<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
MARCH 8, 1995
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BAYOU STEEL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 33-22603 72-1125783
- -------------------------- ------------- -----------------
(State or other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
River Road, P.O. Box 5000, LaPlace, Louisiana 70069
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(Address of principal executive offices)
(Zip Code)
(504) 652-4900
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address, if changed since last report.)
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Item 5. OTHER EVENTS
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On February 24, 1995, Bayou Steel Corporation received court approval to
acquire the assets of Tennessee Valley Steel Corporation, a producer of
reinforcing bar and bar shape steel products, which is currently idle after
filing for Chapter 11 bankruptcy protection in November 1994. The period during
which appeals may be taken from the court order approving the acquisition
expired March 6, 1995.
Item 7. EXHIBITS
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10.1 Asset Purchase Agreement, dated as of January 30, 1995, among
Tennessee Valley Steel Corporation, TV Acquisition Corp., Bayou Steel
Corporation, BT Commercial Corporation and NationsBank N.A. (Carolinas).
99.1 Certain Information Regarding the Acquisition of Substantially all
of the Assets of Tennessee Valley Steel Corporation by Bayou Steel Corporation.
2
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SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BAYOU STEEL CORPORATION
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(Registrant)
By /s/ Richard J. Gonzalez
-------------------------------------
Richard J. Gonzalez,
Vice President, Treasurer, Chief
Financial Officer, and Secretary
Date: March 8, 1995
3
<PAGE>
INDEX TO EXHIBITS
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<TABLE>
<CAPTION>
PAGE
EXHIBIT NUMBER
------- ------
<C> <S> <C>
10.1 Asset Purchase Agreement, dated
as of January 30, 1995, among
Tennessee Valley Steel
Corporation, TV Acquisition
Corp., Bayou Steel Corporation,
BT Commercial Corporation and
NationsBank N.A. (Carolinas).
99.1 Certain Information Regarding the
Acquisition of Substantially all
of the Assets of Tennessee Valley
Steel Corporation by Bayou Steel
Corporation.
</TABLE>
4
<PAGE>
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
among
TENNESSEE VALLEY STEEL CORPORATION,
TV ACQUISITION CORP.,
BAYOU STEEL CORPORATION,
BT COMMERCIAL CORPORATION
and
NATIONSBANK N.A. (CAROLINAS)
Dated as of January 30, 1995
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions................................................... 1
2. Purchase and Sale............................................. 5
3. Purchase Price................................................ 7
4. Liabilities and Obligations................................... 9
5. Obtaining of Approval Order; Closing.......................... 9
6. Deliveries at Closing......................................... 10
7. Representations and Warranties of Seller...................... 11
8. Representations and Warranties of Buyer....................... 15
9. Covenants of Buyer and Seller................................. 15
10. Conditions to Buyer's Obligation to Effect Closing........... 18
11. Conditions to Seller's Obligation to Effect Closing.......... 20
12. Termination; Effect of Termination........................... 21
13. Employees.................................................... 21
14. Survival of Representations and Warranties; Indemnification.. 22
15. Jurisdiction................................................. 24
16. Collection of Accounts Receivable; Mail...................... 24
17. Miscellaneous................................................ 25
</TABLE>
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SCHEDULES AND EXHIBITS
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Exhibits
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A Approval Order
B Escrow Agreement
C Voluntary Consent Order
D Opinion of Seller's Counsel
E Opinion of Buyer's Counsel
Schedules
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1(a) Title Commitment
1(b) Real Property Description
3(b) Certain Accounting Procedures
7(b) Conflicts with Contracts
7(d) Executory Contracts; Assigned Contracts
7(e) Current Balance Sheet
7(f) Fixtures and Equipment
7(h) Litigation
7(i) Certain Changes in the Business
7(j) Benefit Plans
7(l) Compliance with Law and Environmental Protection
7(m) Products Liability
7(o) Permits
10(f) Notices Pursuant to the Scheduling Order
ii
<PAGE>
ASSET PURCHASE AGREEMENT
AGREEMENT, dated as of January 30, 1995, among TENNESSEE VALLEY STEEL
CORPORATION, a Tennessee corporation, having an office at P. O. Box 328,
Rockwood, Tennessee 37854 ("Seller"), TV ACQUISITION CORP., a Delaware
corporation, having an office at c/o Bayou Steel Corporation, P. O. Box 5000, La
Place, Louisiana 70069-1156 ("Buyer"), BAYOU STEEL CORPORATION, a Delaware
corporation, having an office at P.O. Box 5000, La Place, Louisiana 70069-1156
("Parent"), BT COMMERCIAL CORPORATION, a Delaware corporation, having an office
at 14 Wall Street, New York, New York 10005 ("Bankers Trust") and NATIONSBANK,
N.A. (CAROLINAS), a national banking association, having an office at 100 North
Tryon Street, Charlotte, North Carolina 28255 ("NationsBank"; and together with
Bankers Trust, the "Banks").
R E C I T A L S :
Seller has engaged in the business of producing rebar and other steel
products (the "Business").
Seller filed a voluntary petition for relief under chapter 11 of the
Bankruptcy Code (as hereinafter defined) with the United States Bankruptcy Court
for the Eastern District of Tennessee (the "Bankruptcy Court") on November 11,
1994 (the "Bankruptcy Petition"). The Bankruptcy Court has jurisdiction over
the Seller's chapter 11 case, Case Number 94-32813.
Seller desires to sell to Buyer substantially all of its assets and to
assign to Buyer certain executory contracts and unexpired leases, and Buyer
desires to purchase from Seller such assets and assume such contracts and
unexpired leases, all free and clear of any and all Liens (as hereinafter
defined).
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants set forth herein, the parties agree as follows:
1. DEFINITIONS
For all purposes of this Agreement, except as otherwise expressly
provided herein,
(a) the terms defined in this Section 1 include the plural as well as
the singular,
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them under GAAP,
(c) pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms,
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(d) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Section, Paragraph or other subdivision, and
(e) the words "include," "including" and other words of similar
import mean "include, without limitation" or "including, without limitation,"
regardless of whether any reference to "without limitation" or words of similar
import is made.
(f) As used in this Agreement, the following definitions shall apply:
"Accounts Receivable" has the meaning assigned to such term in Section
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2(a)(v).
"Adjusted Purchase Price" has the meaning assigned to such term in Section
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3(a).
"Agreement" means this Asset Purchase Agreement, including all
---------
exhibits and schedules hereto, as the same may be amended or supplemented from
time to time.
"Approval Order" means, collectively, orders of the Bankruptcy Court,
--------------
substantially in the forms attached as Exhibit A and Exhibit A1, or, if
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otherwise, in form and substance reasonably satisfactory to Buyer, approving and
ratifying this Agreement and authorizing Seller to consummate the transactions
contemplated hereby, and ordering that (i) the Assets sold to Buyer pursuant to
this Agreement, are free and clear of all Liens, such Liens to attach to the
Adjusted Purchase Price payable pursuant to Section 3; (ii) Buyer has acted in
good faith within the context of Section 363(m) of the Bankruptcy Code; (iii)
Buyer is not acquiring any of Seller's liabilities except as expressly provided
in this Agreement; (iv) Buyer is not a successor of Seller and Buyer shall be
subject to no successor liability claims, and except with respect to claims
expressly assumed by Buyer pursuant to this Agreement, all Persons are enjoined
from in any way pursuing Buyer by suit or otherwise to recover on any claim
which it had, has or may have against Seller or the Assets; and (v) all
Assigned Contracts are assumed by Seller and assigned to Buyer pursuant to
Section 365 of the Bankruptcy Code (in accordance with Section 2(c)).
"Assets" has the meaning assigned to that term in Section 2(a).
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"Assigned Contracts" has the meaning assigned to that term in Section 2(c).
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"Assigned Permits" has the meaning assigned to such term in Section
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2(a)(xi).
"Assumed Obligations" has the meaning assigned to that term in Section
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4(b).
"Bank Representative" has the meaning assigned to such term in Section
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17(m).
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"Bankruptcy Code" means Title 11 of the United States Code, 11 U.S.C.
---------------
Section 101 et seq., commonly known as the Bankruptcy Code, as it may be amended
-- ---
from time to time.
"Bankruptcy Court" has the meaning assigned to that term in the Recitals to
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this Agreement.
"Bankruptcy Petition" has the meaning assigned to that term in the Recitals
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to this Agreement.
"Business Day" means any day other than a Saturday, Sunday or other day on
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which the Bankruptcy Court is closed.
"Benefit Plan" means any bonus, deferred compensation, pension, profit-
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sharing, retirement, insurance, stock purchase, stock option, or other fringe
benefit plan, arrangement or practice, or any other employee benefit plan (as
defined in Section 3(3) of ERISA), whether formal or informal.
"Business" has the meaning assigned to that term in the Recitals to this
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Agreement.
"Closing" means the closing of the purchase and sale of the Assets pursuant
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to this Agreement.
"Closing Date" means the time and date of the Closing determined pursuant
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to Section 5.
"Closing Payment" has the meaning assigned to that term in Section
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3(a)(ii).
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Contract" means any contract, agreement, arrangement, bond, commitment,
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franchise, indemnity, indenture, instrument, lease, license or other
understanding, whether written or oral.
"Cure Amounts" has the meaning assigned to such term in Section 7(d).
------------
"Current Balance Sheet" has the meaning assigned such term in Section 7(e).
---------------------
"Environmental Claim Termination Date" has the meaning assigned to such
------------------------------------
term in Section 14(d).
"Equipment" has the meaning assigned to that term in Section 2(a)(i).
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
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amended.
3
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"Escrow Agent" means Chemical Bank, having an office at 450 West 33rd
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Street, New York, New York 10001.
"Escrow Agreement" means the escrow agreement dated as of the date hereof
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among Buyer, Seller and the Escrow Agent in the form of Exhibit B hereto.
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"Excluded Assets" has the meaning assigned to such term in Section 2(b).
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"GAAP" means generally accepted accounting principles in the United States,
----
consistently applied.
"Governmental Authority" means any government or any agency, bureau,
----------------------
commission, court, department, official, political subdivision, tribunal or
other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"Holdback Amount" has the meaning assigned to such term in Section 3(a).
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"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
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as amended, and the related regulations.
"Inventory" has the meaning assigned to that term in Section 2(a)(ii).
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"Lien" means any claim, charge, easement, encumbrance, security interest,
----
lien, option, pledge, right of others, or restriction (whether on voting, sale,
transfer, disposition or otherwise) (including any and all "claims" as defined
in Section 101(5) of the Bankruptcy Code and any and all rights and claims under
any bulk transfer statutes and similar laws) in or with respect to any of the
Assets, whether arising by agreement, by statute or otherwise and whether
arising prior to, on or after the date of the filing by Seller of the Bankruptcy
Petition (including any options or rights to purchase such Assets, any
mechanic's or tax liens, and liens or encumbrances securing liabilities or
obligations not assumed by Buyer hereunder, but excluding any liens, easements
or other restrictions set forth in the Title Commitment attached as Schedule
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1(a) hereto).
- ----
"Loss" means any cost, damage, injury, diminution in value, disbursement,
----
expense, liability, loss, claim, deficiency or penalty of any kind or nature,
including interest, penalties, and reasonable legal, accounting and other
professional fees and expenses incurred in the investigation, collection,
prosecution and defense of claims.
"Order" means any decree, injunction, judgment, order, ruling or writ of
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any Governmental Authority.
"Permits" means licenses, permits, franchises, approvals, authorizations,
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certificates of authority, and orders, or any waiver of the foregoing, issued or
issuable by any Governmental Authority.
4
<PAGE>
"Person" means any individual, corporation, partnership, joint venture,
------
trust, association, unincorporated organization, other entity, or governmental
body or subdivision, agency, commission or authority thereof.
"Purchase Price" means $30,500,000.
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"Real Property" means all real property owned by Seller, including the real
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property legally described in Schedule 1(b), together with all buildings,
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structures, installations, fixtures and other improvements appurtenant thereto
or situated thereon and all other rights, interests and appurtenances of Seller
pertaining thereto.
"Real Property Leases" means those real property leases set forth on
--------------------
Schedule 7(d).
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"SAMCO Contract" means the agreement between the Seller and Southern Alloys
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& Metals Corporation, dated December 30, 1992.
"Scheduling Order" means the Procedural Order Relative to Debtor's
----------------
Contemplated Motion to Sell Substantially All of its Assets, dated December 9,
1994, entered by the Bankruptcy Court in the matter "In re Tennessee Valley
Steel Corp.; Debtor."
"Subsidiary" means, with respect to any specified Person, any other Person
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(a) whose board of directors or similar governing body, or a majority thereof,
may presently be directly or indirectly elected or appointed by such specified
Person, (b) whose management decisions and corporate actions are directly or
indirectly subject to the present control of such specified Person, or (c) whose
voting securities are more than 50% owned, directly or indirectly, by such
specified Person.
"Survival Termination Date" has the meaning assigned to such term in
-------------------------
Section 14(a).
"Voluntary Consent Order" means the Consent Agreement and Order by and
-----------------------
between the Tennessee Department of Environment and Conservation and Seller and
Southern Alloys and Metal Corporation, attached as Exhibit C hereto.
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2. PURCHASE AND SALE
(a) The Assets. Subject to the terms and conditions of this Agreement, on
----------
the Closing Date Seller shall sell, transfer, assign and deliver to Buyer, free
and clear of any and all Liens, and Buyer shall purchase and acquire from
Seller, free and clear of any and all Liens, all right, title and interest of
Seller in and to all of the assets of Seller as of the Closing Date (other than
the Excluded Assets), including the following assets (collectively, the
"Assets"):
(i) All machinery, equipment, vehicles, furniture, furnishings,
fixtures, operating equipment, supplies and tools, computer hardware and all
parts,
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<PAGE>
spares and accessories thereof and accessions thereto, owned by Seller
(collectively, the "Equipment");
(ii) All inventories (including scrap inventory, billet inventory,
materials inventory, raw materials and other supplies, work-in-progress, in-
transit inventory, rolls, spare parts, shipping supplies and finished goods)
owned by Seller, including all returns after the Closing Date (collectively, the
"Inventory");
(iii) All of the names (other than the name "Tennessee Valley Steel"),
trademarks, trade names, service marks and copyrights, logos, slogans, patents
(including any and all applications, registrations, extensions and renewals
thereof) and any other intellectual property, trade secrets, technical data,
processes, product information and know-how of Seller, together with all
associated goodwill;
(iv) All customer and mailing lists of Seller, and existing telephone
numbers, telecopier numbers and telex numbers used by Seller at any of its
places of business;
(v) All accounts receivable, notes receivable, trade accounts,
security deposits and other debts due or accruing to Seller and the full benefit
of all security interests granted by third parties to secure any such debts to
Seller (collectively, "Accounts Receivable");
(vi) All outstanding
orders for the purchase of goods or services by or from Seller;
(vii) All invoices, bills of sale and other instruments and documents
evidencing Seller's title to assets that are in the possession of Seller;
(viii) All data processing systems, computer software, books, records,
files, data bases, specifications, manuals and other papers and information of
Seller (including any and all accounting books and records);
(ix) All stationery and other imprinted material and office supplies,
and packaging and shipping materials of Seller;
(x) All rights of Seller under the Assigned Contracts;
(xi) Those Permits of Seller designated on Schedule 7(o) as "Assigned
-------------
Permits";
(xii) The Real Property; and
(xiii) All cash and cash equivalents on hand and in bank
accounts.
Excluded Assets. Notwithstanding anything to the contrary contained
---------------
in this Agreement, the Assets do not include the following assets (the "Excluded
Assets"):
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<PAGE>
(i) the corporate seals, minute books, stock record books and other
corporate records having exclusively to do with the corporate organization and
capitalization of Seller;
(ii) Contracts not constituting Assigned Contracts;
(iii) Permits not constituting Assigned Permits;
(iv) Seller's confidential personnel files; and
(v) claims or actions of Seller against third Persons under any of Sections
542-550 of the Bankruptcy Code.
Contracts. Set forth on Schedule 7(d) is a list of all Contracts to
--------- -------------
which Seller is a party. Those Contracts which Buyer desires to have Seller
assign to it have been designated as "Assigned Contracts" on such Schedule. In
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addition, Buyer shall have the right, exercisable in its sole discretion, to
amend Schedule 7(d) no later than five Business Days
-------------
prior to the hearing on the Approval Order to designate additional Contracts as
Assigned Contracts or to provide that any Contracts previously designated
"Assigned Contracts" not be assigned to it; provided, that in no event will
--------
either the SAMCO Contract or the Environmental Remediation Agreement, dated as
of December 30, 1992, among Seller, Southern Alloys and Metals Corporation and
The Morgan Stanley Leveraged Equity Fund II, L.P. be designated as an Assigned
Contract. At the Closing, Buyer shall acquire free and clear of any and all
Liens all right, title and interest of Seller in and to all Contracts designated
as Assigned Contracts in accordance with the foregoing.
