended, dated 1/31/94, p.37.
Each violation of the state and federal hazardous waste regulations
described above can be enforced by the government or individuals under the
RCRA. If a court finds that the violations have taken place (and continue to
take place), it can assess civil penalties of up to $25,000 per day per
violation. Exact penalties are determined by the court on the basis of
relevant factors, including the environmental significance of the violations,
the violator's recalcitrance and the violator's avoided cost. In certain
circumstances, such as those in which intentional violations of RCRA occur,
large criminal fines are also applicable. The governing laws may also result
in the Company being directed to take certain specified corrective actions
that entail significant compliance costs.
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(3) Wastewater Discharges: According to its own discharge monitoring
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reports, Bayou has violated its wastewater discharge permit at least ten times
between January 1992 and August 1993. If proven, these violations could also
lead to fines of up to $25,000 per violation (actual fines to be determined by
a court). The Company's conduct already has triggered an investigation by
state authorities. As a result of findings outlined in the preliminary
report by Disposal Safety, Inc., the Board of Commerce and Industry of the State
of Louisiana ("the Board") asked the Louisiana DEQ to determine if the Company
is in compliance with Louisiana environmental regulations. The decision to ask
for a DEQ investigation was made at a December 1, 1993 meeting of the Screening
Committee of the Board, at the suggestion of the Lieutenant Governor of
Louisiana. The Steelworkers believes that the Company will be found to be in
non-compliance in many respects. Such non-compliance could lead to enforcement
actions by the state agency and lawsuits by citizen plaintiffs.
In sum, the Steelworkers submit that in order for any prospective
investor to assess the Company's financial condition, he/she should recognize
that Bayou may well face large costs resulting from substantial civil
penalties and required abatement actions, as well as litigation expenses of
defending any private suits or governmental enforcement actions brought
against it. We believe it is imperative that you make your own assessment of
these potential cost implications before you decide whether to advise the
purchase of Bayou's bonds.
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III. BAYOU'S RELATIONSHIP WITH RSR
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We also note that Bayou is controlled by Howard Meyers, through his
ownership of Bayou Steel Properties Limited. Form S-1 as amended 1/31/94, p.
16. Mr. Meyers also controls RSR Corporation which, in turn, has assumed the
primary responsibility for providing Bayou, pursuant to a service contract
dated September 5, 1986, a variety of environmental services, including
"product review, quality control, emission and effluent monitoring and
maintenance and permit coordination." (See Exh. #10.4 to Form S-1). Therefore,
Bayou has placed heavy reliance on RSR's expertise to advise Bayou how to
achieve compliance with the applicable environmental laws. That decision is
especially troubling given that, under Mr. Meyers' stewardship, RSR has
compiled an abysmal track record which bespeaks a history of gross
non-compliance with numerous environmental laws at RSR's facilities in West
Dallas, Texas; Harbor Island, Washington; Indianapolis, Indiana; Walkill, New
York; and City of Industry, California. We urge you to familiarize yourselves
with the relevant facts with respect to each of those situations.
IV. BAYOU'S TAX ABATEMENT PROBLEMS
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The Company's disdain for the environmental laws and its illegal actions
under the federal labor laws should not be considered in a vacuum. Indeed, it
bears emphasizing that in response to that conduct the local community has
launched a campaign against the Company. The Louisiana Coalition for Tax
Justice ("LCTJ") and the St. John's Environmental
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Group, in conjunction with the Steelworkers, have challenged the Company's
application for a renewal of its property tax exemption. A successful
challenge to the renewal of its property tax exemption could adversely affect
the Company's financial condition in a manner separate and distinct from the
effect that its environmental problems may well have.
As disclosed in its Registration Statement, Bayou has a property tax
abatement agreement with the State of Louisiana, known as the Industrial Ad
Valorem Tax Exemption Program. Independent research conducted by the LCTJ
from the files of the Louisiana Department of Economic Development has
identified 11 separate property tax exemption contracts between Bayou and the
State of Louisiana which would save the Company approximately $47.6 million
dollars under the state's 10-year industrial property tax exemption program.
Over the course of the next two years (1994-1996), the Louisiana Board of
Commerce and Industry ("Board") shall consider whether to renew a series of
six of Bayou's current industrial property tax exemptions which, if renewed,
would save the Company approximately $2 million over the term of these
exemptions. As noted, the Steelworkers, LCTJ and the St. John's Environmental
Group have joined forces in opposition to Bayou's request. With respect to
the first such exemption, the Company's request for renewal was deferred by
the Board's screening committee on December 1, 1993; the Board is scheduled to
issue its ruling later this month. Louisiana's ten-year Industrial Tax
Exemption exempts corporations from paying local property taxes on new
investments such as capital
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expenditures. Based on past practice, the Company is expected to seek a
ten-year tax exemption for the principal portion of its $8.6 million capital
expenditure program (Form S-1, as amended 1/31/94, at p. 33). Continued
opposition to Bayou's request for tax exemptions may affect its ability to
realize future exemptions. Indeed, the Steelworkers believes that, after the
Board reviews the Company's environmental compliance record, there is a
substantial question whether Bayou will prevail on its renewal request and,
more important for investors, if its first request is denied, the Company
might be met with continued denials of its remaining requests to be considered
over the next two years.
Again, this information merits your prompt examination and assessment
before you determine whether to solicit potential investors to buy the
Company's bonds. If, after reviewing this letter, you have any further
questions, please call the United Steelworkers of America at 412-562-2442.