3. PURCHASE PRICE
Amount of Purchase Price. In consideration of the sale and
------------------------
transfer of the Assets (in addition to the assumption by Buyer of the Assumed
Obligations pursuant to Section 4), subject to the terms and conditions of this
Agreement, Buyer shall pay to Seller an amount in cash equal to the Purchase
Price less the sum of all Cure Amounts (as defined in Section 7(d)). The
Purchase Price will be subject to decrease pursuant to any adjustment in
accordance with Section 3(b) (the "Adjusted Purchase Price"). The Purchase
Price shall be payable as follows:
(i) Within one Business Day after entry of the Approval Order by the
Bankruptcy Court, Buyer shall pay to the Escrow Agent by federal funds wire
transfer the sum of $1,000,000 (the "Deposit") to be held in escrow subject to
the terms of the Escrow Agreement;
(ii) On the Closing Date, Buyer shall pay by federal funds wire transfer
the Purchase Price less the Deposit and less the sum of all Cure Amounts, as
follows:
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A. $8,500,000 to the Escrow Agent to be held in escrow subject to
the terms of the Escrow Agreement (such amount, together with the Deposit, being
referred to herein as the "Escrow Fund"); and
B. the remaining balance to the Seller (or such other party or
parties as the Bankruptcy Court may direct) (the "Closing Payment"); and
(iii) Following determination of the Adjusted Purchase Price in
accordance with Section 3(b), the Escrow Agent shall pay an amount equal to the
Adjusted Purchase Price less (x) the Closing Payment, (y) all Cure Amounts, and
(z) $3,000,000 to be retained and disbursed pursuant to Section 14 ((z) being
referred to herein as the "Holdback Amount"), together with interest or other
earnings on such amount, to the Seller (or to such other party or parties as the
Bankruptcy Court may direct) in accordance with the Escrow Agreement.
Simultaneously with the payment in accordance with the preceding sentence, any
remaining portion of the Escrow Fund (other than the Holdback Amount) shall be
paid to Buyer. All such payments shall be made by federal funds wire transfer.
Adjustments. (i) As promptly as practicable after the Closing, Buyer
-----------
shall conduct an examination (including a physical inventory) of the Assets as
of the Closing Date and, on the basis thereof, Buyer shall prepare and deliver
to Seller and the Banks, within 35 days following the Closing Date, a schedule
(the "Closing Date Schedule") setting forth the book value of the Assets as of
the Closing Date (the "Closing Date Value"). The Closing Date Schedule shall be
prepared in accordance with GAAP and in accordance with Schedule 3(b). Each of
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the Seller and the Banks shall be entitled to have its representatives present
to observe the examination of the Assets, and both Buyer and Seller shall be
entitled to have a firm of independent public accountants present to observe the
examination of Assets. The fees and expenses of each firm of independent
accountants shall be paid by the party engaging such firm.
(ii) In the event Seller or the Banks are in disagreement with the Closing
Date Schedule, each specific item of disagreement shall be set forth in a notice
(the "Notice of Disagreement") delivered to Buyer within seven Business Days
from the receipt of the Closing Date Schedule. If such items of disagreement
remain unresolved ten days after receipt by Buyer of the Notice of Disagreement,
such items of disagreement shall be submitted to the Bankruptcy Court for
resolution.
(iii) If (A) the book value of the Assets as set forth on the Current
Balance Sheet exceeds (B) the Closing Date Value as determined in accordance
with clauses (i) and (ii) above, the Purchase Price shall be reduced by the
dollar amount of such excess.
Allocation of the Adjusted Purchase Price. Buyer and Seller agree to
-----------------------------------------
allocate the Adjusted Purchase Price among the Assets for the purposes of the
requirements of Code Section 1060 and the Regulations thereunder and for all
other tax purposes. The parties
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<PAGE>
agree that Buyer shall determine such allocation; provided that, in the event
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any proposed allocation adversely affects the "allowed secured claim" (under
Section 506 of the Bankruptcy Code) of the Banks in the Seller's chapter 11
case, the consent of the Banks shall be required with respect to any such
allocation. In furtherance thereof, Buyer shall provide a statement of such
proposed allocation to the Banks no later than five Business Days prior to the
hearing on the Approval Order. If the Banks do not object to such proposed
allocation prior to such hearing, Buyer shall allocate the Adjusted Purchase
Price among the classes of assets set forth in Section 1060 of the Code and the
Regulations thereunder in accordance with such statement. The parties agree to
file IRS Form 8594 (or any substitute thereunder) consistent with such approved
allocation when required by applicable law. Any disputes asserted by any party
in interest regarding the allocation of the Adjusted Purchase Price shall be
submitted to the Bankruptcy Court for resolution.
LIABILITIES AND OBLIGATIONS
Non-Assumption of Liabilities. Except as expressly set forth in this
-----------------------------
Section 4, Buyer is not assuming, and shall have no responsibility or obligation
whatsoever for, any liability or obligation of Seller.
Assumed Obligations. At the Closing, Buyer shall assume all of
-------------------
Seller's obligations arising from and after the Closing Date under all of the
Assigned Contracts. Prior to the assignment by Seller to Buyer of each of the
Assigned Contracts, Buyer shall pay or resolve all Cure Amounts (as defined in
Section 7(d); the Cure Amounts, together with the other obligations to be
assumed by Buyer pursuant to this Section 4(b), being referred to herein as
"Assumed Obligations").
OBTAINING OF APPROVAL ORDER; CLOSING
Obtaining Order. Within two Business Days following the date hereof
---------------
and after giving reasonable advance notice to Buyer, Seller shall file an
application with the Bankruptcy Court for the Approval Order. Seller shall use
its best efforts to obtain the Approval Order, subject to its obligations under
the Bankruptcy Code.
Closing. If the Approval Order is entered, then, subject to the
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satisfaction or waiver by the parties of the conditions to their respective
obligations to effect the Closing set forth in Sections 10 and 11, the Closing
shall take place at the offices of Kaye, Scholer, Fierman, Hays & Handler, 425
Park Avenue, New York, New York 10022 at 10:00 a.m. (New York City time) on the
third Business Day after satisfaction or waiver of the conditions precedent to
the Closing set forth in Sections 10 and 11, or at such other place, date and
time as the parties may agree.
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<PAGE>
6. DELIVERIES AT CLOSING
Deliveries by Seller. At the Closing, Seller shall deliver, or cause
--------------------
to to be delivered (in addition to any other instruments required by Section 10
or otherwise by this Agreement to be delivered by Seller at the Closing), to
Buyer the following (in form and substance reasonably satisfactory to Buyer):
(i) a duly executed bill of sale and assignment or other
appropriate instruments transferring title to and interest in all of the Assets
to Buyer;
(ii) limited warranty deed, owner's affidavit and other instruments
or documents as Buyer may reasonably request to fully effect transfer of the
Real Property from Seller to Buyer;
(iii) a certified copy of the Approval Order;
(iv) possession of all of the Assets;
(v) notices executed by Seller, addressed to (A) each obligor with
respect to the Accounts Receivable as of the Closing Date and (B) each non-
Seller party to the Assigned Contracts, notifying such obligor or party of the
Seller's assignment to Buyer of such Accounts Receivable or Assigned Contract,
as the case may be, and directing such obligor or party to make any payments to
Buyer of such Accounts Receivable for which it is the obligor or any fees or
other amounts payable under the Assigned Contracts, as the case may be;
(vi) evidence reasonably satisfactory to Buyer of compliance with
the notice provisions set forth in the Scheduling Order and in the Approval
Order;
(vii) true and correct copies of the Permits listed on Schedule 7(o)
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and copies of all consents or other authorizations obtained by Seller in order
to assign the Assigned Contracts and the Assigned Permits to Buyer; and
(viii) such other instruments or documents as Buyer may reasonably
request to fully effect the transfer of the Assets and to confer upon Buyer the
benefits contemplated by this Agreement.
(b) Deliveries by Buyer. At the Closing, Buyer shall deliver, or
-------------------
cause to be delivered (in addition to any other instruments required by Section
11 or otherwise by this Agreement to be delivered by Buyer at the Closing), to
Seller or the Escrow Agent, as applicable, the following:
(i) the Purchase Price less the sum of (x) Deposit and (y) all Cure
Amounts, payable in the manner described in Section 3(a); and
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(ii) a duly executed assumption of liabilities in form and substance
reasonably satisfactory to Seller, whereby Buyer will assume and agree to pay,
perform and discharge the Assumed Obligations.
7. REPRESENTATIONS AND WARRANTIES OF SELLER
(a) Seller represents and warrants (both as of the date of this
Agreement and as of the Closing Date) to Buyer as follows:
Organization of Seller; Authorization. Seller is a corporation duly
-------------------------------------
organized, validly existing and in good standing under the laws of the State of
Tennessee with full corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary
corporate action of Seller. This Agreement has been duly and validly executed by
Seller and, subject to the entering of the Approval Order by the Bankruptcy
Court, constitutes a legal, valid and binding obligation of Seller, enforceable
against it in accordance with its terms.
(b) No Conflict as to Seller. Neither the execution and delivery of
------------------------
this Agreement nor the consummation of any or all of the transactions
contemplated hereby will (i) violate any provision of the certificate of
incorporation or by-laws (or other governing instrument) of Seller or (ii)
except as set forth on Schedule 7(b), violate, be in conflict with, or
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constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under any Contract to which Seller is party or (iii)
violate any statute or law or any Order, regulation or rule of any court or
other Governmental Authority applicable to Seller.
(c) Consents and Approvals of Governmental Authorities. Other than the
--------------------------------------------------
entering of the Approval Order by the Bankruptcy Court and the expiration or
early termination of the waiting period under the HSR Act, to the best knowledge
of Seller no consent, approval or authorization of, or declaration, filing or
registration with, any Governmental Authority is required in connection with the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
(d) Schedule 7(d) lists all executory Contracts to which Seller is a
-------------
party. Schedule 7(d) also lists all amounts required to cure all defaults
-------------
under the Assigned Contracts so as to permit the assumption and assignment of
such Assigned Contracts pursuant to Section 365 of the Bankruptcy Code (the
"Cure Amounts") with respect to each of such Assigned Contracts; such Cure
Amounts represent the amount determined by Seller to be amounts required to be
paid in order to assume and assign such executory Contracts under Section 365 of
the Bankruptcy Code. The Seller represents and warrants the accuracy of any
Cure Amounts determined by it. Copies of all written Contracts and written
descriptions of all oral Contracts listed on Schedule 7(d) have been delivered
-------------
to Buyer on or prior to the date of this Agreement. All of the Contracts listed
in Schedule 7(d) (except as otherwise provided on such Schedule) are valid,
-------------
binding and enforceable in accordance with their terms, and are in full force
and effect. Except as set forth in Schedule 7(d) and except for defaults of the
-------------
type referred to in Section 365(b)(2) of the Bankruptcy Code, there are no
defaults (or events
11
<PAGE>
that, with notice or lapse of time or both, would constitute a default) by
Seller or any other party under any of the Contracts listed on Schedule 7(d).
-------------
(e) Financial Statements. Seller has delivered to Buyer: (a) an
--------------------
audited balance sheet of Seller as at December 31, 1992, and audited statements
of income and cash flows for the fiscal year then ended, together with the
report thereon of Ernst & Young, including in each case the notes thereto, (b)
an unaudited balance sheet of Seller as at December 31, 1993, and unaudited
statements of income and cash flows for the fiscal year then ended, including in
each case the notes thereto, and (c) the unaudited balance sheet of Seller as at
October 31, 1994 attached as Schedule 7(e) (the "Current Balance Sheet"), and
unaudited statements of income and cash flows for the 10 month period then
ended. The "assets" portion of the Current Balance Sheet is true, complete and
accurate and fairly presents the assets of Seller as at October 31, 1994, and,
to the best knowledge of Seller, such other financial statements and notes are
true, complete and accurate in all material respects and fairly present the
assets, liabilities, financial condition and results of operations of Seller as
at the respective dates and for the periods therein referred to.
(f) Fixtures and Equipment. Set forth on Schedule 7(f) is a complete
---------------------- -------------
and correct list of all Equipment (including fixtures). Except as set forth on
Schedule 7(f), all of the Equipment (including fixtures) is in the same
- -------------
operating condition and repair as at November 11, 1994, ordinary wear and tear
excepted.
(g) Real Property.
-------------
(i) Except as set forth on Schedule 1(a), to the best knowledge of
-------------
Seller, there are no variances, special exceptions, conditions or agreements
pertaining to the Real Property or the real property subject to the Real
Property Leases imposed or granted by or entered into by Seller, with or
enforceable by any Governmental Authority, and, except for the Voluntary Consent
Order, no notice from any Governmental Authority has been received by the Seller
requiring or calling attention to the need for any work, repair, construction,
alteration or installation on, or in connection with, the Real Property or the
real property subject to the Real Property Leases.
(ii) The Real Property has connections to sanitary, sewer (or septic,
drain field or similar facility), storm sewer, water, electricity, gas and
telephone and, to the best knowledge of the Seller, there are no existing
circumstances or conditions which would result in termination of such access or
connections for any significant period of time.
(iii) Neither the whole nor any portion of the Real Property is
subject to any governmental decree or order to be sold or is being condemned by
any Governmental Authority or other Person with or without payment of
compensation therefor, nor, to the best knowledge of Seller, has any such
condemnation been proposed.
12
<PAGE>
(h) Litigation. Except as set forth in Schedule 7(h), and except for
---------- -------------
Seller's case pending in the Bankruptcy Court under the Bankruptcy Code, there
is no action, suit, inquiry, proceeding or investigation by or before any court
or other Governmental Authority pending or, to the best knowledge of Seller,
threatened against or involving Seller or which questions or challenges the
validity of this Agreement or any action taken or to be taken by Seller pursuant
to this Agreement or in connection with the transactions contemplated hereby,
nor to the best knowledge of Seller is there any valid basis for any such
action, proceeding or investigation.
(i) Absence of Certain Changes. Except as set forth in Schedule
-------------------------- --------
7(i), since November 11, 1994, Seller has not
(i) suffered the damage, deterioration or destruction of any of its
properties or the Assets (whether or not covered by insurance) or made any
disposition of any of its properties or the Assets, other than Accounts
Receivable and Inventory;
(ii) disposed of any records related to the Assets or the Business;
(iii) waived, released or permitted to expire any claim held by it or
any material obligation owed to it under any Assigned Contract; or
(iv) agreed or otherwise committed, whether in writing or otherwise,
to do any of the foregoing.
(j) ERISA. Seller has delivered to Buyer copies of, and Schedule
--------
7(j) lists, all Benefit Plans of Seller that are employee benefit plans (as
- ----
defined in Section 3.3 of ERISA) and any related trust agreements (collectively,
"ERISA Plans"). Seller has also delivered to Buyer copies of, and Schedule 7(j)
-------------
lists (a) the most recent Internal Revenue Service determination letter relating
to each of the ERISA Plans (and none of the ERISA Plans has been amended or
modified since the date of the determination letter relating to it and each of
the ERISA Plans has been operated in accordance with the description contained
in such determination letter), (b) the most recent annual report (Form 5500
Series) and accompanying schedules of each of the ERISA Plans filed with the
Department of Labor pursuant to ERISA, and (c) the most recent valuation report
of the administrator of the Plan. No reportable event (as defined in section
4043(e) of ERISA), prohibited transaction (as defined in section 406 of ERISA or
section 4975 of the Code), accumulated funding deficiency (as defined in section
302 of ERISA) or plan termination (as defined in Title IV of ERISA or section
411(d) of the Code) has occurred with respect to any of the ERISA Plans. None of
the ERISA Plans is a multi-employer plan (as defined in section 3(37) of ERISA)
and no Seller has any actual or potential liability with respect to any multi-
employer plan or a past or present withdrawal therefrom.
(k) Compliance with Law. Except as set forth on Schedule 7(l), (i) to
-------------
the best knowledge of Seller, the operations of Seller have been conducted in
all material respects in accordance with all applicable laws, regulations and
other requirements of all Governmental Authorities having jurisdiction over
Seller and applicable to the Assets, (ii) Seller has complied in all respects
with the Voluntary Consent Order and (iii) other than the
13
<PAGE>
Voluntary Consent Order, Seller has not received any notification of any
asserted present or past failure by Seller to comply with any such laws, rules
or regulations (which failure has not been remedied).
(l) Environmental Protection. Except as set forth in Schedule 7(l),
------------------------ -------------
Seller has obtained all Permits which are required with respect to Seller under
all applicable laws, regulations and other requirements of Governmental
Authorities relating to pollution or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials, substances or wastes
into ambient air, surface water, ground water, or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials, substances or wastes. Except as set forth in Schedule 7(l), Seller
-------------
is in full compliance with all terms and conditions of the required Permits, and
is also in full compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in those laws or contained in any regulation, code, plan, Order,
notice or demand letter issued, entered, promulgated or approved thereunder.
Except as set forth in Sched ule 7(l), Seller is not aware of, nor has Seller
--------------
received notice from any source of, any events, conditions, circumstances,
activities, practices, incidents, actions or plans which may interfere with or
prevent continued compliance, or which may give rise to any common law or legal
liability, or otherwise form the basis of any claim, action, suit, proceeding,
hearing or investigation, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or the
emission, discharge, release or threatened release into the environment, of any
pollutant, contaminant, or hazardous or toxic materials, substances or waste.
(m) Products Liability. Except as set forth in Schedule 7(m), there is
------------------ -------------
no action, suit, inquiry, proceeding or investigation by or before any court or
other Governmental Authority pending or, to the best knowledge of Seller
threatened against or involving Seller relating to any product alleged to have
been manufactured or sold by Seller and alleged to have been defective, or
improperly designed or manufactured, nor to the best knowledge of Seller is
there any valid basis for any such action, proceeding or investigation.
(n) Books and Records. All of the books of account and other records
-----------------
of Seller (except for those described in Section 2(b)(iv)) have been or will be
made available to Buyer. To the best knowledge of Seller, such books and records
are complete and correct in all material respects.
(o) Permits. Set forth on Schedule 7(o) is a complete list of all of
------- -------------
Seller's Permits. Except as set forth on Schedule 7(o), such Permits represent
all Permits required by any Governmental Authority with jurisdiction over the
Assets to own and operate the Assets in connection with the Business in the same
manner as operated prior to November 11, 1994 (other than the operation of the
meltshop).
(p) Subsidiaries. Seller has no Subsidiaries.
------------
14
<PAGE>
(q) All Necessary Assets. Except for the Excluded Assets, the Assets
--------------------
include all rights, properties and other assets necessary to conduct the
Business in all material respects in the same manner as the Business was
conducted by Seller prior to November 11, 1994.
8. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants (both as of the date of this Agreement
and as of the Closing Date) to Seller as follows:
(a) Organization of Buyer; Authorization. Buyer is a corporation duly
------------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware with full corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary
corporate action. This Agreement has been duly and validly executed by Buyer
and, subject to the entering of the Approval Order by the Bankruptcy Court,
constitutes a legal, valid and binding obligation of Buyer, enforceable against
it in accordance with its terms.
(b) No Conflict as to Buyer. Neither the execution and delivery of
-----------------------
this Agreement nor the consummation of any or all of the transactions
contemplated hereby will (i) violate any provision of the certificate of
incorporation or by-laws of Buyer or (ii) violate, be in conflict with, or
constitute a default or an event which, with notice or lapse of time or both,
would constitute a default, under any material Contract to which Buyer is party
(except for any violations, conflicts or defaults which have been or will be
waived) or (iii) violate any statute or law or any Order, regulation or rule of
any court or other Governmental Authority applicable to Buyer.
(c) Litigation. There is no action, suit, inquiry, proceeding or
----------
investigation by or before any court or other Governmental Authority pending or,
to the best knowledge of Buyer, threatened against or involving Buyer which
questions or challenges the validity of this Agreement or any action taken or to
be taken by Buyer pursuant to this Agreement or in connection with the
transactions contemplated hereby, nor to the best knowledge of Buyer is there
any valid basis for any such action, proceeding or investigation.
9. COVENANTS OF BUYER AND SELLER
(a) Satisfaction of Conditions. Buyer and Seller shall each use
--------------------------
commercially reasonable efforts to cause the conditions precedent to Closing to
be satisfied and to cause the Closing to occur on or prior to the date set forth
in Section 12(a)(ii) hereof. Seller shall give prompt notice to Buyer, and
Buyer shall give prompt notice to Seller, of (i) the occurrence, or failure to
occur, of any event that would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date of this Agreement to the Closing Date, and (ii) any
failure of Buyer or Seller, as the case may be, to comply with or satisfy, in
any material respect, any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement.
15
<PAGE>
(b) HSR Act. Seller and Buyer have each filed or as soon as
-------
practicable after the date hereof shall file a Notification and Report Form in
accordance with the HSR Act, including all required attachments and submissions,
and have paid or will pay all required fees in connection therewith. Seller and
Buyer shall make any and all additional filings and submit all information
required to be made or submitted under the HSR Act or requested by the Federal
Trade Commission (the "FTC") or the U.S. Department of Justice (the "DOJ") with
respect to the transactions contemplated hereby. Seller and Buyer shall furnish
each other such necessary information and reasonable assistance as the other may
require in connection with the preparation of necessary filings or additional
submissions under the provisions of the HSR Act. Seller and Buyer shall each
inform the other of any communications with representatives of the FTC or DOJ,
or any other Governmental Authority with respect to the transactions
contemplated by this Agreement. Seller and Buyer shall use commercially
reasonable efforts (including the filing of a request for early termination) to
obtain early termination of the waiting periods under the HSR Act.
(c) Access; Records; Bankruptcy Papers. From and after the date
----------------------------------
hereof, representatives of Buyer shall have the right, upon reasonable notice
and at reasonable times to visit and inspect Seller's premises and any other
locations at which any of the Assets are located and shall have the right to
test, operate and otherwise evaluate the Assets and their condition, provided,
--------
that (i) Buyer shall not require Seller to operate the Assets as a whole, and
(ii) Buyer shall not conduct any intrusive testing of the Assets without the
consent of Seller and the Banks. From and after the date hereof, Seller shall
give Buyer and its authorized representatives, full access to its
nonconfidential books and records (and permit Buyer to make copies thereof), as
Buyer may reasonably request, permit Buyer to make inspections thereof, and
cause Seller's officers and advisors to furnish Buyer with such financial, tax
and other operating data and other information as Buyer may reasonably request.
Seller hereby agrees that it will retain, until all appropriate statutes of
limitation (including any extensions) expire, copies of all tax returns and
supporting work schedules and other records or information which may be relevant
to such tax returns, except for such tax returns, supporting work schedules and
other records which Buyer shall acquire as a consequence of this Agreement
(provided, that Seller may elect not to retain any such copies if Seller gives
- ---------
such copies or makes such copies available to Buyer), and that it will not
destroy or otherwise dispose of such materials without first providing Buyer
with a reasonable opportunity to review and copy such materials. Buyer hereby
agrees that it will retain, until all appropriate statutes of limitation
(including any extensions) expire, copies of all tax returns and supporting work
schedules received from Seller pursuant to this Agreement and other records or
information which may be relevant tosuch tax returns (provided, that Buyer may
--------
elect not to retain any such copies if Buyer gives such copies or makes such
copies available to Seller), and that it will not destroy or otherwise dispose
of such materials without first providing Seller with a reasonable opportunity
to review and copy such materials. After the Closing Date, Buyer shall give
Seller and its authorized representatives full access to the books and records
acquired as a consequence of this Agreement for purposes of and relating to the
prosecution of any claims of Seller under Sections 542-550 of the Bankruptcy
Code. Seller will promptly deliver to Buyer copies of all pleadings, motions,
notices, statements, schedules, applications, reports and other papers filed in
Seller's Chapter 11 case relating to this Agreement or the transactions
contemplated hereby.
16
<PAGE>
(d) Operation in the Ordinary Course. Prior to the Closing Date,
--------------------------------
Seller shall conduct its business only in the ordinary course and consistent
with past practice since November 11, 1994. In furtherance of and without
limiting the foregoing, (x) Seller shall
(i) maintain and preserve all of the physical Assets in the same
condition as at November 11, 1994, ordinary wear and tear excepted;
(ii) maintain its books, accounts and records;
(iii) comply in all material respects with all federal, state, local
and other laws, statutes, ordinances, rules, regulations, Orders or other
requirements of any Governmental Authority applicable to Seller, the Assets
or the Business and perform all of its material obligations under the
Assigned Contracts, provided, that Seller shall not be required to pay any
--------
Cure Amounts; and
(iv) continue to employ the management employees of Seller referred to
in a memorandum dated January 30, 1995 from Buyer to Seller (or such other
personnel as are satisfactory to Buyer in its sole discretion); and, (y)
Seller shall not, without the prior written consent of Buyer:
(i) except in accordance with their terms, terminate, allow to expire,
renew or renegotiate, or default in any of its obligations under any
Assigned Contract;
(ii) sell, transfer, mortgage, encumber or otherwise dispose of any of
the Assets, other than Accounts Receivable and Inventory; or
(iii) agree to or make any commitment to take any actions prohibited
by this Section 9(d).
(e) Exclusivity. From the date hereof and until the earlier of (i) the
-----------
denial of the Approval Order by the Bankruptcy Court or (ii) the termination of
this Agreement, Seller shall not, directly or indirectly, solicit or encourage
the making of any inquiries or the making of any offers which are reasonably
expected to defeat the purpose of this Agreement including any offer for the
purchase of the Assets, provided, however that nothing herein shall preclude
--------
Seller from responding to unsolicited inquiries from potential bidders. Seller
shall advise Buyer of the identity of any potential bidders.
(f) Sales Tax. Unless exempt under Section 1146(c) of the Bankruptcy
---------
Code, Seller shall pay any and all sales, transfer or transaction taxes imposed
by any Governmental Authority in connection with the consummation of the
transactions contemplated by this Agreement.
(g) Confidentiality. Prior to the Closing and thereafter, except to
---------------
the extent required by applicable law or court order, each of Buyer and Seller
shall keep strictly confidential all documents and other communications and
information whether written or oral, provided by the other prior to or after
execution of this Agreement.
17
<PAGE>
(h) Compliance With Voluntary Consent Order. The Seller shall comply
in all respects with the Voluntary Consent Order and shall provide copies to
Buyer of all correspondence, memoranda, notices, statements, schedules,
applications, reports, filings with Governmental Authorities and other papers
relating to the Voluntary Consent Order.
10. CONDITIONS TO BUYER'S OBLIGATION TO EFFECT CLOSING
The obligation of Buyer to effect the Closing shall be subject to the
satisfaction, on or before the Closing Date, of the following conditions, any
one or more of which may be waived by Buyer:
(a) Representations and Warranties and Covenants. (i) The
--------------------------------------------
representations and warranties of Seller set forth in this Agreement shall be
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date as though made at each such time, (ii) Seller shall have
performed and complied in all material respects with the agreements contained in
this Agreement required to be performed and complied with by Seller on or before
the Closing, and (iii) Seller shall have delivered to Buyer at the Closing
certificates, dated the Closing Date, signed by the Chief Executive Officer,
the President or any Vice President of Seller certifying as to compliance with
clauses (i) and (ii) above and as to compliance with Section 10(f).
(b) Effectiveness of the Scheduling Order and Approval Order. The
--------------------------------------------------------
Bankruptcy Court shall have entered the Approval Order, 10 days shall have
elapsed since the Approval Order was entered (provided, that if the tenth day
--------
after the Approval Order is entered is not a Business Day, such period shall be
deemed to have elapsed on the first Business Day following such tenth day), and
the effectiveness of the Approval Order and the Scheduling Order shall not have
been stayed or, if stayed, such stay shall no longer be in effect.
(c) No Material Adverse Change. Since November 11, 1994, there shall
--------------------------
not have been any material adverse change in the condition of the fixed assets
of the Seller.
(d) No Litigation. There shall not be any Order, litigation, action or
-------------
proceeding pending or threatened to be brought before any Governmental Authority
seeking to enjoin, restrain or prohibit the transactions contemplated hereby or
claiming damages in a substantial or undetermined amount in respect of this
Agreement and the transactions contemplated hereby.
(e) Compliance with HSR Act. Any applicable waiting period under the
-----------------------
HSR Act shall have expired or been terminated.
(f) Compliance With Scheduling Order; Notice. Seller shall have
----------------------------------------
complied with all requirements of the Scheduling Order, including the notice
requirements provided therein, and Seller shall have provided copies of any
notices given pursuant to the Scheduling Order to all Governmental Authorities
set forth on Schedule 10(f).
--------------
18
<PAGE>
(g) Opinion of Seller's Counsel. Buyer shall have received an opinion
---------------------------
of Gentry, Tipton, Kizer & Little, P.C., Seller's bankruptcy counsel, dated the
Closing Date, substantially in the form attached hereto as Exhibit D.
---------
(h) Good Standing Certificates; Secretary's Certificate. The Seller
---------------------------------------------------
shall have furnished to Buyer:
(i) a certificate of corporate existence and a copy of the
certificate of incorporation of Seller (or other organizational
instrument), certified as of a recent date by the Secretary of State of
Tennessee; and
(ii) a certificate of the Secretary or an Assistant Secretary
of Seller certifying as to (A) a copy of the resolutions adopted by the
Board of Directors of Seller to authorize the execution, delivery and
performance of this Agreement, and (B) the incumbency and signatures of
Seller's officers executing this Agreement and any documents executed at
the Closing.
(i) Consents. Those authorizations, consents or approvals of (A) any
--------
and all Governmental Authorities and (B) other third parties identified as
conditions precedent on Schedule 7(b), shall have been obtained and shall be in
-------------
full force and effect.
(j) Compliance With Environmental and other Laws. Buyer shall have
---------------------------------------------
completed a Phase I environmental audit with respect to the Assets (and such
additional investigation as Buyer determines is necessary or advisable based on
the results of such Phase I environmental audit after obtaining any consent
required by Section 9(c)), and the results of such environmental audit and
additional investigation shall be satisfactory to Buyer in all respects, and
Buyer shall be reasonably satisfied that the Assets and the Business may be
operated in substantially the same manner as operated prior to November 11, 1994
(other than the operation of the meltshop) and in material compliance with all
laws including environmental and occupational safety laws.
(k) Permits. Buyer shall be satisfied that it has obtained all Permits
-------
(temporary or otherwise) necessary to own and operate the Business and/or the
Assets in the same manner as operated prior to November 11, 1994 (other than the
operation of the meltshop).
(l) Real Property. Buyer shall have obtained a survey of the Real
-------------
Property identifying the location of the easements set forth on the Title
Commitment attached as Schedule 1(c) and Buyer shall be reasonably satisfied
-------------
that the locations of such easements do not materially detract from the value or
use of the Real Property. In addition, title insurance shall be issuable on the
Real Property pursuant to the Title Commitment attached as Schedule 1(a),
-------------
subject only to the permitted exceptions identified thereon.
19
<PAGE>
11. CONDITIONS TO SELLER'S OBLIGATION TO EFFECT CLOSING
The obligation of Seller to effect the Closing shall be subject to the
satisfaction, on or before the Closing Date, of the following conditions, any
one or more of which may be waived jointly by Seller and the Banks:
(a) Representations and Warranties. (i) The representations and
------------------------------
warranties of Buyer set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date as
though made at each such time, (ii) Buyer shall have performed and complied in
all material respects with the agreements contained in this Agreement required
to be performed and complied with by Buyer on or before the Closing, and (iii)
Buyer shall have delivered to Seller at the Closing certificates, dated the
Closing Date, signed by the Chief Executive Officer, the President or any Vice
President of Buyer certifying as to compliance with clauses (i) and (ii) above.
(b) Effectiveness of Approval Order. The Bankruptcy Court shall have
-------------------------------
entered the Approval Order, 10 days shall have elapsed since the Approval Order
was entered (provided, that if the tenth day after the Approval Order is entered
--------
is not a Business Day, such period shall be deemed to have elapsed on the first
Business Day following such tenth day), and the effectiveness of the Approval
Order shall not have been stayed or, if stayed, such stay shall no longer be in
effect.
(c) Compliance with HSR Act. Any applicable waiting period under the
-----------------------
HSR Act shall have expired or been terminated.
(d) No Litigation. There shall not be any Order, litigation, action or
-------------
proceeding pending or threatened to be brought before any Governmental Authority
seeking to enjoin, restrain or prohibit the transactions contemplated hereby or
claiming damages in a substantial or undetermined amount in respect of this
Agreement and the transactions contemplated hereby.
(e) Opinion of Buyer's Counsel. Seller shall have received an opinion
--------------------------
of Kaye, Scholer, Fierman, Hays & Handler, Buyer's counsel, dated the
Closing Date, substantially in the form attached hereto as Exhibit E.
---------
(f) Good Standing Certificates; Secretary's Certificate. The Buyer
---------------------------------------------------
shall have furnished to Seller:
(i) a certificate of good standing and a copy of the certificate of
incorporation of each of Buyer and Parent, certified as of a recent date by the
Secretary of State of Delaware; and
(ii) a certificate of the Secretary or an Assistant Secretary of
Buyer certifying as to (A) a copy of the resolutions adopted by the Board of
Directors of Buyer to authorize the execution, delivery and performance of this
Agreement, and (B) the incumbency and signatures of each of Buyer's and Parent's
officers executing this Agreement and any documents executed at the Closing.
20
<PAGE>
12. TERMINATION; EFFECT OF TERMINATION
(a) Termination. This Agreement may be terminated before the Closing
-----------
occurs only as follows:
(i) By written agreement of Seller, the Banks and Buyer at any time.
(ii) By Buyer or by Seller (with the consent of the Banks or by
order of the Bankruptcy Court), by notice to the other, if the Closing shall not
have occurred for any reason on or before April 7, 1995.
(iii) By Buyer, by notice to the Seller and the Banks, if one or
more of the conditions specified in Section 10 is not satisfied on the Closing
Date or if satisfaction of such a condition is or becomes impossible.
(iv) By Seller (with the consent of the Banks or by order of the
Bankruptcy Court), by notice to Buyer, if one or more of the conditions
specified in Section 11 is not satisfied on the Closing Date or if satisfaction
of such a condition is or becomes impossible.
(v) By Buyer, if the Approval Order has not been entered by March 3,
1995, or if, prior to such date, the Bankruptcy Court approves another
transaction involving the sale or other transfer of any of the Assets to a third
party.
(b) No Further Liability. If this Agreement is terminated by either
--------------------
or both of Seller and Buyer pursuant to this Section 12, neither party shall
have any further obligation or liability under this Agreement except as provided
in this Section 12 and except for those provisions expressly provided to survive
the termination hereof, including Sections 12(c) and 17(k).
(c) Deposit. If the Closing does not occur or this Agreement is
-------
terminated, the Deposit shall be paid to Buyer in accordance with the Escrow
Agreement, provided, that if the Closing does not occur because of a failure to
--------
perform by Buyer after all conditions to Closing have been satisfied, the
Deposit shall be paid to Seller in accordance with the Escrow Agreement.
13. EMPLOYEES
Buyer undertakes no obligation to offer employment to any of Seller's
employees, nor does Buyer assume any collective bargaining agreement, employment
contract, or other obligation, commitment, or liability of any kind with respect
to Seller's employees which has arisen or may arise from their employment with
Seller or the termination of that employment by Seller (including any
obligations or payments required of Seller under the Workers Adjustment and
Retraining Notification Act of 1988, as amended, and any liability or obligation
of Seller under any of Seller's Benefit Plans).
21
<PAGE>
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
(a) Survival of Representations and Warranties. The representations
------------------------------------------
and warranties of Seller and Buyer made pursuant to this Agreement shall survive
until one year following the Closing Date (the "Survival Termination Date").
(b) Indemnification by Seller. Seller shall indemnify and hold
-------------------------
harmless Buyer, and shall reimburse Buyer for, any Loss arising from or in
connection with (i) any inaccuracy in any of the representations and warranties
of Seller in this Agreement or in any certificate delivered by Seller pursuant
to this Agreement, or any actions, omissions or state of facts inconsistent with
any such representation or warranty, (ii) any failure by Seller to perform or
comply with any agreement in this Agreement, (iii) any claim by any Person for
brokerage or finder's fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by any such Person with
Seller (or any Person acting on their behalf) in connection with any of the
transactions contemplated hereby or (iv) any liabilities or obligations of
Seller which are not Assumed Obligations.
(c) Indemnification by Buyer and Parent. Buyer and Parent shall
-----------------------------------
indemnify and hold harmless Seller and shall reimburse Seller for, any Loss
arising from or in connection with (i) any inaccuracy in any of the
representations and warranties of Buyer in this Agreement or in any certificate
delivered by Buyer pursuant to this Agreement, or any actions, omissions or
state of facts inconsistent with any such representation or warranty, (ii) any
failure by Buyer to perform or comply with any agreement in this Agreement, or
(iii) any claim by any Person for brokerage or finder's fees or commissions or
similar payments based upon any agreement or understanding alleged to have been
made by such Person with Buyer (or any Person acting on its behalf) in
connection with any of the transactions contemplated hereby. The obligations of
Buyer and Parent under this Section 14(c) shall be joint and several.
(d) Procedure for Indemnification with respect to Direct Claims. (i)
-----------------------------------------------------------
Except as provided in subsection (ii) below, (x) in the event that Buyer shall
have a claim for indemnification by Seller pursuant to Section 14(b), Buyer
shall have until the Survival Termination Date to make such claim against
Seller, and (y) the liability of Seller for any such claim shall be limited to
the Holdback Amount and shall be payable as provided in the Escrow Agreement.
(ii) Notwithstanding subsection (i) above, in the event that Buyer
shall have a claim for indemnification by Seller arising from or in connection
with the remediation required to be performed under the Voluntary Consent Order,
Buyer shall have until such date as the Tennessee Department of Environment and
Conservation shall have issued a Letter of Completion pursuant to Section XV.K.
of the Voluntary Consent Order (the "Environmental Claim Termination Date") in
order to make such claim against Seller. The liability of Seller for any such
claim shall be limited to the Holdback Amount and shall be payable as provided
in the Escrow Agreement.
(iii) Buyer shall make any claim for indemnification by Seller under
this Section 14 by sending to Seller a written notice specifying the nature of
the claim and
22
<PAGE>
the dollar amount of Loss incurred by Buyer for which indemnification is
sought. The Escrow Agent shall pay to the Buyer out of the Holdback Amount
in accordance with the Escrow Agreement the amount of the Loss as
determined in accordance with the Escrow Agreement.
(iv) In the event that Seller shall have a claim for indemnification
by Buyer pursuant to Section 14(c), Seller shall have until the Survival
Termination Date to make such claim against Buyer by sending Buyer a
written notice specifying the nature of the claim and the dollar amount of
loss incurred by Seller for which indemnification is sought.
(e) Procedure for Indemnification with respect to Third Party Claims.
----------------------------------------------------------------
Promptly after receipt by an indemnified party under Section 14(b) or (c) of
notice of the commencement or assertion of any action or proceeding, demand or
claim (each an "Action"), such indemnified party shall, if a claim in respect
thereof is to be made against an indemnifying party under such section, give
notice to the indemnifying party of the commencement or assertion thereof, but
the failure so to notify the indemnifying party shall not relieve it of any
liability that it may have to any indemnified party except to the extent the
indemnifying party demonstrates that the defense or settlement of such Action is
prejudiced thereby. In case any such Action shall be brought or asserted
against an indemnified party and it shall give notice to the indemnifying party
of the commencement or assertion thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, to assume
the defense thereof with counsel reasonably satisfactory to such indemnified
party and, after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party shall not
be liable to such indemnified party under such section for any fees of other
counsel or any other expenses, in each case subsequently incurred by such
indemnified party in connection with the defense thereof, other than reasonable
costs of investigation. If an indemnifying party assumes the defense of such an
Action, (a) no compromise or settlement thereof may be effected by the
indemnifying party without the indemnified party's consent unless (i) there is
no finding or admission of any violation of law or any violation of the rights
of any Person by the indemnified party and no effect on any other claims that
may be made against the indemnified party and (ii) the sole relief provided is
monetary damages that are paid in full by the indemnifying party and (b) the
indemnifying party shall have no liability with respect to any compromise or
settlement thereof effected without its consent. If notice is given to an
indemnifying party of the commencement of any Action and it does not, within ten
days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense thereof, the
indemnifying party shall be bound by any determination made in such Action or
any compromise or settlement thereof effected by the indemnified party.
Notwithstanding the foregoing, if an indemnified party determines in good faith
that there is a reasonable probability that an Action may adversely affect it or
its affiliates other than as a result of monetary damages, such indemnified
party may, by notice to the indemnifying party, assume the exclusive right to
defend, compromise or settle such Action, but the indemnifying party shall not
be bound by any determination of an Action so defended or any compromise or
settlement thereof effected without its consent.
23
<PAGE>
(f) Limitation on Indemnification. Buyer shall not be entitled to
-----------------------------
indemnification under Section 14(b)(i) by Seller with respect to any claims
until the aggregate Loss suffered by Buyer arising from or in connection with
all such claims exceeds $150,000, whereupon Buyer shall be entitled to
indemnification hereunder for the entire amount of aggregate Loss arising
therefrom. Seller shall not be entitled to indemnification under Section
14(c)(i) by Buyer with respect to any claims until the aggregate loss suffered
by Seller arising from or in connection with all such claims exceeds $150,000,
whereupon Seller shall be entitled to indemnification hereunder to the entire
amount of aggregate loss arising therefrom.
15. JURISDICTION
The parties agree that the Bankruptcy Court shall retain jurisdiction
to resolve any controversy or claim arising out of or relating to this
Agreement, or the breach hereof.
16. COLLECTION OF ACCOUNTS RECEIVABLE; MAIL
(a) General. If, following the Closing, Buyer or Seller shall collect
-------
any accounts receivable belonging to, or receive any mail that was intended for,
the other party, the party collecting such accounts receivable, or receiving
such mail, shall hold the same in trust and, in the case of accounts receivable,
shall promptly pay the same over to the party entitled thereto and, in the case
of mail, deliver such mail to the party for which it is intended (in the case of
mail intended for Seller, Buyer shall deliver such mail to Seller's counsel),
and shall not be entitled to apply any of such funds against any amounts due
from the party entitled to such accounts receivable.
(b) Accounts Receivable Outstanding on the Closing Date. To the extent
that any of Seller's accounts receivable remain outstanding on the Closing Date,
Buyer shall use commercially reasonable efforts to collect such accounts
receivable. Any funds collected by Buyer in respect of any account receivable
owed by an account debtor and not tied to a particular invoice shall be applied
to satisfy the oldest invoice on the books of the Business (whether Buyer's or
Seller's) with respect to such account debtor; provided, however that no funds
--------
will be applied against a non-designated invoice as to which Buyer has been
informed there exists a good faith dispute. To the extent that accounts
receivable outstanding on the Closing Date would be considered delinquent under
Parent's then existing credit and collection policy ("Parent's Collection
Policy") and such delinquency does not result from a good faith dispute over
such account receivable between Seller and the account debtor, Buyer will
exercise on behalf of the Seller such remedies as the Parent would exercise if
such account were its own account, including refusing to ship additional
products to the account debtor if such refusal would be appropriate under
Parent's Collection Policy. To the extent that Buyer has been informed that
there is a good faith dispute over an account receivable between Seller and an
account debtor, Seller shall promptly inform Buyer. Buyer shall have the right
to assign the account receivable subject to the dispute to Seller and thereafter
shall have no obligations under this Section 16(b) with respect to such account
debtor. In addition, Seller shall have the right to have any account receivable
assigned to it and thereafter Buyer shall have no obligations under this Section
16(b) with respect to such account debtor. From the Closing Date until 30 days
thereafter, any amounts collected in respect of accounts receivable outstanding
on the Closing Date shall be reflected on the Closing Date Schedule in
24
<PAGE>
accordance with Schedule 3(b). Following 30 days after the Closing Date, any
-------------
amounts collected in respect of accounts receivable outstanding on the Closing
Date shall be promptly paid by Buyer to Seller. Buyer shall provide Seller with
reasonable access to its books and records, regarding accounts receivable for
purposes of this Section 16(b).
17. MISCELLANEOUS
(a) Notices. All notices, requests, demands, consents and other
-------
communications required or permitted under this Agreement shall be in writing
and shall be considered to have been duly given when (i) delivered by hand, (ii)
sent by telecopier (with receipt confirmed), provided that a copy is mailed (on
the same date) by certified or registered mail, return receipt requested,
postage prepaid, or (iii) received by the addressee, if sent by Express Mail,
Federal Express or other express delivery service (receipt requested), or by
first class certified or registered mail, return receipt requested, postage
prepaid, in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
from time to time designate as to itself by notice similarly given to the other
party in accordance herewith). A notice of change of address shall not be
deemed given until received by the addressee.
If to Buyer or Parent, to it at:
River Road
La Place, Louisiana 70068
Attention: Jerry Pitts, President
and to Richard Gonzalez,
Chief Financial Officer
Telecopier No.: (504) 652-0498
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler
425 Park Avenue
New York, New York 10022
Attention: Rory A. Greiss, Esq.
Telecopier No.: (212) 836-8689
If to Seller, to it at:
P.O. Box 328
Rockwood, Tennessee 37854
Attention: Morton I. Michelson
President and Chief Executive Officer
Telecopier No.: (615) 882-5540
25
<PAGE>
Federal Express Address:
-----------------------
2404 South Roane Street
Harriman, Tennessee 37748
with a copy to:
Gentry, Tipton Kizer & Little, P.C.
Suite 2610, Plaza Tower
Knoxville, Tennessee 37929
Attention: W. Morris Kizer, Esq.
Telecopier No: (615) 523-7315
If to NationsBank, at:
100 North Tryon Street
Charlotte, North Carolina 28255
Attention: Charles A. Kerr
Senior Vice President
Telecopier No.: (704) 386-1759
with a copy to:
Baker, Donelson Bearman & Caldwell, P.C.
One Republic Center
633 Chestnut Street
Chattanooga, Tennessee 37450-1800
Attention: Richard B. Gossett, Esq.
Telecopier No.: (615)-756-3454
If to Bankers Trust, at:
14 Wall Street, 3rd Floor
New York, New York 10005
Attention: Albert L. Fischetti
Senior Vice President
Telecopier No.: (212) 618-2631
with a copy to:
Baker, Donelson Bearman & Caldwell, P.C.
One Republic Center
633 Chestnut Street
Chattanooga, Tennessee 37450-1800
Attention: Richard B. Gossett, Esq.
Telecopier No.: (615)-756-3454
26
<PAGE>
(b) Public Announcements. No public release or announcement concerning
--------------------
the transactions contemplated hereby shall be issued by Buyer or Seller without
the prior consent (which shall not be unreasonably withheld) of the other party,
except as such release or announcement may be required by law or the rules or
regulations of any United States or foreign securities exchange.
(c) Entire Agreement. This Agreement and the instruments, agreements,
----------------
exhibits and other documents contemplated hereby supersede all prior discussions
and agreements between the parties with respect to the matters contained herein,
and this Agreement and the instruments, agreements and other documents
contemplated hereby contain the entire agreement between the parties hereto with
respect to the transactions contemplated hereby.
(d) Further Assurances. After the Closing, each of the parties hereto
------------------
shall hereafter, at the reasonable request of the other party hereto, execute
and deliver such other instruments of transfer or assumption and further
documents and agreements, and do such
further acts and things as may be necessary or expedient to carry out the
provisions of this Agreement.
(e) Waiver. Any term or condition of this Agreement may be waived at
------
any time by the party thereto which is entitled to the benefit thereof, but such
waiver shall only be effective if evidenced by a writing signed by such party. A
waiver on one occasion shall not be deemed to be a waiver of the same of any
other breach on a future occasion.
(f) Amendment. Except as otherwise expressly provided herein, this
---------
Agreement may be amended only by a writing signed by all the parties hereto.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
(h) Binding Agreement; Assignment; No Third Party Beneficiaries. This
-----------------------------------------------------------
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns. This Agreement
may not be assigned by any party hereto, without the prior written consent of
the other parties, provided, that Buyer may assign this Agreement in whole or in
--------
part to any of its Subsidiaries, to any of the Subsidiaries of Parent and/or to
Parent. Any purported assignment without such consent shall be void. This
Agreement is not made for the benefit of any third party (including any non-
Seller parties to the Assigned Contracts), and no third party shall be deemed to
be a beneficiary hereof.
(i) Governing Law. This Agreement shall be governed by the internal
-------------
laws of the State of Tennessee, without regard to the conflicts of laws
principles thereof.
(j) Headings. The headings in this Agreement are for convenience of
--------
reference only and should not be deemed a part of this Agreement.
27
<PAGE>
(k) Expenses. In the event that the Assets are sold, or otherwise
--------
disposed of, to an entity other than Buyer, Seller shall reimburse Buyer upon
application and approval of the Bankruptcy Court an amount up to $1 million for
all reasonable and necessary expenses incurred by Buyer in connection with its
offer to purchase the Assets, which expenses shall be paid out of the proceeds
from the sale of the Assets prior to satisfying any Liens thereon.
(l) Brokers. The parties hereto represent and warrant to each other
-------
that they have not employed or dealt with any broker or finder in connection
with any transactions contemplated by this Agreement.
(m) Bank Representative. The Banks hereby designate Albert L.
-------------------
Fischetti as the representative of the Banks (the "Bank Representative") for
purposes of giving any consent or notice or taking any other action required or
permitted to be taken by the Banks hereunder. The Bank Representative shall have
exclusive authority to give any such consent or notice or take such action. The
Buyer and the Parent may rely upon and shall be protected in acting or
refraining from acting upon any written notice, instruction or request furnished
by the Bank Representative under this Agreement and believed by the Buyer or
Parent, as the case may be, to be genuine. The Banks may designate a successor
Bank Representative by giving notice to the Seller, Buyer and Parent in
accordance with the notice provisions of Section 17(a).
28
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the date first above written.
SELLER:
TENNESSEE VALLEY STEEL CORPORATION
By: /s/ Morton I. Michelson
__________________________________
Name: MORTON I. MICHELSON
Title: CHAIRMAN OF THE BOARD
BUYER:
TV ACQUISITION CORP.
By: /s/ Jerry M. Pitts
__________________________________
Name: JERRY M. PITTS
Title: PRESIDENT, COO
PARENT:
BAYOU STEEL CORPORATION
By: /s/ Jerry M. Pitts
__________________________________
Name: JERRY M. PITTS
Title: PRESIDENT, COO
THE BANKS:
BT COMMERCIAL CORPORATION
By: /s/ Albert L. Fischetti
__________________________________
Name: ALBERT L. FISCHETTI
Title: SR. V.P.
NATIONSBANK, N.A. (CAROLINAS)
By: /s/ John F. Register
__________________________________
Name: JOHN F. REGISTER
Title: VICE PRESIDENT
29
<PAGE>
EXHIBIT B TO ASSET
PURCHASE AGREEMENT
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of January 30, 1995, among TENNESSEE VALLEY
STEEL CORPORATION, a Tennessee corporation, having an office at P.O. Box 328,
Rockwood, Tennessee 37854 ("Seller"), TV ACQUISITION CORP., a Delaware
corporation, having an office at c/o Bayou Steel Corporation, P.O. Box 5000, La
Place, Louisiana 70069-1156 ("Buyer"), BAYOU STEEL CORPORATION, a Delaware
corporation, having an office at P.O. Box 5000, La Place, Louisiana 70069-1156
("Parent"), BT COMMERCIAL CORPORATION, a Delaware corporation, having an office
at 14 Wall Street, New York, New York 10005 ("Bankers Trust"), NATIONSBANK, N.A.
(CAROLINAS), a national banking association, having an office at 100 North Tryon
Street, Charlotte, North Carolina 28255 ("NationsBank," and together with
Bankers Trust, the "Banks"), and CHEMICAL BANK, with offices at 450 West 33rd
Street, New York, New York 10001, as escrow agent (the "Escrow Agent").
R E C I T A L S:
The parties (other than the Escrow Agent) have entered into an Asset
Purchase Agreement dated as of the date hereof (the "Purchase Agreement"),
pursuant to which, among other things, Seller has agreed to sell to Buyer and
Buyer has agreed to purchase from Seller substantially all of the assets and
certain contract rights of Seller. This Agreement is the Escrow Agreement
referred to in the Purchase Agreement.
NOW, THEREFORE, the parties agree as follows:
1. APPOINTMENT AND DEPOSIT OF FUNDS.
(a) Appointment. Seller and Buyer hereby appoint the Escrow Agent to
-----------
act as escrow agent, and the Escrow Agent accepts such appointment, all on the
terms and subject to the conditions contained in this Agreement.
(b) Deposit of Escrow Fund. Within one Business Day after entry of the
----------------------
Approval Order by the Bankruptcy Court, Buyer shall pay to the Escrow Agent the
sum of $1,000,000 (the "Deposit"). On the date (the "Closing Date") of the
closing of the transactions contemplated by the Purchase Agreement (the
"Closing"), Buyer shall pay to the Escrow Agent the sum of $8,500,000 (such sum,
together with the Deposit, being referred to herein as the "Escrow Fund").
(c) Safeguarding of Funds; Investment. The Escrow Agent hereby agrees
---------------------------------
to as escrow agent and to hold, safeguard and disburse the Escrow Fund pursuant
to the terms and conditions hereof. Until disbursement of the entire Escrow
Fund, it shall be invested by the Escrow Agent in an interest bearing account at
Chemical Bank (or such other financial institution identified to the Escrow
Agent by written notice from Buyer and Seller).
<PAGE>
2. DELIVERY AND RELEASE OF ESCROW FUND PRIOR TO CLOSING.
(a) On Buyer Breach. Upon receipt of a notice (a "Seller Termination
---------------
Notice") from Seller or the Banks prior to the Closing to the effect that the
date provided in Section 12(a)(ii) of the Purchase Agreement has occurred and
the conditions set forth in Section 10 of the Purchase Agreement have been
satisfied, but the Buyer has not performed the obligations required to be
performed by it at the Closing, the Escrow Agent shall promptly give a copy of
such notice to Buyer and Parent. If either the Buyer or Parent disagrees with
any item set forth in the Seller Termination Notice, it shall give notice of
such disagreement (a "Buyer Notice of Disagreement") to the Escrow Agent (with a
copy to Seller and the Banks). If the Escrow Agent does not receive a Buyer
Notice of Disagreement within 10 days after giving notice to the Buyer and
Parent of the Seller Termination Notice, the Escrow Agent shall pay the Deposit,
together with any interest or other earnings thereon to Seller (or such other
party or parties as the Bankruptcy Court may direct). If the Escrow Agent
receives a Buyer Notice of Disagreement, (i) Buyer, Parent, Seller and the Banks
shall use their best efforts to resolve such disagreement, provided, that,
--------
failing resolution of such disagreement within 10 days of Buyer's or Parent's
giving the Buyer Notice of Disagreement, the matter shall be submitted to the
Bankruptcy Court for resolution, and (ii) the Escrow Agent shall refrain from
taking any action until such time as it receives notice in accordance with
Section 4(e) hereof.
(b) On Other Termination. Upon receipt of a notice (a "Buyer
--------------------
Termination Notice") from Buyer or Parent to the effect that the Purchase
Agreement has been terminated without the occurrence of the Closing under
circumstances other than those set forth in Section 2(a) hereof, the Escrow
Agent shall promptly give a copy of such notice to Seller and the Banks. If
either of the Seller or the Banks disagrees with any item set forth in the Buyer
Termination Notice, it shall give notice of such disagreement (a "Seller Notice
of Disagreement") to the Escrow Agent (with a copy to Buyer and Parent). If the
Escrow Agent does not receive a Seller Notice of Disagreement within 10 days
after giving notice to the Seller and the Banks of the Buyer Termination Notice,
the Escrow Agent shall pay the Deposit, together with any interest or other
earnings thereon, to Buyer. If the Escrow Agent receives a Seller Notice of
Disagreement, (i) Buyer, Parent, Seller and the Banks shall use their best
efforts to resolve such disagreement, provided, that, failing resolution of such
--------
disagreement within 10 days of Seller's or the Bank's giving the Seller Notice
of Disagreement, the matter shall be submitted to the Bankruptcy Court for
resolution, and (ii) the Escrow Agent shall refrain from taking any action until
such time as it receives notice in accordance with Section 4(e) hereof.
3. DELIVERY AND RELEASE OF ESCROW FUND POST-CLOSING.
(a) Payment of Adjusted Purchase Price. Upon receipt of a notice from
----------------------------------
Buyer, Parent, Seller and the Banks stating (i) that the Closing has been
consummated, (ii) that the Adjusted Purchase Price has been determined in
accordance with Section 3(b) of the Purchase Agreement, and (iii) the amount of
the Adjusted Purchase Price, the Escrow Agent shall pay an amount equal to the
Adjusted Purchase Price less (x) the Closing Payment, (y) all Cure Amounts and
(z) $3,000,000 to be retained and disbursed in accordance with Section 3(b) and
3(c) hereof ((z) being referred to herein as the "Holdback Amount"),
2
<PAGE>
together with interest or other earnings on such amount, to the Seller (or such
other party or parties as the Bankruptcy Court may direct). Simultaneously with
the payment in accordance with the preceding sentence, any remaining portion of
the Escrow Fund (other than the Holdback Amount) shall be paid to Buyer.
(b) Claims by Buyer for Indemnification by Seller. Upon receipt from
---------------------------------------------
Buyer of a notice that Buyer has a claim for indemnification pursuant to Section
14 of the Purchase Agreement, and specifying the nature of the claim and the
dollar amount of the Loss incurred by Buyer for which indemnification is sought,
the Escrow Agent shall give notice to Seller and the Banks, and, unless within
15 days thereafter the Escrow Agent receives from Seller or the Banks a notice
(an "Indemnification Dispute Notice") disputing such claim, the Escrow Agent
shall promptly pay the amount of the specified Loss to Buyer. If an
Indemnification Dispute Notice is given with respect to a claim, (i) the parties
shall use their best efforts to resolve such dispute, provided, that, failing
--------
resolution of such dispute within 10 days of receipt by the Escrow Agent of the
Indemnification Dispute Notice, the matter shall be submitted to the Bankruptcy
Court for resolution, and (ii) the Escrow Agent shall refrain from taking any
action until such time as it receives notice in accordance with Section 4(e)
hereof.
(c) Disbursement of Remaining Escrow Fund. Promptly following the
-------------------------------------
Survival Termination Date, the Escrow Agent shall pay the excess, if any, of the
amount of the Escrow Fund over $2,000,000 to the Seller (or such other party or
parties as the Bankruptcy Court may direct), less any amounts subject to a
pending claim for indemnification pursuant to Section 3(b), which amounts,
together with interest or other earnings thereon, shall, upon resolution of such
dispute, be disbursed to Buyer, Seller and/or such other parties, as
appropriate. Upon receipt from Seller or the Banks of a notice that the
Environmental Claim Termination Date has occurred, the Escrow Agent shall give
notice to Buyer and Parent, and, unless within 15 days thereafter the Escrow
Agent receives from Buyer or Parent a notice (a "Termination Dispute Notice")
disputing the occurrence of the Environmental Claim Termination Date, the Escrow
Agent shall promptly pay the remaining portion of the Escrow Fund to the Seller
(or such other party or parties as the Bankruptcy Court may direct), less any
amounts subject to a pending claim for indemnification pursuant to Section 3(b),
which amounts, together with interest or other earnings thereon, shall, upon
resolution of such dispute, be disbursed to Buyer, Seller and/or such other
parties, as appropriate. If a Termination Dispute Notice is given, (i) the
parties shall use their best efforts to resolve such dispute, provided, that,
--------
failing resolution of such dispute within 10 days of receipt by the Escrow Agent
of the Termination Dispute Notice, the matter shall be submitted to the
Bankruptcy Court for resolution, and (ii) the Escrow Agent shall refrain from
taking any action until such time as it receives notice in accordance with
Section 4(e) hereof.
4. DUTIES OF ESCROW AGENT.
(a) Duties. Escrow Agent undertakes to perform only such duties as
------
are expressly set forth herein. The Escrow Agent shall have no duty to solicit
any payments which may be due it hereunder.
(b) Reliance by Escrow Agent. The Escrow Agent may rely and shall be
------------------------
protected in acting or refraining from acting upon any written notice,
instruction or request
3
<PAGE>
furnished to it hereunder and believed by it to be genuine and to have been
signed or presented by the proper party or parties. The Escrow Agent may
conclusively presume that the undersigned representative of any party hereto
which is an entity other than a natural person has full power and authority to
instruct the Escrow Agent on behalf of that party unless written notice to the
contrary is delivered to the Escrow Agent.
(c) Limitation of Liability. Escrow Agent shall not be liable for
-----------------------
any action taken by it in good faith and believed by it to be authorized or
within the rights or powers conferred upon it by this Agreement, and may consult
with counsel of its own choice and shall have full and complete authorization
and protection for any action taken or suffered by it hereunder in good faith
and in accordance with the opinion of such counsel. The Escrow Agent shall not
incur any liability for following the instructions herein contained or expressly
provided for, or written instructions given by the parties hereto or acting
pursuant to an order of the Bankruptcy Court.
(d) Successor Escrow Agent. Escrow Agent may resign and be
----------------------
discharged from its duties or obligations hereunder by giving 60 days' prior
written notice to Buyer, Seller and the Banks of such resignation, whereupon a
successor Escrow Agent shall be appointed by Buyer (subject to the approval of
the Seller and the Banks, which approval shall not be unreasonably withheld).
(e) Disputes. In the event of a dispute between the parties as to
--------
the proper disposition of the Escrow Fund or any other matter contemplated by
this Agreement, the Escrow Agent shall be entitled to refrain from taking any
action until receipt of written instructions in accordance with this Section
4(e). In the event that Buyer, Parent, Seller and the Banks shall reach a
settlement with respect to such dispute, they shall jointly deliver written
notice of such settlement to the Escrow Agent, including instruction to the
Escrow Agent regarding any payment to be made by it from the Escrow Fund. The
Escrow Agent shall make payment with respect to any matter under dispute only in
accordance with (i) the joint written instruction of Buyer, Parent, Seller and
the Banks or (ii) the final determination of the Bankruptcy Court after all
appeals have been resolved.
(f) Compensation; Indemnification. Escrow Agent shall be entitled to
-----------------------------
compensation for the services to be rendered by it hereunder as set forth on
Schedule II. The Buyer and Seller hereby agree to jointly and severally
indemnify the Escrow Agent for, and to hold it harmless against any loss,
liability or expense arising out of or in connection with this Agreement and
carrying out its duties hereunder, including the costs and expenses of defending
itself against any claim of liability, except in those cases where the Escrow
Agent has been guilty of gross negligence or willful misconduct. Anything in
this Agreement to the contrary notwithstanding, in no event shall the Escrow
Agent be liable for special, indirect or consequential loss or damage of any
kind whatsoever (including, but not limited to, lost profits), even if the
Escrow Agent has been advised of the likelihood of such loss or damage and
regardless of the form of action. Any such compensation and/or indemnification
to which Escrow Agent is entitled shall be paid from the Escrow Fund.
(g) No Action by Escrow Agent. In the event that the Escrow Agent
-------------------------
shall be uncertain as to its duties or rights hereunder or shall receive
instructions, claims or demands
4
<PAGE>
from any party hereto which, in its opinion, conflict with any of the provisions
of this Agreement, it shall be entitled to refrain from taking any action and
its sole obligation shall be to keep safely all property held in the Escrow Fund
until it shall be directed otherwise in writing by all of the other parties
hereto or by the final determination of the Bankruptcy Court after all appeals
have been resolved.
5. LIMITED RESPONSIBILITY. This Agreement expressly sets forth all
the duties of the Escrow Agent with respect to any and all matters pertinent
hereto. No implied duties or obligations shall be read into this Agreement
against the Escrow Agent. The Escrow Agent shall not be bound by the provisions
of any agreement among the parties hereto except this Agreement.
6. NOTICES. All notices, requests, demands, consents and other
communications required or permitted under this Agreement shall be in writing
and shall be considered to have been duly given when (i) delivered by hand, (ii)
sent by telecopier (with receipt confirmed), provided that a copy is mailed (on
the same date) by certified or registered mail, return receipt requested,
postage prepaid, or (iii) received by the addressee, if sent by Express Mail,
Federal Express or other express delivery service (return receipt requested),
in each case to the appropriate addresses and telecopier numbers set forth below
(or to such other addresses and telecopier numbers as a party may from time to
time designate as to itself by notice similarly given to the other party in
accordance herewith). A notice of change of address shall not be deemed given
until received by the addressee.
If to Buyer or Parent, to it at:
c/o Bayou Steel Corporation
River Road
La Place, Louisiana 70068
Attention: Jerry Pitts, President, and to
Richard Gonzalez,
Chief Financial Officer
Telecopier No.: (504) 652-0498
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler
425 Park Avenue
New York, New York 10022
Attention: Rory A. Greiss, Esq.
Telecopier No.: (212) 836-8689
5
<PAGE>
If to Seller, to it at:
P.O. Box 328
Rockwood, Tennessee 37854
Attention: Morton I. Michelson
President and Chief Executive Officer
Telecopier No.: (615) 882-5540
Federal Express Address:
-----------------------
2404 South Roane Street
Harriman, Tennessee 37748
with a copy to:
Gentry, Tipton Kizer & Little, P.C.
Suite 2610, Plaza Tower
Knoxville, Tennessee 37929
Attention: W. Morris Kizer, Esq.
Telecopier No: (615) 523-7315
If to the Escrow Agent, to it at:
450 West 33rd Street
New York, New York 10001
Attention: Escrow Administration, 15th Floor
Telecopier No: (212) 946-7682
If to NationsBank, at:
100 North Tryon Street
Charlotte, North Carolina 28255
Attention: Charles A. Kerr
Senior Vice President
Telecopier No.: (704) 386-1759
with a copy to:
Baker, Donelson Bearman & Caldwell, P.C.
One Republic Center
633 Chestnut Street
Chattanooga, Tennessee 37450-1800
Attention: Richard B. Gossett, Esq.
Telecopier No.: (615) 756-3454
6
<PAGE>
If to Bankers Trust, at:
14 Wall Street, 3rd Floor
New York, New York 10005
Attention: Albert L. Fischetti
Senior Vice President
Telecopier No.: (212) 618-2631
with a copy to:
Baker, Donelson Bearman & Caldwell, P.C.
One Republic Center
633 Chestnut Street
Chattanooga, Tennessee 37450-1800
Attention: Richard B. Gossett, Esq.
Telecopier No.: (615) 756-3454
7. TERMINATION. Upon payment of the entire Escrow Fund and any
interest or other earnings thereon in accordance with this Agreement, this
Agreement and all duties of the Escrow Agent hereunder shall be terminated.
8. TAX TREATMENT OF ESCROW FUNDS. The Buyer and the Seller shall
each provide the Escrow Agent with its tax identification number (TIN) as
assigned to it by the Internal Revenue Service. Buyer and Seller agree that,
for purposes of federal and other taxes based on income, the party receiving
interest or other income with respect to any portion of the Escrow Fund
ultimately distributed to such party will be treated as the owner of such
portion of the Escrow Fund, and that it will report all income, if any, that is
earned on, or derived from, such portion of the Escrow Fund as its income in the
taxable year or years in which such income is properly includible and pay any
taxes attributable thereto.
9. JURISDICTION. The parties agree that the Bankruptcy Court shall
retain jurisdiction to resolve any controversy, claim or dispute arising out of
or relating to this Agreement, or the breach thereof and all such controversies,
claims or disputes shall be submitted to the Bankruptcy Court. To the extent
that any order of the Bankruptcy Court conflicts with this Agreement, such order
of the Bankruptcy Court shall control.
10. DEFINITIONS. As used herein, the following definitions shall
apply:
"Adjusted Purchase Price" means $30,500,000 less adjustments to be
-----------------------
determined in accordance with Section 3(b) of the Purchase Agreement.
"Approval Order" means, collectively, orders of the Bankruptcy Court,
--------------
substantially in the forms attached as Exhibit A and Exhibit A1 to the Purchase
--------- ----------
Agreement.
7
<PAGE>
"Bankruptcy Court"
----------------
means the United States Bankruptcy Court for the Eastern District of
Tennessee.
"Closing Payment" means the amount paid by Buyer to Seller on
---------------
the Closing Date in accordance with Section 3(a)(ii)(B) of the
Purchase Agreement.
"Cure Amounts" means the amounts required to cure all defaults
------------
under the contracts to be assigned by Seller to Buyer pursuant to the
Purchase Agreement, as such amounts are set forth on Schedule 7(d) to
-------------
the Purchase Agreement.
"Environmental Claim Termination Date" means such date as the
------------------------------------
Tennessee Department of Environment and Conservation shall have issued
a Letter of Completion pursuant to Section XV.K. of the Voluntary
Consent Order.
"Governmental Authority" means any government or any agency,
----------------------
bureau, commission, court, department, official, political
subdivision, tribunal or other instrumentality of any government,
whether federal, state or local, domestic or foreign.
"Loss" means any cost, damage, injury, diminution in value,
----
disbursement, expense, liability, loss, claim, deficiency or penalty
of any kind or nature, including interest, penalties, and reasonable
legal, accounting and other professional fees and expenses incurred in
the investigation, collection, prosecution and defense of claims.
"Survival Termination Date" means the date one year following
-------------------------
the Closing Date.
"Voluntary Consent Order" means the Consent Agreement and Order
-----------------------
by and between the Tennessee Department of Environment and
Conservation and Seller and Southern Alloys and Metal Corporation,
attached as Exhibit C to the Purchase Agreement.
---------
11. MISCELLANEOUS.
(a) Waiver. Any term or condition of this Agreement may be waived at
------
any time by the party thereto which is entitled to the benefit thereof, but such
waiver shall only be effective if evidenced by a writing signed by such party.
A waiver on one occasion shall not be deemed to be a waiver of the same of any
other breach on a future occasion.
(b) Amendment. Except as otherwise expressly provided herein, this
---------
Agreement may be amended only by a writing signed by all the parties hereto.
8
<PAGE>
(c) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
(d) Binding Agreement. This Agreement shall be binding upon and
-----------------
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
(e) Governing Law. This Agreement shall be governed by the internal
-------------
laws of the State of Tennessee, without regard to the conflicts of laws
principles thereof.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and should not be deemed a part of this Agreement.
(g) Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding among the parties with respect to its subject matter
and may not be modified or terminated orally.
(h) Funds Transfer. All payments by any party hereunder shall be
--------------
made by means of federal funds wire transfer. In the event funds transfer
instructions are given to the Escrow Agent by any intended recipient of funds
hereunder (other than in writing at the time of execution of the Agreement),
whether in writing, by telecopier or otherwise, the Escrow Agent is authorized
to seek confirmation of such instructions by telephone call-back to the person
or persons designated on Schedule 1 hereto, and the Escrow Agent may rely upon
-----------------
the confirmations of anyone purporting to be the person or persons so
designated. The persons and telephone numbers for call-backs may be changed
only in a writing actually received and acknowledged by the Escrow Agent. The
parties to this Agreement acknowledge that such security procedure is
commercially reasonable. It is understood that in any funds transfer the Escrow
Agent may rely solely upon any account numbers or similar identifying number
provided by any intended recipient of funds hereunder to identify (i) such
intended recipient, (ii) such intended recipient's bank, or (iii) an
intermediary bank. The Escrow Agent may apply any of the escrowed funds for any
payment order it executes using any such identifying number, even where its use
may result in a person other than such intended recipient being paid, or the
transfer of funds to a bank other than such intended recipient's bank, or an
intermediary bank designated.
(i) Bank Representative. The Banks hereby designate Albert L.
-------------------
Fischetti as the representative of the Banks (the "Bank Representative") for
purposes of giving any consent or notice or taking any action required or
permitted to be taken by the Banks hereunder. The Bank Representative shall
have exclusive authority to give any consent or notice or take any other action
required or permitted to be taken by the Banks hereunder. The Buyer, Parent and
the Escrow Agent may rely upon and shall be protected in acting or refraining
from acting upon any written notice, instruction or request furnished by the
Bank Representative under this Agreement and believed by the Buyer, Parent or
the Escrow Agent, as the case may be, to be genuine. The Banks may designate a
successor Bank Representative by giving notice to the Seller, Buyer, Parent and
Escrow Agent in accordance with the notice provisions of Section 6 hereof.
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
SELLER:
TENNESSEE VALLEY STEEL CORPORATION
By: /s/ Morton I. Michelson
_____________________________
Name: MORTON I. MICHELSON
Title: PRESIDENT, CEO AND
CHAIRMAN OF THE BOARD
BUYER:
TV ACQUISITION CORP.
By: /s/ Jerry M. Pitts
_____________________________
Name: JERRY M. PITTS
Title: PRESIDENT, COO
PARENT:
BAYOU STEEL CORPORATION
By: /s/ Jerry M. Pitts
_____________________________
Name: JERRY M. PITTS
Title: PRESIDENT, COO
10
<PAGE>
ESCROW AGENT:
CHEMICAL BANK
By: /s/ John Sciacchitano
_____________________________
Name: JOHN SCIACCHITANO
Title: VICE PRESIDENT
THE BANKS:
BT COMMERCIAL CORPORATION
By: /s/ Albert L. Fischetti
_____________________________
Name: ALBERT L. FISCHETTI
Title: SR. V.P.
NATIONSBANK, N.A. (CAROLINAS)
By: /s/ John F. Register
_____________________________
Name: JOHN F. REGISTER
Title: VICE PRESIDENT
11
<PAGE>
SCHEDULE 1
TELEPHONE NUMBER(S) FOR CALL-BACKS AND PERSON(S)
DESIGNATED TO CONFIRM FUNDS TRANSFER INSTRUCTIONS
-------------------------------------------------
If to Buyer:
Name Telephone Number
---- ----------------
1. Rusty Sprague (214) 637-0600
2. Richard Gonzalez (504) 652-4900
If to Seller:
Name Telephone Number
---- ----------------
1. Morton I. Michaelson (615) 882-5100
2. W. Morris Kizer (615) 525-5300
Telephone call-backs shall be made to each of Buyer and Seller if joint
instructions are required pursuant to the Agreement.
12
<PAGE>
SCHEDULE II
12.5 basis points of the highest value of collateral held on deposit per annum
or any part thereof without proration for partial years, subject to a maximum of
$8,500 and a minimum of $5,000 per annum or any part thereof without proration
for partial years.
13
<PAGE>
EXHIBIT 99.1
CERTAIN INFORMATION REGARDING
THE ACQUISITION OF SUBSTANTIALLY
ALL OF THE ASSETS OF TENNESSEE
VALLEY STEEL CORPORATION BY
BAYOU STEEL CORPORATION
SUMMARY
THE TRANSACTION
On February 24, 1995, Bayou Steel Corporation ("Bayou" or the "Company")
received court approval to acquire the assets of Tennessee Valley Steel
Corporation ("TVS"), a producer of reinforcing bar ("rebar") and bar shape steel
products, which is currently idle after filing for Chapter 11 bankruptcy
protection in November 1994. The period during which appeals may be taken from
the court order approving the acquisition expired March 6, 1995. TVS's assets,
which will be acquired by a newly created, wholly-owned subsidiary of Bayou,
will allow Bayou to expand its operations and more fully utilize its existing
assets while enhancing the Company's ability to offer its customers a wide
product selection. Bayou will acquire the assets of TVS for approximately $30.5
million in cash, of which approximately $13.3 million consists of inventory,
receivables and cash as of October 31, 1994.
BAYOU STEEL CORPORATION
Bayou is a leading producer of light structural steel products. The Company owns
and operates a steel minimill located on the Mississippi River in La Place, LA,
35 miles northwest of New Orleans. The minimill, constructed at a cost of nearly
$250 million in 1981. The Company produces a variety of light structural steel
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 maintenance 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, metal buildings, and bridges.
The Company sells its products to over 600 customers, most of which are steel
service centers, in 41 U.S. states, Canada, Mexico and overseas. Bayou services
its customers via three inventory stocking warehouses in Chicago, Tulsa and
Pittsburgh, which supplement its distribution operations in La Place. 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 the fiscal year ended September 30, 1994, the Company sold
446,572 tons of shapes and 35,503 tons of billets making it one of the five
largest producers of light structural steel products in the US.
Bayou's Class A Common Stock trades on the American Stock Exchange under the
ticker symbol "BYX." Bayou's equity market capitalization was $54.8 million as
of March 6, 1995.
<PAGE>
TENNESSEE VALLEY STEEL CORPORATION
TVS, which is located in Harriman, TN, 37 miles west of Knoxville, produces
rebar and bar shape products. The rolling mill at TVS has automated
straightening, continuous cut-to-length, stacking and bundling equipment, which
greatly improve the mill's efficiency in producing higher margin bar shape
products. The rolling mill is capable of producing over 70 different sizes of
bar shape and rebar products; however many of the new bar shape products have an
inherently steep learning curve and require 12-18 months of experience to roll
efficiently.
TVS commenced operations in 1990, producing steel billets for the domestic and
international markets and was restructured in December 1992 following a $29
million investment by The Morgan Stanley Leveraged Equity Fund II, L.P.
("MSLEF"). TVS used those funds to renovate its idle facility by adding a
rolling mill purchased from Armco in Kansas City. TVS finished the majority of
this renovation in September 1993 and restarted operations. Concurrent with the
start-up, MSLEF and other shareholders invested an additional $7 million of
equity and raised $30 million of bank financing to fund start-up losses and the
investment in working capital.
TVS's operating strategy was to begin producing simpler steel products, such as
rebar, and to gradually increase the product mix to higher margin bar shape
products. Many bar shapes require 12-18 months of preliminary rolling before
they can be efficiently produced. TVS did not have the necessary funds to
complete this process. Thus, inexperience in rolling these new products,
coupled with the high cost structure of the melt shop's operations, led to
negative operating returns. Additionally, TVS's capital structure did not allow
for sufficient funding of a start-up operation. The financial strain caused
management to rely on the moderate cashflow generated by the less profitable
rebar products. Due to the high cost structure and insufficient liquidity, TVS
filed a voluntary petition under Chapter 11 of the Bankruptcy Code on November
11, 1994, and discontinued operations shortly thereafter.
POST ACQUISITION OPERATING STRATEGY
Following the acquisition, the Company's operating strategy will be to expand
its production by combining Bayou's additional low cost melting capacity with
TVS's rolling mill. The Company does not intend to restart TVS's outdated
melting operations for purposes of supplying billets to the rolling mill.
Instead, the Company will supply TVS's rolling mill with billets from Bayou's
idle second furnace in La Place, LA, where there is up to 400,000 tons of excess
capacity. Billets will be shipped to the rolling mill in Tennessee, which is
easily reachable by truck, rail and barge. The billets will then be converted
into rebar and bar shapes. The products produced at the TVS facility will be
marketed by Bayou's present sales force to complement the Company's current
production of light structural shapes. Overall annual production of TVS is
expected to reach to 250,000 tons by 1997.
Since many of TVS's selling, general and administrative ("SG&A") functions will
be folded into Bayou, the incremental SG&A cost to Bayou on a consolidated basis
should be considerably less than the costs of the former TVS. Additionally, as
volume increases, SG&A cost per ton should decrease. By staffing TVS's
operations in the same way as Bayou's operations, thereby reducing labor costs,
and by increasing productivity, TVS's conversion cost should be competitive,
reinforcing Bayou's position as a low cost producer.
2
<PAGE>
TVS rolled 79% rebar and 21% bar shapes during its last 12 months of operating
the mill. Bayou plans to emphasize the bar shape products. Management intends
to roll up to 90% merchant bar shapes within 24 months. Bar shape products have
historically had higher profit margins than rebar and the shapes to be produced
at TVS will complement and enhance Bayou's existing range of light structural
shapes. Additionally, Bayou intends to rationalize the product mix, producing
only some of the 70 section sizes which the mill can produce so as to
concentrate on higher margin, higher volume sizes.
The Company expects to spend approximately $6.0 million on various capital
projects at TVS in the first 18 months of operations to reduce costs and
increase productivity. Bayou plans to reduce the workforce at TVS from the
nearly 300 who previously worked at the mill (including those employees who
worked in the melt shop which will remain idle) to under 100 within a year of
restarting operations. Bayou plans to add 40 employees to work on its second
furnace in La Place to supply billets to TVS.
3
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL
SUMMARIES
Bayou Steel Corporation
FISCAL YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------- TWELVE MONTHS
($ millions, unless otherwise indicated) 1990 1991 1992 1993 1994 ENDED 12/31/94
-------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Sales $ 183.6 $ 131.3/(1)/ $ 119.8 $ 136.0 $160.8 $ 167.9
Sales Growth (12.2%) (28.5%) (8.8%) 13.6% 18.2% NM
EBITDA 11.8 7.4 11.4 6.5 17.0 /(2)/ 21.6 /(2)/
EBITDA Margin 6.4% 5.6% 9.6% 4.8% 10.6% 12.9%
Total Interest Expense 9.5 8.8 9.0 8.3 7.7 7.7
Net Income 1.8 (4.6) (1.4) (6.7) 4.4 /(3)/ 8.8 /(3)/
OPERATING DATA
Cash 17.9 11.0 11.2 0.5 8.9 9.3
Total Assets 162.4 148.7 149.4 138.3 156.1 161.0
Capital Expenditures 11.5 7.4 3.2 3.2 2.8 3.8
Total Debt 67.4 62.4 62.1 54.8 76.1 76.0
Total Equity 73.3 68.7 67.4 61.2 60.1 63.5
FINANCIAL RATIOS
EBITDA/Total Interest Expense 1.2x 0.8x 1.3x 0.8x 2.2x 2.8x
Total Debt/EBITDA 5.7x 8.4x 5.4x 8.4x 4.5x 3.5x
Total Debt/Capitalization 47.9% 47.6% 48.0% 47.2% 55.9% 54.4%
STEEL OPERATING DATA 1990 1991 1992 1993 1994 Q1 1995 /(4)/
-------- -------- -------- -------- -------- --------------
BILLETS
Selling Price $ 226 $ 210 $ 204 $ 209 $ 224 234
Yield % 85.7% 87.1% 87.1% 88.0% 88.0% 87.8%
Billet Tons Cast 619,728 451,584 453,816 487,840 551,806 206,736
Billet Tons/Scheduled Hour 49.2 62.7 64.9 69.4 69.9 74.7
SHAPES
Selling Price $ 320 $ 307 $ 296 $ 300 $ 337 350
Yield % 94.0% 94.4% 94.7% 94.1% 94.3% 94.6%
Tons Rolled 409,080 387,108 400,152 404,646 495,654 184,952
Tons/Scheduled Hour 63.4 60.0 59.0 56.7 64.3 68.4
PRODUCTION DATA
Total Employees 654 547 495 425 420 420
Metal Margin $ 209.31 $ 206.04 $ 204.75 $ 196.82 $ 208.92 222.00
</TABLE>
(1) In fiscal 1991 the Company discontinued the operation of one of its two
electric furnaces and ceased the practice of exporting large quantities of
billets. The Company believes its decision to stop producing large
quantities of billets for export resulted in a decline in sales of
approximately $40 million from the fiscal 1990 level.
(2) EBITDA is calculated as earnings before, interest, taxes, depreciation and
amortization; EBITDA includes non-production strike expenses. Were EBITDA
to be adjusted for such non-production strike expenses, the adjusted
figures would be $17.9 million and $22.2 million for the fiscal year ended
9/30/94, and 12 months ended 12/31/94, respectively.
(3) Net income before extraordinary loss of $5.5 million related to the
refinancing charges on long-term debt.
(4) Year to date data covers the period from 10/1/94 through 12/31/94.
4
<PAGE>
<TABLE>
<CAPTION>
TENNESSEE VALLEY STEEL
Twelve Months Ended 10/31/94
---------------------------------------------
Production Sales
---------- --------------------------------
(tons) (tons) ($ in millions) $/ton
---------- ------- --------------- -----
<S> <C> <C> <C> <C>
REBAR 87,676 85,498 $23.6 $276
DOWEL BAR 6,110 6,110 1.8 296
---------- ------- --------------- -----
REBAR/DOWEL BAR 93,786 91,608 25.4 277
---------- ------- --------------- -----
ROUNDS 10,778 6,408 2.4 371
SQUARES 5,184 2,909 1.1 373
FLATS 4,129 2,142 0.8 372
ANGLES 5,320 2,409 0.9 367
---------- ------- --------------- -----
BAR SHAPES 25,411 13,868 5.2 371
---------- ------- --------------- -----
TOTAL 119,197 105,476 $30.6 $289
========== ======= =============== =====
</TABLE>
5
<PAGE>
TENNESSEE VALLEY STEEL CORPORATION
GENERAL
TVS, which is located in Harriman, TN, 37 miles west of Knoxville, produces
rebar and bar shape products. The rolling mill at TVS is capable of producing
over 70 different sizes of bar shape and rebar products; however many of the new
bar shape products have an inherently steep learning curve and require 12-18
months of experience to roll efficiently. The rolling mill has automated
straightening, continuous cut-to-length, stacking and bundling equipment, which
greatly improves the mill's efficiency in producing the higher margin bar shape
products.
TVS commenced operations in 1990, producing steel billets for the domestic and
international markets and was restructured in December 1992 following a $29
million investment by MSLEF. TVS used those funds to renovate the idle facility
by adding a rolling mill purchased from Armco in Kansas City and refurbishing
it. TVS finished the majority of this renovation of the rolling mill by
September 1993 and recommenced operations. Concurrent with the start-up, MSLEF
and other shareholders invested an additional $7 million of equity and raised
$30 million of bank financing in order to fund start-up losses and the
investment in working capital. In June 1994, operations were hindered due to
the start-up and installation of continuous cut-to-length equipment.
TVS's operating strategy was to begin producing simpler steel products, such as
rebar, with lower profit margins and to gradually increase the product mix to
higher margin bar shape products. Many bar shapes may require 12-18 months of
preliminary rolling before they can be efficiently produced. TVS did not have
the necessary funds to complete this process. Thus, inexperience in rolling
these new products, coupled with the high cost structure of the melt shop's
operations, led to negative operating returns. Additionally, TVS's capital
structure did not allow for sufficient funding of a start-up operation. The
financial strain caused management to rely on the moderate cashflow generated by
the less profitable rebar products, which did not generate enough profit to
justify the investment made in the mill. Due to the high cost structure and
insufficient liquidity, TVS filed a voluntary petition under Chapter 11 of the
Bankruptcy Code on November 11, 1994, and discontinued operations shortly
thereafter.
Following the acquisition, the Company's operating strategy will be to increase
its production by combining Bayou's additional low cost melting capacity with
TVS's rolling mill. The Company does not intend to restart TVS's outdated
melting operations. Instead, the Company will supply TVS's rolling mill with
billets from Bayou's idle second furnace in La Place, LA, where there is up to
400,000 tons of excess capacity. Billets will be shipped to the rolling mill in
Tennessee, which is easily reachable by truck, rail and barge. The billets will
then be converted into rebar and bar shapes. These smaller size shapes will
initially be marketed by Bayou's sales force in certain distribution areas to
complement the Company's current production of light structural shapes. Overall
annual production of TVS is expected to reach 250,000 tons by 1997.
Since many of TVS's selling, general and administrative ("SG&A") functions will
be folded into Bayou, the incremental SG&A cost should be considerably less than
the costs of the former TVS. Additionally, as volume increases, SG&A cost per
ton should decrease. By staffing TVS's
6
<PAGE>
operations in the same way as Bayou's operations, and by increasing
productivity, TVS's conversion cost should be competitive, reinforcing Bayou's
position as a low cost producer.
TVS rolled 79% rebar and 21% bar shapes during its 12 months of operations.
Bayou plans to emphasize the bar shape products. Management intends to roll up
to 90% bar shapes within 24 months. Bar shape products have historically had
higher profit margins than rebar and the shapes to be produced at TVS will
complement and enhance Bayou's existing range of light structural shapes.
Additionally, Bayou intends to rationalize the product mix, producing a subset
of the 70 section sizes which the mill is capable of producing in order to
concentrate on higher margin, higher volume sizes.
The Company expects to spend approximately $6.0 million on various capital
projects at TVS in the first 18 months of operations to reduce costs and
increase productivity. Bayou plans to reduce the workforce at TVS from the
nearly 300 who previously worked at the mill (including those employees who
worked in the melt shop which will remain idle) to under 100 within a year of
restarting operations. Bayou plans to add 40 employees to operate its second
furnace in La Place to supply billets to TVS.
The production at TVS will enable Bayou to expand its product line to include
bar mill steel products (i.e., bar shapes and rebar). While many of TVS's niche
products have low sales volumes and in aggregate and according to present
planning will not constitute more than 15% of the Company's business, they may
provide Bayou with the opportunity to sell its other products along with them.
This is due to the nature of delivery of steel mill products. Customers
purchase steel products in truckloads, which, for economic reasons, should be as
full as possible. Thus, a customer who calls to place a small order for a niche
product will want to fill the truckload, which he can do by purchasing other
products from Bayou. A wider variety of products means the Company is more
likely to be able to ship full loads, especially during industry downturns where
minimum inventory is of concern.
MANUFACTURING PROCESS AND FACILITIES
TVS's facility is located on 198 acres in Harriman, TN, 37 miles west of
Knoxville. The site consists of 175,000 square feet of steel mill buildings,
including two electric arc furnaces, a ladle furnace, a three-strand 26 foot
radius Koppers continuous casting machine installed in 1976 and an in-line 16
stand bar rolling mill. The rolling mill equipment was refurbished with
technologically advanced systems in 1993 and 1994.
Bayou does not intend to restart TVS's melt shop. The 1960s-era technology of
TVS's furnaces would need to be completely rebuilt to be competitive. Bayou
will use the idle second furnace at La Place, where there is currently 400,000
tons of excess capacity, to produce billets for TVS, thereby spreading the fixed
costs of billet production over a larger volume and reducing unit cost. TVS
billet requirements in excess of Bayou's capacity will be purchased in the open
market. Bayou plans to bring the TVS rolling mill to full operations over a 15-
week period. Over the next 18-24 months, Bayou will complete the learning curve
by rolling products that TVS never rolled or rolled infrequently.
7
<PAGE>
The original facility, completed in 1967, operated under the name Tennessee
Forging Steel Company ("TFSC"), a manufacturer of angles, rounds, and flats.
The facility was closed from 1982 to 1987, when Noah Liff and Albert Baisley,
two successful scrap dealers, purchased the facility and began its refurbishment
under the name TVS. Melting operations commenced in May 1989 with the start-up
of an electric arc furnace. By the end of 1989, four operating crews were
working and production achieved an annual run rate of 120,000 tons. At that
time, the facility had no rolling mill operations. A second furnace was put
into operation in September 1990; however, the plant was being run mainly to
train employees, in anticipation of expanding the facility by adding a rolling
mill. The decline in the market for billets in 1990 caused TVS to operate
unprofitably and the withdrawal of a bank financing commitment led the owners to
seek other means of financing.
Following the investment by MSLEF in December 1992, TVS recommenced the
renovation work it had begun in 1987. The majority of this project was
completed by September 1993 and consisted of the following:
. Installation of a 16 stand rolling mill;
. Installation of a reheat furnace;
. Construction of a computer controlled mill line; and
. Installation of automated straightening, continuous cut-to-length stacking
and bundling equipment.
Management believes that Bayou can convert billets into bar shapes and rebar at
TVS for less than the $40 per ton which is competitive in the industry. While
TVS operated the entire steel mill with nearly 300 workers, the rolling mill
operations alone are expected to be staffed by Bayou with less than 100
employees, and productivity is expected at approximately 0.8 man-hours per ton
upon reaching capacity. Additionally, Bayou plans to increase production
operating rates in two steps: i) the first step involves relatively minor
improvements to the existing equipment, increasing volume to 250,000 tons; ii)
the second step is a major upgrade of the reheat furnace and rolling mill for
approximately $10 million, allowing production to increase to nearly 400,000
tons, thereby decreasing the overall cost per ton by approximately $3. Prior to
its shut-down, TVS had run 51% of the 70 products which the mill is capable of
rolling.
In its production process, TVS will use steel billets which will be received by
rail or barge and then stored in a billet yard. The billets will be reheated in
a pusher reheat furnace with recuperative burners before being rolled. Once the
billets are heated to approximately 2200 degrees F, they will be rolled through
up to 16 mill stands which form the billets into the dimensions and sizes of the
finished products. The heated finished shapes are then placed on a cooling bed,
then straightened and cut into the appropriate customer lengths. The shapes are
then bundled into approximately 2 1/2 to 5-ton stacks and placed in a warehouse
where they are subsequently shipped to customers directly via truck or rail.
ROLLING MILL. Prior to 1993, the rolling mill was comprised of two cross-
country rolling mills. This equipment was removed to provide space for the in-
line rolling mill. The mill was
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designed for the efficient flow of material through the mill, minimal downtime
when changing product sizes, and minimal handling for storing and shipping
finished product.
The rolling mill has initial capacity of 250,000 tons per year. The mill is
located in a building 900 feet long with two adjacent buildings for mill stand
make-up, a roll shop, and an area for storing and shipping finished products.
The rolling mill has been designed to provide broad product flexibility and to
operate efficiently.
A billet bay is available for unloading, storing and charging billets into the
rolling mill. There are two cranes in the billet bay to unload billets and also
place billets on the reheat furnace automatic charge table.
The reheat furnace has a capacity of approximately 250,000 tons per year. The
reheat furnace is equipped with computer controls and a recuperator to maximize
fuel consumption. Designed by Pittsburgh Industrial Furnace Company, this
pusher-type furnace can accommodate billets 26 foot long. The standard billet
used by the mill is 130mm square, 26 foot long, weighing 2,200 pounds. A peel
bar, controlled from the mill pulpit, pushes the hot billet out of the furnace,
and the billet is completely descaled by high pressure water pumps prior to
entering the mill stands. Descaling ensures high quality surface conditions on
the finished product. The rolling mill includes a six-stand horizontal-vertical
rougher and up to 10 intermediate and finishing stands, three mill shears and
loopers and conveyors.
Rougher stands #1 through #6 were supplied by SIMAC and are powered by four 400
HP motors with the first two stands using 22 inch rolls and the next four stands
using 18 1/2 inch rolls. The horizontal-vertical configuration provides rolling
reliability and product quality by minimizing the formation of laps in the steel
bar. A flying crop shear located after the roughing stands is used to take a
nose crop of the bar prior to entering the intermediate and finishing stands.
Intermediate stands #7 and #8 are 16 inch Morgan stands with Morgoil bearings,
each powered by 500 HP motors. These stands and all of the other intermediate
and finishing stands have hydraulic stand positioning for pass alignment to
maintain the fixed pass line. Stands #9 through #16 are 12 inch Morgan stands
with Morgoil bearings. Stands #10, #14 and #16 are powered by 800 HP, 1250 HP
and 1000 HP motors, respectively. All other stands are powered by 500 HP
motors. New loopers manufactured by Danieli are located between stands #9
through #16 to eliminate any tension or compression in the bar, which will
enhance mill reliability and close tolerance of finished product dimensions. To
minimize delays for size changes, the mill has 10 spare mill stands and the
Danieli loopers serve as conveyors when they are not used as loopers.
A General Electric computer control system is used to control the operation of
the mill. A 15,000 KVA transformer and seven 4150 distribution transformers
provide power for the mill. Proper loops are maintained in the loopers
automatically by Cascade Speed Control. Stands not controlled by loopers
utilize front-end tension control by the current comparison method. All mill
and furnace controls are located in the master mill pulpit which is centrally
located on the mill floor. The computer control graphic CRT display is used to
set up the mill, monitor the mill, monitor electrical and mechanical faults and
print pertinent mill data.
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Product from the mill runs on to a 220 foot long by 35 foot wide cooling bed
built by Riise Engineering. Bars can exit the cooling bed in one of two
directions. The first of which is through a continuous cut to length line which
includes in-line straightening, shearing, bundling and tying equipment. The
rolling mill at TVS has automated straightening, continuous cut-to-length,
stacking and bundling equipment, which greatly improves the mill's efficiency in
producing the higher margin bar shape products. This equipment allows automated
straightening and bundling of small merchant bar shapes to meet increasingly
exacting customer specifications. The second direction bars can exit the
cooling bed is at the opposite end of the continuous cut to length line. The
bars run to a bar shear and gauging table to be cut to customer length. The cut
product is then tied and transferred to the next bay. With this equipment,
rebar, rounds, squares, angles, channels and flats can be rolled.
PRODUCTS
Several of the products TVS plans to manufacture cannot be obtained from steel
mills in TVS's marketplace and must be obtained from U.S. mills in other markets
further away or imported from Canada. Examples of these merchant products
include 3/4 inch and 1 inch angles, rounds over 1 1/2 inches in diameter, 1 1/4
inch and 1 1/2 inch squares. In addition, few mills provide the full range of
product sizes that the combined company will produce together.
TVS rolled 76% rebar and 24% bar shapes during its 14 months of operations.
Bayou plans to emphasize the bar shapes. Management intends to roll up to 90%
merchant bar shapes within 24 months. Bar shape margins are historically
considerably higher than those of rebar. Initially, Bayou will manufacture a
product mix of approximately 55% merchant bar shape products, including equal
leg angles, channels, flats, rounds and squares. The remaining 45% of the
production will be rebar and dowel bar. Additionally, Bayou intends to drop
some of the 70 section sizes which the mill can run so as to concentrate on
higher margin, higher volume sizes. The initial product mix reflects the fact
that all rebar products have been rolled while the bar shape products were only
recently introduced into the production cycle. Bayou will continue to
opportunistically produce rebar. Bayou will have the necessary flexibility to
produce varying amounts of each product based on economic and market trends.
EXTENSION OF EXISTING PRODUCT LINE. As illustrated below, the TVS product
line compliments Bayou's current offerings:
<TABLE>
<CAPTION>
SIZE RANGE (IN INCHES)
----------------------
PROFILE TVS BAYOU
- ----------------------------- ---------- ----------
<S> <C> <C>
Equal Angles 3/4-2 3-6
Flats 1-3 4-8
Channels 1-3 3-8
Squares 1/2-1 N/A
Rounds 1/2-2 N/A
Unequal Angles N/A 4-7
Rebar 3/8-1 3/8 N/A
Standard Beams N/A 3-6
Wide Flange Beams N/A 4-6
</TABLE>
10
<PAGE>
The products manufactured by TVS have a wide range of commercial and industrial
applications. Outlined below are the various uses of the products which will be
manufactured by Bayou and TVS:
PRODUCT USES
------- ----
Equal Angles Service centers, barge builders, midsize fabrication, rack
manufacturing, conveyor manufacturing, metal buildings,
joist manufacturing, small manufacturing
Unequal Angles Service centers, barge builders
Flats Service centers, barge builders, midsize fabrication, metal
buildings, construction, ornamental, cold finish, small
manufacturing
Channels Service centers, barge builders, midsize fabrication,
guardrail manufacturing, rack manufacturing, metal
buildings, construction, ornamental, cold finish, small
manufacturing
Rounds Service centers, midsize fabrication, guardrail
manufacturing, joist manufacturing, ornamental, cold finish,
small manufacturing
Squares Service centers, midsize fabrication, ornamental, cold
finish, small manufacturing
Rebar Service centers, rebar fabrication, construction
Dowel Bar Service centers, construction
Standard I-Beam Service centers, midsize fabrication, guardrail
manufacturing, rack manufacturing, conveyor manufacturing,
construction, small manufacturing
Wide Flange Beams Service centers, midsize fabrication, guardrail
manufacturing, metal buildings, construction, small
manufacturing
MERCHANT BAR SHAPES. TVS will initially produce approximately 55% merchant
bar shape products (including angles, flats, channels, rounds, squares that are
collectively referred to as bar shapes). Within two years, TVS expects to
produce 90% bar shape and 10% rebar products.
Such shapes are generally sold through steel service centers to light
fabricators. They are also sold directly to metal building and roof joist
manufacturers. Rounds and squares are sold into
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<PAGE>
the "ornamental iron" market either directly or through service centers as well
as fabricators and joist manufacturers.
TVS's shapes are produced to various national specifications, such as those set
by the American Society for Testing and Materials. The Company's products are
also certified for highway and bridge structures.
REBAR. Initially, approximately 45% of the products manufactured by TVS
will be rebar of varying sizes, from 3/8 inch - 1 3/8 inch (#3 to #11 bar).
Rebar and dowel bar are used predominantly in highway and bridge construction
and concrete structures such as parking garages. In major projects, the products
are sold directly to the rebar fabricator. Rebar is also sold through
distributors for use in home construction, driveways, sidewalks and swimming
pools. Although considerably lower in sales volume, the rebar sold through
distributors commands a higher average selling price. Because the Company
intends to emphasize the production of higher margin bar shape, it plans to
reduce its production of rebar to 10% of TVS production (and 3% of total company
shipments) by 1997.
CUSTOMERS.
Until it discontinued production in November 1994, TVS had over 200 customers in
30 states. The majority of TVS's products (approximately 78% in fiscal 1994)
were sold to rebar fabricators and OEMs, while the remainder were sold to steel
service centers (approximately 22% in fiscal 1994). More than 70% of TVS's
product will be sold to Bayou's existing customer base, as nearly 80% of TVS's
customers are currently Bayou customers as well.
BAR SHAPES. Bar shape products are sold primarily to steel service
centers. Major customers for TVS bar shapes are as follows:
. O'Neal Steel
. AFCO Metals
. Chatham Steel
. Namasco
. Ryerson
. Siskin Steel
. Jeffrey's Steel
. Butler Buildings
. Sabel Steel
. Infra Metals
Each of the customers listed above are or have been customers of Bayou. Bayou
expects to retain such customers' business.
REBAR. Rebar products are sold primarily to both distributors and
fabricators. Major customers for rebar are as follows:
. Georgia Pacific
. Ambassador
. Prime Source
. Southco Inc.
. O'Neal Steel
. Siskin Steel
. Jeffrey's Steel
. Chatham
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<PAGE>
. Anasteel
. Namasco
MARKETING AND DISTRIBUTION.
TVS's mill in east Tennessee fills a geographic void for Bayou. Located midway
between Chicago, IL, and Jacksonville, FL, this location expands and opens up
new marketing opportunities for the Company. TVS will provide new access for
Bayou to the Appalachian states and the lower midwest, plus additional access to
the upper midwest, the southeast and the mid-Atlantic. Plus, during economic
downturns, TVS's product line can be distributed through Bayou's La Place
facility or through its distribution centers in Chicago, Pittsburgh and Tulsa.
TVS's location is accessible by all forms of transportation; the plant is in
close proximity to two major interstate highways; four miles from a barge dock;
and is situated on the main line of Norfolk Southern Railroad.
RAIL CONTRACT. Bayou has negotiated, but not executed, a contract with the
ICG/NS Railroads which would guarantee a competitive fixed rail rate for two
years. The railroad would lease and dedicate all-purpose gondolas for use by
Bayou to transport billets to TVS. Since these cars will return empty, Bayou is
currently negotiating a backhaul rate so that scrap could be purchased in
Harriman and transported to La Place at competitive prices or that bar shapes
could be transported to La Place for customer distribution in that region.
BARGE RATE. Bayou has a freight rate of approximately $9 per ton from
Bayou to TVS. Bayou has established trucking and handling contracts. Future
capital projects should substantially reduce or eliminate these charges.
Bayou plans to market TVS's products through the Company's existing sales team.
Bayou plans to sell more than 70% of TVS's product to Bayou's existing customer
base, eliminating the need for additional sales administration and billing
staff. This immediate acceptance of the product should prevent the Company from
being forced to heavily discount the product to buy market share.
COMPETITION.
BAR SHAPES. Within 18 months, the Company expects that TVS will sell
200,000 tons per year of bar shape products in a market that has ranged between
6.2 and 8.6 million tons during the last 10 years. Competitors in the region
are:
. Florida Steel at Jackson, TN
. SMI at Birmingham, AL
. Nucor at Darlington, SC
. Birmingham Steel at Jackson, MS
. Roanoke Electric at Roanoke, VA
. North Star Steel at Wilton, IA
. SMI/Owen Steel at Columbia, SC
Florida Steel produces a larger size range at Jackson, TN than TVS. SMI is
mainly a structural steel producer. Birmingham, Nucor and Roanoke Electric all
are 250-350 miles from TVS and on the fringe of its marketing area. Kentucky
Electric Steel, near Ashland, KY, sells some bars
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<PAGE>
but focuses on flats for automotive and truck springs. Marion Steel in Ohio is
also on TVS's marketing fringe. While excess capacity of small bars exists in
the market, the Company believes that TVS's conversion costs will compare
favorably with the competition.
REBAR. TVS plans to sell 22,000 tons of rebar, or 45% of shipments, in
1995, 50,000 tons, or 32% of shipments, in 1996 and scale back rebar to 21,000
tons, or 10% of shipments, in 1997. The national rebar market ranges between
4.0 - 5.5 million tons. Within a practical marketing radius of 250 miles, the
market is approximately 1.8 million tons. The primary competitors are:
. Florida Steel at Knoxville, TN
. Florida Steel at Charlotte, NC
. SCI/Owen Steel at Columbia, SC
. Birmingham Steel at Birmingham, AL
. New Jersey Steel at Sayreville, NJ
TVS's main competitor will be Florida Steel in Knoxville, TN. Florida Steel,
however, fabricates a large portion of its rebar in competition with independent
fabricators who are also customers of TVS. Independent fabricators opting not
to buy from a competitor may create a significant niche for TVS's rebar.
Small independent rebar fabricators face two recurring issues in securing a
steady source of supply of rebar. First, many of the larger minimills do not
give these smaller fabricators the same priority in terms of supply or breaks in
pricing that they do for their larger customers. This means that the
independent fabricators will be scrambling for supply if a mill redirects
products to fill an order for a larger, more important customer. Second, the
independent fabricators often end up competing against the same companies who
are supplying them with their rebar, because several minimills, such as Florida
Steel, Owen Electric Steel, SMI, New Jersey Steel and Roanoke Electric Steel,
also own their own fabricating operations. Thus, to enhance their competitive
position, the independent fabricators often prefer to purchase from an
independent source.
BILLET SUPPLY.
With an initial rolling capacity of 250,000 tons, TVS's major raw material is
billets. Within the initial 18 months of operations, using Bayou's current
capacity and what will be gained from the second furnace, Bayou expects to be
able to ship 215,000 tons to the TVS facility. The remaining 23,000 tons of
billets required by TVS will be purchased on the open market. While Bayou's
production capacity is currently limited by an environmental permit, Bayou is in
process of upgrading both the permit and the necessary facilities, and by 1997,
should be able to supply 100% of TVS's billet requirements and still sell some
billets on the open market. Upon expansion of TVS's capacity to nearly 400,000
tons, Bayou would still supply all of TVS's billet requirements.
The billets will be shipped to TVS by rail at a competitive fixed rate. The
Company plans to construct rail spurs to be run into both Bayou's and TVS's
billet bays to minimize handling costs.
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<PAGE>
ENERGY.
ELECTRICITY. The Company's manufacturing process consumes large amounts of
electrical energy. Prior to the shut down, the Company purchased its electricity
from Tennessee Valley Authority ("TVA"). Historically, TVA has had among the
lowest power rates in the country. Bayou expects that it will be able to
negotiate a favorable rate with TVA.
NATURAL GAS. The Harriman, TN, area is served by only two pipelines,
(Tennessee Pipeline and East Tennessee Pipeline), both belonging to Tenneco.
Currently, TVS does not have a direct interconnect with either pipeline so all
gas for the plant must be purchased from a Local Distribution Company ("LDC").
Thus, TVS must pay the wellhead price plus transportation charges and the LDC
mark up. Because TVS has no alternative gas supplier, it is paying 50% -65%
above the market. Bayou believes this premium adds approximately $1 per ton to
TVS's cost structure. However, Southern Natural Gas Pipeline plans to install
transmission facilities in the Harriman area by the fall of 1995 which would
improve the competitive situation significantly and enable Bayou to purchase gas
at more competitive rates.
EMPLOYEES.
In November 1994, TVS employed 222 hourly and 65 salaried employees. The 222
hourly employees were covered by a bargaining contract with the United Steel
Workers of America. Of these 287 employees, 120 were employed in the melt shop
and 157 were employed in the rolling mill and in support functions. Bayou plans
to discontinue the melt shop operations. Initially, Bayou intends to operate
only the rolling mill and shipping/receiving operations. It is Bayou's
intention to staff these operations with 120 employees, and with planned
productivity enhancing capital expenditures, the workforce will decline to
approximately 100 within a year. Bayou intends to offer to hourly employees at
TVS a competitive wage and benefit package which is estimated to cost
approximately $14-$16 per hour. Additionally, Bayou intends to supplement this
compensation package with a productivity incentive plan which would pay $3 to $4
per hour based upon specified production targets.
ENVIRONMENTAL MATTERS.
Bayou has engaged Environmental Strategies Corporation ("ESC"), an expert in
environmental facility assessment, to perform a comprehensive Phase I
environmental review of the facility. Integral to Bayou's Phase I assessment of
the TVS facility was a review of reports done by Diversified Scientific Services
Inc. ("DSSI") and the Scientific Ecology Group ("SEG"). In 1991, DSSI issued a
report based on a Resource Conservation and Recovery Act ("RCRA") Facility
Assessment. In 1992, Phase I and II assessments were performed by SEG.
Considering the recent nature of these assessments, analytical data on the
contaminants of concern should still be valid.
FACILITY ASSESSMENT. In February 1991, DSSI issued a report based on a
RCRA Facility Assessment. This report noted no serious environmental issues
that affected the operation of the site or the local environment and populace.
This assessment included a site inspection, records review, history of land use
and interview data. This assessment did not include any soil or water sampling
or extensive asbestos survey.
15
<PAGE>
SEG ASSESSMENT.
PHASE I. In the Phase I sampling program, 39 samples were collected to
help characterize surface soils, stream sediments and surface waters. The
samples were analyzed for total metals, toxicity characteristic leaching
procedure metals, total petroleum hydrocarbons ("TPH") and PCBs. Based on the
analytical results, certain areas were identified that contained elevated
concentrations of metals and TPH.
PHASE II. In the Phase II sampling program, 23 soil borings (13 of which
were converted to shallow ground water monitoring wells) were drilled. Soil
samples were taken from the borings and ground water samples were taken from
eight of the wells (five wells were dry). Elevated levels of metals and TPH
were found in some of the soil borings. The analytical results did not indicate
any groundwater contamination.
SUMMARY. Through ESC's Phase I review, including review of the DSSI and
SEG reports, it is evident that some contamination exists. TVS has entered into
a Consent Agreement and Order (the "Voluntary Consent Order") under the
Tennessee Department of Environmental and Conservation's voluntary clean-up
program. The ultimate remedy and clean-up goals will be dictated by the results
of human health risk assessment and the ecological risk assessment which are
part of a required Remedial Investigation/Feasibility Study. Estimates based on
the current Phase I study and the prior Phase I and II sampling indicate that
the cost for remediating the affected areas ranges from $350,000 for the lowest
cost remedy to $1,800,000 for higher cost remedies. The state has indicated
that it is willing to work toward low end costs depending on the risk
assessments. If during the remedial investigation significantly more extensive
or more toxic contamination is found, then costs could be greater than those
estimated. This report will be completed by the closing of this transaction.
The definitive asset purchase agreement between Bayou and TVS provides for $2.0
million of the purchase price to be held in escrow and applied to costs incurred
by the Company for remediation under the Voluntary Consent Order (with an
additional $1.0 million to be held in escrow for one year for such costs and
other costs resulting from a breach of TVS's representation and warranties in
the agreement).
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<PAGE>
OPERATING PLAN
BILLET PRODUCTION.
After gaining control of TVS, the Company's operating strategy is to expand its
production by combining Bayou's additional low cost melting capacity with TVS's
rolling mill. The Company plans to close TVS's melting operations. The
currently idle second furnace at Bayou (which has been idle since 1990) will be
used to produce billets for processing into bar shapes and rebar at TVS.
Initially, Bayou plans to bring its second furnace to 50% of capacity,
increasing production tonnage from 550,000 tons to about 736,000 tons. To
further increase production, an additional capital expenditure of approximately
$10.0 million, primarily for related environmental projects, would be required
in conjunction with an environmental permit level upgrade; this project would
take approximately 18-24 months to complete. TVS is estimated to need
approximately 260,000 tons of billets per year to produce approximately 225,000
tons of bar shapes and approximately 25,000 tons of rebar. The Company believes
that TVS's finishing capacity can be increased from the current 250,000 tons to
nearly 400,000 tons with certain additional capital expenditures aggregating
approximately $10.0 million related to expansion of the reheat furnace. Bayou
would then anticipate increasing production from its second furnace, bringing
overall production to approximately 940,000 tons. Together, Bayou's and TVS's
finishing capacity would use nearly all of the 940,000 tons of billet capacity.
By 1997, the Company plans to supply TVS with 100% of the billets it requires
for production (up to 250,000 tons); until that time, TVS's billet requirements
beyond Bayou's present capabilities is expected to be purchased in the open
market. At times, Bayou's inventory of billets will be in excess of TVS's and
Bayou's rolling mill requirements. Bayou intends to sell the excess billets
both domestically and worldwide on an occasional and selective basis.
BAYOU'S SHAPE SHIPMENTS, PRODUCTION AND COSTS.
As a result of the capital improvements being made to Bayou's rolling mill,
specifically the steel straightener and the off-line sawing system and conveyor,
the Company expects to be able to produce an additional 25,000 tons of shapes in
La Place. Bayou produced 496,000 tons of structural shapes in fiscal 1994. The
steel straightener, together with the off-line sawing system and conveyer, would
expand the capacity of the rolling mill and permit the production of light bar
shape products (2 inch by 2 inch angles), which historically are products with a
strong demand, but which the Company previously dropped from its production
schedule due to the rolling mill's inability to produce such products
efficiently. Both the North American Free Trade Agreement and the General
Agreement on Tariffs and Trade should provide the Company with additional
opportunities to sell its products. In the event of an economic downturn, Bayou
expects to cycle its products through the production process more quickly so as
to be more responsive to market demands. As a result, there will be less
product available for sale and inventory should be maintained or reduced.
Bayou's cost structure has recently improved due to production increases and
labor cost decreases. The existing low cost structure is anticipated to improve
as the capital improvement projects become operational as well as the continuing
efforts to improve the labor cost per ton. If the
17
<PAGE>
Company increases production to full two furnace operations, then there should
be additional reduction in unit production costs. Likewise, if rolling mill
production is expanded, unit production costs should be reduced.
In addition to its focus on reducing costs, the Company plans to enhance its
product mix by increasing sales of higher margin shape products. The
acquisition of TVS should allow the Company to expand its product line to
include a wider variety of bar shape products. With this broad range of product
offerings, Bayou expects to be able to provide one-stop shopping to its
customers, primarily steel service centers, thus reducing the Company's exposure
to an economic downturn affecting any one product or group of products.
Moreover, the Company's expanded range of products will be wider than that
currently offered by most of Bayou's competitors.
TVS'S SHIPMENTS, PRODUCTION AND COSTS.
At TVS, Bayou is acquiring rolling mill equipment rebuilt in 1993. In its last
12 months of operation, TVS's rolling mill produced nearly 120,000 tons of which
79% was rebar and 21% bar shapes. Bayou intends to emphasize the higher margin
bar shape products. Initially, the Company expects to manufacture a product mix
of approximately 55% bar shape products, including equal leg angles, channels,
flats, rounds and squares. The remaining 45% of the production will be rebar
and dowel bar. Additionally, Bayou plans to produce only some of the 70 section
sizes which the mill can run so as to concentrate on the higher margin, higher
volume sales. Within 24 months, the Company expects to change the product mix at
TVS to 90% bar shapes. As the learning curve for the Company improves over the
first 18 months, fixed costs should decrease until, when TVS is producing at
full capacity of 250,000 tons, management believes that Bayou can convert
billets into bar shapes and rebar at TVS for less than the $40 per ton which is
competitive in the industry. If the Company increases capacity to 400,000 tons
at TVS, then there would be additional reduction in production cost per ton.
Approximately $6 million is expected to be spent on various capital projects in
the first 18 months to reduce costs, primarily staffing. Bayou plans to reduce
the workforce at TVS from the nearly 300 that previously worked at the mill to
under 100 within a year of operations. Bayou plans to add 40 employees to work
on its second furnace in La Place to supply billets to TVS. Bayou intends to
offer to hourly employees at TVS a competitive wage and benefit package which is
estimated to cost approximately $14 - $16 per hour. Additionally, Bayou intends
to supplement this compensation package with a productivity incentive plan which
would pay $3 to $4 per hour based upon specified production targets.
Bayou plans to ship billets via rail for an estimated $10 - $15 per ton.
Initially, extra labor and equipment is expected to be required at both TVS and
Bayou until rail spurs can be constructed into the existing billet bays. Bayou
plans to upgrade its dock and scrap handling through capital expenditure
projects and barge transportation will be reevaluated for total costs.
Bayou plans to put TVS's sales, inventory, cost control and operating systems on
the Company's existing systems.
18
